<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of report (Date of earliest event reported) -- December 2, 1996
MONARCH BANCORP
---------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 0-13551 95-3863296
---------- ------- ----------
(Name or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
30000 TOWN CENTER DRIVE, LAGUNA NIGUEL, CA 92667
- ------------------------------------------ -----
(Address of principal executive officer) (Zip Code)
(Registrants' telephone number, including area code) -- (714) 495-3300
--------------
NA
--
(Former name or former address, if changed since last report.)
<PAGE>
On September 30, 1996, Monarch Bancorp (the "Company") completed the
acquisition of Western Bank ("Western"), Los Angeles, California in which
Western became a wholly-owned subsidiary of the Company.
The 8-K filed on October 3, 1996 did not include the required financial
schedules for Item 7, FINANCIAL STATEMENTS AND EXHIBITS. This filing
completes Item 7 and should be read in conjunction with the 8-K referenced
above.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
23.1 Consent of Ernst & Young, LLP
99.1 Pro Forma Combined Financial Statements (unaudited)
99.2 Consolidated Financial Statements, Western Bank, December 31,
1995 and 1994 with Report of Independent Auditors
99.3 Consolidated Financial Statements, Western Bank, December 31,
1994 and 1993 with Report of Independent Auditors
99.4 Consolidated Financial Statements, Western Bank, June 30, 1996
and 1995 (unaudited)
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
MONARCH BANCORP
Dated: December 2, 1996 By: /s/ Arnold C. Hahn
-----------------------------
Arnold C. Hahn
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
We consent to the use of our report dated January 22, 1996, in the Form 8K of
Monarch Bancorp dated October 3, 1996, and as amended on December 2, 1996.
/s/ ERNST & YOUNG
Los Angeles, California
December 2, 1996
<PAGE>
Exhibit 99.1
Monarch Bancorp and Western Bank
Pro Forma Combined Financial Information
(Unaudited)
On September 30, 1996, Monarch Bancorp (the "Company") acquired Western Bank
("Western"). The purchase price of Western was approximately $66.6 million and
was paid entirely in cash.
The following unaudited pro forma combined statements of income were prepared in
connection with the acquisition of Western and give effect to the adjustments
described in the accompanying notes. The acquisition was accounted for as a
purchase.
The unaudited pro forma combined statement of income for the nine month period
ended September 30, 1996 is based on the consolidated statement of income for
the Company for the nine month period ended September 30, 1996 and the
consolidated statement of income for Western for the nine month period ended
September 30, 1996. The pro forma adjustments to income and expense are the net
result of pro forma amounts that assume a January 1, 1996 acquisition date.
The unaudited pro forma combined statement of income for the twelve month period
ended December 31, 1995 is based on the consolidated statement of income for the
Company for the twelve month period ended December 31, 1995 and the consolidated
statement of income for Western for the twelve month period ended December 31,
1995. The pro forma adjustments to income and expense are the net result of pro
forma amounts that assume a January 1, 1995 acquisition date.
The unaudited pro forma combined statements of income do not reflect the
anticipated cost savings or revenue enhancements.
These unaudited pro forma combined statements of income and the accompanying
notes should be read in conjunction with and are qualified in their entirety by
the consolidated financial statements, including the accompanying notes, of the
Company in its Annual Report on Form 10-K for the year ended December 31, 1995,
and in its quarterly report on Form 10-Q for the quarter ended September 30,
1996. These unaudited pro forma combined statements of income and the
accompanying notes should also be read in conjunction with and are qualified in
their entirety by the consolidated financial statements, including the
accompanying notes, of Western in its Annual Reports for the years ended
December 31, 1995, 1994 and 1993 (see Exhibits 99.2 and 99.3 to this 8-K) and by
the Western financial statements for the six month period ended June 30, 1996
(unaudited) attached to this 8-K as exhibit 99.4.
The pro forma data are presented for comparative purposes only and are not
necessarily indicative of the combined results of operations in the future. The
pro forma data are also not necessarily indicative of the combined results of
operations which
<PAGE>
would have been realized had the acquisition been in effect during the periods
for which the pro forma financial statements are presented. In addition, this
Form 8-K includes forward-looking statements that involve inherent risks and
uncertainties. The Company cautions readers that a number of important factors
could cause actual results to differ materially from those in the forward-
looking statements. Those factors include fluctuations in interest rates,
inflation, government regulations, the progress of integrating Western and
economic conditions and competition in the geographic and business areas in
which the Company conducts its operations.
<PAGE>
MONARCH BANCORP AND WESTERN BANK
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (A)
(UNAUDITED)
<TABLE>
<CAPTION>
(000's omitted, except per share data)
HISTORICAL
----------------------
PRO FORMA PRO FORMA
MONARCH WESTERN ADJUSTMENTS COMBINED
----------- --------- --------------------------
<S> <C> <C> <C> <C>
INTEREST AND LOAN FEE INCOME:
Investment securities $ 3,054 $ 7,292 $ (344) (B) $ 10,002
Federal funds sold 376 671 1,047
Loans and leases 1,061 18,553 2 (C) 19,616
--------- -------- --------- --------
TOTAL INTEREST INCOME 4,491 26,516 (342) 30,665
INTEREST EXPENSE:
Deposits 1,285 6,529 8 (D) 7,822
Borrowings 1 825 (E) 826
--------- -------- --------- --------
TOTAL INTEREST EXPENSE 1,286 6,529 833 8,648
--------- -------- --------- --------
NET INTEREST INCOME 3,205 19,987 (1,175) 22,017
Less: provision for loan losses 425 710 1,135
NET INTEREST INCOME AFTER PROVISION --------- -------- --------- --------
FOR LOAN LOSSES 2,780 19,277 (1,175) 20,882
NON-INTEREST INCOME
Service charges on deposits accounts 213 785 998
Temporary overdraft charges & NSF fees 293 434 727
Data processing income 70 70
Other service charge and fee income 20 423 443
Gain on sale of mortgage loans 303 303
Loan servicing fees 387 387
Other income 337 1,173 1,510
--------- -------- --------- --------
TOTAL NON-INTEREST INCOME 933 3,505 - 4,438
NON-INTEREST EXPENSE
Salaries and benefits 1,657 7,308 8,965
Premises and furniture, fixtures and
equipment 1,423 1,537 2,960
Advertising, marketing and business
development 116 513 629
Data processing 829 829
Other real estate owned 62 825 887
Professional services 260 1,202 1,462
Amortization of goodwill 1,944 (F) 1,944
Other 7 3,161 3,168
--------- -------- --------- --------
TOTAL NON-INTEREST EXPENSE 3,525 15,375 1,944 20,844
--------- -------- --------- --------
Income before provision for taxes 188 7,407 (3,119) 4,476
Provision for taxes (496) 3,114 (474) 2,144
--------- -------- --------- --------
NET INCOME AFTER PROVISION FOR TAXES $ 684 $ 4,293 $ (2,645) $ 2,332
--------- -------- --------- --------
--------- -------- --------- --------
PER SHARE INFORMATION
Number of shares (weighted average) 34,374,821
Income per share (dollars) $ 0.07
</TABLE>
<PAGE>
MONARCH BANCORP AND WESTERN BANK
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (A)
(UNAUDITED)
(000's omitted, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA PRO FORMA
MONARCH WESTERN ADJUSTMENTS COMBINED
-------- -------- -----------------------------
<S> <C> <C> <C> <C>
INTEREST AND LOAN FEE INCOME:
Investment securities $ 1,359 $ 6,078 $ (266) (B) $ 7,171
Federal funds sold 333 266 599
Loans and leases 2,521 14,851 2 (C) 17,374
-------- -------- ------- --------
TOTAL INTEREST INCOME 4,213 21,195 (264) 25,144
INTEREST EXPENSE:
Deposits 1,297 6,203 6 (D) 7,506
Borrowings - 319 619 (E) 938
-------- -------- ------- --------
TOTAL INTEREST EXPENSE 1,297 6,522 625 8,444
-------- -------- ------- --------
NET INTEREST INCOME 2,916 14,673 (889) 16,700
Less: provision for loan losses 165 - 165
-------- -------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,751 14,673 (889) 16,535
NON-INTEREST INCOME
Service charges on deposits accounts 169 239 408
Temporary overdraft charges & NSF fees 204 281 485
Data processing income 63 63
Other service charge and fee income 56 408 464
Other income 14 196 210
-------- -------- ------- --------
TOTAL NON-INTEREST INCOME 506 1,124 - 1,630
NON-INTEREST EXPENSE
Salaries and benefits 1,159 5,186 6,345
Premises and furniture, fixtures and equipment 882 1,167 2,049
Advertising, marketing and business development 102 319 421
Data processing 626 626
Other real estate owned 9 541 550
Professional services 406 745 1,151
Amortization of goodwill 1,458 (F) 1,458
Other 195 1,237 1,432
-------- -------- ------- --------
TOTAL NON-INTEREST EXPENSE 2,753 9,821 1,458 14,032
-------- -------- ------- --------
Income before provision for taxes 504 5,976 (2,347) 4,133
Provision for taxes 199 2,480 (356) 2,323
-------- -------- ------- --------
NET INCOME AFTER PROVISION FOR TAXES $ 305 $ 3,496 $(1,991) $ 1,810
-------- -------- ------- --------
-------- -------- ------- --------
PER SHARE INFORMATION
Number of shares (weighted average) 34,374,821
Income per share (dollars) $ 0.05
</TABLE>
<PAGE>
Monarch Bancorp and Western
Notes to Pro Forma Combined Financial Statements
(Unaudited)
NOTE A: BASIS OF PRESENTATION
The unaudited pro forma combined statements of income for the twelve months
ended December 31, 1995 are presented as if the acquisition had become
effective on January 1, 1995. The unaudited pro forma combined statements of
income for the nine months ended September 30, 1996 are presented as if the
acquisition had become effective January 1, 1996.
The pro forma combined statement of income for the nine months ended
September 30, 1996 combines the individual historical results of operations of
the Company and Western for the nine months ended September 30, 1996 after
giving effect to the amortization of purchase accounting adjustments and nine
month's interest expense on the acquisition debt. The pro forma purchase
accounting adjustments for the nine months ended September 30, 1996 represent
the amortization that would have taken place from the beginning of the period.
The pro forma combined statement of income for the year ended December 31, 1995
combines the individual historical results of operations of the Company and
Western for the year ended December 31, 1995 after giving effect to the
amortization of purchase accounting adjustments and one year's interest expense
on the acquisition debt. The pro forma purchase accounting adjustments for the
twelve months ended December 31, 1996 represent the amortization that would have
taken place from the beginning of the period.
The acquisition was accounted for as a purchase. Under this method of
accounting, assets and liabilities of Western are adjusted to their estimated
fair value and combined with the recorded book values of the assets and
liabilities of the Company. Applicable income tax effects of such
adjustments are included as a component of the Company's net deferred tax
asset with a corresponding offset to goodwill. Such asset and liability
values are reflected in the Company's September 30, 1996 unaudited
consolidated balance sheet included in the financial information for the
quarter ended September 30, 1996, filed on Form 10-Q.
NOTE B: INTEREST INCOME - INVESTMENT SECURITIES
Western's investment securities were recorded at their estimated fair values on
September 30, 1996. The resulting fair value premium, which was primarily due
to changes in interest rates, has been amortized using an accelerated method to
reduce interest income based on the estimated remaining maturities of the
related investment securities which range from one month to seven years.
NOTE C: INTEREST INCOME - LOANS
Western's loans were recorded at their estimated fair values on September 30,
1996. The resulting fair value discount, which was primarily due to changes in
interest rates, has been amortized to increase interest income based on the
estimated remaining maturities of the related loans which range from one
month to ten years.
<PAGE>
NOTE D: INTEREST EXPENSE - DEPOSITS
Western's deposits were recorded at their estimated fair values on September
30, 1996. The resulting fair value premium, which was primarily due to
changes in interest rates, has been amortized to increase interest expense
based on the estimated remaining maturities of the related deposits which
range from one month to ten years.
NOTE E: INTEREST EXPENSE - BORROWINGS
As part of the acquisition, the Company borrowed a net amount of $11 million.
This amounts represents the interest expense to be paid by the Company for
either the nine month or twelve month period at a rate of 7.5%.
NOTE F: NON-INTEREST EXPENSE - AMORTIZATION OF GOODWILL
Goodwill of $29.2 million resulted from the acquisition. Goodwill is
being amortized on a straight line basis over fifteen years.
<PAGE>
Consolidated Financial Statements
Western Bank
DECEMBER 31, 1995 AND 1994
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Western Bank
Consolidated Financial Statements
December 31, 1995 and 1994
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . .1
Consolidated Financial Statements
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . .2
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Stockholders' Equity. . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . .8
<PAGE>
[LETTERHEAD]
Report of Independent Auditors
The Board of Directors and Shareholders
Western Bank
We have audited the accompanying consolidated balance sheet of Western Bank
as of December 31, 1995, and the related consolidated statement of
operations, shareholders' equity and cash flows for the year then ended.
These financial statements are the responsiblity of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit. The financial statements of Western Bank for the year
ended December 31, 1994, were audited by other auditors whose report dated
February 3, 1995, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the 1995 financial statements referred to above present
fairly in all material respects, the consolidated financial position of
Western Bank at December 31, 1995, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
January 22, 1996
1
<PAGE>
Western Bank
Consolidated Balance Sheets
DECEMBER 31
1995 1994
-----------------------------
ASSETS
Current Assets:
Securities available for sale (NOTE 1 AND 2) $ 140,133,000 $ 99,827,000
Securities held to maturity (NOTE 1 AND 2) 3,612,000 1,979,000
Federal funds sold - 25,000,000
Loans
(net of allowance for loan losses of
$4,149,000 and $3,471,000 for 1995 and
1994, respectively)
(NOTES 1 AND 3) 210,506,000 145,085,000
-----------------------------
Total earning assets 354,251,000 271,891,000
Cash and noninterest earning deposits 25,437,000 30,423,000
Other real estate owned:
(net of allowance for other real estate
owned of $2,370,282 and $1,795,948 for
1995 and 1994, respectively) (NOTE 1) 4,828,000 8,418,000
Premises and equipment
(net of accumulated depreciation of
$4,098,000 and $3,500,000 at December 31,
1995 and 1994, respectively) (NOTES 1 AND 5) 5,324,000 4,063,000
Accrued interest receivable 2,942,000 2,118,000
Other assets 4,216,000 7,911,000
-----------------------------
Total assets $ 396,998,000 $ 324,824,000
-----------------------------
-----------------------------
2
<PAGE>
Western Bank
Consolidated Balance Sheets
DECEMBER 31
1995 1994
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deposits (NOTES 1 AND 6) $ 340,639,000 $ 290,727,000
FHLB advances and other borrowings 17,000,000 -
Other liabilities (NOTE 4) 1,814,000 3,541,000
-----------------------------
Total liabilities 359,453,000 294,268,000
Commitments and contingencies (NOTE 8) - -
Stockholders' equity:
Common stock - 10,000,000 shares authorized,
no par value; issued and outstanding,
3,543,156 and 3,219,152 shares in 1995
and 1994, respectively 20,511,000 17,443,000
Retained earnings 17,088,000 15,853,000
Net unrealized loss on securities
available for sale (54,000) (2,740,000)
-----------------------------
Total stockholders' equity 37,545,000 30,556,000
-----------------------------
Total liabilities and stockholders' equity $ 396,998,000 $ 324,824,000
-----------------------------
-----------------------------
SEE ACCOMPANYING NOTES.
3
<PAGE>
Western Bank
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------
Interest income:
Loans and fees on loans $ 18,553,000 $ 16,400,000
Securities available for sale 7,139,000 4,101,000
Securities held to maturity 153,000 157,000
Certificates of deposit - 1,000
Federal funds sold 671,000 832,000
-----------------------------
26,516,000 21,491,000
-----------------------------
Interest expense:
Time deposits in denominations of $100,000
or more 1,400,000 620,000
All other deposits 5,129,000 3,237,000
-----------------------------
6,529,000 3,857,000
-----------------------------
Net interest income before provision for
loan losses 19,987,000 17,634,000
Provision for loan losses 710,000 1,052,000
-----------------------------
Net interest income after provision for
loan losses 19,277,000 16,582,000
-----------------------------
Other income:
Service charges on deposit accounts 785,000 707,000
Gain on sale of mortgage loans 303,000 -
Loan servicing fees 387,000 941,000
Other 2,030,000 1,329,000
-----------------------------
3,505,000 2,977,000
-----------------------------
Other expenses:
Salaries, wages and employee benefits 7,308,000 6,280,000
Net occupancy 1,126,000 1,363,000
Furniture and equipment 411,000 370,000
Other (NOTE 11) 6,530,000 7,505,000
-----------------------------
15,375,000 15,518,000
-----------------------------
Income from continuing operations before
income taxes 7,407,000 4,041,000
-----------------------------
Provision (benefit) for income taxes (NOTE 7):
Current 3,082,000 1,892,000
Deferred 32,000 (297,000)
-----------------------------
3,114,000 1,595,000
-----------------------------
Net income $ 4,293,000 $ 2,446,000
-----------------------------
-----------------------------
Earnings per share $ 1.12 $ .66
-----------------------------
-----------------------------
SEE ACCOMPANYING NOTES.
4
<PAGE>
Western Bank
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON
SECURITIES
SHARES COMMON AVAILABLE RETAINED
OUTSTANDING STOCK FOR SALE EARNINGS
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 3,219,152 $ 17,443,000 $ (69,000) $ 13,409,000
Net change in unrealized loss on
securities available for sale
(net of taxes of $1,948,000) - - (2,671,000) -
Cash paid in lieu of fractional
shares - - - (2,000)
Net income - - - 2,446,000
---------------------------------------------------------
Balance at December 31, 1994 3,219,152 17,443,000 (2,740,000) 15,853,000
Net change in unrealized loss
on securities available for
sale (net of taxes of
$38,000) - - 2,686,000 -
Stock options exercised 2,214 11,000 - -
Stock dividend 321,790 3,057,000 - (3,057,000)
Cash paid in lieu of fractional
shares - - - (1,000)
Net income - - - 4,293,000
---------------------------------------------------------
Balance at December 31, 1995 3,543,156 $ 20,511,000 $ (54,000) $ 17,088,000
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Western Bank
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,293,000 $ 2,446,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 687,000 965,000
Provision for loan losses 710,000 1,052,000
Provision for losses on real estate owned 615,000 1,074,000
(Increase) decrease in deferred income tax
benefit 33,000 (297,000)
(Gain) loss on sale of real estate owned (328,000) 88,000
Net amortization of investment premiums and
discounts (391,000) -
Decrease in unearned discount (1,323,000) -
Decrease in deferred loan fees (23,000) (8,000)
Increase in accrued interest receivable (824,000) (945,000)
(Increase) decrease in other assets 5,822,000 (689,000)
Increase (decrease) in other liabilities (2,256,000) 363,000
Gain on sale of fixed assets (11,000) -
----------------------------
Net cash provided by operating activities 7,004,000 4,049,000
INVESTING ACTIVITIES
Purchases of securities available for sale (55,854,000) (59,505,000)
Proceeds from maturities of securities available
for sale 18,548,000 32,345,000
Proceeds from maturities of securities held to
maturity 22,182,000 2,000,000
Net decrease (increase) in loans (30,989,000) 11,414,000
Net assets from acquisition of the Bank of Encino (4,073,000) -
Proceeds from sales of other real estate owned 6,182,000 1,834,000
Acquisition of bank premises and equipment (1,502,000) (1,041,000)
----------------------------
Net cash used in investing activities (45,506,000) (12,953,000)
6
<PAGE>
Western Bank
Consolidated Statements of Cash Flows (continued)
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
----------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (8,494,000) 9,197,000
Proceeds from FHLB advances and other borrowings 17,000,000 -
Proceeds from exercise of stock options 11,000 -
Cash paid in lieu of fractional shares (1,000) (2,000)
----------------------------
Net cash provided by financing activities 8,516,000 9,195,000
Net increase (decrease) in cash and cash equivalents (29,986,000) 291,000
Cash and cash equivalents at beginning of year 55,423,000 55,132,000
----------------------------
Cash and cash equivalents at end of year $ 25,437,000 $ 55,423,000
----------------------------
----------------------------
NONCASH INVESTING ACTIVITIES
Loans transferred to other real estate owned
because of foreclosure or deed in lieu of
foreclosure of the collateral during the year $ 3,354,000 $ 7,343,000
----------------------------
----------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 5,937,000 $ 4,000,000
----------------------------
----------------------------
Cash paid during the year for taxes $ 3,195,000 $ 1,030,000
----------------------------
----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Western Bank
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. ORGANIZATIONAL STRUCTURE AND ACCOUNTING POLICIES
Western Bank (the Bank) was established in 1973 by the current chairman of the
board. The Bank has maintained a record of profitability since their inception
and continues to grow in capital strength. The Bank has a five-branch network,
including the newly acquired Bank of Encino branch, all servicing the western
region of Los Angeles County.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Bank
and its wholly owned subsidiary, WBC Management Co., Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES
The Bank classifies its investment securities in two categories: securities
available for sale and securities held to maturity. Securities available for
sale are measured at fair value, with net unrealized gains and losses reported
as a separate component of stockholders' equity, net of tax. Securities held to
maturity are carried at amortized cost. The amortized cost or carrying value of
the specific security sold is used to compute the gain or loss on the sale of
investment securities.
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" issued in May 1993, requires
classifying investments in marketable equity securities and debt securities as
trading securities, securities available for sale, or securities held to
maturity. The Statement requires trading securities and securities available for
sale to be carried at fair value, with unrealized holding gains and losses of
trading securities included in the determination of net earnings and unrealized
holding gains and losses of securities available for sale included in
stockholders' equity. Securities held to maturity are to be carried at amortized
cost.
8
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES (CONTINUED)
Securities held to maturity are classified as such because the Bank has the
ability and management has the intent to hold them to maturity. These securities
are stated at cost and adjusted for amortization of premiums and accretion of
discounts, which are recognized as adjustment to income using a method that
approximates the interest method.
LOANS
Loans are carried at amounts advanced less payments collected. Interest income
is accrued as earned on all loans. Interest income is not recognized on loans if
collection of the interest is deemed by management to be unlikely.
Nonrefundable loan fees received and certain costs incurred during the process
of originating loans are deferred and recognized over the life of the loan as an
adjustment to the loan's yield using a method that approximates the interest
method.
The determination of the balance in the allowance for loan losses is based on an
evaluation of the loan portfolio and reflects an amount that in management's
judgment is adequate to provide for potential loan losses after giving
consideration to the character of the loan portfolio, appraisals of assets and
securing loans, current economic conditions, past loan loss experience and other
factors that require current recognition in estimating loan losses. Such
estimates, appraisals and evaluations may require changes because of changing
economic conditions and the economic prospects of borrowers. The provision for
loan losses is charged to expense.
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", effective January 1, 1995, as amended by SFAS No. 118, "Accounting for
Impairment of a Loan - Income Recognition and Disclosure". SFAS 114 does not
apply to large groups of smaller balance homogeneous loans that are collectively
evaluated for impairment. The Bank's impaired loans within the scope of SFAS No.
114 include non-accrual loans, trouble debt restructurings (TDRs), and major
loans which the Bank believes will be collected in full, but not in accordance
with the contractual terms of the loan.
9
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
Interest income on loans, including the recognition of discounts and loan fees,
is accrued on the outstanding principal amount of loans using the interest
method. A loan is generally placed on nonaccrual status when the Bank becomes
aware that the borrower has entered into bankruptcy proceedings and the loan is
delinquent, or when the loan is past due 90 days as to either principal or
interest. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. Cash receipts on nonaccrual loans
are used to reduce principal balances rather than being included in interest
income. A nonaccrual loan may be restored to accrual basis when delinquent loan
payments are collected, and the loan is expected to perform according to the
contractual terms of the loan agreement. The Bank continues to accrue interest
on TDRs and other impaired loans since full payment of principal and interest is
expected, and such loans are performing or less than 90 days delinquent and,
therefore, do not meet the criteria for nonaccrual status.
The Bank bases the measurement of loan impairment on the fair value of the
loans' collateral properties in accordance with SFAS No. 114. Impairment losses
are included in the allowance for loan losses through a charge to the provision
for loan losses. Adjustments to impairment losses due to changes in the fair
value of impaired loans' collateral properties are included in the provision for
loan losses. Upon disposition of an impaired loan, any related valuation
allowance is charged off from the allowance for loan losses.
PREMISES AND EQUIPMENT
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leasehold
improvements are amortized over the term of the lease or the service life of the
improvements, whichever is shorter. The straight-line method of depreciation is
followed for financial reporting purposes.
10
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
STOCK DIVIDEND
On December 16, 1993, the Bank declared a stock split affected in the form of a
25% stock dividend that was paid on February 15, 1994 to stockholders of record
as of January 18, 1994. On February 15, 1995, the Bank declared a 10% stock
dividend that was paid on March 31, 1995 to shareholders of record as of
February 28, 1995. Fractional shares were paid in cash for both transactions.
EARNINGS PER SHARE
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding during each year, adjusted retroactively
for stock dividends. The weighted average number of shares used in the
computation of earnings per common and common equivalent share for 1995 and 1994
were 3,826,697 and 3,700,309, respectively. The change in the December 31, 1994
weighted average number of shares is a direct result of the retroactive effect
of the ten percent (10%) stock dividend at March 31, 1995.
Equivalent shares are those issuable upon the assumed exercise of stock options
reflected under the treasury stock method using the average market price of the
Bank's shares during each year.
OTHER REAL ESTATE OWNED
Other real estate owned, which represents properties acquired by foreclosure or
by a deed in lieu of foreclosure, is recorded at the lower of the unpaid balance
of the loan or the fair value of the property at the date of acquisition. Any
valuation reductions required at the date of acquisition are charged to the
allowance for loan losses. Subsequent to acquisition, other real estate owned is
carried at the lower of recorded cost or net realizable value. Subsequent
operating expenses or income, reduction in estimated values, and gains or losses
on disposition of such properties are recognized in current operations.
11
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The consolidated financial statements include various estimated fair value
information as of December 31, 1995 and 1994, as required by SFAS No. 107. Such
information, which pertains to the Bank's financial instruments, is based on the
requirements set forth in SFAS No. 107 and does not purport to represent the
aggregate net fair value of the Bank. Many of such instruments lack an available
trading market, as characterized by a willing buyer and seller engaging in an
exchange transaction.
Also, it is the Bank's general practice and intent to hold its financial
instruments, except for certain investment securities which are accounted for in
accordance with Notes 1 and 2, to maturity and not to engage in trading or sales
activities. Therefore, the Bank had to use significant estimations and present
value calculations to prepare these fair value disclosures. Further, the fair
value estimates are based on various assumptions, methodologies and subjective
considerations, which vary widely among financial institutions and which are
subject to change.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. This lack of uniformity gives rise to a
high degree of subjectivity in estimating financial instrument fair values.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Bank considers all highly
liquid investments with maturities of three months or less when purchased to be
cash equivalents.
The balance sheet carrying amounts for cash and short-term instruments
approximate the estimated fair values of such assets.
INVESTMENT SECURITIES
Fair values for investment securities are based on quoted market prices, if
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
12
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
LOANS RECEIVABLE
For variable rate loans that reprice frequently and entail no significant change
in credit risk, fair values are based on the carrying values. The estimated fair
values of fixed rate loans are estimated based on discounted cash flow analyses
using interest rates currently offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest approximates
its fair value.
Estimated fair values for the Bank's off-balance sheet instruments (standby
letters of credit and construction lending commitments) are based on fees
currently charged to enter into similar agreements, considering the remaining
terms of the agreements and the counterparties' credit standing; or quoted
market prices (financial forward contracts). Lending commitments other than the
construction lending commitments do not have fees charged on them to enter into
the agreements.
DEPOSIT LIABILITIES
The fair values estimated for demand deposits (e.g., interest and non-interest
bearing checking accounts, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts of variable
rate, fixed-term money market accounts and certificates of deposit approximate
their fair values at the reporting date. Fair values of fixed rate certificates
of deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered to a schedule of aggregated expected
monthly time deposit maturities. The carrying amount of accrued interest payable
approximates its fair value.
RECLASSIFICATION
Certain items in the 1994 financial statements have been reclassified to conform
with the 1995 presentation.
13
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
2. INVESTMENT SECURITIES
Debt and equity securities have been classified in the consolidated statement of
financial condition according to management's intent. The carrying amounts of
securities and their approximate fair values at December 31, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1995
----------------------------------------------------------
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and
agency securities $ 111,778,000 $ 968,000 $ - $ 112,746,000
Other debt securities 4,456,000 - 120,000 4,336,000
----------------------------------------------------------
116,234,000 968,000 120,000 117,082,000
Mortgage-backed securities 21,470,000 - 729,000 20,741,000
Equity securities 2,521,000 - 211,000 2,310,000
----------------------------------------------------------
$ 140,225,000 $ 968,000 $ 1,060,000 $ 140,133,000
----------------------------------------------------------
----------------------------------------------------------
<CAPTION>
1995
----------------------------------------------------------
CARRYING GROSS UNREALIZED ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
Obligations of states and
political subdivisions $ 3,612,000 $ 44,000 $ - $ 3,656,000
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
14
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
2. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1994
----------------------------------------------------------
AMORTIZED GROSS UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and
agency securities $ 70,623,000 $ - $ 1,877,000 $ 68,746,000
Other debt securities 5,000 - - 5,000
----------------------------------------------------------
70,628,000 - 1,877,000 68,751,000
Mortgage-backed securities 27,169,000 - 2,395,000 24,774,000
Equity securities 6,716,000 2,000 416,000 6,302,000
----------------------------------------------------------
$ 104,513,000 $ 2,000 $ 4,688,000 $ 99,827,000
----------------------------------------------------------
----------------------------------------------------------
<CAPTION>
1994
----------------------------------------------------------
CARRYING GROSS UNREALIZED ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
Obligations of states and
political subdivisions $ 1,979,000 $ 114,000 $ - $ 2,093,000
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
The carrying and estimated fair values of securities pledged to secure public
funds and for other purposes as required or permitted by law amounted to
approximately $20,972,000 and $21,139,000, respectively, at December 31, 1995
and approximately $990,000 and $980,000, respectively, at December 31, 1994.
The amortized cost, carrying value and estimated fair value of debt securities
at December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
15
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
2. INVESTMENT SECURITIES (CONTINUED)
AMORTIZED ESTIMATED
COST FAIR VALUE
------------------------------
Securities available for sale:
Due in one year or less $ 50,021,000 $ 50,212,000
Due after one year through five years 65,771,000 66,466,000
Due after five years through ten years 2,977,000 2,953,000
Due after ten years 14,479,000 13,856,000
Mutual funds 4,456,000 4,336,000
Equity securities 2,521,000 2,310,000
------------------------------
$ 140,225,000 $ 140,133,000
------------------------------
------------------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
------------------------------
Securities held to maturity:
Due in one year or less $ 1,093,000 $ 1,095,000
Due after one year through five years 1,523,000 1,522,000
Due after five years through ten years 996,000 1,039,000
------------------------------
$ 3,612,000 $ 3,656,000
------------------------------
------------------------------
16
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
3. LOANS
The composition of the Bank's loan portfolio at December 31 is as follows:
1995 1994
------------------------------
Commercial $ 85,264,000 $ 59,747,000
Installment 2,407,000 1,373,000
Construction 15,478,000 9,388,000
Real estate 116,732,000 84,259,000
Participations purchased 2,157,000 1,865,000
------------------------------
222,038,000 156,632,000
Less:
Participations sold 7,541,000 4,776,000
Unearned discounts on purchased
loans 1,288,000 2,917,000
Deferred loan fees and deferred
interest income 417,000 383,000
-----------------------------
212,792,000 148,556,000
Unamortized premium on purchased
loans 1,863,000 -
-----------------------------
214,655,000 148,556,000
Less allowance for loan losses (4,149,000) (3,471,000)
-----------------------------
$ 210,506,000 $145,085,000
-----------------------------
-----------------------------
The estimated fair value of loans receivable at December 31, 1995 is
$214,810,000.
The loan portfolio is substantially concentrated in Southern California.
Loans placed on non-accrual status at December 31, 1995 were $2,734,000. In
addition, the interest income that would have been recorded had the nonaccrual
loans performed in accordance with their original terms would have been
$208,000.
17
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
3. LOANS (CONTINUED)
Transactions in the allowance for loan losses are summarized as follows:
1995 1994
---------------------------
Balance at beginning of year $ 3,471,000 $ 3,569,000
Bank of Encino purchase 534,000 -
Provision charged to expense 710,000 1,052,000
Loans charged off (695,000) (1,161,000)
Recoveries credited to allowance 129,000 11,000
---------------------------
Balance at end of year $ 4,149,000 $ 3,471,000
---------------------------
---------------------------
4. RELATED PARTY TRANSACTIONS
The Bank had an agreement with Lawrence Koppelman and Company, as discussed in
Note 1, whereby profit (and loss) of the Mortgage Banking Division was shared
equally by Lawrence Koppelman and Company and the Bank. As of December 31, 1995
the Bank has a net payable due to Lawrence Koppelman and Company.
In the ordinary course of business the Bank has granted loans to certain
directors and the businesses with which they are associated. A summary of this
loan activity for 1995 and 1994 follows:
1995 1994
---------------------------
Beginning balance $ 318,000 $ 947,000
New loans made 96,000 639,000
Principal reductions and payoffs (309,000) (1,268,000)
---------------------------
Ending balance $ 105,000 $ 318,000
---------------------------
---------------------------
18
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
5. BANK PREMISES AND EQUIPMENT
A summary of Bank premises and equipment as of December 31, is as follows:
1995 1994
---------------------------
Land $ 1,951,000 $ 1,660,000
Building and improvements 4,385,000 2,290,000
Leasehold improvements 1,918,000 1,698,000
Furniture, fixtures and equipment 1,168,000 1,915,000
---------------------------
9,422,000 7,563,000
Less accumulated depreciation and
amortization (4,098,000) (3,500,000)
---------------------------
$ 5,324,000 $ 4,063,000
---------------------------
---------------------------
6. DEPOSITS
The composition of the Bank's deposits at December 31, is as follows:
1995 1994
-------------- --------------
Demand deposits $ 121,502,000 $ 106,412,000
Savings and NOW accounts 45,266,000 52,761,000
Money market accounts 120,222,000 91,038,000
Certificates of deposit of $100,000
or more 31,208,000 26,026,000
Other time deposits 22,441,000 14,490,000
---------------------------
$ 340,639,000 $ 290,727,000
---------------------------
---------------------------
19
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
6. DEPOSITS (CONTINUED)
The estimated fair values of deposits consisted of the following at December 31,
1995:
Demand deposits $ 121,502,000
Savings and NOW accounts 45,266,000
Money market accounts 120,222,000
Certificates of deposit of $100,000
or more and other time deposits 55,454,000
--------------
$ 342,444,000
--------------
--------------
As discussed in Note 1, SFAS No. 107 defines the fair value of demand deposits
as the amount payable, and prohibits adjustment for any value derived from the
expected retention of such deposits for a period of time. That value, commonly
referred to as the deposit base intangible, has not been estimated and is
neither included in the above fair value amounts nor recorded as an intangible
asset in the balance sheet.
7. INCOME TAXES
Under the liability method specified by SFAS No. 109, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities. The
principal types of differences between assets and liabilities for financial
statement and tax return purposes are accelerated depreciation, allowance for
loan losses, allowance for losses on other real estate owned, interest on
non-accrual loans, franchise taxes and FHLB stock dividends.
1995 1994
Current:
Federal $ 2,267,000 $ 1,327,000
State 815,000 565,000
---------------------------
3,082,000 1,892,000
Deferred:
Federal 25,000 (204,000)
State 7,000 (93,000)
---------------------------
32,000 (297,000)
---------------------------
$ 3,114,000 $ 1,595,000
---------------------------
---------------------------
20
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
As a result of the following items, the total tax expense for 1995 and 1994 was
different from the amount computed by applying the statutory U.S. federal income
tax rate to earnings from continuing operations before income taxes:
1995 1994
----------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------------------------------------------
Federal income tax at
statutory rate $ 2,518,000 34.0% $ 1,374,000 34.0%
Changes due to:
Exempt interest on securities (47,000) (0.6) (61,000) (1.5)
State franchise tax, net of
federal income tax benefit 566,000 7.6 305,000 7.6
Dividends subject to exclusion (23,000) (0.3) (13,000) (.3)
Other 100,000 1.3 (10,000) (.2)
----------------------------------------------
$ 3,114,000 42.0% $ 1,595,000 39.6%
----------------------------------------------
----------------------------------------------
Deferred tax assets and liabilities at December 31, consist of the following:
1995 1994
-----------------------
Deferred tax assets:
Net unrealized holding loss on
securities available for sale $ 92,000 $ 1,948,000
Accelerated depreciation 213,000 256,000
Franchise tax 86,000 15,000
Allowance for loan losses 945,000 1,214,000
Allowance for losses on other
real estate owned 633,000 817,000
Interest on non-accrual loans 82,000 9,000
Other 35,000 156,000
------------------------
Total deferred tax assets 2,086,000 4,415,000
Deferred tax liabilities:
FHLB Stock dividends (85,000) (92,000)
Other (110,000) (158,000)
------------------------
Total deferred tax liabilities (195,000) (250,000)
------------------------
Net deferred tax assets $ 1,891,000 $ 4,165,000
------------------------
------------------------
21
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
The Bank leases the land on which its Westwood facility is located from an
unrelated party. The lease expires in 2003. Rent expense under this lease was
approximately $108,000 and $106,000 for 1995 and 1994, respectively. The Bank
also leases, from unrelated parties, the facilities for its branch locations.
These leases expire at various times through the year 2003. Rent expense under
these leases was approximately $420,000 and $621,000 for 1995 and 1994,
respectively. All leases are accounted for as operating leases. Minimum future
rental payments required under all leases as of December 31, 1995, which exclude
any increases in direct operating costs such as property taxes, utilities, fees,
insurance and other service and maintenance expenses under the respective lease,
are approximately as follows:
1995
-----------
1996 $ 529,000
1997 529,000
1998 529,000
1999 529,000
2000 529,000
Thereafter 1,460,000
-----------
$4,105,000
-----------
-----------
The Bank leases portions of the Westwood building it owns and the facilities it
leases to outside businesses. These noncancelable operating leases expire at
various periods through January 31, 2000. Rental income in 1995 and 1994 was
approximately $53,000 and $26,000, respectively.
At December 31, 1995 and 1994, the Bank had unfunded loan commitments of
$50,016,000 and $44,195,000, respectively, and outstanding commitments of
approximately $2,724,000 and $1,988,000, respectively, which were related to
standby letters of credit. The amount of the unfunded loan commitments and the
outstanding standby letters of credit approximate the respective fair values.
22
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Loan commitments are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require
payments of a fee. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank on extensions of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but may include residential real
estate, accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
In connection with certain mortgage loans sold by the Bank, the Bank remains
liable only to the extent that such loans are fraudulent and/or
misrepresentations are detected.
The Bank has established federal fund lines from various banks totaling
$31,600,000.
The Bank is involved in various kinds of litigation. In the opinion of
management, based on advice from the Bank's legal counsel, the disposition of
all pending litigation will not have a material effect on the Bank's
consolidated financial position.
A real estate loan originated by the Bank was sold to an unaffiliated savings
institution, transferred upon the failure of the institution to the Resolution
Trust Corporation and sold by the RTC to its present holder, which, following
foreclosure upon the underlying real estate, is seeking a deficiency judgment
against the borrower. The borrower has filed a third-party action, seeking
recovery from the Bank and another defendant of any deficiency for which he is
liable, in which all proceedings, including discovery, have been stayed pending
resolution of the earlier litigation. In light of the stay, counsel for the Bank
are unable to form an opinion as to the ultimate outcome of the latter action,
but have indicated that the exposure of the Bank, if any, should be less than
any deficiency indicated by the face account.
23
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
9. EMPLOYEE STOCK OWNERSHIP PLAN
In December 1974, the Bank adopted a qualified employee stock ownership plan for
the benefit of its employees. Contributions to the plan are determined by the
Board of Directors except that the contribution cannot exceed 15% of the
compensation of eligible participants. The Bank contributed $510,000 in 1995 and
$260,000 in 1994.
10. STOCK OPTION PLANS
The Bank has a stock option plan that authorizes the Board of Directors to grant
shares of common stock to all eligible full-time salaried officers and employees
of the Bank. The Plan authorizes the issuance of common stock, not to exceed
thirty percent (30%) of the total shares outstanding at one time. Such options
had original terms of five years which were extended an additional five years in
1993. The options vest twenty percent (20%) on the anniversary of the date of
the grant and are Nonqualified Options as defined in the plan. The options are
exercisable at the fair market value of the options on the date of the grant,
with adjustments to the exercise price and the shares for subsequent stock
splits and stock dividends.
At December 31, 1995, the Bank had 425,725 options outstanding, of which 379,111
options were vested and exercisable. Of those options vested and exercisable
224,290 were issued to two executive officers. The remaining 154,821 options
were issued to other officers and full-time salaried employees. The options have
exercise prices ranging from $3.25 to $6.36 per share, which represents the fair
market value on the date of the grant. During 1996, 137,496 options expire at
options prices ranging from $4.97 to $6.09 per share.
24
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
11. OTHER EXPENSE
The following is a summary of other expenses for the years ended December 31:
1995 1994
-------------------------
Data processing $ 829,000 $ 774,000
Professional services 1,202,000 1,351,000
Business development 513,000 515,000
Provision for losses on other real estate owned 825,000 1,074,000
Office supplies 403,000 410,000
Telephone 141,000 145,000
Other 2,617,000 3,236,000
-------------------------
$ 6,530,000 $ 7,505,000
-------------------------
-------------------------
12. PURCHASE AND ASSUMPTION AGREEMENT
On July 14, 1995 the Bank acquired the Bank of Encino, a community bank located
in Los Angeles, California. The acquisition was accounted for as a purchase,
and, accordingly, the assets and liabilities were recorded at the estimated fair
market values as of the date of acquisition. The total cost to acquire the Bank
of Encino was approximately $8.0 million, which exceeded the fair value of the
net assets of the Bank of Encino by approximately $700,000. The acquisition was
an all-cash transaction. Goodwill resulting from the acquisition is being
amortized over fifteen years. The results of operations of the Bank of Encino
have been included in the accompanying financial statements since the date of
acquisition.
25
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
12. PURCHASE AND ASSUMPTION AGREEMENT (CONTINUED)
The summarized assets and liabilities of the purchased company on July 14, 1995,
the date of acquisition, were as follows:
Cash and cash equivalents $ 3,280,000
Loans receivable, net 36,703,000
Investments 23,738,000
Property, plant, and equipment 346,000
Other assets 2,146,000
--------------
66,213,000
--------------
Deposit liabilities 58,364,000
Other liabilities 496,000
--------------
$ 58,860,000
--------------
--------------
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1994:
1995 1994
-----------------------------
Net interest income $ 20,938,000 $19,262,000
-----------------------------
-----------------------------
Net income after purchase accounting $ 4,617,000 $ 2,719,000
-----------------------------
-----------------------------
13. REGULATORY MATTERS
The regulations require the Bank to meet specific capital adequacy guidelines
that involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
principles. The Bank's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
26
<PAGE>
Western Bank
Notes to Consolidated Financial Statements (continued)
13. REGULATORY MATTERS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain a minimum leverage-capital ratio of Tier I capital
(as defined) to average total assets based on the Bank's ratings under the
regulatory rating system. The minimum leverage-capital ratio is in a range of 3
to 5% dependent upon the Bank's rating. In addition, the Bank must maintain a
ratio of total capital (as defined) to risk-weighted assets of 8% and a ratio of
Tier I capital to risk-weighted assets of 4%. The Bank's unaudited leverage-
capital ratio, ratio of total capital (as defined) to risk-weighted assets and
ratio of Tier I capital to risk-weighted assets (unaudited) were 9.72%, 17.79%
and 16.54%, respectively, at December 31, 1995. Management believes, as of
December 31, 1995, that the Bank meets all capital requirements to which it is
subject.
27
<PAGE>
Exhibit 99.3
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
WESTERN BANK
DECEMBER 31, 1994 AND 1993
<PAGE>
CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF EARNINGS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 7
CONSOLIDATED STATEMENTS OF CASH FLOWS 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Western Bank
We have audited the accompanying consolidated balance sheets of Western Bank as
of December 31, 1994 and 1993 and the related consolidated statements of
earnings, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Western Bank as of
December 31, 1994 and 1993, and the consolidated results of their operations and
their consolidated cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Los Angeles, California
February 3, 1995
3
<PAGE>
Western Bank
CONSOLIDATED BALANCE SHEETS
Year Ended December 31,
ASSETS
1994 1993
-------------- --------------
Certificates of deposit $ - $ 100,000
Securities available for sale 99,827,000 75,750,000
Securities held to maturity 1,979,000 3,972,000
Federal funds sold 25,000,000 40,000,000
Loans 146,912,000 166,600,000
Less allowance for loan losses 3,377,000 3,465,000
-------------- --------------
Net loans 143,535,000 163,135,000
-------------- --------------
Total earning assets 270,341,000 282,957,000
Cash and noninterest earning deposits -
minimum Federal Reserve balance at
December 31, 1994 and
1993 was approximately $6,602,000
and $7,854,000, 30,423,000 15,032,000
respectively
Net assets related to discontinued operations 1,550,000 2,556,000
Other real estate owned 8,418,000 3,266,000
Premises and equipment 4,063,000 3,582,000
Accrued interest 2,118,000 1,173,000
Other assets 7,911,000 7,222,000
-------------- --------------
$324,824,000 $315,788,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1994 1993
-------------- --------------
Deposits $290,727,000 $281,530,000
Other liabilities 3,541,000 3,475,000
-------------- --------------
Total liabilities 294,268,000 285,005,000
Commitments and contingencies -
Stockholders' equity
Common stock - authorized, 10,000,000
shares without par value; issued
and outstanding, 3,219,152 shares
in
1994 and 1993 17,443,000 17,443,000
Retained earnings 15,853,000 13,409,000
Net unrealized holding loss on
securities available for sale (2,740,000) (69,000)
-------------- --------------
30,556,000 30,783,000
-------------- --------------
$324,824,000 $315,788,000
-------------- --------------
-------------- --------------
4
<PAGE>
Western Bank
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
1994 1993
-------------- -------------
Interest income
Loans and fees on loans $16,400,000 $15,931,000
Securities available for sale 4,101,000 931,000
Securities held to maturity 157,000 182,000
Certificates of deposit 1,000 7,000
Federal funds sold 832,000 814,000
-------------- -------------
21,491,000 17,865,000
-------------- -------------
Interest expense
Time deposits in denominations of $100,000
or more 620,000 702,000
All other deposits 3,237,000 3,158,000
-------------- -------------
3,857,000 3,860,000
-------------- -------------
Net interest income before
provision for loan losses 17,634,000 14,005,000
Provision for loan losses 1,052,000 2,213,000
-------------- -------------
Net interest income after
provision for loan losses 16,582,000 11,792,000
Other income
Service charges on deposit accounts 707,000 750,000
Gain on sale of mortgage loans - 637,000
Loan servicing fees 941,000 688,000
Other 1,329,000 501,000
-------------- -------------
2,977,000 2,576,000
-------------- -------------
The accompanying notes are an integral part of these statements.
5
<PAGE>
Western Bank
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
Year ended December 31,
1994 1993
-------------- -------------
Other expenses
Salaries, wages and employee benefits $ 6,280,000 $ 7,624,000
Net occupancy 1,363,000 1,249,000
Furniture and equipment 370,000 394,000
Other 7,505,000 6,567,000
-------------- -------------
15,518,000 15,834,000
-------------- -------------
Earnings (loss) from continuing
operations before income taxes 4,041,000 (1,466,000)
Provision (benefit) for income taxes
Current 1,892,000 448,000
Deferred (297,000) (1,048,000)
-------------- -------------
1,595,000 (600,000)
-------------- -------------
Net earnings (loss) from
continuing operations 2,446,000 (866,000)
Discontinued operations
Income from operations of discontinued
Mortgage Banking
Division (less applicable income taxes
of $226,000) - 329,000
Gain on disposal of Mortgage Banking
Division (less applicable income taxes
of $4,560,000) - 6,592,000
-------------- -------------
- 6,921,000
-------------- -------------
NET EARNINGS $ 2,446,000 $ 6,055,000
-------------- -------------
-------------- -------------
Earnings (loss) per share
Continuing operations $.72 $(.26)
Discontinued operations - 2.05
-------------- -------------
NET EARNINGS PER SHARE $.72 $1.79
-------------- -------------
-------------- -------------
The accompanying notes are an integral part of these statements.
6
<PAGE>
Western Bank
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Two years ended December 31, 1994
<TABLE>
<CAPTION>
Net
unrealized
holding loss
on securities
Shares Common available Retained
outstanding stock for sale earnings
------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 2,341,430 $15,337,000 $ - $ 9,460,000
Net changes in unrealized
loss on securities available
for sale, net of taxes of $-0- - - (69,000) -
Stock dividend 233,992 2,106,000 - (2,106,000)
Stock split 643,730 - - -
Net earnings - - - 6,055,000
------------- --------------- ---------------- ---------------
Balance at December 31, 1993 3,219,152 17,443,000 (69,000) 13,409,000
------------- --------------- ---------------- ---------------
Net changes in unrealized
loss on securities available
for sale, net of taxes of
$1,948,000 - - (2,671,000) -
Cash paid in lieu of fractional
shares - - - (2,000)
Net earnings - - - 2,446,000
------------- --------------- ---------------- ---------------
Balance at December 31, 1994 3,219,152 $17,443,000 $(2,740,000) $15,853,000
------------- --------------- ---------------- ---------------
------------- --------------- ---------------- ---------------
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
Western Bank
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net earnings $ 2,446,000 $ 6,055,000
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Loss on sale of other real estate owned 88,000 287,000
Gain on sale of bank premises and equipment - (12,000)
(Decrease) increase in deferred loan fees (8,000) 105,000
Provision for loan losses 1,052,000 2,213,000
Provision for losses on other real estate owned 1,074,000 890,000
Depreciation and amortization 965,000 765,000
Net decrease in mortgage loans held for sale - 80,881,000
(Increase) decrease in accrued interest receivable (945,000) 558,000
(Increase) decrease in other assets (689,000) 650,000
Increase in other liabilities 363,000 865,000
Deferred income tax benefit (297,000) (1,048,000)
Gain on discontinued operations - (11,152,000)
--------------- ---------------
Net cash provided by operating activities 4,049,000 81,057,000
--------------- ---------------
Cash flows from investing activities
Purchases of securities available for sale (59,505,000) (89,565,000)
Proceeds from maturities of securities available for sale 32,345,000 -
Proceeds from maturities of securities held to maturity 2,000,000 21,808,000
Net decrease (increase) in loans 11,414,000 (31,133,000)
Proceeds from sales of other real estate owned 1,834,000 6,186,000
Acquisition of bank premises and equipment (1,041,000) (863,000)
Decrease in investment in real estate venture - 37,000
Net proceeds from sale of discontinued operations - 8,596,000
--------------- ---------------
Net cash used in investing activities (12,953,000) (84,934,000)
--------------- ---------------
Cash flows from financing activities
Net increase in deposits 9,197,000 35,859,000
Cash paid for fractional shares (2,000) -
--------------- ---------------
Net cash provided by financing activities 9,195,000 35,859,000
--------------- ---------------
Net increase in cash and cash equivalents 291,000 31,982,000
Cash and cash equivalents at beginning of year 55,132,000 23,150,000
--------------- ---------------
Cash and cash equivalents at end of year $55,423,000 $55,132,000
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
Western Bank
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1994 and 1993
Supplemental disclosures:
- The Bank considers all highly liquid investments with maturities of
three months or less to be "cash equivalents." Cash and cash
equivalents include "cash and noninterest earning deposits",
"certificates of deposit" and "federal funds sold." Generally,
federal funds are sold for one-day periods.
- Total loans transferred to other real estate owned because of
foreclosure or deed in lieu of foreclosure of the collateral during
1994 and 1993 totaled approximately $7,343,000 and $5,964,000,
respectively.
- Interest paid during 1994 and 1993 was $4,000,000 and $3,895,000,
respectively.
- Income taxes paid during 1994 and 1993 were $1,030,000 and $4,805,000,
respectively.
The accompanying notes are an integral part of these statements.
9
<PAGE>
Western Bank
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Western Bank (the "Bank") are
in accordance with generally accepted accounting principles and conform to
practices within the banking industry. A summary of the significant
accounting policies consistently applied in the preparation of the
accompanying consolidated financial statements follows:
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Bank and
its wholly-owned subsidiary WBC Management Co., Inc. All significant
intercompany balances and transactions have been eliminated.
2. INVESTMENT SECURITIES
The Bank classifies its investment securities in two categories: securities
available for sale and securities held to maturity. Securities available
for sale are measured at fair value, with net unrealized gains and losses
reported as a separate component of stockholders' equity, net of tax.
Securities held to maturity are carried at amortized cost. The amortized
cost or carrying value of the specific security sold is used to compute the
gain or loss on the sale of investment securities.
The Bank adopted, effective December 31, 1993, Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" issued in May 1993, which requires the
classification of investments in marketable equity securities and in all
debt securities as trading securities, securities available for sale, or
securities held to maturity. The Statement requires trading securities and
securities available for sale to be carried at fair value, with unrealized
holding gains and losses of trading securities included in the
determination of net earnings and unrealized holding gains and losses of
securities available for sale included in stockholders' equity. Securities
held to maturity are to be carried at amortized cost. The effect of this
accounting change did not have a material effect on the Bank's consolidated
financial statements.
Securities held to maturity are classified as such because the Bank has the
ability and management has the intent to hold them to maturity. These
securities are stated at cost and adjusted for amortization of premiums and
accretion of discounts, which are recognized as adjustments to income using
a method that approximates the interest method.
10
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
3. LOANS
Loans are carried at amounts advanced less payments collected. Interest
income is accrued as earned on all loans. Interest income is not
recognized on loans if collection of the interest is deemed by management
to be unlikely.
Nonrefundable loan fees received and certain costs incurred during the
process of originating loans are deferred and recognized over the life of
the loan as an adjustment to the loan's yield using a method that
approximates the interest method.
The determination of the balance in the allowance for loan losses is based
on an evaluation of the loan portfolio and reflects an amount that in
management's judgment is adequate to provide for potential loan losses
after giving consideration to the character of the loan portfolio,
appraisals of assets securing loans, current economic conditions, past loan
loss experience and other factors that require current recognition in
estimating loan losses. Such estimates, appraisals and evaluations may
require changes because of changing economic conditions and the economic
prospects of borrowers. The provision for loan losses is charged to
expense.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." This statement amends
SFAS No. 5, "Accounting for Contingencies," and SFAS No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructuring." This statement
prescribes that a loan is impaired when it is probable that a creditor will
be unable to collect all amounts due (principal and interest) according to
the contractual terms of the loan agreement. Measurement of the impairment
can be based on either the discounted future cash flows of the impaired
loan or the fair market value of the collateral for a collateral-dependent
loan. Creditors may select the measurement method on a loan-by-loan basis,
except that collateral-dependent loans for which foreclosure is probable
must be measured at the fair value of the collateral. Additionally, the
statement prescribes measuring impairment of a restructured loan by
discounting the total expected future cash flows using the loan's effective
rate of interest in the original loan agreement. Finally, the impact of
initially applying the statement is reported as a part of the provision for
credit losses in the income statement. The Bank adopted this statement as
of January 1, 1995 and has not yet determined the impact of the adoption of
this statement.
11
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. PREMISES AND EQUIPMENT
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Leasehold improvements are amortized over the term of the lease or the
service lives of the improvements, whichever is shorter. The straight-line
method of depreciation is followed for financial reporting purposes.
5. STOCK DIVIDEND
The Bank declared a 10% stock dividend that was distributed on May 15, 1993
to stockholders of record on April 15, 1993. On December 16, 1993, the
Bank declared a stock split affected in the form of a 25% stock dividend
that was paid on February 15, 1994 to stockholders of record as of January
18, 1994. Fractional shares were paid in cash.
6. EARNINGS PER SHARE
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding during each year, adjusted
retroactively for stock dividends and a stock split effected in the form of
a dividend for 1993. The weighted average number of shares used in the
computation of earnings per common and common equivalent share for 1994 and
1993 were 3,378,519 and 3,374,235, respectively.
Equivalent shares are those issuable upon the assumed exercise of stock
options reflected under the treasury stock method using the average
quarterly market price of the Bank's shares during each year.
7. MORTGAGE BANKING OPERATIONS
The Bank had a 50% interest in its mortgage banking division ("division")
that originated and serviced mortgage loans. Lawrence Koppelman and
Company had the other 50% interest in the division. The division was sold
as of August 31, 1993 (see Note C). The net earnings of the division
attributable to outside ownership are presented in the condensed summary of
discontinued operations (Note C) as mortgage banking profit participation
and commissions expense.
12
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. OTHER REAL ESTATE OWNED
Other real estate owned, which represents properties acquired by
foreclosure or by a deed in lieu of foreclosure, is recorded at the lower
of the unpaid balance of the loan or the fair value of the property at the
date of acquisition. Any valuation reductions required at the date of
acquisition are charged to the allowance for loan losses. Subsequent to
acquisition, other real estate owned is carried at the lower of recorded
cost or net realizable value. Subsequent operating expenses or income,
reduction in estimated values, and gains or losses on disposition of such
properties are recognized in current operations.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The consolidated financial statements include various estimated fair value
information as at December 31, 1994 and 1993, as required by SFAS No. 107.
Such information, which pertains to the Bank's financial instruments, is
based on the requirements set forth in SFAS No. 107 and does not purport to
represent the aggregate net fair value of the Bank. Many of such
instruments lack an available trading market, as characterized by a willing
buyer and seller engaging in an exchange transaction.
Also, it is the Bank's general practice and intent to hold its financial
instruments, except for certain investment securities which are accounted
for in accordance with Notes A and B, to maturity and not to engage in
trading or sales activities. Therefore, the Bank had to use significant
estimations and present value calculations to prepare these fair value
disclosures. Further, the fair value estimates are based on various
assumptions, methodologies and subjective considerations, which vary widely
among financial institutions and which are subject to change.
Changes in the assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. This lack of uniformity gives
rise to a high degree of subjectivity in estimating financial instrument
fair values.
CASH AND CASH EQUIVALENTS: The balance sheet carrying amounts for cash and
short-term instruments approximate the estimated fair values of such
assets.
INVESTMENT SECURITIES: Fair values for investment securities are based on
quoted market prices, if available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
13
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
9. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
LOANS RECEIVABLE: For variable rate loans that reprice frequently and
which entail no significant change in credit risk, fair values are based on
the carrying values. The estimated fair values of fixed rate loans are
estimated based on discounted cash flow analyses using interest rates
currently offered for loans with similar terms to borrowers of similar
credit quality. The carrying amount of accrued interest approximates its
fair value.
Estimated fair values for the Bank's off-balance-sheet instruments (standby
letters of credit and construction lending commitments) are based on fees
currently charged to enter into similar agreements, considering the
remaining terms of the agreements and the counterparties' credit standing;
or quoted market prices (financial forward contracts). Lending commitments
other than the construction lending commitments do not have fees charged on
them to enter into the agreements.
DEPOSIT LIABILITIES: The fair values estimated for demand deposits (e.g.,
interest and noninterest bearing checking accounts, passbook savings, and
certain types of money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying
amounts). The carrying amounts of variable rate, fixed-term money market
accounts and certificates of deposit approximate their fair values at the
reporting date. Fair values of fixed rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered to a schedule of aggregated expected monthly
time deposit maturities. The carrying amount of accrued interest payable
approximates its fair value.
10. RECLASSIFICATION
Certain items in the 1993 financial statements have been reclassified to
conform with the 1994 presentation.
14
<PAGE>
NOTE B - INVESTMENT SECURITIES
Effective December 31, 1993, the Bank changed its method of accounting for
investment securities (Note A). The amortized cost, carrying value and
estimated fair values of investment securities as of December 31 are as
follows:
<TABLE>
<CAPTION>
1994
------------------------------------------------------------
Amortized Gross unrealized Estimated
--------------------------
cost Gains Losses fair value
--------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury and agency
securities $ 70,623,000 $ - $1,877,000 $68,746,000
Other debt securities 5,000 - - 5,000
--------------- ------------ ------------ --------------
70,628,000 1,877,000 68,751,000
Mortgage-backed securities 27,169,000 - 2,395,000 24,774,000
Equity securities 6,716,000 2,000 416,000 6,302,000
--------------- ------------ ------------ --------------
$104,513,000 $2,000 $4,688,000 $99,827,000
--------------- ------------ ------------ --------------
--------------- ------------ ------------ --------------
1994
------------------------------------------------------------
Carrying Gross unrealized Estimated
------------------------
value Gains Losses fair value
--------------- ------------ -------- --------------
Securities held to maturity
Obligations of states and
political subdivisions $1,979,000 $114,000 $ - $2,093,000
--------------- ------------ -------- --------------
--------------- ------------ -------- --------------
</TABLE>
15
<PAGE>
NOTE B - INVESTMENT SECURITIES - Continued
<TABLE>
<CAPTION>
1993
------------------------------------------------------------
Amortized Gross unrealized Estimated
-------------------------
cost Gains Losses fair value
--------------- ------------ --------- --------------
<S> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury and agency
securities $38,238,000 $33,000 $ 63,000 $38,208,000
Other debt securities 5,000 - - 5,000
--------------- ------------ ------------ --------------
38,243,000 33,000 63,000 38,213,000
Mortgage-backed securities 31,925,000 11,000 28,000 31,908,000
Equity securities 5,651,000 6,000 28,000 5,629,000
--------------- ------------ ------------ --------------
$75,819,000 $50,000 $119,000 $75,750,000
--------------- ------------ ------------ --------------
--------------- ------------ ------------ --------------
1993
------------------------------------------------------------
Carrying Gross unrealized Estimated
-------------------------
value Gains Losses fair value
--------------- ------------ --------- --------------
Securities held to maturity
Obligations of states and
political subdivisions $1,972,000 $149,000 $ - $2,121,000
Commercial paper 2,000,000 - - 2,000,000
--------------- ------------ ---------- --------------
$3,972,000 $149,000 $ - $4,121,000
--------------- ------------ ---------- --------------
--------------- ------------ ---------- --------------
</TABLE>
The carrying and estimated fair values of securities pledged to secure
public funds and for other purposes as required or permitted by law
amounted to approximately $990,000 and $980,000, respectively, at December
31, 1994 and approximately $11,544,000 and $11,519,000, respectively, at
December 31, 1993.
The amortized cost, carrying value and estimated fair value of debt
securities at December 31, 1994, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
16
<PAGE>
NOTE B - INVESTMENT SECURITIES - Continued
Amortized Estimated
cost fair value
-------------- -------------
Securities available for sale
Due in one year or less $ 21,693,000 $21,078,000
Due after one year through five years 55,651,000 53,976,000
Mortgage-backed securities 27,169,000 24,773,000
-------------- -------------
$104,513,000 $99,827,000
-------------- -------------
-------------- -------------
Carrying Estimated
value fair value
-------------- -------------
Securities held to maturity
Due after one year through five years $ 503,000 $ 527,000
Due after five years through ten years 1,476,000 1,566,000
-------------- -------------
$1,979,000 $2,093,000
-------------- -------------
-------------- -------------
NOTE C - DISCONTINUED OPERATIONS
During 1993, the Bank sold its interest in the single family mortgage
banking division. On August 30, 1993, the Bank and Lawrence Koppleman and
Company ("LK & Co.") entered into an agreement whereby the Bank purchased LK
& Co.'s 50% interest in the mortgage division, with the intention of selling
the resulting 100% interest to Victoria Mortgage Corp. ("Victoria"), of San
Antonio, Texas.
The Bank and LK & Co. entered into a purchase and sale agreement (the
"Agreement") effective August 31, 1993 whereby the Bank sold all, but a
minor portion, of the servicing rights and assets of its mortgage banking
division to Victoria Mortgage for a base price of $30,000,000, subject to
adjustments as defined in the Agreement.
The net adjusted price and proceeds amounted to approximately $25,329,000.
The net after-tax gain on the sale of the Division amounted to $6,592,000,
or $1.95 per share.
17
<PAGE>
NOTE C - DISCONTINUED OPERATIONS - Continued
The results of the Mortgage Banking Division ("Division") operations have
been reported separately as a component of discontinued operations in the
consolidated statements of earnings. The Division's operating results for
the eight months ended August 31, 1993 follow:
1993
---------------
Condensed summaries of discontinued operations
Operating revenues $12,967,000
Interest income 3,695,000
Gain on sale of servicing rights 3,136,000
---------------
19,798,000
---------------
Operating expenses 16,104,000
Interest expense 2,584,000
---------------
18,688,000
---------------
Operating income before profit
participation 1,110,000
Mortgage banking profit participation
and commissions 555,000
---------------
$ 555,000
---------------
---------------
LK & Co. purchased a 50% interest in the remaining net assets of the
Division which is represented as Due to LK & Co. in the net assets related
to discontinued operations.
The Division leased the facilities for its loan production offices. Rent
expense under these leases was approximately $940,000 for 1993. These
leases expired during 1994. All leases were accounted for as operating
leases.
18
<PAGE>
NOTE C - DISCONTINUED OPERATIONS - Continued
As of August 31, 1993, the mortgage division lease for its corporate offices
was assumed by Victoria; however, because of the lessor's refusal to release
the Bank from its obligations under the lease, the Bank may be required to
make future rental payments if this lease is defaulted upon. The total
amount of future minimum lease payments for the duration of this lease
amounts to $2,717,000 at December 31, 1994.
NOTE D - LOANS
The composition of the Bank's loan portfolio at December 31 is as follows:
1994 1993
-------------- --------------
Commercial $ 59,588,000 $ 86,170,000
Installment 1,373,000 1,789,000
Construction 9,388,000 21,298,000
Real estate 82,616,000 66,187,000
Participations purchased 1,865,000 644,000
-------------- --------------
154,830,000 176,088,000
Less:
Participations sold 4,776,000 5,689,000
Unearned discounts on purchased loans 2,917,000 3,566,000
Deferred loan fees 225,000 233,000
-------------- --------------
$146,912,000 $166,600,000
-------------- --------------
-------------- --------------
The estimated fair value of loans receivable at December 31, 1994 is
$147,246,000.
The loan portfolio is substantially concentrated in Southern California.
Loans where the accrual of interest income has been discontinued and placed
on nonaccrual status at December 31, 1994 were $605,000. In addition, the
interest income that would have been recorded had the nonaccrual loans
performed in accordance with their original terms would have been $49,000.
There was no interest receivable on nonaccrual loans at December 31, 1994.
19
<PAGE>
NOTE D - LOANS - Continued
Transactions in the allowance for loan losses are summarized as follows:
1994 1993
-------------- --------------
Balance at beginning of year $3,465,000 $2,660,000
Provision charged to expense 1,052,000 2,213,000
Loans charged off (1,151,000) (1,451,000)
Recoveries credited to allowance 11,000 43,000
-------------- --------------
Balance at end of year $3,377,000 $3,465,000
-------------- --------------
-------------- --------------
At December 31, 1994 and 1993, management has charged off all known loan
losses.
NOTE E - RELATED PARTY TRANSACTIONS
The Bank had an agreement with Lawrence Koppelman and Company as discussed
in notes A7 and C whereby profit (and loss) of the mortgage banking
division was shared equally by Lawrence Koppelman and Company and the Bank.
After the completion of the sale of the mortgage banking division, the
remaining assets were shared 50% by Lawrence Koppelman and Company and the
Bank.
In the ordinary course of business the Bank has granted loans to certain
directors and the businesses with which they are associated. A summary of
this loan activity for 1994 and 1993 follows:
1994 1993
-------------- --------------
Beginning balance $ 947,000 $1,085,000
New loans made 639,000 988,000
Principal reductions and payoffs (1,268,000) (1,126,000)
-------------- --------------
Ending balance $ 318,000 $ 947,000
-------------- --------------
-------------- --------------
20
<PAGE>
NOTE F - BANK PREMISES AND EQUIPMENT
A summary of Bank premises and equipment as of December 31 is as follows:
1994 1993
------------ -----------
Leasehold improvements $1,698,000 $1,678,000
Building and improvements 2,290,000 1,341,000
Furniture, fixtures and equipment 1,915,000 1,843,000
------------ -----------
5,903,000 4,862,000
Less accumulated depreciation and amortization 3,500,000 2,940,000
------------ -----------
2,403,000 1,922,000
Land 1,660,000 1,660,000
------------ -----------
$4,063,000 $3,582,000
------------ -----------
------------ -----------
NOTE G - DEPOSITS
The composition of the Bank's deposits at December 31 is as follows:
1994 1993
------------- ------------
Demand deposits $106,412,000 $123,966,000
Savings and NOW accounts 52,761,000 40,072,000
Money market accounts 91,038,000 83,685,000
Certificates of deposit of $100,000 or more 26,026,000 15,113,000
Other time deposits 14,490,000 18,694,000
------------- ------------
$290,727,000 $281,530,000
------------- ------------
------------- ------------
The estimated fair values of deposits consisted of the following at
December 31, 1994:
Demand deposits $106,412,000
Savings and NOW accounts 52,761,000
Money market accounts 91,038,000
Certificates of deposit of $100,000 or more and other
time deposits 40,404,000
-----------------
$290,615,000
-----------------
-----------------
21
<PAGE>
NOTE G - DEPOSITS - Continued
As discussed in Note A, SFAS No. 107 defines the fair value of demand
deposits as the amount payable, and prohibits adjustment for any value
derived from the expected retention of such deposits for a period of time.
That value, commonly referred to as the deposit base intangible, has not
been estimated and is neither included in the above fair value amounts nor
recorded as an intangible asset in the balance sheet.
The Bank has five unrelated customers with aggregate deposit balances of
approximately $35,624,000 at December 31, 1994 which represents
approximately 12% of total deposits.
NOTE H - INCOME TAXES
The Bank adopted, effective January 1, 1993, SFAS No. 109, "Accounting for
Income Taxes," issued in February 1992. Under the liability method
specified by SFAS No. 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates which
will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities. The
principal types of differences between assets and liabilities for financial
statement and tax return purposes are accelerated depreciation, allowance
for loan losses, allowance for losses on other real estate owned, interest
on nonaccrual loans, franchise taxes and FHLB stock dividends.
1994 1993
------------ --------------
Current
Federal $1,327,000 $ 327,000
State 565,000 121,000
------------ --------------
1,892,000 448,000
------------ --------------
Deferred
Federal (204,000) (876,000)
State (93,000) (172,000)
------------ --------------
(297,000) (1,048,000)
------------ --------------
$1,595,000 $ (600,000)
------------ --------------
------------ --------------
22
<PAGE>
NOTE H - INCOME TAXES - Continued
As a result of the following items, the total tax expense for 1994 and 1993
was different from the amount computed by applying the statutory U.S.
federal income tax rate to earnings from continuing operations before
income taxes:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ---------------------------
Amount Percent Amount Percent
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Federal income tax at
statutory rate $1,374,000 34.0% $(498,000) 34.0%
Changes due to
Exempt interest on securities (61,000) (1.5) (49,000) 3.3
State franchise tax, net of
federal income tax benefit 305,000 7.6 (107,000) 7.3
Dividends subject to exclusion (13,000) (.3) (8,000) .5
Other (10,000) (.2) 62,000 (4.2)
------------- ----------- ------------ -----------
$1,595,000 39.6% $(600,000) 40.9%
------------- ----------- ------------ -----------
------------- ----------- ------------ -----------
</TABLE>
Deferred tax assets and liabilities at December 31, consist of the
following:
1994 1993
------------ ------------
Deferred tax assets
Net unrealized holding loss on
securities available for sale $1,948,000 $ -
------------ ------------
Accelerated depreciation 256,000 231,000
Franchise tax 15,000 267,000
Allowance for loan losses 1,214,000 1,156,000
Allowance for losses on other real
estate owned 817,000 578,000
Interest on non accrual loans 9,000 344,000
Other 156,000 137,000
------------ ------------
2,467,000 2,713,000
------------ ------------
4,415,000 2,713,000
Deferred tax liabilities
FHLB Stock dividends (92,000) (68,000)
Other (158,000) (23,000)
------------ ------------
(250,000) (91,000)
------------ ------------
$4,165,000 $2,622,000
------------ ------------
------------ ------------
23
<PAGE>
NOTE I - COMMITMENTS AND CONTINGENCIES
The Bank leases the land on which its Westwood facility is located from an
unrelated party. The lease expires in 2003. Rent expense under this lease
was approximately $106,000 and $132,000 for 1994 and 1993, respectively.
The Bank also leases, from unrelated parties, the facilities for its branch
locations. These leases expire at various times through the year 2002.
Rent expense under these leases was approximately $621,000 and $733,000 for
1994 and 1993, respectively. All leases are accounted for as operating
leases. Minimum future rental payments required under all leases as of
December 31, 1994, which exclude any increases in direct operating costs
such as property taxes, utilities, fees, insurance and other service and
maintenance expenses under the respective lease, are approximately as
follows:
1995 $ 494,000
1996 302,000
1997 302,000
1998 302,000
1999 302,000
Thereafter 976,000
--------------
$2,678,000
--------------
--------------
The Bank leases portions of the Westwood building it owns and the
facilities it leases to outside businesses. These noncancelable operating
leases expire at various periods through May 31, 1995. Rental income in
1994 and 1993 was approximately $26,000 and $22,000, respectively.
At December 31, 1994 and 1993 the Bank had unfunded loan commitments of
$44,195,000 and $57,257,000, respectively, and outstanding commitments of
approximately $1,988,000 and $2,615,000, respectively, which were related
to standby letters of credit.
Loan commitments are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payments of a fee. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank on extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies
but may include residential real estate, accounts receivable, inventory,
property, plant and equipment, and income producing commercial properties.
24
<PAGE>
NOTE I - COMMITMENTS AND CONTINGENCIES - Continued
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
The estimated fair values of the Bank's off-balance-sheet financial
instruments at December 31, 1994 are summarized below:
Estimated fair value
of off-balance-sheet
financial instruments
-----------------------
Commitments to extend credit $970,000
Standby letters of credit 40,000
In connection with certain mortgage loans sold by the Bank, the Bank has
agreed to repurchase those loans on which the borrower defaults. However,
the Bank remains liable only to the extent that such loans are not insured
by the federal government.
The Bank has established federal fund lines from various banks totaling
$24,600,000.
The Bank is involved in various litigation. In the opinion of management,
based on advice from the Bank's legal counsel, the disposition of all
pending litigation will not have a material effect on the Bank's
consolidated financial position.
NOTE J - EMPLOYEE STOCK OWNERSHIP PLAN
In December 1974, the Bank adopted a qualified employee stock ownership
plan for the benefit of its employees. Contributions to the plan are
determined by the Board of Directors except that the contribution cannot
exceed 15% of the compensation of eligible participants. The Bank
contributed $260,000 in 1994 and $660,000 in 1993.
25
<PAGE>
NOTE K - STOCK OPTION PLANS
The Board of Directors has approved a stock option plan under which options
for 203,900 shares of the Bank's common stock were issued to two executive
officers. Such options had original terms of five years which were
extended an additional five years during 1993, vest 20% per year on each
anniversary of the date of grant, and are Incentive Options as defined in
the plan. One-half of the options are exercisable at $3.58 per share and
the other half at $3.93 per share. Such shares and option prices represent
the original shares and fair market values at date of grant, adjusted for
subsequent stock splits and stock dividends.
As of December 31, 1994 the Board of Directors has granted options to 16
senior officers of the Bank to purchase 185,136 shares of common stock.
Such shares represent the original options available, pursuant to the plan,
adjusted for stock dividends made subsequent to the grant. The options are
exercisable at the fair market value of the Bank's common stock on the date
of the grant and expire five years from that date. During 1994, options
representing 127,011 shares were extended for an additional two years. At
December 31, 1994, 142,758 shares are exercisable at option prices ranging
from $5.46 to $7.00 per share. During 1995, 11,625 shares become
exercisable at option prices ranging from $5.46 to $7.00 per share.
Stock option activity under both plans for the years ended December 31,
1994 and 1993 is as follows:
Options Price Options
available per share outstanding
------------ ------------ --------------
Balance at January 1, 1993 69,770 $4.92-$11.82 300,922
Stock dividend 6,977 30,092
Options granted (33,300) $8.00-$8.75 33,300
Options cancelled 33,814 $8.64-$10.74 (33,814)
Stock split 19,315 82,625
------------ --------------
Balance at December 31, 1993 96,576 $3.58-$7.81 413,125
Options cancelled 24,090 $6.18-$7.81 (24,090)
------------ --------------
Balance at December 31, 1994 120,666 $3.58-$7.00 389,035
------------ --------------
------------ --------------
26
<PAGE>
NOTE L - OTHER EXPENSE
The following is a summary of other expenses for the years ended December
31:
1994 1993
----------- -----------
Data processing $ 774,000 $ 759,000
Professional services 1,351,000 1,464,000
Business development 515,000 546,000
Provision for losses on other real estate owned 1,074,000 890,000
Office supplies 410,000 437,000
Telephone 145,000 152,000
Other 3,236,000 2,319,000
----------- -----------
$7,505,000 $6,567,000
----------- -----------
----------- -----------
NOTE M - PURCHASE AND ASSUMPTION AGREEMENTS
During 1993, the Bank entered into three Purchase and Assumption Agreements
(the "Agreements") with the Federal Deposit Insurance Corporation (FDIC) to
assume approximately $149,000,000 of insured deposit liabilities of three
banks that were closed by bank regulators and placed into receivership with
the FDIC. The Bank also purchased approximately $33,000,000 of selected
assets of the failed banks. The Bank received cash for the difference
between the assets purchased and the liabilities that were assumed. The
Agreements provided funds to the Bank for the payoff of the depositors who
were not insured after obtaining certified releases from the FDIC.
NOTE N - REGULATORY MATTERS
The regulations require the Bank to meet specific capital adequacy
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting principles. The Bank's capital classification is also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
27
<PAGE>
NOTE N - REGULATORY MATTERS - Continued
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain a minimum leverage-capital ratio of Tier I
capital (as defined) to total assets based on the Bank's ratings under the
regulatory rating system. The minimum leverage-capital ratio is in a range
of 3 to 5 percent dependent upon the Bank's rating. In addition, the Bank
must maintain a ratio of total capital (as defined) to risk-weighted assets
of 8 percent and a ratio of Tier I capital to risk-weighted assets of 4
percent. The Bank's leverage-capital ratio, ratio of total capital (as
defined) to risk-weighted assets and ratio of Tier I capital to
risk-weighted assets (unaudited) were 10.58%, 18.72%, and 17.47%,
respectively at December 31, 1994. Management believes, as of December 31,
1994, that the Bank meets all capital requirements to which it is subject.
NOTE O - SUBSEQUENT EVENT
On January 24, 1995, the Bank entered into a definitive agreement providing
for the merger of the Bank of Encino ("Encino") into Western Bank. The Bank
has agreed to pay $8 million in cash for all the shares of Encino common
stock. As of December 31, 1994, Encino had approximately $70 million in
assets. Completion of the transaction is subject to approvals from state
and federal agencies as well as the shareholders of Encino. It is expected
that the transaction will be completed during the second quarter of 1995.
28
<PAGE>
Exhibit 94.4
Western Bank
Consolidated Financial Statements June 30, 1996
(Unaudited)
WESTERN BANK
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's omitted, except share data)
ASSETS 30-JUN-96 31-DEC-95
- -------------------------------------------------- --------- ----------
Cash and due from banks $ 28,964 $ 25,437
Federal funds sold 10,000 --
Interest bearing deposits and
investment securities
Held to maturity (Fair value of $1,498 and 1,509 3,612
$3,656 at 6/30/96 and 12/31/95 respectively)
Available for sale, at fair value 129,394 140,133
Loans and leases (net) 196,012 210,506
Premises and equipment 5,144 5,324
Other real estate owned 6,099 4,828
Other assets 7,253 7,158
---------- ----------
TOTAL ASSETS $ 384,375 $ 396,998
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 343,364 $ 340,639
FHLB advances and other borrowings 17,000
Accrued interest payable and other liabilities 2,114 1,814
---------- ----------
TOTAL LIABILITIES 345,478 359,453
Common stock, no par value,
authorized 10,000,000 shares and
3,543,156 outstanding at 6/30/96 and
12/31/95 20,511 20,511
Retained earnings 19,432 17,088
Unrealized gain on investment
securities available for sale, net of taxes (1,046) (54)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 38,897 37,545
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 384,375 $ 396,998
---------- ----------
---------- ----------
<PAGE>
WESTERN BANK
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(000's omitted, except per share data)
FOR SIX MONTH PERIOD ENDED
--------------------------
30-JUN-96 30-JUN-95
---------- ----------
INTEREST AND LOAN FEE INCOME:
Investment securities $ 4,046 $ 3,322
Federal funds sold 35 238
Loans and leases 10,036 8,293
---------- ----------
TOTAL INTEREST INCOME 14,117 11,853
INTEREST EXPENSE:
Deposits 3,980 2,428
Borrowings 319 9
---------- ----------
TOTAL INTEREST EXPENSE 4,299 2,437
---------- ----------
NET INTEREST INCOME 9,818 9,416
Less: provision for loan losses - 100
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,818 9,316
NON-INTEREST INCOME
Service charges on deposits accounts 165 151
Temporary overdraft charges & NSF fees 198 213
Other service charge and fee income 133 180
Gain on sale of mortgage loans - 212
Loan servicing fees 128 293
Other income 152 787
---------- ----------
TOTAL NON-INTEREST INCOME 776 1,836
NON-INTEREST EXPENSE
Salaries and benefits 3,422 3,291
Premises and furniture, fixtures and equipment 788 745
Advertising, marketing and business development 206 242
Data processing 431 362
Other real estate owned 427 356
Professional services 393 393
Other 907 1,778
---------- ----------
TOTAL NON-INTEREST EXPENSE 6,574 7,167
---------- ----------
Income before provision for taxes 4,020 3,985
Provision for taxes 1,676 1,623
---------- ----------
NET INCOME AFTER PROVISION FOR TAXES $ 2,344 $ 2,362
---------- ----------
---------- ----------
<PAGE>
WESTERN BANK
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000's omitted)
FOR SIX MONTH PERIOD ENDED
--------------------------
30-JUN-96 30-JUN-95
--------- ---------
Cash flow from operating activities
Net income $ 2,344 $ 2,362
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses - 100
Depreciation and amortization 296 225
Net increase (decrease) in accrued interest
payable and other liabilities 300 (2,280)
Net decrease (increase) in accrued interest
receivable and other assets (95) 3,674
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 2,845 4,081
Cash flow from investing activities:
Principal payments received on investment securities
available for sale 35,747 10,609
Purchase of investment securities available for sale (26,000) (11,000)
Principal payments received on investment securities
held to maturity 2,103 (4)
(Increase) decrease in net loans 14,494 (1,542)
(Increase) decrease in OREO (1,271) 2,100
Additions to premises and equipment (116) (652)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 24,957 (489)
Cash flow from financing activities:
Net increase (decrease) in deposits 2,725 (29,305)
Repayment of debt (17,000) -
Common stock dividend - 11
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (14,275) (29,294)
--------- ---------
Net increase in cash and cash equivalents 13,527 (25,702)
Cash and cash equivalents at the beginning of the period 25,437 55,423
CASH AND CASH EQUIVALENTS AT THE END
OF THE PERIOD $ 38,964 $ 29,721
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information
Property acquired through foreclosure $ 2,298 $ 1,263
--------- ---------
--------- ---------
Increase (decrease) of unrealized gain on investment
securities available for sale, net of tax $ (992) $ 2,218
--------- ---------
--------- ---------
Cash taxes paid $ 1,650 $ 1,665
--------- ---------
--------- ---------
Cash interest paid $ 4,361 $ 2,308
--------- ---------
--------- ---------
