<PAGE>
UNITED STATES
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 SEPTEMBER 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 / /.
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 3,443,296 shares at November 13, 2001.
-----------
<PAGE>
WESTERN SIERRA BANCORP
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION -----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000, December 31, 1999 2
Consolidated Statements of Income - Three and Nine Months
Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999 4-5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15-16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WESTERN SIERRA BANCORP
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,447 $ 20,400
Federal funds sold 25,250 6,675
Interest bearing deposits in banks 693 891
Loans held for sale 3,418 964
Trading securities 12 175
Available-for-sale investment securities 63,712 55,944
Held-to-maturity investment securities (market value of
$11,652 in 2000 and $14,014 in 1999) 11,726 14,205
Loans and leases, less allowance for loan and
lease losses of $4,153 in 2000 and $3,794 in 1999
(Note C) 299,428 270,562
Other real estate, net 206 715
Bank premises and equipment, net 11,353 9,971
Accrued interest receivable and other assets 12,825 11,381
--------- ---------
$ 450,070 $ 391,883
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 86,189 $ 71,594
Interest bearing 325,031 271,590
--------- ---------
Total deposits 411,220 343,184
Short-term borrowings 1,900 15,300
Accrued interest payable and other liabilities 2,846 2,484
--------- ---------
Total liabilities 415,966 360,968
--------- ---------
Shareholders' equity:
Preferred stock - no par value; 10,000,000
shares authorized; none issued -- --
Common stock - no par value; 10,000,000 7
shares authorized; issued and outstanding -
3,433,555 shares in 2000 and 3,399,434
shares in 1999 20,445 18,812
Retained earnings 15,390 14,341
Unearned ESOP shares (500) (300)
Accumulated other comprehensive loss (1,231) (1,938)
--------- ---------
Total shareholders' equity 34,104 30,915
--------- ---------
$ 450,070 $ 391,883
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WESTERN SIERRA BANCORP
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and
leases $ 6,910 $ 5,884 $ 20,389 $ 16,592
Interest on investment securities:
Taxable 1,340 939 2,727 3,008
Exempt from Federal income
taxes 228 202 645 614
Interest on Federal funds sold 358 217 1,178 718
---------------- --------------- --------------- ----------------
Total interest income 8,836 7,242 24,939 20,932
---------------- --------------- --------------- ----------------
Interest expense:
Interest expense on deposits 3,723 2,702 10,181 7,825
Interest on short term borrowings 65 161 359 336
---------------- --------------- --------------- ----------------
Total interest expense 3,788 2,863 10,540 8,161
---------------- --------------- --------------- ----------------
Net interest income 5,048 4,379 14,399 12,771
Provision for loan and lease losses
(Note C) 140 190 480 630
---------------- --------------- --------------- ----------------
Net interest income after
provision for loan and
lease losses 4,908 4,189 13,919 12,141
---------------- --------------- --------------- ----------------
Non-interest income:
Service charges and fees 642 756 1,853 1686
Other income 366 142 759 991
---------------- --------------- --------------- ----------------
Total non-interest income 1,008 898 2,612 2,677
---------------- --------------- --------------- ----------------
Other expenses:
Salaries and employee benefits 1,949 2,319 5,941 5,898
Occupancy and equipment 517 629 1,709 1,807
Merger and acquisition costs 0 150 899 260
Other 1,415 608 3,698 3,261
---------------- --------------- --------------- ----------------
Total other expenses 3,881 3,706 12,247 11,226
--------------------------------- --------------- ----------------
Income before income taxes 2,035 1,381 4,284 3,592
Income taxes 729 455 1,459 1,190
---------------- --------------- --------------- ----------------
Net income $ 1,306 $ 926 $ 2,825 $ 2,402
================ =============== =============== ================
Basic earnings per share (Note D) $ .38 $ .27 $ .83 $ .71
Diluted earnings per share (Note D) $ .37 $ .26 $ .81 $ .
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WESTERN SIERRA BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,825 $ 2,402
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for loan and lease losses 480 630
Depreciation and amortization 1,152 1,019
Deferred loan origination costs and fees, net (1) 155
Proceeds from sale of trading securities 244 18
Gain on sale of available-for-sale securities (66)
Amortization of intangible assets 31 82
Loss on sale of other real estate 58 61
Provision for losses on other real estate 19 40
(Increase) decrease in loans held for sale (2,455) 2,689
(Increase) decrease in trading securities (81) 108
(Decrease) in accrued interest receivable and other
assets (1,140) 1,867
Increase in cash surrender value of life insurance policies. (235)
Increase (decrease) in accrued interest payable and
other liabilities 362 (381)
Increase in deferred taxes (484) (284)
--------------------- -------------------
Net cash provided by operating activities 775 8,340
--------------------- -------------------
Cash flows from investing activities:
Net decrease in interest-bearing deposits in banks 198 4,877
Proceeds from the sale and call of available-for-sale
investment securities 2,800 11,194
Proceeds from matured available-for-sale investment
securities 130 3,850
Purchases of available-for-sale investment securities (13,238) (6,833)
Purchases of held-to-maturity investment securities (8,813)
Proceeds from matured held-to-maturity investment
securities 150 50
Principal repayments received from available-for-sale
SBA pools and mortgage-backed securities 3,499 3,375
Principal repayments received from held-to-maturity
mortgage-backed securities 2,194 5,033
Net increase in loans and leases (29,550) (52,834)
Proceeds from sale of other real estate 637 311
Purchases of premises and equipment (2,208) (1,337)
Single premium life insurance deposits (419)
-------------------- ----------------------
Net cash used in investing activities (35,388) (41,546)
-------------------- --------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
--------------------- --------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings
deposits $ 37,660 $ 12,685
Net increase (decrease) increase in time deposits 30,376 (1,037)
Net (decrease) increase in short-term borrowings (13,400) 5,161
Increase in unearned ESOP shares (200)
Proceeds from the exercise of stock options 369 520
Payment of cash dividends (164) (150)
Payment for fractional shares (5)
Reacquisition of common stock (401)
-------- --------
Net cash provided by financing
activities 54,235 17,179
-------- --------
Increase (decrease) in cash and cash
equivalents 19,622 (16,027)
Cash and cash equivalents at beginning of period 27,075 54,410
-------- --------
Cash and cash equivalents at end of period $ 46,697 $ 38,383
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
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.
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, the determination of the allowance of loan
losses, valuation of collateral and assessment of problem loans.
NOTE B - MERGERS AND ACQUISITIONS
On May 31, 2000, the Company completed its acquisition of Sentinel Community
Bank (SCB) through the merger of SCB with and into the Company's wholly owned
subsidiary, Western Sierra National Bank. The Company exchanged 718,517 shares
of its common stock (after adjustment for fractional shares) for all common
stock of SCB. Each share of SCB was exchanged for 1.491 shares of the Company.
The merger has been accounted for as a pooling of interests and, accordingly,
all prior period financial statements have been restated to include the combined
results of operations, financial position and cash flows of the Company and SCB.
Information concerning the common stock and per share data has been restated on
an equivalent share basis.
There were no material transactions between the Company or its bank subsidiaries
and SCB prior to the merger, and the effects of conforming the accounting
policies of SCB to those of the Company were not material.
Selected financial information for the combining entities included in the
consolidated statements of income for the five months ended May 31, 2000 and the
three and nine month periods ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Five Months Three Months Nine Months
Ended May 31, Ended Sept. 30, Ended Sept. 30,
(In thousands) 2000 2000 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net interest income:
Western Sierra Bancorp and Subsidiaries $ 6,149 $ 4,551 $ 11,206
Sentinel Community Bank 1,544 978 2,715
------------------ ------------------ ------------------
Combined $ 7,693 $ 5,598 $ 14,399
================== ================== ==================
Net income:
Western Sierra Bancorp and Subsidiaries $ 1,368 $ 1,144 $ 2,377
Sentinel Community Bank 22 157 400
------------------ ------------------ ------------------
Combined $ 1,390 $ 926 $ 2,825
================== ================== ==================
</TABLE>
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.
On May 5, 2000, Roseville 1st National Bank (R1NB) merged into Western Sierra
National Bank (WSNB). All assets and liabilities of R1NB were transferred to
WSNB and R1NB ceased to exist as a separate entity.
6
<PAGE>
In October 2000, the Company acquired the Columbia branch of Pacific State Bank.
In this transaction, the Company assumed approximately $4.1 million in deposits,
acquired approximately $13,000 in fixed assets and paid a premium of 42,000.
This transaction has been approved by the Company's Board of Directors and
regulatory authorities.
NOTE C - LOANS AND LEASES
Outstanding loans and leases are summarized below:
<TABLE>
<CAPTION>
Sept. 30, December 31,
(In thousands) 2000 1999
------------------ -----------------
<S> <C> <C>
Commercial $ 57,528 $ 51,206
Real estate - mortgage 180,977 157,368
Real estate - construction 49,077 41,758
Lease financing 3,414 1,763
Installment 5,460 7,679
Agricultural 7,912 15,370
------------------ -----------------
304,368 275,144
Deferred loan and lease origination fees and costs, net (787) (788)
Allowance for loan and lease losses (4,153) (3,794)
------------------ ------------------
$ 299,428 $ 270,562
================== =================
</TABLE>
Changes in the allowance for loan and lease losses were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(In thousands) SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 4,002 $ 3,287 $ 3,794 $ 2,987
Provision charged to
operations 140 190 480 630
Losses charged to allowance (15) (190) (221)
Recoveries 11 28 69 94
----------------- ------------------ ------------------ -----------------
$ 4,153 $ 3,490 $ 4,153 $ 3,490
================= ================== ================== =================
</TABLE>
NOTE D - 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 WEIGHTED
information) AVERAGE
NUMBER OF
NET SHARES PER SHARE
FOR THE THREE MONTHS ENDED INCOME OUTSTANDING AMOUNT
-------------------------- ------ ----------- ------
<S> <C> <C> <C>
SEPTEMBER 30, 2000
Basic earnings per share $ 1,306 3,421,164 $ .38
==================
Effect of dilutive stock options 72,573
------------------ ------------------
Diluted earnings per share $ 1,306 3,493,737 $ .37
=================== =================== ===================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except for per share WEIGHTED
information) AVERAGE
NUMBER OF
NET SHARES PER SHARE
FOR THE THREE MONTHS ENDED INCOME OUTSTANDING AMOUNT
-------------------------- ------ ----------- ------
<S> <C> <C> <C>
SEPTEMBER 30, 1999
Basic earnings per share $ 926 3,408,719 $ .27
==================
Effect of dilutive stock options 137,299
------------------ ------------------
Diluted earnings per share $ 926 3,546,018 $ .26
================== =================== ==================
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Basic earnings per share $ 2,825 3,407,310 $ .83
==================
Effect of dilutive stock options 96,770
------------------ ------------------
Diluted earnings per share $ 2,825 3,504,080 $ .81
================== =================== ==================
SEPTEMBER 30, 1999
Basic earnings per share $ 2,402 3,370,944 $ .71
==================
Effect of dilutive stock options 167,311
Diluted earnings per share $ 2,402 3,538,255 $ .68
================== =================== ==================
</TABLE>
NOTE E - COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods
presented. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of other comprehensive income (loss) that
historically has not been recognized in the calculation of net income.
Unrealized gains and losses on the Company's available-for-sale investment
securities are included in other comprehensive income (loss). An analysis of
comprehensive income follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(In thousands) 2000 1999
------------ ------------
<S> <C> <C>
Net income $ 1,306 $ 926
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale
investment securities 460 (548)
-------------------- --------------------
Total comprehensive income $ 1,766 $ 378
==================== ====================
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------------- --------------------
Net income $ 2,825 $ 2,402
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale
investment securities 707 (1,688)
-------------------- --------------------
Total comprehensive income $ 3,532 $ 714
==================== ====================
</TABLE>
8
<PAGE>
NOTE F - SUBSEQUENT EVENT
In October 2000, the Board of Directors declared a 5% stock dividend to
shareholders of record as of November 1, 2000, payable on November 13, 2000. All
per share information has been retroactively adjusted to reflect this stock
dividend.
1TEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Company's unaudited Consolidated Financial Statements, including the Notes,
appearing elsewhere herein.
All statements contained herein that are not historical facts, such as
statements regarding the Company's current business strategy and the Company's
plans for future development and operations, are based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties. Such risks and uncertainties include, but are
not limited to, those described in Management's Discussion and Analysis of
Financial Condition and Results of Operations and include, among other things,
(1) significant increases in competitive pressure in the banking industry; (2)
changes in the interest rate environment resulting in reduced margins; (3)
general economic conditions, either nationally or regionally, are less favorable
than expected, resulting in, among other things, a deterioration in credit
quality; (4) changes in the regulatory environment; (5) fluctuations in the real
estate market; (6) changes in business conditions and inflation; and (7) changes
in securities markets. Therefore, the information set forth in such
forward-looking statements should be carefully considered when evaluating the
business prospects of the Bank.
FINANCIAL CONDITION
Total assets increased by $58.2 million or 14.85% to $450.1 million at September
30, 2000, from $391.9 million at December 31, 1999. Total deposits increased by
19.81% to $411.2 million at September 30, 2000 from $343.2 million at December
31, 1999. The increase in deposits resulted in the corresponding increase in
total assets. This increase is primarily invested in a $18.6 million increase in
Federal Funds sold, a $31.3 million increase in the net loan portfolio and a net
increase in investments of $5.3 million. The majority of the increases are
directly attributable to efforts of management to increase investment and
lending activity. This increase is primarily due to an increase in the Company's
volume of time deposits, which totaled $193.8 million at September 30, 2000
compared to $163 million at December 31, 1999, a $30.8 million increase.
Advances from the FHLB tabling $9 million were repaid during the period ending
September 30, 2000. During the same period, Federal funds purchased of $6
million were also repaid. The Company had $1.231 million and $1.938 million in
unrealized losses on available for sale investment securities (net of deferred
tax benefits) at September 30, 2000 and December 31, 1999, respectively..
Net loans totaled $299.4 million at September 30, 2000, representing a 73.65%
loan to deposit ratio, compared to net loans of $270.6 million at December 31,
1999, representing a 79.12% loan to deposit ratio. The decrease in loan to
deposit ratio is due primarily to the rapid increase 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 $4.2 million at September 30, 2000, adequately provides
for possible loan losses. This allowance represents 1.37% of gross loans
outstanding at the end of the second quarter.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
NET INTEREST INCOME
Interest income increased 22.01% to $8,836 thousand for the quarter ended
September 30, 2000 from $7,242 thousand for the quarter ended September 30,
1999. The increased interest income on loans and investments was primarily due
to a 84 basis point increase in yields realized on loans as a result of changes
in market conditions during the quarter ending September 30, 2000 as compared to
the quarter ended September 30, 1999. In addition, average earnings assets
increased by $38,269 thousand at September 30, 2000 as compared to September 30,
1999.
Interest expense increased 32.31% to $3,788 thousand for the quarter ended
September 30, 2000 from $2,863 thousand for the quarter ended September 30,
1999. The increase in interest expense during the three months ended September
30, 2000 was the result of an overall increase in interest rates of
approximately 68 basis points over the three months ended September 30, 1999 on
these deposits.
9
<PAGE>
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 September 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 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) $ 47,185 $ 1,237 10.49% $ 49,884 $ 1,309 10.48%
Real estate loans (1) 243,149 5,541 9.11% 201,077 4,443 8.84%
Installment loans (1) 6,076 132 8.68% 7,337 132 7.20%
------------- ------------- --------- ------------- ------------- --------
Sub-total loans 296,410 6,910 9.32% 258,298 5,884 9.12%
Federal funds sold 22,368 358 6.40% 16,275 217 5.32%
Investments (2) 71,472 1,659 9.28% 77,408 1,222 6.32%
------------- ------------- --------- ------------- ------------- --------
Total earning assets 390,250 8,927 9.16% 351,981 7,323 8.32%
------------- ------------- -------------
Less: Allowance for loan and lease
losses (3,958) (3,384)
Cash and due from banks 20,296 16,792
Premises and equipment,
net 10,845 9,008
Accrued interest receivable
and other assets 13,051 12,923
------------- -------------
Total assets $ 430,484 $ 387,320
============= =============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 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,
savings and time
deposits $ 314,823 $ 3,723 4.72% $ 271,370 $ 2,702 4.00%
Short-term borrowings 3,243 65 8.00% 10,161 161 6.32%
------------- ------------- ------------- -------------
Total interest-
bearing
liabilities 318,066 3,788 4.76% 281,531 2,863 4.08%
------------- -------------
Non-interest bearing
deposits and other
liabilities 80,984 77,327
------------- -------------
Total liabilities 399,050 358,858
------------- -------------
Common stock 18,674 15,219
Retained earnings 14,300 13,909
Accumulated other com-
prehensive loss (1,540) (666)
------------- -------------
Total shareholders'
equity 31,434 28,462
------------- -------------
Total liabilities and
shareholders'
equity $ 430,484 $ 387,320
============= =============
Net interest income $ 5,139 $ 4,460
============= =============
Interest income as a per-
centage of average
earning assets 9.16% 8.32%
Interest expense as a
percentage of average
earning assets 3.88% 3.24%
Net yield on average
earning assets (net
interest margin) 5.28% 5.08%
</TABLE>
(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 and interest actually received subsequent to that date.
(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 increased 12.25% to $1,008 thousand for the quarter ended
September 30, 2000 from $898 thousand for the quarter ended September 30, 1999.
This increase was comprised of a $224 thousand or 158% increase in other
non-interest income was due to an increase in the gains on the sale of loans and
fees on the packaging of loans by the mortgage department which was partially
offset by a $114 thousand or 15.08% decrease in service charges and fees.
11
<PAGE>
The allocation to the Provision for Loan Losses for the third quarter of 2000
was $140 thousand as compared to an allocation of $190 thousand for the third
quarter of 1999.
Other expenses increased 4.72% to $3,881 thousand for the quarter ended
September 30, 2000 from $3,706 thousand for the quarter ended September 30,
1999. These expenses represent the operational and administrative expenses of
the Company.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
NET INTEREST INCOME
Interest income increased 19.14% to $24,939 thousand for the nine months ended
September 30, 2000 from $20,932 thousand for the nine months ended September 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, an increase in
average earning assets of $21,861 thousand and a 96 basis point increase in
total yields on earning assets (see schedule below).
Interest expense increased 29.16% to $10,540 thousand for the nine months ended
September 30, 2000 from $8,161 thousand for the nine months ended September 30,
1999. The increase in interest expense was the result of the increase in average
interest bearing accounts, certificates of deposits and short term borrowing in
2000 over the same period in 1999. In addition, the increase in interest expense
can be attributed to an 77 basis point increase in rates.
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 nine month periods
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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) $ 44,130 $ 3,513 10.61% $ 46,291 $ 3,982 11.47%
Real estate loans (1) 237,615 16,459 9.24% 189,294 12,189 8.59%
Installment loans (1) 6,664 417 8.34% 6,154 421 9.12%
------------- ------------- --------- ------------- ------------- --------
Sub-total loans 288,409 20,389 9.43% 241,739 16,592 9.15%
Federal funds sold 24,972 1,178 6.29% 21,386 718 4.48%
Investments (2) 70,248 3,629 6.89% 98,643 3,868 5.23%
------------- ------------- --------- ------------- ------------- --------
Total earning assets 383,629 25,196 8.76% 361,768 21,178 7.80%
------------- -------------
Less: Allowance for loan
losses (3,904) (3,215)
Cash and due from banks 17,384 17,242
Premises and equipment,
net 10,022 8,745
Accrued interest receivable
and other assets 14,275 25,504
------------- -------------
Total assets $ 421,406 $ 410,044
============= =============
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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,
savings and time
deposits $ 305,853 $ 10,181 4.44% $ 285,120 $ 7,825 3.65%
Other short-term
borrowings 7,451 359 6.40% 8,012 336 5.59%
------------- ------------- --------- ------------- ------------- --------
Total interest-
bearing
liabilities 313,304 10,540 4.48% 293,132 8,161 3.71%
------------- -------------
Non Interest-bearing
deposits and other
liabilities 77,898 87,952
------------- -------------
Total liabilities 391,202 381,084
------------- -------------
Common stock 15,227 14,857
Retained earnings 16,738 14,769
Accumulated other com-
prehensive loss (1,761) (666)
------------- -------------
Total shareholders'
equity 30,204 28,960
------------- -------------
Total liabilities and
shareholders'
equity $ 421,406 $ 410,044
============= =============
Net interest income $ 14,656 $ 13,017
============= =============
Interest income as a per-
centage of average
earning assets 8.76% 7.80%
Interest expense as a
percentage of average
earning assets 3.67% 3.01%
Net yield on average
earning assets (net
interest margin) 5.09% 4.79%
</TABLE>
(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 and interest actually received subsequent to that date.
(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 2.43% to $2,612 thousand for the nine months ended
September 30, 2000 from $2,677 thousand for the nine months ended September 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.
13
<PAGE>
In determining the appropriate level of the allowance for loan losses,
management considers various factors affecting the collectibility of loans, to
include economic conditions, past credit experience and the periodic review of
the Company's loan portfolio. The allocation to the Provision for Loan Losses
for the first nine months of 2000 was $480 thousand as compared to an allocation
of $630 thousand for the first nine months of 1999. Net losses for the nine
months ended September 30, 2000 totaled $121 thousand as compared to net losses
which totaled $127 thousand for the same period in 1999. The decrease in the
provision for loan losses is attributable to the overall improvement in the
credit quality of the Company's loans.
Other expenses increased 9.09% to $12,247 thousand for the nine months ended
September 30, 2000 from $11,226 thousand for the nine months ended September 30,
1999. These expenses represent the operational and administrative expenses of
the Company and include the aforementioned non-recurring merger related expenses
of $899 thousand for the nine months ended September 30, 2000 as compared to
$260 thousand for the same period in 1999.
Net income for the nine months ended September 30, 2000 totaled $2,825 thousand
as compared to net income of $2,402 thousand for the nine months ended September
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 September 30, 2000 the bank subsidiaries had $1,900
thousand in short-term borrowings compared to a $15.3 million balance at
December 31, 1999. The Company used some of its deposit growth to retire this
debt.
CAPITAL RESOURCES
Total shareholders' equity increased to $34.1 million at September 30, 2000 from
$30.9 million at December 31, 1999. The change was primarily due to net income
of $2,825 thousand during the nine month period and a shift from unrealized loss
to unrealized gain on available-for-sale securities of $707 thousand.
The Company and its 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,
the Company and 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.
The following table outlines the Company's consolidated capital ratios at
September 30, 2000:
<TABLE>
<CAPTION>
September 30, September 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 11.59% 11.8% 12.20%
Tier 1 Risk-Based Capital Ratio
Regulatory Requirement 6.00% 6.00% 6.00%
Western Sierra Bancorp 10.35% 10.7% 11.00%
Leverage Ratio
Regulatory Requirement 5.00% 5.00% 5.00%
Western Sierra Bancorp 7.76% 8.1% 8.50%
</TABLE>
The Company and each of its bank subsidiaries meet all the regulatory capital
requirements of a "well capitalized" institution.
14
<PAGE>
ACCOUNTING PRONOUNCEMENTS
BUSINESS COMBINATIONS AND INTANGIBLES
The Financial Accounting Standards Board (FASB) issued an exposure draft of a
proposed statement, BUSINESS COMBINATIONS AND INTANGIBLES, in September 1999
which included the elimination of "pooling of interests" accounting. The
result of this accounting change would be that all mergers consummated after
a designated date would be accounted for as "purchase" transactions,
resulting in the recognition of goodwill in any merger where the purchase
price exceeds the asset value of the acquired company. The Board is in the
process of researching and discussing the accounting for goodwill and its
impact on the future reported income of merged companies. Additionally, in
bank mergers, the goodwill in a purchase accounting transaction would not be
included in the calculation of regulatory capital requirements. The Board
will redeliberate the related issue of whether to retain the pooling method,
but not until it has reached a set of tentative decisions with respect to the
accounting for goodwill that will best meet the concerns of investors,
creditors, and other users of financial statements--as well as companies that
prepare those reports. The Board expects to issue a final statement near the
end of the first quarter of 2001.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which was
subsequently amended in June 1999 by FASB Statement No. 137 and in June 2000
by FASB Statement No. 138. FASB Statement No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that entities recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
FASB Statement No. 137 deferred the required adoption date to fiscal quarters
of all fiscal years beginning after June 15, 2000. FASB Statement No. 138
addresses certain issues causing difficulties in implementing FASB Statement
No. 133. The implementation of these pronouncements is not expected to have a
material effect on the Company's financial statements.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENTS OF LIABILITIES. This statement replaces FASB Statement
No. 125 and revises certain of the standards for accounting for
securitizations and other transfers of financial assets and collateral and
their related disclosures. However, most of the provisions of FASB Statement
No. 125 were carried over without reconsideration. The statement will be
applied prospectively and is effective for the transfer and servicing of
financial assets and extinguishment of liabilities occurring after March 31,
2001. The implementation of this pronouncement is not expected to have a
material effect on the Company's financial statements.
15
<PAGE>
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.
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
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 27. Financial Data Schedule
16
<PAGE>
B. REPORTS ON FORM 8-K
None.
17
<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: November 14, 2000
WESTERN SIERRA BANCORP
/s/ GARY GALL
----------------------------------------
Gary Gall
President and
Chief Executive Officer
/s/ LESA FYNES
----------------------------------------
Lesa Fynes
Chief Financial Officer
18
