<PAGE>
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 000-25979
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)
3350 COUNTRY CLUB DRIVE, SUITE 202, 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 /X/
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 3,212,384 shares at June 30, 2000.
<PAGE>
WESTERN SIERRA BANCORP
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000, December 31, 1999 2
Consolidated Statements of Income - Three and Six Months
Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 2000 and 1999 4-5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition 9-17
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WESTERN SIERRA BANCORP
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
(UNAUDITED) (AUDITED)
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 22,137 $ 20,400
Federal funds sold 41,175 6,675
Interest bearing deposits in banks 693 891
Loans held for sale 1,790 964
Trading securities 4 175
Available-for-sale investment securities 57,739 55,944
Held-to-maturity investment securities
(market value of $12,510 in 2000 and
$ 14,014 in 1999) 12,865 14,205
Loans and leases, less allowance for loan and
lease losses of $4,002 in 2000 and $3,794 297,872 270,562
in 1999 (Note B)
Other real estate, net 504 715
Bank premises and equipment, net 10,261 9,971
Accrued interest receivable and other assets 12,548 11,381
--------- ---------
$457,588 $391,883
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 88,005 $ 71,594
Interest bearing 325,489 271,594
--------- ---------
Total deposits 413,494 343,184
Short-term borrowings 8,600 15,300
Accrued interest payable and other liabilities 3,425 2,484
--------- ---------
Total liabilities 425,519 360,968
--------- ---------
Shareholders' equity:
Preferred stock - no par value; 10,000,000
shares authorized; none issued - -
Common stock - no par value; 10,000,000
shares authorized; issued and outstanding - 18,537 18,812
3,242,317 shares in 2000 and 3,236,134
shares in 1999
Retained earnings 15,723 14,341
Unearned ESOP shares (500) (300)
Accumulated other comprehensive loss (1,691) (1,938)
Total shareholders' equity 32,069 30,915
--------- ---------
$457,588 $391,883
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WESTERN SIERRA BANCORP (Continued)
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and
leases $ 7,159 $ 5,509 $ 13,480 $ 10,708
Interest on investment securities:
Taxable 942 1,013 1,778 2,069
Exempt from Federal income
taxes 193 203 417 412
Interest on Federal funds sold 198 233 428 501
---------- ---------- ---------- ----------
Total interest income 8,492 6,958 16,103 13,690
Interest expense on deposits (3,537) (2,538) (6,458) 5,123
Interest on short-term borrowings (111) (94) (294) 175
---------- ---------- ---------- ----------
Net interest income 4,844 4,326 9,351 8,392
Provision for loan and lease losses (180) (185) (340) (440)
(Note B) ---------- ---------- ---------- ----------
Net interest income after
provision for loan and
lease losses 4,664 4,141 9,011 7,952
---------- ---------- ---------- ----------
Non-interest income:
Service charges and fees 615 461 1,211 930
Gain on sale of loans
Other Income 196 396 393 849
---------- ---------- ---------- ----------
Total non-interest income 811 857 1,604 1,779
---------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits 2,082 1,724 3,992 3,579
Occupancy and equipment 593 489 1,192 1,178
Merger and acquisition costs 899 110 899 110
Other 1,110 1,577 2,283 2,653
---------- ---------- ---------- ----------
Total other expenses 4,684 3,900 8,366 7,520
---------- ---------- ---------- ----------
Income before income taxes 791 1,098 2,249 2,211
Income taxes (247) (372) (730) (735)
---------- ---------- ---------- ----------
Net income $ 544 $ 726 $ 1,519 $ 1,476
========== ========== ========== ==========
Basic earnings per share $ 0.17 0.23 0.47 0.46
Basic core earnings per share $ 0.353 0.250 0.654 0.486
Weighted average shares of common stock 3,249,328 3,202,103 3,244,335 3,188,447
Diluted earnings per share $ 0.16 0.22 0.46 0.44
Diluted core earnings per share $ 0.346 0.239 0.639 0.464
Weighted average shares of common stock
and common stock equivalents 3,312,749 3,343,498 3,316,825 3,339,629
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WESTERN SIERRA BANCORP (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
(IN THOUSANDS) JUNE 30, JUNE 30,
2000 1999
(8)
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,519 $ 1,476
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan and lease losses 340 440
Depreciation and amortization 221 626
Deferred loan origination costs and fees, net (2) 83
Proceeds from sale of trading securities 171 18
Gain (loss) on sale of available for sale securities (65)
Gain on sale of other real estate
Provision for losses on other real estate 19 14
(Increase) decrease in loans held for sale (826) 2,726
Increase in accrued interest receivable and other
assets (860) (2,438)
Increase (decrease) in accrued interest payable and
other liabilities 941 (416)
--------- ---------
Net cash provided by operating
activities 1,999 2,464
--------- ---------
Cash flows from investing activities:
Net decrease in interest-bearing deposits
in bank 198 2,966
Proceeds from the sale and call of available-for-sale
investment securities 669 6,751
Proceeds from matured available-for-sale investment
securities 3,100
Purchases of available-for-sale investment securities (5,864) (5,892)
Purchases of held-to-maturity investment securities (1,499)
Procees from matured held-to-maturity investment securities 150
Principal repayments received from available-for-sale
SBA pools and mortgage-backed securities 3,281 2,514
Principal repayments received from held-to-maturity
mortgage-backed securities 1,092 713
Net (increase) decrease in loans and leases (27,853) (27,964)
Proceeds from sale of other real estate
Purchases of premises and equipment (813) (179)
--------- ---------
Net cash used in investing
Activities (28,734) (19,490)
--------- ---------
</TABLE>
(Continued)
4
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WESTERN SIERRA BANCORP (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
(IN THOUSANDS) 2000 1999
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings
deposits $ 32,611 $ 2,276
Net increase (decrease) increase in time deposits 37,699 (8,382)
Net increase (decrease) in short-term borrowings (6,700) 2,850
Proceeds from ESOP loan (200) 304
Proceeds from the exercise of stock options 142 342
Payment of cash dividends (164) (150)
Payment for fractional shares (26)
Reacquisition of common stock (416) 0
-------- --------
Net cash provided by (used in) financing
activities 62,972 (2,786)
======== ========
Increase (decrease) in cash and cash
equivalents 36,237 (19,812)
Cash and cash equivalents at beginning of period 27,075 54,410
-------- --------
Cash and cash equivalents at end of period $ 63,312 $ 34,598
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WESTERN SIERRA BANCORP (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The financial information for Western Sierra Bancorp and Subsidiaries (the
"Company") included in this document is unaudited (although the December 31,
1999 information is derived from audited financial statements) but has been
prepared in accordance with generally accepted accounting principles for interim
financial statements and the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, includes all
adjustments (normal recurring entries only) necessary for a fair presentation of
results for such interim periods. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with SEC rules
and regulations. These statements should therefore be read in conjunction with
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
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-interests method of accounting. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the business combinations.
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 change
include, but are not limited to, risks from changes in economic/monetary policy;
changes in interest rates, both paid and received; inflation or deflation; risks
inherent in making loans; growth of loans and other assets; adequacy of
allowance of loan losses and value of collateral; assessment of problem loans;
fluctuations in consumer spending; demand for other bank products and services;
dependence on senior management; technology changes; ability to increase market
share; expense projections; system systems conversion costs; acquisition costs
and other uncertainties associated with the proposed acquisition of Sentinel
Community Bank; changes in accounting policies and practices; costs and effects
of litigation and other uncertainties.
NOTE B - LOANS AND LEASES
Outstanding loans and leases are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 2000 1999
-------- -------------
<S> <C> <C>
Commercial $ 39,909 $ 51,206
Real estate - mortgage 203,396 157,368
Real estate - construction 43,610 41,758
Lease financing 1,548 1,763
Installment 6,761 7,679
Agricultural 7,436 15,370
-------- --------
302,660 275,144
-------- --------
Deferred loan and lease origination fees and costs, net (786) (788)
Allowance for loan and lease losses (4,002) (3,794)
-------- --------
$297,872 $ 270,562
======== =========
</TABLE>
6
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WESTERN SIERRA BANCORP (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE B - LOANS AND LEASES (Continued)
Changes in the allowance for loan and lease losses were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Month Periods Ended
June 30, June 30,
(In thousands) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of year $ 3,927 $ 3,265 $ 3,793 $ 2,987
Provision charged to 180 185 340 440
operations
Losses charged to allowance (129) (163) (189) (206)
Recoveries 24 0 58 66
--------- --------- --------- ---------
$ 4,002 $ 3,287 $ 4,002 $ 3,287
========= ========= ========= =========
</TABLE>
NOTE C - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations is as follows:
<TABLE>
<CAPTION>
(In thousands except for per
share information)
Weighted
Average
Number of
For the Three Month Net Shares Per Share
Periods Ended Income Outstanding Amount
-------------------- ----------- ------------ ----------
<S> <C> <C> <C>
JUNE 30, 2000
Basic earnings per share $ 544 3,249,328 $ 0.17
=========
Effect of dilutive stock options 63,421
------- -----------
Diluted earnings per share $ 544 3,312,749 $ 0.16
======= ============ =========
JUNE 30, 1999
Basic earnings per share $ 726 3,202,103 $ 0.23
==========
Effect of dilutive stock options 141,395
------- ------------
Diluted earnings per share $ 726 3,343,498 $ 0.22
======= ============ ==========
</TABLE>
7
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WESTERN SIERRA BANCORP (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE C - EARNINGS PER SHARE (Continued)
<TABLE>
<CAPTION>
(In thousands, except for
per share information)
Weighted
Average
Number of
For the Six Month Net Shares Per Share
Periods Ended Income Outstanding Amount
-------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
JUNE 30, 2000
Basic earnings per share $1,519 3,244,335 $0.47
======
Effect of dilutive stock options 72,490
----------- ----------- ------
Diluted earnings per share $1,519 3,316,825 $0.46
=========== =========== ======
JUNE 30, 1999
Basic earnings per share $1,476 3,188,447 $0.46
======
Effect of dilutive stock options 151,182
----------- -----------
Diluted earnings per share $1,476 3,339,629 $0.44
=========== =========== ======
</TABLE>
NOTE D - 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 (loss) income follows:
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
June 30, June 30,
(In thousands) 2000 1999
------- -------
<S> <C> <C>
Net income $ 544 $ 726
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities 247 (1,140)
------- -------
Total comprehensive income $ 791 $ (414)
======= =======
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
June 30, June 30,
2000 1999
------- -------
<S> <C> <C>
Net income $ 1,519 $ 1,476
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities 111 (893)
------- -------
Total comprehensive (loss) income $ 1,630 $ 583
======= =======
</TABLE>
8
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WESTERN SIERRA BANCORP (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
NOTE E - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which was
subsequently amended by SFAS 137 to delay the effective date of SFAS 133 to
fiscal quarters of fiscal years beginning after June 15, 2000. 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 recognized all derivatives as
either assets or liabilities on 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.
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 10-QSB 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, variances in actual versus projected growth, changes in rates
charged on interest-earning assets and interest-paying liabilities, credit
quality and effects of competition. Therefore, the information set forth
therein should be carefully considered when evaluating the business prospects
of the Company.
FINANCIAL CONDITION
Total assets increased by 16.76% to $457.6 million at June 30, 2000, from
$391.9 million at December 31, 1999. Total deposits increased by 20.48% to
$413.5 million at June 30, 2000 from $343.2 million at December 31, 1999.
This increase in deposits resulted in the corresponding increase in total
assets. The Company's total assets increased 65.7 million or 16.76% from
$391.9 million at Dec. 31, 1999 to 457.6 at June 30, 2000. This increase is
primarily invested in a $34.5 million increase in Federal Funds sold and a
$27.3 million increase in the net loan portfolio. The majority of the
increases are directly attributable to efforts of Management to increase
investment and lending activity. _During the same period, deposits increased
$70.3 million or 20.48% from $343.2 million at Dec. 31, 1999 to $413.4
million at June 30, 2000. This increase is primarily due to an increase in
the company's volume of time deposits which totaled $201 million at June 30,
2000 compared to $136 million at December 31, 1999, a $35 million increase.
Advances from the FHLB decreased 1.3 million from $9 million at Dec. 31, 1999
to $7.7 million at June 30, 2000. During the same period Federal funds
purchased decreased from $6 million to zero. The Company had $1.691 million
and $1.938 million in unrealized losses (net of deferred tax benefits) at
June 30, 2000 and Dec. 31, 1999, respectively from market gains on the
company's equity securities offset by market losses on the company's
available-for-sale investment and mortgage-backed portfolios.
Net loans totaled $297.9 million at June 30, 2000, representing a 73.20% loan
to deposit ratio, compared to net loans of $270.6 million at December 31,
1999, representing a 80.17% loan to deposit ratio. The decrease in loan to
deposit ratio is due primarily to the rapid increases in deposits. This
deposit growth is temporarily invested in Federal Funds sold. Management
expects loans to grow during the remainder of 2000. In management's opinion,
the allowance for loan losses, totaling $4.0 million at June 30, 2000
adequately provides for possible loan losses. This allowance represents 1.32%
of gross loans outstanding at the end of the second quarter.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000
NET INTEREST INCOME
9
<PAGE>
Interest income increased 22.05% to $8,492 thousand for the quarter ended
June 30, 2000 from $6,958 thousand for the quarter ended June 30, 1999. The
increased interest income on loans and investments was primarily due to an
increase in the average amount of Federal funds sold and an increase in the
interest rates realized on loans as a result of changes in market conditions
during the quarter ending June 30, 2000 as compared to the quarter ended June
30, 1999.
Interest expense increased 38.60% to $3,648 thousand for the quarter ended
June 30, 2000 from $2,632 thousand for the quarter ended June 30, 1999. The
increase in interest expense was the result of the increase in interest
bearing deposits and an overall increase in interest rates throughout the
economy.
10
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Continued)
WESTERN SIERRA BANCORP (Continued)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 (Continued)
NET INTEREST INCOME (Continued)
The following table sets forth, on a tax-equivalent basis, certain
information relating to the Company's average balance sheet and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the
three month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
------------------------------------- -------------------------------------
Average Income/ Yield Average Income/ Yield
(In thousands) Balance Expense Rate Balance Expense Rate
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Commercial loans (1) $ 48,471 $ 1,084 8.96% $ 44,807 $ 1,336 11.93%
Real estate loans (1) 228,807 5,920 10.36 181,851 3,670 8.07
Installment loans (1) 7,672 142 7.40 5,671 143 10.09
-------- -------- -------- -------- -------- --------
Sub-total loans 284.949 7,146 10.03 232,329 5,149 8.87
Federal funds sold 21,316 198 3.72 23,358 233 3.99
Investments (2) 69,685 1,230 7.06 109,453 1,314 4.85
-------- -------- -------- -------- -------- --------
Total earning assets 375,951 8,574 9.12 364,140 6,696 7.36
-------- --------
Less: allowance for loan (3,877) (2,622)
Losses
Cash and due from banks 17,459 17,367
Premises and equipment,
net 8,761 9,075
Accrued interest receivable
and other assets 9,978 32,921
-------- --------
Total assets $408,272 $420,881
======== ========
</TABLE>
11
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
WESTERN SIERRA BANCORP (Continued)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 (Continued)
NET INTEREST INCOME (Continued)
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
---------------------------------------- ---------------------------------------
AVERAGE INCOME/ YIELD AVERAGE INCOME/ YIELD
(In thousands) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------- ------------- --------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand
deposits $293,615 $ 3,537 4.82 $292,509 $ 2,538 3.47
Savings accounts
Time deposits
Other short-term
borrowings 7,175 111 6.19 7,875 94 4.77
-------- --------- ------- --------- ---------
Total interest-
bearing
liabilities 300,790 3,648 300,384 2,632
-------- ----------
Non-interest bearing
deposits
Other liabilities 78,428 92,385
-------- ----------
Total liabilities 379,218 392,769
-------- ----------
Common stock 13,400 14,171
Retained earnings 17,527 15,163
Accumulated other
comprehensive (loss) income (1,873) (222)
-------- ----------
Total shareholders'
equity 29,054 29,112
-------- ----------
Total liabilities and
shareholders'
equity $408,272 $ 421,881
======== =========
Net interest income $ 4,926 $ 4,064
========= ========
Interest income as a per-
centage of average
earning assets 9.12 7.36
Interest expense as a
percentage of average
earning assets 3.88 2.89
Net yield on average
earning assets (net
interest margin) 5.24 4.46
</TABLE>
12
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
WESTERN SIERRA BANCORP (Continued)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 (Continued)
NET INTEREST INCOME (Continued)
(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a nonaccrual
basis.
(2) Applicable nontaxable yields have not been calculated on a
taxable-equivalent basis, based on a 40% average tax rate.
NON-INTEREST INCOME AND EXPENSES
Non-interest income decreased 5.37% to $811 thousand for the quarter ended
June 30, 2000 from $857 thousand for the quarter ended June 30, 1999. This
decrease was due to a decrease in the gains on the sale of loans and fees on
the packaging of loans by the mortgage department.
The allocation to the Provision for Loan Losses for the second quarter of 2000
was $180 thousand as compared to an allocation of $185 thousand for the second
quarter of 1999.
Other expenses increased 20.10% to $4,684 thousand for the quarter ended June
30, 2000 from $3,900 thousand for the quarter ended June 30, 1999. These
expenses represent the operational and administrative expenses of the
Company. In addition to normal recurring expenses, the second quarter of 2000
included $899 thousand in non-recurring merger related costs. The prior year
quarter ended June 30, 1999 included $110 thousand in these types of costs.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
NET INTEREST INCOME
Interest income increased 17.63% to $16,103 thousand for the six months ended
June 30, 2000 from $13,690 thousand for the six months ended June 30, 1999. The
increased interest income on loans and investments was primarily due to a change
in the mix of the investment securities to loans and (see attached).
Interest expense increased 27.44% to $6,752 thousand for the six months ended
June 30, 2000 from $5,298 thousand for the six months ended June 30, 1999. The
increase in interest expense was the result of the increase in interest bearing
accounts and certificates of deposits in 2000 over the same period in 1999.
13
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
WESTERN SIERRA BANCORP (Continued)
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Continued)
NET INTEREST INCOME (Continued)
The following table sets forth, on a tax-equivalent basis, certain information
relating to the Company's average balance sheet and reflects the average yield
earned on interest-earning assets, the average cost of interest-bearing
liabilities and the resulting net interest income for the six month periods
ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---------------------------------------- ---------------------------------------
AVERAGE INCOME YIELD AVERAGE INCOME/ YIELD
(In thousands) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------- ------------- --------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Commercial loans (1) $ 46,681 $ 2,236 9.58% $ 44,494 $ 2,673 12.02%
Real estate loans (1) 232,323 10,779 9.28 183,402 7,128 7.77
Installment loans (1) 7,611 281 7.38 5,563 289 10.39
--------- ------- ----- -------- -------- -----
Sub-total loans 286,615 13,296 9.28 233,459 10,090 8.64
Federal funds sold 26,353 428 3.25 23,941 501 4.19
Investments (2) 69,788 2,399 6.88 109,261 2,683 4.91
--------- ------- ----- -------- -------- -----
Total earning assets 382,756 16,123 8.42 366,661 13,274 7.24
-------- --------
Less: allowance for loan
Losses (3,872) (3,131)
Cash and due from banks 15,941 17,467
Premises and equipment,
net 8,770 8,614
Accrued interest receivable
and other assets 13,039 31,795
--------- --------
Total assets $416,634 $421,406
========= ========
</TABLE>
14
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
WESTERN SIERRA BANCORP (Continued)
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Continued)
NET INTEREST INCOME (Continued)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---------------------------------------- ---------------------------------------
Average Income/ Yield Average Income/ Yield
(In thousands) Balance Expense Rate Balance Expense Rate
------------- ------------- --------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand
deposits $301,614 $ 6,458 4.28 $291,995 $ 5,123 3.51
Savings accounts
Time deposits
Other short-term
borrowings 7,462 294 7.88 6,937 175 5.05
-------- -------- -------- -------- -------- --------
Total interest-
bearing
liabilities 309,076 6,752 4.37 298,932 5,298 3.54
-------- -------- -------- -------- -------- --------
Other liabilities 78,260 93,309
-------- --------
Total liabilities 387,336 392,241
-------- --------
Common stock 13,503 14,172
Retained earnings 17,667 15,220
Accumulated other com-
prehensive (loss) income (1,872) (227)
-------- --------
Total shareholders'
equity 29,298 29,165
-------- --------
Total liabilities and
shareholders'
equity $416,634 $421,406
========= ========
Net interest income $ 9,371 $ 7,976
======== =======
Interest income as a per-
centage of average
earning assets 8.42 7.24
Interest expense as a
percentage of average
earning assets 3.53 2.89
Net yield on average
earning assets (net
interest margin) 4.90 4.35
</TABLE>
15
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
WESTERN SIERRA BANCORP (Continued)
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Continued)
NET INTEREST INCOME (Continued)
(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a nonaccrual
basis.
(2) Applicable nontaxable yields have been calculated on a taxable-equivalent
basis, based on a 40% average tax rate.
NON-INTEREST INCOME AND EXPENSES
Non-interest income decreased 10% to $1,604 thousand for the six months ended
June 30, 2000 from $1,779 thousand for the six months ended June 30, 1999.
This increase was due to a decrease in the gains on the sale of loans and
fees on the packaging of loans by the mortgage department.
The allocation to the Provision for Loan Losses for the first six months of 2000
was $340 thousand as compared to an allocation of $440 thousand for the first
six months of 1999. Net losses for the six months ended June 30, 2000 totaled
$131 thousand as compared to net losses which totaled $140 thousand for the same
period in 1999.
Other expenses increased 11.25% to $8,366 thousand for the six months ended June
30, 2000 from $7,520 thousand for the six months ended June 30, 1999. These
expenses represent the operational and administrative expenses of the company
and include the aforementioned non-recurring merger related expenses.
Net income for the six months ended June 30, 2000 totaled $1,519 thousand as
compared to net income of $1,476 thousand for the six months ended June 30,
1999.
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 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 bank subsidiaries maintain lines of
credit with several correspondent banks and lines of credit with the Federal
Reserve Bank and the Federal Home Loan Bank. At June 30, 2000 the bank
subsidiaries had a $8.6 million in short-term borrowings compared to a $15.3
million balance at December 31, 1999. It is the Company's intention to use
some of its deposit growth to retire this debt.
CAPITAL RESOURCES
Total shareholders equity increased to $32.1 million at June 30, 2000 from
$30.9 million at December 31, 1999. The change was primarily due to net
income of $1,519 thousand during the six month period and a change in the
effect of the unrealized loss on available for sale securities of $247
thousand.
The Company's 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 corrective action,
each bank subsidiary must meet specific capital guidelines that involve
quantitative measures of 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.
16
<PAGE>
PART 1 - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
WESTERN SIERRA BANCORP (Continued)
CAPITAL RESOURCES (Continued)
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established the following capital levels for determining that a bank meets the
highest capital standards and is determined to be a "well capitalized"
institution:
<TABLE>
<CAPTION>
June 30, June 30, December 31,
2000 1999 1999
--------- --------- -----------
<S> <C> <C> <C>
Total Risk-Based Capital Ratio
Regulatory Requirement 10.00% 10.00% 10.00%
Western Sierra Bancorp 11.65% 11.09% 12.20%
Tier 1 Risk-Based Capital Ratio
Regulatory Requirement 6.00% 6.00% 6.00%
Western Sierra Bancorp 10.42% 10.03% 11.00%
Leverage Ratio
Regulatory Requirement 6.00% 6.00% 6.00%
Western Sierra Bancorp 8.33% 7.62% 8.50%
</TABLE>
The Company and its bank subsidiaries meet all the regulatory capital
requirements of a "well capitalized" institution.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK
The Company's bank subsidiaries periodically perform asset/liability analysis to
assess the sensitivity to changing market conditions. The following information
is extracted from the Form 10-KSB filed with the Securities and Exchange
Commission effective December 31, 1999.
Market risk is the risk of loss from adverse changes in market price and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its loan and deposit functions and management activity monitors and manages this
inherent risk exposure. The Company does not have any market risk sensitive
instruments entered into for trading purposes. Management uses several different
tools to monitor its interest risk rate. One measure of exposure to interest
rate risk is gap analysis. A positive gap for a given period means that the
amount of interest-bearing assets maturing or otherwise repricing within such
period is greater than the amount of interest-bearing liabilities maturing or
otherwise repricing within the same period. The Company has a positive gap. In
addition, interest shock simulations are used to estimate the effect of certain
hypothetical rate changes. Based on these shock simulations, net interest income
is expected to rise with increasing rates and fall with declining rates.
The Company's positive gap is the result of the fact that the majority of its
investments have terms greater than five years on the asset side. On the
liability side, the majority of time deposits have average terms of
approximately six months, while savings accounts and other interest-bearing
transaction accounts have no contractual maturity date.
Taking into consideration that savings accounts and other interest-bearing
transaction accounts typically do not react immediately to changes in interest
rates, management has added loans tied to indices, which change at a slower rate
than prime and more closely match liabilities. In addition, most of the
investments are held in the available-for-sale category in order to be able to
react to changes in interest rates.
There have not been any significant changes in the risk management profile since
December 31, 1999. See the Form 10-KSB filed effective that date for more
specific information.
17
<PAGE>
PART II - OTHER INFORMATION
WESTERN SIERRA BANCORP (Continued)
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 AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 27. Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports have been filed on Form 8-K during this quarter.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000.
WESTERN SIERRA BANCORP
/s/ GARY GALL
-----------------------------
Gary Gall
President and
Chief Executive Officer
/s/ LESA FYNES
-----------------------------
Lesa Fynes
Chief Financial Officer
19
