<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 March 31, 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: 000-22797
WESTERN SIERRA BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0390121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3350 COUNTRY CLUB DR. STE 202 95682
CAMERON PARK, CA. (Zip Code)
(Address of principal executive offices)
(Registrant's telephone number, including area code): (530) 677-5600
--------------------------------------
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
--------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, No Par Value: Shares outstanding (2,503,822)
at March 31, 2000
<PAGE>
WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
At March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statement of Changes in Shareholders' Equity
Three Months Ended March 31, 2000 and Year Ended December 31, 1999 5
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flow
Three Months Ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Items 2. through 6. 16
Signatures 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
WESTWERN SIERRA BANCORP and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31
ASSETS 2000 1999
------------------- --------------------
<S> <C> <C>
Cash and due from banks $ 15,974 $ 15,738
Interest-bearing deposits in other banks - 198
Federal funds sold 38,445 6,075
Loans held for sale 831 1,182
Trading securities 84 175
Available-for-sale investment securities 43,926 44,071
Held-to-maturity investment securities(market
value of $2,054 at March 31, 2000 and
$2,195 at December 31, 1999) 2,118 2,268
Loans
Gross loans 226,482 212,746
Allowance for loan losses (3,013) (2,886)
Unearned income (479) (515)
Premises and equipment, net 9,087 8,871
Other assets 10,080 11,337
------------------- --------------------
Total assets $343,535 $299,260
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $314,055 $265,417
Short-term borrowings 500 6,300
Other liabilities 2,785 2,038
------------------- --------------------
Total liabilities 317,340 273,755
------------------- --------------------
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: 2,503,822 shares
at March 31, 2000 and 2,515,192 shares at December 31, 1999 15,690 15,911
Retained earnings 12,349 11,534
Unearned ESOP shares (300) (300)
Accumulated other comprehensive loss (1,544) (1,640)
------------------- --------------------
Total shareholders' equity 26,195 25,505
------------------- --------------------
Total liabilities and
shareholders' equity $343,535 $299,260
=================== ====================
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
WESTERN SIERRA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Interest and fees on loans $5,039 $3,969
Interest and dividends on
investment securities:
Taxable interest 486 675
Non taxable interest 199 178
Other interest 222 210
--------------------------------------
Total interest income 5,946 5,032
--------------------------------------
Interest on deposits 2,272 1,848
Interest on short term borrowings 78 3
--------------------------------------
Total interest expense 2,350 1,851
--------------------------------------
Net interest income 3,596 3,181
Provision for loan losses 115 180
Net interest income after --------------------------------------
provision for loan losses 3,481 3,001
--------------------------------------
Other income
Service charges and fees 428 343
Other income 175 399
Other expenses
Salaries and benefits (1,526) (1,468)
Net occupancy expense (445) (533)
Other expenses (882) (865)
--------------------------------------
Income before income tax 1,231 877
Income taxes 416 285
--------------------------------------
Net income $ 815 $ 592
======================================
Earnings per share
Basic $0.32 $0.25
======================================
Diluted $0.32 $0.23
======================================
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
WESTERN SIERRA BANCORP and SUBSIDIARIES
STATEMENT of CHANGES in SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------------------- RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) TOTAL
-------- ------- --------- -------------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 2,326,966 $13,431 $10,384 $ 115 $23,930
Net income 2,805 2,805
Unrealized losses on available-for-sale investment
securities net of tax (1,755) (1,755)
Stock options exercised and related tax benefit 91,679 899 899
Stock dividend 120,691 1,634 (1,634) -
Repurchase and retirement of common shares (4,199) (53) (53)
Fractional shares (1,358) (21) (21)
Unearned ESOP shares (18,587) (300) (300)
-----------------------------------------------------------------------
Balance at December 31, 1999 2,515,192 15,611 11,534 (1,640) 25,505
Comprehensive income:
Net income 815 815
Unrealized gains on available-for-sale investment
securities net of tax 96 96
Stock options exercised and related tax benefit 11,965 110 110
Repurchase and retirement of common shares (23,335) -331 (331)
-----------------------------------------------------------------------
Balance at March 31, 2000 2,503,822 $15,390 $12,349 $(1,544) $26,195
=======================================================================
</TABLE>
WESTERN SIERRA BANCORP and SUBSIDIARIES
CONSOLIDATED STATEMENT of COMPREHENSIVE INCOME
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
Net income $815 $592
-------------------------------------
Othercomprehensive income (loss), before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains(losses) arising during period 146 (446)
Income tax benefit (expense) related to item of other comprehensive income -50 154
-------------------------------------
Other comprehensive income (loss), net of taxes 96 (292)
-------------------------------------
Comprehensive income $911 $300
=====================================
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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WESTERN SIERRA BANCORP and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------------------
2000 1999
------ ------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 815 $ 592
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan and lease losses 115 180
Depreciation and amortization 138 254
Deferred loan origination costs and fees, net (36) 21
Proceeds from sale of trading securities 91
Decrease in loans held for sale 351 1,523
Increase in accrued interest receivable and other assets 858 (199)
Increase in accrued interest payable and other liabilities 753 283
Net cash provided by operating ----------------- -----------------
activities 3,085 2,654
----------------- -----------------
Cash flows from investing activities:
Net decrease in interest bearing deposits in bank 198 1,187
Proceeds from matured available-for-sale investment securities 3
Proceeds from maturity of held-to-maturity investment securities 150
Principal payments received from available-for-sale SBA pools
and mortgage-backed securities 2,906 1,320
Principal payments received from held-to-maturity
mortgage-backed securities 2
Purchase of available for sale investment securities (2,618) (10,242)
Net increase in loans and leases (13,373) (12,721)
Purchase of premises and equipment (354)
Proceeds from sale of premises and equipment 269
Net cash used in investing ----------------- -----------------
activities (13,088) (20,185)
----------------- -----------------
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits 16,313 310
Net increase (decrease) in time deposits 32,325 (3,798)
Net decrease in short-term borrowings (5,800) (150)
Proceeds from exercise of stock options 101 298
Repurchase of common stock (330)
Net cash provided by (used in) financing ----------------- -----------------
activities 42,609 (3,340)
----------------- -----------------
</TABLE>
6
<PAGE>
<TABLE>
THREE MONTHS
ENDED
MARCH 31,
--------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and cash
equivalents 32,606 (20,871)
Cash and cash equivalents at beginning of period 21,813 46,265
----------- -----------
Cash and cash equivalents at end of period $54,419 $25,394
=========== ===========
</TABLE>
See notes to consolidated financial statements
7
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The financial information for Western Sierra Bancorp and
Subsidiaries (the Company) included herein 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, include 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 annual 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. Operating results for the three months are not necessarily
indicative of the results that may be expected for any other interim
period or for the year ending December 31, 2000.
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.
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. This Quarterly
Report should be read to put such forward looking statements in context
and to gain a more complete under standing of the risks and
uncertainties involved in the business of the Company.
(2) MERGERS
MERGER OF WESTERN SIERRA BANCORP AND SENTINEL COMMUNITY BANK
On December 27, 1999, the Boards of Directors of Western Sierra Bancorp
and Sentinel Community Bank approved a definitive merger agreement
between the two companies. Under the agreement, each share of Sentinel
Community Bank will be converted into the right to receive shares of
the Company's common stock. Sentinel Community Bank will be merged with
the Company's subsidiary, Western Sierra National Bank. The transaction
will be accounted for under the pooling-of-interests method of
accounting. It is expected that this merger will be accomplished in the
second quarter of 2000, subject to shareholder and regulatory approval.
8
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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MERGER OF WESTERN SIERRA NATIONAL BANK AND ROSEVILLE 1ST NATIONAL BANK The
Company intends to merge Roseville 1st National Bank into Western Sierra
National Bank. The merger is expected to be completed in the second quarter
of 2000. The Company received regulatory approval for the merger on May 5, 2000.
Item 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT 1955
Readers should note that in addition to the historical information contained
herein, this Form 10-QSB contains forward looking statements which are
inherently subject to risks and uncertainties that could cause actual results to
differ materially from those contemplated by such statements. Factors that could
cause or contribute to such differences include, but are not limited to those
disclosed in Part 1 as well as those disclosed in the Company's Annual Report
on Form 10-KSB.
INTRODUCTION
This discussion summarizes the significant factors affecting the consolidated
financial condition, results of operations, liquidity and cash flows for the
Company for the three months ended March 31, 2000 compared to the three months
ended March 31, 1999. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999.
FINANCIAL CONDITION
Total assets at March 31, 2000 were $343.5 million, an increase of $44.2
million, or 14.77%, over total assets of $299.3 million at December 31, 1999.
Loans, net of unearned fees, totaled $226.8 million, an increase of $13.4
million, or 6.28%, over the December 31, 1999 balance of $213.4 million. Federal
funds sold increased $32.4 million over the prior period balance of $6.1
million. These increases should be looked at in conjunction with the increase in
deposits of $48.6 million in the same period. The increase in deposits is a
direct result of a marketing campaign to attract new deposits. It is the opinion
of management that these new deposits will soon be used to fund an increased
loan portfolio. In the short term they have been invested in Federal funds sold.
Total shareholders' equity of $26.2 million was an increase of $0.69 million
over the balance at December 31, 1999 of $25.5 million. The increase in
equity is due to an increase in retained earnings of $0.81 million, the
exercise of stock options of $0.11 million and a decrease in the unrealized
loss on available-for-sale investment securities of $0.96 million offset by
the repurchase and retirement of small blocks of common stock totaling $0.33
million.
9
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999
EARNINGS SUMMARY
Net income was $0.815 million for the three-month period ended March 31, 2000,
an increase of $0.223 million or 37.7% over the reported earnings of $0.592
million for the same quarter in 1999. Fully diluted earnings per share of $0.31
for the quarter were up from the fully diluted earnings per share of $0.23 in
the year earlier period.
Factors contributing to the improved operating results included continued loan
growth, an increase in net interest rate spread, a reduction in the provision
for loan losses and improved operating efficiency.
Gross interest income on a fully tax-equivalent basis was up $0.922 million due
to higher quarter-over- quarter volume of earning assets. Net interest income
grew by $0.423 million, or 13%, to $3.666 million on a fully tax equivalent
basis. Interest expense increased during the same period by $0.499 million. Some
of the increase can be attributed to the overall increase in rates both charged
and paid due to the actions of the Market Committee of the Federal Reserve. Most
of the increase is due to the increase in the deposit base and an overall
increase in loan volume and a migration from lower paying investment securities
into loans.
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 period end.
The addition to the reserve was $0.115 million this quarter compared to $0.180
million for the same quarter the prior year. It is the opinion of management
that this lower provision for the quarter is justified by an overall increase in
the loan portfolio quality.
NONINTEREST INCOME
Service charges and fees increased by $0.085 million due primarily to the
increase in loan volume. However, non-interest income in total decreased by$139
thousand due to the sharp decrease in demand for mortgage loans, and subsequent
loan sales, due to the increase in the rates charged for mortgages.
NON-INTEREST EXPENSE
Non-interest expenses decreased slightly, $0.013 million, due to improvements in
operating efficiency. It is the opinion of management that further reductions
will be realized in the future as the economics of scale resulting from the
mergers are more fully realized.
The following table provides a summary of the major elements of income and
expense for the first quarters of 2000 and 1999, respectfully. Interest on
tax-free securities is reported on a tax equivalent basis that assumes a 35%
Federal tax rate.
10
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------
2000 1999
(in thousands) --------------- --------------
<S> <C> <C>
Interest income $5,946 $5,032
Tax-equivalent adjustment 70 62
--------------------------------
Tax-equivalent interest income 6,016 5,094
Interest expense (2,350) (1,851)
--------------------------------
Net tax-equivalent interest income 3,666 3,243
Provision for loan losses (115) (180)
Non-interest income 603 742
Non-interest expense (2,853) (2,866)
--------------------------------
Income before taxes 1,301 939
Income taxes (416) (285)
Tax-equivalent adjustment (70) (62)
--------------------------------
Net income after taxes $815 $592
================================
Earnings per share:
Basic $0.32 $0.25
diluted $0.32 $0.23
</TABLE>
The following table details the computations of earnings per share.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------- -------------
<S> <C> <C>
Numerators for both basic and diluted earnings per share
net income (in thousands) $815 $592
============================
Denominators:
Denominators for basic earnings per share,
average outstanding common shares 2,513,150 2,344,513
Dilutive effect of stock options 41,931 113,758
----------------------------
Denominator for diluted earnings per share 2,551,081 2,458,271
============================
Earnings per share:
Basic $0.32 $0.25
Diluted $0.32 $0.23
</TABLE>
11
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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Net interest income represents the excess of interest and fees earned on
interest-earning assets over the interest paid on deposits and borrowed funds.
Net interest is a significant component in the measurement of a bank's
performance. Data used in the analysis of net interest income is derived from
the daily average levels of earnings assets and interest bearing deposits as
well as from the related income and expenses. Net interest income has been
modified to a tax equivalent basis using 35% as the Federal tax rate. The
primary factors that affect net interest income are the changes in volume and
mix of earning assets and interest-bearing liabilities, along with the change in
market rates.
Net interest income (on a tax equivalent basis) increased $423 thousand over the
first quarter of the prior year. The net interest spread remains 4.3+%from
period to period. The interest margin is consistent at 5.2+%.
The company's average balances on interest earning assets and interest bearing
liabilities, interest income and expense and rates earned or paid are set forth
in the following table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
AVERAGE PERCENT OF INTEREST YIELD/
BALANCE TOTAL ASSETS INCOME/EXPENSE RATE
------- ------------ -------------- ----
EARNING ASSETS
- --------------
<S> <C> <C> <C> <C>
Loans $217,507 70.02% $5,039 9.27%
Taxable investment in debt securities 30,631 9.86% 468 6.11%
Non-taxable investment in debt securities* 14,274 4.60% 269 7.54%
Federal funds sold 15,316 4.93% 222 5.80%
Interest earning deposits 70 0.02% 1 5.71%
Equity investments 1,357 0.44% 17 5.01%
-----------------------------------------------------------
-----------------------------------------------------------
Total earning assets 279,155 89.87% 6,016 8.62%
-----------------------------------------------------------
*
INTEREST BEARING LIABILITIES
- -----------------------------
Transaction accounts 25,135 8.09% 77 1.23%
Money market 30,906 9.95% 278 3.60%
Savings 20,832 6.71% 103 1.98%
Certificates of deposit 138,623 44.62% 1,815 5.24%
Short term notes payable 646 0.21% 6 3.72%
Federal funds borrowed 4,714 1.52% 71 6.02%
-----------------------------------------------------------
Total interest bearing liabilities $220,856 71.10% 2,350 4.26%
-----------------------------------------------------------
Net interest income $3,666
===================
Net interest spread * 4.36%
-------------
Net interest margin 5.25%
-------------
</TABLE>
* Includes a tax equivalent adjustment to
interest of $70 for Federal tax
12
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,1999
-------------------------------------------------------------------
AVERAGE PERCENT OF INTEREST YIELD/
BALANCE TOTAL ASSETS INCOME/EXPENSE RATE
------- ------------ -------------- ----
EARNING ASSETS
- --------------
<S> <C> <C> <C> <C>
Loans $171,177 62.65% $3,969 9.00%
Taxable investment in debt securities 38,364 14.04% 612 6.00%
Non-taxable investment in debt securities** 16,111 5.90% 240 6.00%
Federal funds sold 18,034 6.60% 210 5.00%
Interest earning deposits 3,396 1.24% 52 6.00%
Equity investments 868 0.32% 11 5.00%
---------- ---------
Total earning assets $247,950 90.75% 5,094** 8.22%
========== ---------
INTEREST-BEARING LIABILITIES
- -----------------------------
Transaction accounts $ 22,558 8.25% 80 1.42%
Money market 28,057 10.27% 238 3.39%
Savings 21,156 7.74% 105 1.99%
Certificates of deposit 119,793 43.84% 1,428 4.77%
Short term notes payable
Federal funds borrowed
---------- ---------
Total-interest bearing liabilities $191,564 70.10% $1,851 3.87%
========== ---------
Net interest income $3,243
========
Net interest spread 4.35%
=========
Net interest margin 5.23%
=========
</TABLE>
** Includes a tax equivalent adjustment to
interest of $62 for Federal tax
The Company charges provisions for loan losses to earnings to maintain the total
allowance for loan losses at a level management considers adequate to provide
for probable loan losses, based on prior experience. The Company established a
provision for loan losses of $115 thousand for the quarter ended March
31, 2000, as compared to $180 thousand for the quarter ended March 31, 1999,
representing a decrease of $65 thousand. Loan charge offs for the three months
ended March 31,2000 were $21 thousand as compared to $8 thousand for the three
months ended March 31, 1999. Loan recoveries were $34 thousand for the three
months ended March 31, 2000 compared to $32 thousand for the three months ended
March 31, 1999. Loans on non-accrual status were $821 thousand on March 31, 2000
compared to a total of $1,585 thousand at March 31, 1999, a reduction of $764
thousand. The Company has no foreign loans and therefore none of the allowance
is for foreign loans. In establishing these provisions, management considered an
analysis of the risks inherent in the loan portfolio.
13
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
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ASSET/LIABILITY MANAGEMENT
The Company's bank subsidiaries have a 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 investments available for
sale. In addition, the subsidiary banks maintain lines of credit with several
correspondent banks and a line at the Federal Reserve. At December 31, 1999,
the subsidiary banks had $6.3 million outstanding on these lines. At March
31,2000 these advances had been repaid. On January 30,2000 the Company
entered into an agreement with a director to establish a line of credit with
a fixed interest rate of 8% and maturity date of February 1, 2001. Advances
on the line at March 31, 2000 totaled $500 thousand.
The subsidiary banks are subject to various capital requirements administered by
the federal banking agencies. Under capital adequacy guidelines and the
regulatory framework for prompt and corrective action, the subsidiary banks must
meet specific capital guidelines that involve qualitative measures of the
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital accounts and classifications are
also subject to qualitative judgements by the regulators about components, risk
weighting and other factors. By all the various measures, the Company and its
subsidiaries are considered well capitalized.
YEAR 2000
The Company and its subsidiary banks conducted and completed an extensive
program to address the internal and external risks associated with the date
change to year 2000. The date change caused no significant disruptions. However,
it is subject to unique risks and uncertainties due to the interdependencies in
business and financial markets, and numerous activities and events outside of
its control.
FINANCIAL MODERNIZATION LEGISLATION
On November 12,1999, the Gramm-Leach-Baily act of 1999 ("the Act") was signed
into law. "The Act":
1. Allows bank holding companies meeting management, capital and CRA
standards, and receiving the prior approval of the Federal Reserve, to
engage in a substantially broader range of financial activities and
activities incidental to financial activities than was previously
permissible.
2. Allows insurers and other financial services companies to acquire banks.
3. Removes various restrictions previously applied to bank holding company
ownership of securities firms and mutual fund advisory companies
4. Established the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
5. Bank holding companies approved for the broader range of activities are
called "financial holding companies."
"The Act" also modified laws relating to financial privacy and community
reinvestment. The new financial privacy provisions generally prohibit
financial institutions from disclosing nonpublic personal financial
information to third parties unless customers have the opportunity to "op out"
of the disclosure.
The Company does not have any current plans to become a "financial services
company".
14
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WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
------------------------------------------------------------------
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE REGUARDING
MARKET RISK
The Company's bank subsidiaries periodically perform asset/liability analysis
to assess their 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.
15
<PAGE>
WESTERN SIERRA BANCORP AND SUBSIDIARIES FORM 10-QSB MARCH 31, 2000
------------------------------------------------------------------
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. 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 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
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
- --------------------------------------------------------------------------------
Gary Gall
President and
Chief Executive Officer
/s/ Lesa Fynes
- --------------------------------------------------------------------------------
Lesa Fynes
Chief Financial Officer
16
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,974
<INT-BEARING-DEPOSITS> 0
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0
0
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