<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
October 20, 1997
United Security Bancorporation
(Exact Name of Registrant as Specified in Charter)
Washington 0-18561 91-1259511
---------- ------- ----------
(State or other jurisdiction (Commission (IRS
Employer Identi-
of incorporation) File Number) fication
Number)
9506 North Newport Highway, Spokane, Washington 99218-
1200
-----------------------------------------------------
- -----
(Address of principal executive offices/Zip
Code)
Registrant's telephone number, including area code:
(509) 467-6949
---------------------------------------------------------
- ----------
Item 7. Financial Statements and Exhibits.
On October 20, 1997 United Security Bancorporation acquired
Community Ban Corporation and its wholly-owned subsidiary
Bank of Pullman (Pullman). The agreement and plan of merger
and news release of October 21, 1997 were filed as a Form 8-
K under Item 2. Acquisition or Disposition of Assets on
October 31, 1997. The financial statements required by this
item are included with this amendment filing. As disclosed
in the included pro forma financial information United
Security Bancorporation obtained an $8 million borrowing
line from Key Bank of Washington as a portion of the sources
of funds used to complete the acquisition of Pullman.
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of
1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 6, 1997
UNITED SECURITY BANCORPORATION
By: /s/ Chad Galloway
------------------------------
Name: Chad Galloway
Title: Vice President and
Chief Financial Officer
1
<PAGE>
Consolidated Financial Statements and
Independent Auditors' Report
December 31, 1996
Community Bancorporation and Subsidiary
Contents
Page
Independent Auditors' Report 3
Consolidated Financial Statements:
Consolidated balance sheet 4-5
Consolidated statement of income 6
Consolidated statement of stockholders' equity 7
Consolidated statement of cash flows 8-9
Notes to consolidated financial statements 10-22
2
<PAGE>
Community Bancorporation and Subsidiary
INDEPENDENT AUDITORS' REPORT
Board of Directors
Community Bancorporation
Pullman, Washington
We have audited the accompanying consolidated balance sheet
of Community Bancorporation and Subsidiary as of December
31, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the
responsibility of the Corporation's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audit.
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the consolidated 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 consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Community Bancorporation and
Subsidiary as of December 31, 1996, and the results of their
operations and their and their cash flows for the year then
ended in conformity with generally accepted accounting
principles.
/s/ LeMaster & Daniels
PLLC
Spokane, Washington
July 25, 1997
3
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Balance Sheet, December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
<C>
CASH AND CASH EQUIVALENTS:
Cash and due from banks $
2,662,171
Federal funds sold
775,000
-
- ----------
Total cash and cash equivalents
3,437,171
SECURITIES:
Available-for-sale $18,064,399
Held-to-maturity 3,759,757
-----------
21,824,156
LOANS:
Commercial and industrial 13,639,321
Agricultural 6,944,558
Real estate mortgage and construction 8,774,674
Installment 1,994,173
Municipal 44,277
Credit cards 633,291
Other 166,764
----------
Total loans 32,197,058
Less:
Deferred loan fees 64,070
Unearned income 6,535
Allowance for loan losses 606,545
----------
31,519,908
ACCRUED INTEREST RECEIVABLE
696,095
PREMISES AND EQUIPMENT
243,923
OTHER ASSETS
394,303
-
- ----------
$58,115,556
===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Balance Sheet (Continued), December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
<C>
LIABILITIES:
Deposits:
Interest bearing:
Demand $
6,162,314
Savings
26,353,040
Time (including time deposits over
$100,000 of $446,053)
4,692,767
Noninterest bearing, demand
13,668,788
-
- ----------
Total deposits
50,876,909
Accrued interest payable
75,055
Other liabilities
431,809
-
- ----------
Total liabilities
51,383,773
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock--authorized 1,000,000 shares of no
par value; 300,000 shares
issued and outstanding $ 621,425
Retained earnings 6,127,443
Unrealized loss on securities
available-for-sale, less
applicable deferred income tax (17,085)
-----------
Total stockholders' equity
6,731,783
-
- ----------
$58,115,556
===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Income, Year Ended December 31,
1996
<TABLE>
<CAPTION>
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans
$3,414,755
Interest on investment securities:
Taxable
832,451
Tax-exempt
323,175
Interest on federal funds sold
93,138
------
- ----
4,663,519
INTEREST EXPENSE:
Interest on deposits $ 1,653,170
Other 32,956
-----------
1,686,126
------
- ----
Net interest income
2,977,393
PROVISION FOR LOAN LOSSES
- -
------
- ----
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
2,977,393
NONINTEREST INCOME:
Service charges on deposit accounts 222,860
Escrow fees 19,422
Other 137,132
----------
379,414
NONINTEREST EXPENSES:
Salaries 984,758
Employee benefits 207,104
Occupancy expense 139,338
Equipment expense 179,665
Other operating expense 671,333
2,182,198
------
- ----
INCOME BEFORE INCOME TAX
1,174,609
FEDERAL INCOME TAX (BENEFIT):
Current 327,000
Deferred (6,000)
321,000
------
- ----
NET INCOME $
853,609
==========
NET INCOME PER SHARE OF COMMON STOCK $
2.85
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on
Securities
Common Stock Retained Available-
Shares Amount Earnings For-Sale
Total
------- ------- ---------- ----------- ---
- ------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31,
1995 300,000 $621,425 $5,372,834 $ 49,767
6,044,026
ADD (DEDUCT):
Net income for 1996 - - 853,609 -
853,609
Cash dividends declared
($.33 per share) - - (99,000) -
(99,000)
Net changes in unrealized gain
(loss) on available-for-sale
securities, net of tax
benefit of $34,439 - - - (66,852)
(66,852)
------- -------- ---------- -------- ---
- -------
BALANCES, DECEMBER 31,
1996 300,000 $621,425 $6,127,443 $(17,085)
$6,731,783
======= ======== ========== ========
==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Cash Flows, Year Ended December 31, 1996
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
<S> <C> <C>
Interest and fees received on loans and investments
$4,615,930
Other fees and commissions received
371,321
Interest paid
(1,652,737)
Cash paid to suppliers and employees
(2,132,246)
Income taxes paid
(183,143)
----
- ------
Net cash provided by operating activities
1,019,125
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities$1,750,000
Purchases of available-for-sale securities (8,857,100)
Proceeds from sales or maturities of
available-for-sale securities 6,352,370
Net increase in loans (1,096,756)
Purchase of premises and equipment (55,331)
----------
Net cash used in investing activities
(1,906,817)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (2,667,476)
Cash dividends paid (90,000)
Net cash used in financing activities
(2,757,476)
----
- ------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(3,645,168)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
7,082,339
----
- ------
CASH AND CASH EQUIVALENTS, END OF YEAR
$3,437,171
==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Cash Flows (Continued), Year Ended December
31, 1996
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
<TABLE>
<CAPTION>
<S> <C> <C>
Net income $
853,609
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization $121,434
Amortization of investment security discounts (14,544)
Accretion of investment security premiums 26,147
Gains on disposition of assets, net (8,093)
Deferred income tax (6,000)
(Increase) decrease in assets:
Accrued interest receivable (75,211)
Deferred loan fees 21,090
Unearned income (5,071)
Other assets 72,744
Increase (decrease) in liabilities:
Accrued interest payable 33,389
Other liabilities (369)
--------
Total adjustments
165,516
---
- -------
Net cash provided by operating activities
$1,019,125
==========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 1 - Organization and Summary of Significant Accounting
Policies:
Organization:
Community Bancorporation (which includes its wholly-owned
subsidiary, Bank of Pullman, and is referred to as the
Corporation), a bank holding company, was formed as part of
a corporate reorganization under the laws of the state of
Washington. Bank of Pullman is a banking corporation
originally organized under the laws of the state of
Washington. On May 20, 1997, the Bank relocated its charter
to the state of Idaho. The Bank operates branches in
Pullman, Uniontown, Colton, and Palouse, Washington. A
branch opened in Moscow, Idaho subsequent to December 31,
1996.
The accounting policies followed by the Corporation conform
with generally accepted accounting principles and with
prevailing practices of the banking industry.
Summary of Significant Accounting Policies:
a. Consolidation -- the consolidated financial statements
include the accounts of the Corporation and its wholly-owned
subsidiary, Bank of Pullman, after eliminating significant
intercompany balances and transactions.
b. Use of estimates -- the preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Significant estimates used in preparing
these financial statements are those assumed in determining
the allowance for loan losses and the fair values of
investment securities. Actual results could differ from
those estimates.
c. Trading securities -- debt and equity securities that are
bought and held principally for the purpose of selling them
in the near term are reported at fair value, with unrealized
gains and losses included in earnings. There are no
securities classified as trading securities.
Securities held to maturity -- debt securities for which the
Corporation has the positive intent and ability to hold to
maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities available for sale -- debt and equity securities
not classified as either held-to-maturity securities or
trading securities are reported at fair value. Unrealized
holding gains and losses, net of taxes, are excluded from
earnings and reported in a separate component of
stockholders' equity. Gains and losses on the sale of
available-for-sale securities are determined using the
specific-identification method. Premiums and discounts are
recognized in interest income using the interest method over
the period to maturity.
10
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 1 - Organization and Summary of Significant Accounting
Policies (continued):
d. Loans and allowances for loan losses -- all loans are
stated at principal outstanding less allowance for probable
loan losses. Interest is credited to income based on the
principal outstanding at appropriate rates of interest.
Loans are placed on a nonaccrual status when payment has not
been received for more than 90 days. Thereafter, no
interest is taken into income unless received in cash or
until such time as the borrower demonstrates the ability to
resume payments of principal and interest. Interest
previously accrued but not collected is reversed and charged
against income at the time the loan is placed on nonaccrual
status.
An allowance for losses on loans is maintained at a level
deemed by management to be adequate to provide for potential
loan losses through charges to operating expense. The
allowance is based upon a continuing review of loans which
includes consideration of actual net loan loss experience,
changes in size and character of the loan portfolio,
identification of individual problem situations which may
affect the borrower's ability to repay, and evaluation of
current economic conditions. Loan losses are recognized
through charges to the allowance.
e. Deferred loan fees -- loan origination fees and certain
direct costs are capitalized and recognized as an adjustment
of the yield on the related loans.
f. Premises and equipment -- premises and equipment,
including leasehold improvements, are stated at cost less
accumulated depreciation over estimated useful lives which
range from 3 to 31.5 years. Depreciation expense is
computed using straight-line and accelerated methods over
the respective useful lives. Modified accelerated cost
recovery system depreciation methods are used for federal
income tax purposes. Normal costs of maintenance and
repairs are charged to expense.
g. Intangibles -- the costs of an acquired bank subsidiary
in excess of the fair value of net assets acquired and core
deposit premiums paid are amortized using the straight-line
method over nine to fifteen years. Such amounts are
included in other assets in the accompanying consolidated
balance sheet.
h. Advertising -- advertising costs are charged to expense
as incurred. For 1996, such expenses totaled $47,000.
11
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
(continued):
i. Income tax -- the Corporation and its subsidiary file a
consolidated federal income tax return. The income tax
related to the individual entities is computed as if each
had filed a separate tax return.
Income tax is provided for the tax effects of transactions
reported in the financial statements and consists of tax
currently due plus deferred tax related to differences
between the basis of assets and liabilities for financial
and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of
those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled. The differences relate principally to depreciation
of premises and equipment, allowance for loan losses, basis
of investment securities, loan fee recognition, basis of
covenant not-to-compete, and the market value adjustment for
investments available-for-sale (see note 7).
j. Earnings per share -- earnings per share have been
calculated on the basis of weighted average number of shares
outstanding during each year. Such shares totaled 300,000
for 1996.
k. Cash equivalents -- cash equivalents include amounts due
from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
l. New accounting standards to be adopted in future periods
- -- In June 1996, Statement of Financial Standards (SFAS) No.
125, "Accounting for Transfer and Servicing of Financial
Assets and Extinguishment of Liabilities" was issued. The
statement provides guidance for distinguishing transfers of
financial assets that are sales from transfers that are
secured borrowings and is effective January 1, 1997. In
December 1996, SFAS No. 127 was issued, delaying certain
provisions of SFAS No. 125 for one year. Adoption of SFAS
No. 125 is not expected to have a material effect on the
Corporation's financial statements.
NOTE 2 _ FEDERAL FUNDS:
The Bank is required to maintain legal cash reserves in a
minimum amount, computed by applying prescribed percentages
to their various types of deposits. When the Bank's cash
reserves are in excess of that required, it may lend the
excess to other banks on a daily basis. Conversely, when
cash reserves are less than required, the Bank borrows funds
on a daily basis. The average month-end amounts of federal
funds sold for the year ended December 31, 1996, was
$1,786,463. Similarly, the average of federal funds
purchased was $189,590 for 1996.
12
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
Note 3 - Securities:
Securities have been classified in the consolidated balance
sheet according to management's intent. The carrying amount
of securities and their approximate fair values were as
follows:
Available-for-sale securities:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1996: Amortized Gross Unrealized
Fair
Cost Gains Losses
Value
----------- ------- --------- ----
- -------
Debt securities:
U.S. Treasury securities and
obligations of U.S.
government agencies $11,846,722 $20,672 $ (81,982)
$11,785,412
Mortgage-backed securities 1,006,175 16,377 (7,177)
1,015,375
Obligations of state and
political subdivisions 3,389,976 46,029 (18,442)
3,417,563
Other debt securities 1,844,237 731 (2,094)
1,842,874
----------- ------- --------- ----
- -------
Total debt securities 18,087,110 83,809 (109,695)
18,061,224
Equity securities:
Investment in other banks 3,175 - -
3,175
----------- ------- --------- ----
- -------
Totals $18,090,285 $83,809 $(109,695)
$18,064,399
=========== ======= =========
===========
Held-to-maturity securities:
December 31, 1996:
U.S. Treasury securities and
obligations of U.S.
government agencies $ 500,000 $ - $ (5,313)
$ 494,687
Obligations of state and
political subdivisions 3,259,757 38,515 (5,482)
3,292,790
----------- ------- --------- ----
- -------
Totals $ 3,759,757 $38,515 $ (10,795) $
3,787,477
=========== ======= =========
===========
</TABLE>
13
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
Note 3 - Securities (continued)
The following is a summary of maturities of securities held-to-
maturity and available-for-sale as of December 31, 1996. 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Securities Held-to-Maturity Securities
Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ---------- --------- ------
- -----
Amounts maturing in:
One year or less $ 485,369 $ 489,262 $ 1,699,012 $
1,708,688
After one year through five
years 2,531,584 2,543,428 12,629,110
12,584,267
After five years through ten
years 423,513 433,720 1,444,329
1,451,141
After ten years 213,601 215,128 48,800
48,800
No single maturity date 105,690 105,939 2,269,034
2,271,503
---------- ---------- ----------- ------
- -----
Totals $3,759,757 $3,787,477 $18,090,285
$18,064,399
========== ========== ===========
===========
</TABLE>
During 1996, the Corporation sold securities available-for-sale for
total proceeds of approximately $6,352,000, resulting in gross
realized gains of approximately $7,788 and gross realized losses of
approximately $4,144.
Investment securities of $435,000 at December 31, 1996, were pledged
to secure public deposits.
NOTE 4 _ RELATED-PARTY TRANSACTIONS:
Loans to the Corporation's officers and directors are on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated
persons and do not involve more than normal risk of collectibility.
The aggregate dollar amounts of these loans were approximately
$140,000 at December 31, 1996.
14
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 5 _ ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $591,841
Provision charged to operations -
Loans charged off (102,431)
Recoveries 117,135
--------
Balance, end of year $606,545
========
</TABLE>
Loans on which the accrual of interest has been discontinued at
December 31, 1996, and the related effects on interest income for the
year then ended were $174,859 and $65,700, respectively.
NOTE 6 _ PREMISES AND EQUIPMENT:
Major classifications of premises and equipment are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Premises $ 93,226
Equipment 1,034,347
Leasehold improvements 308,948
----------
1,436,521
Less accumulated depreciation 1,192,598
----------
Totals $ 243,923
==========
</TABLE>
15
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 7 _ FEDERAL INCOME TAX:
The components of the net deferred tax asset included in other assets
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets $ 181,000
Deferred tax asset valuation allowance -
Deferred tax liabilities (78,000)
---------
Net deferred tax assets $ 103,000
=========
</TABLE>
The net deferred tax assets consisted of the following tax
effects on significant temporary differences:
<TABLE>
<CAPTION>
Assets
Liabilities
<S> <C> <C>
Allowance for loan losses $120,000 $
- -
Premises and equipment -
45,000
Investments 27,000
8,000
Intangibles 12,000
21,000
Deferred loan fees 22,000
- -
Other -
4,000
-------- -------
- -
Totals $181,000 $
78,000
========
========
</TABLE>
The effective tax rate differs from the statutory federal
tax rate for 1996 as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal income tax at statutory rate $399,000
Effect of tax-exempt interest income, net
(93,000)
Effect of nondeductible expenses and other, net
15,000
-------
- -
Total federal income tax provision
$321,000
========
</TABLE>
16
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 8 _ FINANCIAL INSTRUMENTS AND CREDIT CONCENTRATIONS:
The Corporation, through its bank subsidiary, is engaged in
lending activities with borrowers in a variety of
industries. A substantial portion of lending is
concentrated in the agribusiness industry in the region in
which the Bank is located. Collateral on loans, loan commit
ments, and standby letters of credit varies and may include
accounts receivable, inventories, investment securities,
real estate, equipment, and vehicles. The amount and nature
of collateral required are based on credit evaluations of
the individual customers.
The Corporation is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet
the financing needs of its banking customers. These
financial instruments generally include commitments to
extend credit, standby letters of credit, and financial
guarantees. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The
contract amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of
financial instruments.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit and financial guarantees written is
represented by the contractual amount of those instruments.
The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-
balance-sheet instruments.
Commitments to extend credit 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 payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
Standby letters of credit are issued on behalf of customers
in connection with contracts between the customers and third
parties. Under a standby letter of credit, the Corporation
assures that the third party will receive specified funds if
a customer fails to meet his contractual obligation. The
liquidity risk to the Corporation arises from its obligation
to make payment in the event of a customer's contractual
default. The credit risk involved in issuing letters of
credit and the Corporation's management of that credit risk
are the same as for loans.
17
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 8 _ FINANCIAL INSTRUMENTS AND CREDIT CONCENTRATIONS
(continued):
The contract amounts of these financial instruments
representing credit risk at December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Commitments to extend credit $ 9,123,000
Credit card arrangements 1,500,000
Standby letters of credit and financial
guarantees written 190,000
</TABLE>
The Corporation and its subsidiary maintain due from bank
accounts at several financial institutions located in the
Northwest. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000.
Uninsured balances aggregated approximately $1,995,000 at
December 31, 1996.
NOTE 9 _ COMMITMENTS AND CONTINGENCIES:
Community Bancorporation and its bank subsidiary lease their
main office and a branch office under noncancellable
operating lease agreements with varying terms through 2000.
The annual minimum rental commitments under these leases at
December 31, 1996, exclusive of taxes and other charges,
total approximately $72,500 in 1997 and $59,500 in 1998,
1999, and 2000. Total rental expense amounted to approxi
mately $83,500 in 1996.
NOTE 10 _ PENSION PLAN:
Bank of Pullman sponsors a 401(k) profit-sharing plan that
covers all employees meeting minimum eligibility
requirements. Under this defined contribution plan,
employees may make voluntary contributions to the plan up to
15% of eligible compensation. Employer matching
contributions of up to 2.4% (40% of employee contributions
up to 6%) are required. In addition, the Bank may also make
voluntary profit-sharing contributions annually. Contribu
tions by the Bank, consisting of matching contributions,
totaled approximately $36,900 in 1996.
18
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 11 _ DIVIDENDS PAYABLE:
The accompanying financial statements include a liability
for dividends declared but unpaid at year-end. The
Corporation's 1996 financial statements, as previously
presented, did not include such liability. Accordingly,
these financial statements have been restated, reducing
previously reported retained earnings at December 31, 1995
and 1996, by $90,000 and $99,000, respectively. The
restatement had no effect on previously reported net income
or cash flows.
NOTE 12 _ RESTRICTIONS ON DIVIDENDS AND LOANS:
The Bank is subject to state banking regulations relating to
the payment of dividends and the amount of loans it may
extend. The Bank cannot declare or pay any dividends in an
amount greater than its retained earnings. Certain loans to
any person, including liabilities of a firm or association,
cannot exceed twenty percent of the capital and surplus of
the Bank. Loans that are secured or covered by guarantees
or by commitments or agreements to take over or to purchase
the same, made by any federal reserve bank or by the United
States or any department, bureau board, commission, or
establishment of the United States, are not subject to these
restrictions. No loans can be made unless the Bank has more
than the minimum funds required by law.
NOTE 13_ REGULATORY CAPITAL REQUIREMENTS:
Community Bancorporation and its subsidiary, Bank of
Pullman, are subject to regulatory capital requirements.
Regulated by the Federal Deposit Insurance Corporation
(FDIC) and the State of Washington Division of Banking, the
Bank is required to maintain minimum levels of regulatory
capital as a percentage of regulatory assets. The Bank's
total regulatory capital must equal 8% of risk-weighted
assets, and one-half of that 8% must consist of core
capital. Failure to meet minimum capital requirements can
result in actions by regulators that, if taken, could
materially affect the consolidated financial statements.
Management believes that under the current regulations the
Bank meets and will continue to meet all regulatory capital
requirements in the foreseeable future. However, events
beyond the Bank's control, such as a downturn in the economy
of the region, could adversely affect future earnings and
regulatory capital.
FDIC regulations establish the amount of capital required
for each category of institution classification. Depending
on the Bank's category, regulators may restrict certain
activities of the Bank, including acceptance of brokered
deposits or offering interest rates on deposits that are
greater than prevailing interest rates.
19
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 13_ REGULATORY CAPITAL REQUIREMENTS (continued):
As of January 22, 1996, the most recent notification from
the State of Washington Division of Banking categorized the
Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-
based, Tier I risk-based, Tier I leverage ratios as set
forth in the table. There are no conditions or events since
that notification that management believes have changed the
institution's category. The Bank's actual capital amounts
and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be
Well
Capitalized Under
For Capital Prompt
Corrective
Actual Adequacy Purposes Action
Provisions
Amount Ratio Amount Ratio Amount
Ratio
---------- ----- ---------- ------- --------
- -- -----
<S> <C> <C> <C> <C> <C>
<C>
As of December 31, 1996:
Total capital (to risk-
weighted assets) $7,101,000 18.2% $3,121,000 >8.0%
$3,902,000 >10.0%
Tier I capital (to risk-
weighted assets) 6,612,000 17.0 1,556,000 >4.0
2,334,000 > 6.0
Tier I capital (to
average assets) 6,612,000 11.4 2,314,000 >4.0
2,893,000 > 5.0
</TABLE>
NOTE 14 _ PARENT COMPANY STATEMENTS:
Community Bancorporation's parent company condensed financial state
ments are presented using the equity method of accounting.
Accordingly, the separate accounts of the Bank subsidiary are not
included and intercompany transactions and balances have not been
eliminated.
The following are the condensed balance sheet, statement of income,
and statement of cash flows for the parent company, Community
Bancorporation as of and for the year-ended December 31, 1996:
20
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 14 _ PARENT COMPANY STATEMENTS (continued):
Condensed Balance Sheet
<TABLE>
<CAPTION>
<S> <C>
Assets:
Cash $ 7,303
Investment in and advances to Bank subsidiary 6,729,422
Intangible assets (goodwill from purchase of
Farmers State Bank) 111,143
----------
Total assets $6,847,868
==========
Liabilities:
Dividends payable $ 99,000
Stockholders' equity 6,748,868
----------
$6,847,868
==========
CONDENSED STATEMENT OF INCOME
Income:
Dividends from bank subsidiary $ 30,000
Expenses:
Professional fees and other 52,817
Loss before equity in undistributed net
income of subsidiary and income tax expense (22,817)
Equity in undistributed earnings of bank
subsidiary, less dividends paid to parent 876,426
----------
Net income $ 853,609
==========
Earnings per common share $ 2.85
==========
Weighted average number of shares outstanding 300,000
==========
</TABLE>
21
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 14 _ PARENT COMPANY STATEMENTS (continued):
CONDENSED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
<S> <C>
Dividends received $ 30,000
Payments to suppliers (40,353)
---------
Net cash used in operating activities (10,353)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (90,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (100,353)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 107,656
--------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,303
========
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
Net income $853,609
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of intangible 12,464
Equity in undistributed earnings of subsidiary (876,426)
--------
Net cash used in operating activities $(10,353)
========
</TABLE>
22
<PAGE>
COMMUNITY BANCORPORATION
AND SUBSIDIARY
Consolidated Financial Statements
(Unaudited)
June 30, 1997
Community Bancorporation and Subsidiary
Contents
Page
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheet 24-25
Consolidated statement of income 26
Consolidated statement of stockholders' equity 27
Consolidated statement of cash flows 28-29
Notes to consolidated financial statements 30-42
23
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30,
1997
<S> <C>
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 3,093,000
Federal funds sold 825,000
-----------
Total cash and cash equivalents 3,918,000
SECURITIES:
Available-for-sale 15,068,000
Held-to-maturity 3,507,000
-----------
18,575,000
LOANS:
Commercial and industrial 13,889,000
Agricultural 9,080,000
Real estate mortgage and construction 8,591,000
Installment 2,230,000
Municipal 354,000
Credit cards 643,000
Other 82,000
----------
Total loans 34,869,000
Less:
Deferred loan fees 66,000
Unearned income 4,000
Allowance for loan losses 643,000
----------
34,156,000
ACCRUED INTEREST RECEIVABLE 799,000
OTHER REAL ESTATE OWNED 77,000
PREMISES AND EQUIPMENT 416,000
OTHER ASSETS 397,000
-----------
$58,338,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Balance Sheet (Continued)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30,
1997
<S> <C>
LIABILITIES:
Deposits:
Interest bearing:
Demand $10,676,000
Savings 25,083,000
Time (including time deposits over
$100,000 of $1,809,000) 6,531,000
Noninterest bearing, demand 8,706,000
-----------
Total deposits 50,996,000
Federal funds purchased -
Accrued interest payable 66,000
Other liabilities 157,000
-----------
Total liabilities 51,219,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock--1,000,000 shares authorized
of no par value; 300,000 shares
issued and outstanding 621,000
Retained earnings 6,510,000
Unrealized loss on securities
available-for-sale, less
applicable deferred income tax (12,000)
-----------
Total stockholders' equity 7,119,000
-----------
$58,338,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Income
<TABLE>
<CAPTION>
Six-Month Period
Ended June 30,
1997
<S> <C>
INTEREST INCOME:
Interest and fees on loans $1,718,000
Interest on investment securities:
Taxable 448,000
Tax-exempt 162,000
Interest on federal funds sold 31,000
----------
2,359,000
INTEREST EXPENSE:
Interest on deposits 841,000
Other 12,000
----------
853,000
----------
Net interest income 1,506,000
PROVISION FOR LOAN LOSSES 7,000
----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,499,000
----------
NONINTEREST INCOME:
Service charges on deposit accounts 114,000
Escrow fees 13,000
Other 49,000
----------
176,000
----------
NONINTEREST EXPENSES:
Salaries 519,000
Employee benefits 114,000
Occupancy expense 77,000
Equipment expense 96,000
Other operating expense 361,000
----------
1,167,000
----------
INCOME BEFORE INCOME TAX 508,000
FEDERAL INCOME TAX (BENEFIT):
Current 132,000
Deferred (6,000)
----------
NET INCOME $ 382,000
==========
NET INCOME PER SHARE OF COMMON STOCK $ 1.27
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss)
on
Securities
Common Stock Retained Available-
Shares Amount Earnings For-Sale
Total
------- ------- ---------- ----------- ---
- ------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31,
1996 300,000 $621,000 $6,128,000 $(17,000)
$6,732,000
ADD (DEDUCT):
Net income for 1996 - - 382,000 -
382,000
Net changes in unrealized gain
(loss) on available-for-sale
securities, net of tax
benefit of $3,000 - - - 5,000
5,000
------- -------- ---------- -------- --
- --------
BALANCES, DECEMBER 31,
1996 300,000 $621,000 $6,510,000 $(12,000)
$7,119,000
======= ======== ========== ========
==========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Cash Flows Six-Month Period Ended June 30,
1997
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
<S> <C>
Interest and fees received on loans and investments
$2,256,000
Other fees and commissions received
176,000
Interest paid
(862,000)
Cash paid to suppliers and employees
(1,297,000)
Income taxes paid
(131,000)
---------
- -
Net cash provided by operating activities
142,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities
253,000
Purchases of available-for-sale securities
(1,000,000)
Proceeds from sales or maturities of
available-for-sale securities
4,004,000
Net increase in loans
(2,720,000)
Purchase of premises and equipment
(218,000)
---------
- -
Net cash used in investing activities
319,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits
119,000
Cash dividends paid
(99,000)
---------
- -
Net cash used in financing activities
20,000
---------
- -
NET DECREASE IN CASH AND CASH EQUIVALENTS
481,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
3,437,000
---------
- -
CASH AND CASH EQUIVALENTS, END OF YEAR
$3,918,000
==========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
Community Bancorporation and Subsidiary
Consolidated Statement of Cash Flows, Six-Month Periods Ended June 30,
1997
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
<TABLE>
<CAPTION>
<S> <C>
Net income $382,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 7,000
Depreciation and amortization 58,000
(Increase) decrease in assets:
Accrued interest receivable (103,000)
Deferred loan fees 2,000
Unearned income (2,000)
Other assets (15,000)
Increase (decrease) in liabilities:
Accrued interest payable (9,000)
Other liabilities
(178,000)
---
- -----
Total adjustments
(240,000)
---
- -----
Net cash provided by operating activities
$142,000
========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 1 _ ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Organization:
Community Bancorporation (which includes its wholly-owned
subsidiary, Bank of Pullman, and is referred to as the
Corporation), a bank holding company, was formed as part of
a corporate reorganization under the laws of the state of
Washington. Bank of Pullman is a banking corporation
originally organized under the laws of the state of
Washington. On May 20, 1997, the Bank relocated its charter
to the state of Idaho. The Bank operates branches in
Pullman, Uniontown, Colton, and Palouse, Washington, and (in
1997) Moscow, Idaho.
The accounting policies followed by the Corporation conform
with generally accepted accounting principles and with
prevailing practices of the banking industry.
Summary of Significant Accounting Policies:
a. Consolidation -- the consolidated financial statements
include the accounts of the Corporation and its wholly-owned
subsidiary, Bank of Pullman, after eliminating significant
intercompany balances and transactions.
b. Use of estimates -- the preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Significant estimates used in preparing
these financial statements are those assumed in determining
the allowance for loan losses and the fair values of
investment securities. Actual results could differ from
those estimates.
c. Trading securities -- debt and equity securities that are
bought and held principally for the purpose of selling them
in the near term are reported at fair value, with unrealized
gains and losses included in earnings. There are no
securities classified as trading securities.
Securities held to maturity -- debt securities for which the
Corporation has the positive intent and ability to hold to
maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities available for sale -- debt and equity securities
not classified as either held-to-maturity securities or
trading securities are reported at fair value. Unrealized
holding gains and losses, net of taxes, are excluded from
earnings and reported in a separate component of
stockholders' equity. Gains and losses on the sale of
available-for-sale securities are determined using the
specific-identification method. Premiums and discounts are
recognized in interest income using the interest method over
the period to maturity.
30
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 1 _ ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued):
Summary of Significant Accounting Policies (continued):
d. Loans and allowances for loan losses -- all loans are
stated at principal outstanding less allowance for probable
loan losses. Interest is credited to income based on the
principal outstanding at appropriate rates of interest.
Loans are placed on a nonaccrual status when payment has not
been received for more than 90 days. Thereafter, no
interest is taken into income unless received in cash or
until such time as the borrower demonstrates the ability to
resume payments of principal and interest. Interest
previously accrued but not collected is reversed and charged
against income at the time the loan is placed on nonaccrual
status.
An allowance for losses on loans is maintained at a level
deemed by management to be adequate to provide for potential
loan losses through charges to operating expense. The
allowance is based upon a continuing review of loans which
includes consideration of actual net loan loss experience,
changes in size and character of the loan portfolio,
identification of individual problem situations which may
affect the borrower's ability to repay, and evaluation of
current economic conditions. Loan losses are recognized
through charges to the allowance.
e. Deferred loan fees -- loan origination fees and certain
direct costs are capitalized and recognized as an adjustment
of the yield on the related loans.
f. Premises and equipment -- premises and equipment,
including leasehold improvements, are stated at cost less
accumulated depreciation over estimated useful lives which
range from 3 to 31.5 years. Depreciation expense is
computed using straight-line and accelerated methods over
the respective useful lives. Modified accelerated cost
recovery system depreciation methods are used for federal
income tax purposes. Normal costs of maintenance and
repairs are charged to expense.
g. Intangibles -- the costs of an acquired bank subsidiary
in excess of the fair value of net assets acquired and core
deposit premiums paid are amortized using the straight-line
method over nine to fifteen years. Such amounts are
included in other assets in the accompanying consolidated
balance sheet.
h. Advertising -- advertising costs are charged to expense
as incurred. Such expense totaled $18,000 for the six-month
period ended June 30, 1997.
31
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 1 _ ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(continued):
Summary of Significant Accounting Policies (continued):
i. Income tax -- the Corporation and its subsidiary file a
consolidated federal income tax return. The income tax
related to the individual entities is computed as if each
had filed a separate tax return.
Income tax is provided for the tax effects of transactions
reported in the financial statements and consists of tax
currently due plus deferred tax related to differences
between the basis of assets and liabilities for financial
and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of
those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled. The differences relate principally to depreciation
of premises and equipment, allowance for loan losses, basis
of investment securities, loan fee recognition, basis of
covenant not-to-compete, and the market value adjustment for
investments available-for-sale (see note 7).
j. Earnings per share -- earnings per share have been
calculated on the basis of weighted average number of shares
outstanding during each year. Such shares totaled 300,000.
k. Cash equivalents -- cash equivalents include amounts due
from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
NOTE 2 _ FEDERAL FUNDS:
The Bank is required to maintain legal cash reserves in a
minimum amount, computed by applying prescribed percentages
to their various types of deposits. When the Bank's cash
reserves are in excess of that required, it may lend the
excess to other banks on a daily basis. Conversely, when
cash reserves are less than required, the Bank borrows funds
on a daily basis. The average month-end amounts of federal
funds sold for the six months ended June 30, 1997 was
$1,111,000. Similarly, the average of federal funds
purchased was $163,000.
32
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 3 _ SECURITIES:
Securities have been classified in the consolidated balance
sheet according to management's intent. The carrying amount
of securities and their approximate fair values were as
follows:
Available-for-sale securities:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
June 30, 1997: Amortized Gross Unrealized
Fair
Cost Gains Losses
Value
----------- ------- --------- ----
- -------
Debt securities:
U.S. Treasury securities and
obligations of U.S.
government agencies $10,263,000 $ - $ (51,000)
$10,212,000
Mortgage-backed securities 1,023,000 3,000 -
1,026,000
Obligations of state and
political subdivisions 3,192,000 29,000 -
3,221,000
Other debt securities 607,000 - -
607,000
----------- ------- --------- ----
- -------
Total debt securities 15,085,000 32,000 (51,000)
15,066,000
Equity securities:
Investment in other banks 2,000 - -
2,000
----------- ------- --------- ----
- -------
Totals $15,087,000 $32,000 $ (51,000)
$15,068,000
=========== ======= =========
===========
Held-to-maturity securities:
December 31, 1996:
U.S. Treasury securities and
obligations of U.S.
government agencies $ 500,000 $ - $ (3,000)
$ 497,000
Obligations of state and
political subdivisions 3,007,000 40,000 -
3,047,000
----------- ------- --------- ----
- -------
Totals $ 3,507,000 $40,000 $ (3,000) $
3,544,000
=========== ======= =========
===========
</TABLE>
33
<PAGE> 12
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 3 _ SECURITIES (continued):
The following is a summary of securities held-to-maturity
and available-for-sale as of June 30, 1997. 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
Securities Held-to-Maturity Securities
Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ---------- --------- ------
- -----
Amounts maturing in:
One year or less $ 953,000 $ 950,000 $ 3,465,000 $
3,460,000
After one year through five
years 2,182,000 2,226,000 9,551,000
9,390,000
After five years through ten
years 157,000 155,000 2,071,000
2,218,000
After ten years 215,000 213,000 -
- -
---------- ---------- ----------- ------
- -----
Totals $3,507,000 $3,544,000 $15,087,000
$15,068,000
========== ========== ===========
===========
</TABLE>
During the six-month period ended June 30, 1997, the
Corporation sold securities available-for-sale for total
proceeds of approximately $4,004,000, resulting in gross
realized gains of approximately $13,000 and gross realized
losses of approximately $0.
Investment securities of $481,000 at June 30, 1997, were
pledged to secure public deposits.
NOTE 4 _ RELATED-PARTY TRANSACTIONS:
Loans to the Corporation's officers and directors are on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more
than normal risk of collectibility. The aggregate dollar
amounts of these loans were approximately $124,000 at June
30, 1997.
34
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 5 _ ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of period $606,000
Provision charged to operations 7,000
Loans charged off -
Recoveries 30,000
--------
Balance, end of year $643,000
========
</TABLE>
Loans on which the accrual of interest has been discontinued
at June 30, 1997, were $433,000.
NOTE 6 _ PREMISES AND EQUIPMENT:
Major classifications of premises and equipment are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Premises $
93,000
Equipment
1,176,000
Leasehold improvements
386,000
---------
- -
1,655,000
Less accumulated depreciation
1,239,000
---------
- -
Totals $
416,000
==========
</TABLE>
35
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 7 _ FEDERAL INCOME TAX:
The components of the net deferred tax asset included in
other assets are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets $
187,000
Deferred tax asset valuation allowance
- -
Deferred tax liabilities
(70,000)
--------
- -
Net deferred tax assets $
117,000
=========
</TABLE>
The net deferred tax assets consisted of the following tax
effects on significant temporary differences:
<TABLE>
<CAPTION>
Assets
Liabilities
<S> <C> <C>
Allowance for loan losses $120,000 $
- -
Premises and equipment -
45,000
Investments 33,000
- -
Intangibles 12,000
21,000
Deferred loan fees 22,000
- -
Other -
4,000
-------- -------
- -
Totals $187,000 $
70,000
========
========
</TABLE>
The effective tax rate differs from the statutory federal
tax rate for the six-month period ended June 30, 1997 was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Federal income tax at statutory rate $173,000
Effect of tax-exempt interest income, net
(55,000)
Effect of nondeductible expenses and other, net
8,000
-------
- -
Total federal income tax provision
$126,000
========
</TABLE>
36
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 8 _ FINANCIAL INSTRUMENTS AND CREDIT CONCENTRATIONS:
The Corporation, through its bank subsidiary, is engaged in
lending activities with borrowers in a variety of
industries. A substantial portion of lending is
concentrated in the agribusiness industry in the region in
which the Bank is located. Collateral on loans, loan commit
ments, and standby letters of credit varies and may include
accounts receivable, inventories, investment securities,
real estate, equipment, and vehicles. The amount and nature
of collateral required are based on credit evaluations of
the individual customers.
The Corporation is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet
the financing needs of its banking customers. These
financial instruments generally include commitments to
extend credit, standby letters of credit, and financial
guarantees. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The
contract amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of
financial instruments.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit and financial guarantees written is
represented by the contractual amount of those instruments.
The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-
balance-sheet instruments.
Commitments to extend credit 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 payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
Standby letters of credit are issued on behalf of customers
in connection with contracts between the customers and third
parties. Under a standby letter of credit, the Corporation
assures that the third party will receive specified funds if
a customer fails to meet his contractual obligation. The
liquidity risk to the Corporation arises from its obligation
to make payment in the event of a customer's contractual
default. The credit risk involved in issuing letters of
credit and the Corporation's management of that credit risk
are the same as for loans.
37
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 8 _ FINANCIAL INSTRUMENTS AND CREDIT CONCENTRATIONS
(continued):
The contract amounts of these financial instruments
representing credit risk at June 30, 1997, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Commitments to extend credit $ 6,136,000
Credit card arrangements 1,627,000
Standby letters of credit and financial
guarantees written 135,000
</TABLE>
The Corporation and its subsidiary maintain due from bank
accounts at several financial institutions located in the
Northwest.
NOTE 9 _ COMMITMENTS AND CONTINGENCIES:
Community Bancorporation and its bank subsidiary lease their
main office and a branch office under noncancellable
operating lease agreements with varying terms through 2000.
The annual minimum rental commitments under these leases at
June 30, 1997, exclusive of taxes and other charges, total
approximately $36,000 for the remainder of 1997 and $60,000
in 1998, 1999, and 2000. Total rental expense amounted to
approximately $42,000 for the six-month period ended June
30, 1997.
NOTE 10 _ PENSION PLAN:
Bank of Pullman sponsors a 401(k) profit-sharing plan that
covers all employees meeting minimum eligibility
requirements. Under this defined contribution plan,
employees may make voluntary contributions to the plan up to
15% of eligible compensation. Employer matching
contributions of up to 2.4% (40% of employee contributions
up to 6%) are required. In addition, the Bank may also make
voluntary profit-sharing contributions annually. Contribu
tions by the Bank, consisting of matching contributions,
totaled approximately $20,000 for the six-month period ended
June 30, 1997.
38
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
Note 11 - RESTRICTIONS ON DIVIDENDS AND LOANS:
The Bank is subject to state banking regulations relating to
the payment of dividends and the amount of loans it may
extend. The Bank cannot declare or pay any dividends in an
amount greater than its retained earnings. Certain loans to
any person, including liabilities of a firm or association,
cannot exceed twenty percent of the capital and surplus of
the Bank. Loans that are secured or covered by guarantees
or by commitments or agreements to take over or to purchase
the same, made by any federal reserve bank or by the United
States or any department, bureau board, commission, or
establishment of the United States, are not subject to these
restrictions. No loans can be made unless the Bank has more
than the minimum funds required by law.
NOTE 12_ REGULATORY CAPITAL REQUIREMENTS:
Community Bancorporation and its subsidiary, Bank of
Pullman, are subject to regulatory capital requirements.
Regulated by the Federal Deposit Insurance Corporation
(FDIC) and the State of Washington Division of Banking, the
Bank is required to maintain minimum levels of regulatory
capital as a percentage of regulatory assets. The Bank's
total regulatory capital must equal 8% of risk-weighted
assets, and one-half of that 8% must consist of core
capital. Failure to meet minimum capital requirements can
result in actions by regulators that, if taken, could
materially affect the consolidated financial statements.
Management believes that under the current regulations the
Bank meets and will continue to meet all regulatory capital
requirements in the foreseeable future. However, events
beyond the Bank's control, such as a downturn in the economy
of the region, could adversely affect future earnings and
regulatory capital.
FDIC regulations establish the amount of capital required
for each category of institution classification. Depending
on the Bank's category, regulators may restrict certain
activities of the Bank, including acceptance of brokered
deposits or offering interest rates on deposits that are
greater than prevailing interest rates.
39
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 12_ REGULATORY CAPITAL REQUIREMENTS (continued):
As of January 22, 1996, the most recent notification from
the State of Washington Division of Banking categorized the
Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-
based, Tier I risk-based, Tier I leverage ratios as set
forth in the table. There are no conditions or events since
that notification that management believes have changed the
institution's category. The Bank's actual capital amounts
and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be
Well
Capitalized Under
For Capital Prompt
Corrective
Actual Adequacy Purposes Action
Provisions
Amount Ratio Amount Ratio Amount
Ratio
---------- ----- ---------- ------- --------
- -- -----
<S> <C> <C> <C> <C> <C>
<C>
As of June 30, 1997:
Total capital (to risk-
weighted assets) $7,402,000 18.2% $3,250,000 >8.0%
$4,062,000 >10.0%
Tier I capital (to risk-
weighted assets) 6,893,000 17.0 1,625,000 >4.0
2,437,000 > 6.0
Tier I capital (to
average assets) 6,893,000 11.9 2,319,000 >4.0
2,899,000 > 5.0
</TABLE>
NOTE 14 _ PARENT COMPANY STATEMENTS:
Community Bancorporation's parent company condensed
financial statements are presented using the equity method
of accounting. Accordingly, the separate accounts of the
Bank subsidiary are not included and intercompany transac
tions and balances have not been eliminated.
The following are the condensed balance sheet, statement of
income, and statement of cash flows for the parent company,
Community Bancorporation as of and for the six-month period
ended June 30, 1997:
40
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 14 _ PARENT COMPANY STATEMENTS (continued):
Condensed Balance Sheet
<TABLE>
<CAPTION>
<S> <C>
Assets:
Cash $ 4,000
Investment in and advances to Bank subsidiary 7,022,000
Intangible assets (goodwill from purchase of
Farmers State Bank) 105,000
----------
Total assets $7,131,000
==========
Stockholders' equity $7,131,000
----------
$7,131,000
==========
CONDENSED STATEMENT OF INCOME
Income:
Dividends from bank subsidiary $ 120,000
Expenses:
Professional fees and other 30,000
Income before equity in undistributed net
income of subsidiary 90,000
Equity in undistributed earnings of bank
subsidiary, less dividends paid to parent 292,000
----------
Net income $ 382,000
==========
Earnings per common share $ 1.27
==========
Weighted average number of shares outstanding 300,000
==========
</TABLE>
41
<PAGE>
Community Bancorporation and Subsidiary
Notes to Consolidated Financial Statements
NOTE 14 _ PARENT COMPANY STATEMENTS (continued):
Condensed Statement of Cash Flows
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
<S> <C>
Dividends received $ 120,000
Payments to suppliers (24,000)
---------
Net cash used in operating activities 96,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (99,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,000
--------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,000
========
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES:
Net income $382,000
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of intangible 6,000
Equity in undistributed earnings of subsidiary (292,000)
--------
Net cash used in operating activities $ 96,000
========
</TABLE>
42
<PAGE>
United Security Bancorporation
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined
financial statements reflect consummation of the acquisition
of Community Ban Corporation and its subsidiary Bank of
Pullman (Pullman) by United Security Bancorporation. The
following unaudited pro forma condensed combined statement
of financial condition as of June 30, 1997, combines the
historical consolidated statements of financial condition of
United Security Bancorporation and its subsidiaries (USBN)
and Pullman as if the Reorganization had occurred on such
date after giving effect to certain pro forma adjustments
described in the accompanying notes. The following
unaudited pro forma condensed combined statements of
operations are presented as if the acquisition had been
consummated at the beginning of the earliest period
presented. The USBN historical consolidated financial
statement date as of and for the six months ended June 30,
1997, have been prepared on the same basis as the historical
derived from the audited financial statements, and in the
opinion of management, contain all adjustments, consisting
only of normal recurring accruals, necessary for the fair
presentation of results of operations for such periods. The
unaudited pro forma condensed combined financial statements
and notes thereto reflect the applications of the purchase
method of accounting. The unaudited pro forma condensed
combined financial statements included herein are not
necessarily indicative of the future results of operations
or the future financial positions of the combined entities
or the results of operations and financial position of the
combined entities that would have actually occurred had the
transactions been in effect as of the dates or for the
periods presented.
43
<PAGE>
United Security Bancorporation
Pro Forma Combined Condensed Consolidated Pro Forma
Statement of Condition as of June 30, 1997
($ in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
Pro Forma Pro
Forma
Assets USBN Pullman Adjustments
Combined
Cash and due from banks $ 10,862 $ 3,093
$ 13,955
Overnight Interest bearing
deposits with other banks 620
620
Federal funds sold 7,025 825 (3,955)
(a) 3,895
-------- ------- ------
- --------
Cash and cash equivalents 18,507 3,918 (3,955)
18,470
Securities 19,248 18,575 37
(b) 37,860
Loans, net of allowance 183,133 34,156
217,289
Premises and equipment, net 6,051 416 500
(b) 6,967
Foreclosed real estate and
other foreclosed assets 599 77
676
Costs in excess of net
assets acquired 4,299
(b) 4,299
Other assets 5,617 1,196
6,813
-------- ------- ------
- --------
Total assets $233,155 $58,338 $ 881
$292,374
======== ======= ======
========
Liabilities
Noninterest-bearing demand
deposits $ 29,219 $ 8,706
$ 37,925
Interest-bearing deposits 168,400 42,290
210,690
-------- ------- ------
- --------
Total deposits 197,619 50,996
248,615
Short-term debt 268
268
Long-term debt 2,596 8,000
(c) 10,596
Capital lease obligations 742
742
Other liabilities 2,143 223
2,366
-------- ------- ------
- --------
Total liabilities 203,368 51,219 8,000
262,587
Stockholders' Equity
Common stock 21,014 621 (621)
(d) 21,014
Retained earnings 9,246 6,510 (6,510)
(d) 9,246
Net unrealized loss on
securities available-for-
sale, net (345) (12) 12
(d) (345)
Guaranteed bank loan to
Employee Stock Ownership
Plan (128)
(128)
-------- ------- ------
- --------
Total stockholders' equity 29,787 7,119 (7,119)
29,787
-------- ------- ------
- --------
Total liabilities and
stockholders' equity $233,155 $58,338 $ 881
$292,374
======== ======= ======
========
</TABLE>
44
<PAGE>
United Security Bancorporation
Explanatory notes:
(a) Current funds available to acquire Pullman.
(b) To adjust Pullman estimated adjustments from book value
to fair value and the intangible asset arising from the use
of purchase accounting for the acquisition of Pullman.
(c) Funds borrowed from Key Bank of Washington to acquire
Pullman.
(d) Elimination of Pullman stockholders' equity in the
consolidation of the Pro Forma combined Company.
Pro Forma Combined Condensed Consolidated Pro
Forma
Income Statement as of June 30, 1997
($ in thousands, except per share)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
Pro Forma
Pro Forma
USBN Pullman Adjustments
Combined
Interest and fees on loans $ 9,753 $1,718 $ 262 (a)
$11,733
Interest on securities 591 610
1,201
Other interest income 471 31 (109) (b)
393
------- ------ ----- -
- ------
Total interest income 10,815 2,359 153
13,327
------- ------ ----- -
- ------
Interest on deposits 4,140 841
4,981
Other interest expense 139 12 340 (c)
491
------- ------ ----- -
- ------
Total interest expense 4,279 853 340
5,472
------- ------ ----- -
- ------
Net interest income 6,536 1,506 (187)
7,855
Provision for loan losses 321 7
328
------- ------ ----- -
- ------
Net interest income after
provision for loan losses 6,215 1,499 (187)
7,527
------- ------ ----- -
- ------
Fees and service charges 583 127
710
Insurance commissions 583
583
Securities gains, net (25) 2
(23)
Other 243 47
290
------- ------ ----- -
- ------
Total noninterest income 1,384 176
1,560
------- ------ ----- -
- ------
Salaries and employee benefits 2,886 633
3,519
Occupancy expense, net 304 77
381
Equipment expense 336 96
432
Other operating expense 1,086 361 143 (d)
1,590
------- ------ ----- -
- ------
Total noninterest expense 4,612 1,167 143
5,922
------- ------ ----- -
- ------
Income before tax expense 2,987 508 (330)
3,165
Federal income tax expense 1,017 126 (64) (e)
1,079
------- ------ ----- -
- ------
Net income $ 1,970 $ 382 ($266) $
2,086
======= ====== =====
=======
Earnings per common share $ .53 $ 1.27 $
.57
Weighted average share
outstanding 3,682,849 300,000
3,682,849
</TABLE>
45
<PAGE>
United Security Bancorporation
Explanatory notes:
(a) Increased interest income from an improvement in the loan/deposit
ratio of Pullman.
(b) Decreased interest income from the reduction in overnight
investments.
(c) Increased interest expense from the borrowing from Key Bank of
Washington.
(d) Amortization of the resulting costs in excess of net assets in the
Pullman purchase.
(e) Resulting tax impact from the above items.
Pro Forma Combined Condensed Consolidated Pro
Forma
Income Statement for 1996
($ in thousands, except per share)
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
Pro Forma
USBN Pullman Combined
Interest and fees on loans $18,765 $3,415 $22,180
Interest on securities 1,246 1,155 2,401
Other interest income 708 93 801
------- ------ -------
Total interest income 20,719 4,663 25,382
------- ------ -------
Interest on deposits 7,850 1,653 9,503
Other interest expense 297 33 330
------- ------ -------
Total interest expense 8,147 1,686 9,833
------- ------ -------
Net interest income 12,572 2,977 15,549
Provision for loan losses 1,006 1,006
------- ------ -------
Net interest income after
provision for loan losses 11,566 2,977 14,543
------- ------ -------
Fees and service charges 1,109 243 1,352
Insurance commissions 1,200 1,200
Securities gains, net 53 53
Other 619 137 756
------- ------ -------
Total noninterest income 2,981 380 3,361
------- ------ -------
Salaries and employee benefits 5,960 1,192 7,152
Occupancy expense, net 618 139 757
Equipment expense 701 180 881
Operational loss 860 860
Other operating expense 1,733 671 2,404
------- ------ -------
Total noninterest expense 9,872 2,182 12,054
------- ------ -------
Income before tax expense 4,675 1,175 5,850
Federal income tax expense 1,513 321 1,834
------- ------ -------
Net income $ 3,162 $ 854 $ 4,016
======= ====== =======
Earnings per common share $ .86 $ 2.85 $ 1.09
Weighted average share outstanding 3,682,849 300,000 3,682,849
</TABLE>
46
<PAGE>
United Security Bancorporation
Pro Forma Combined Condensed Consolidated Pro
Forma
Income Statement for Six Months Ended June 30,
1996
($ in thousands, except per share)
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
Pro Forma
USBN Pullman Combined
Interest and fees on loans $ 8,857 $1,671 $10,528
Interest on securities 692 600 1,292
Other interest income 253 59 312
------- ------ -------
Total interest income 9,802 2,330 12,132
------- ------ -------
Interest on deposits 3,758 844 4,602
Other interest expense 141 10 151
------- ------ -------
Total interest expense 3,899 854 4,753
------- ------ -------
Net interest income 5,903 1,476 7,379
Provision for loan losses 267 267
------- ------ -------
Net interest income after
provision for loan losses 5,636 1,476 7,112
------- ------ -------
Fees and service charges 549 125 674
Insurance commissions 632 632
Securities gains, net 53 8 61
Other 247 39 286
------- ------ -------
Total noninterest income 1,481 172 1,653
------- ------ -------
Salaries and employee benefits 2,900 564 3,464
Occupancy expense, net 297 70 367
Equipment expense 368 86 454
Other operating expense 914 320 1,234
------- ------ -------
Total noninterest expense 4,479 1,040 5,519
------- ------ -------
Income before tax expense 2,638 608 3,246
Federal income tax expense 859 150 1,009
------- ------ -------
Net income $ 1,779 $ 458 $ 2,237
======= ====== =======
Earnings per common share $ .48 $ 1.53 $ .61
Weighted average share outstanding 3,668,108 300,000 3,668,108
</TABLE>
47
