EXHIBIT 99.2
BANK OF AMADOR
BALANCE SHEET
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September 30, 2004 December 31, 2003
(unaudited)
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Assets
Cash and due from banks $ 4,658,018 $ 4,235,029
Federal funds sold 21,150,000 23,906,000
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Total cash and equivalents 25,808,018 28,141,029
Available-for-sale investment securities (Note 3): 23,701,841 15,470,000
Loans:
Commercial 5,674,400 6,874,100
Real estate - construction 47,870,175 47,643,663
Real estate - other 28,256,585 20,656,983
Installment 772,000 802,376
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Total loans 82,573,160 75,977,122
Allowance for loan losses (Note 4) (850,285) (807,621)
Deferred loan fees, net (323,551) (270,031)
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Net loans 81,399,324 74,899,470
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Premises and equipment, net 275,974 351,107
Accrued interest receivable and other assets 4,800,560 3,916,988
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Total assets $ 135,985,717 $ 122,778,594
====================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Demand, non-interest bearing $ 25,902,079 $ 22,063,840
Demand, interest bearing 15,664,874 10,506,857
Savings 39,483,935 37,042,549
Time 38,622,683 37,620,085
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Total deposits 119,673,571 107,233,331
Accrued interest payable and other liabilities 892,238 572,104
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Total liabilities 120,565,809 107,805,435
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Commitments and contingencies (Note 6)
Shareholders' equity:
Serial preferred stock - no par value; authorized
500,000 shares; issued and outstanding - none
Common stock - no par value; 10,000,000 shares
authorized; issued and outstanding - 1,566,434
shares in 2004 and 1,547,699 shares in 2003 7,159,415 7,008,855
Retained earnings 7,874,953 7,472,683
Accumulated other comprehensive income, net of taxes 385,540 491,621
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Total shareholders' equity 15,419,908 14,973,159
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Total liabilities and shareholders' equity $ 135,985,717 $ 122,778,594
====================================================================================================
See notes to financial statements
Page 6 of 19 Pages
BANK OF AMADOR
STATEMENT OF INCOME
(unaudited)
Three Months ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
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Interest income:
Interest and fees on loans $ 1,566,335 $ 1,497,401 $ 4,486,131 $ 4,206,805
Interest on investment securities 193,218 184,803 551,899 674,515
Interest on Federal funds sold 53,113 30,281 120,535 82,695
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Total interest income 1,812,666 1,712,485 5,158,565 4,964,015
Interest expense on deposits 343,491 310,141 1,005,319 897,883
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Net interest income 1,469,175 1,402,344 4,153,246 4,066,132
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Provision for loan losses (Note 4) 15,000 30,000 50,000 84,000
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Net interest income after
provision for loan losses 1,454,175 1,372,344 4,103,246 3,982,132
Non-interest income 154,888 129,286 468,736 373,802
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Non-interest expenses:
Salaries and benefits 278,821 264,363 850,541 878,954
Occupancy 101,394 105,484 300,490 289,442
Other 429,775 263,961 1,082,683 691,078
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Total non-interest expenses 809,990 633,808 2,233,714 1,859,474
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Income before income taxes 799,073 867,822 2,338,268 2,496,460
Income taxes 293,300 321,800 858,600 917,100
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Net income $ 505,773 $ 546,022 $ 1,479,668 $ 1,579,360
==================================================================================================
Basic earnings per share (Note 7) $ 0.32 $ 0.36 $ .95 $ 1.04
Diluted earnings per share (Note 7) $ 0.31 $ 0.34 $ .91 $ .99
==================================================================================================
See Notes to financial statements
Page 7 of 19 Pages
BANK OF AMADOR
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
Accumulated
Common Stock Other
---------------------------- Retained Comprehensive Shareholders' Comprehensive
Shares Amount Earnings Income Equity Income
------------ ------------ ------------ ------------ ------------ ------------
Balance, January 1, 2003 1,434,257 $ 4,617,882 $ 8,501,862 $ 524,379 $ 13,644,123
Comprehensive income:
Net income 2,064,191 2,064,191 $ 1,796,683
Other comprehensive income,
net of tax:
Unrealized gains on
available-for-sale
investments (32,758) (32,758) (32,758)
Total comprehensive
income $ 2,031,433
============
Issuance of common stock dividend 73,540 1,764,980 (1,764,980)
Fractional shares redeemed (387) (9,278) (9,278)
Cash dividend, $.23 per share (330,246) (330,246)
Cash dividend, $.23 per share (330,279) (330,279)
Cash dividend, $.23 per share (332,297) (332,297)
Cash dividend, $.23 per share (335,568) (335,568)
Exercise of stock options and
related tax benefit 40,289 635,271 635,271
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 1,547,699 7,008,855 7,472,683 491,621 14,973,159
Comprehensive income:
Net income 1,479,668 1,479,668 $ 1,479,668
Other comprehensive loss,
net of tax:
Unrealized loss on
available-for-sale
investment securities (106,081) (106,081) (106,081)
------------
Total comprehensive
income $ 1,373,587
============
Cash dividend, $.23 per share (357,015) (357,015)
Cash dividend, $.23 per share (360,138) (360,138)
Cash dividend, $.23 per share (360,245) (360,245)
Exercise of stock options and
related tax benefit 30,940 436,613 436,613
Retirement of Common Stock (12,205) (286,053) (286,053)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2004 1,566,434 $ 7,159,415 $ 7,874,953 $ 385,540 $ 15,419,908
============ ============ ============ ============ ============
Page 8 of 19 Pages
BANK OF AMADOR
STATEMENT OF CASH FLOWS
(unaudited)
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Nine months ended September 30, 2004 2003
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Cash flows from operating activities:
Net income $ 1,479,668 $ 1,579,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 50,000 84,000
Increase in deferred loan origination
fees and costs, net 53,520 92,420
Depreciation and amortization 81,833 69,840
Amortization of investment security premiums 23,199 54,875
Accretion of investment security discounts (828) (1,114)
Increase in accrued interest receivable and
other assets (340,536) (16,976)
Increase in accrued interest payable and
other liabilities 320,134 213,645
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Net cash provided by operating activities 1,666,990 2,076,050
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Cash flows from investing activities:
Proceeds from matured or called available-for-sale
investment securities 4,000,000 8,480,000
Purchase of available-for-sale investment securities (12,414,926) (1,885,046)
Net increase in loans (6,603,374) (11,055,729)
Additions to premises and equipment (6,699) (178,289)
Proceeds from sale of premises and equipment 18,250
Deposits on single premium cash surrender value life insurance policies (500,000) (3,194,269)
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Net cash used in investing activities (15,524,999) (7,815,083)
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Cash flows from financing activities:
Net increase in demand, interest-bearing,
and savings deposits 11,437,641 10,932,188
Net increase in time deposits 1,002,598 6,193,807
Proceeds from exercise of stock options 436,613 293,371
Shares repurchased and retired (274,456)
Cash dividends paid (1,077,398) (992,821)
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Net cash provided by financing activities 11,524,998 16,426,545
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(Decrease) increase in cash and cash equivalents (2,333,011) 10,687,512
Cash and cash equivalents, beginning of year 28,141,029 15,599,806
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Cash and cash equivalents, end of period $ 25,808,018 $ 26,287,318
===========================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense $ 984,098 $ 820,764
Income taxes $ 719,597 $ 892,548
===========================================================================================================
See notes to financial statements
Page 9 of 19 Pages
BANK OF AMADOR
NOTES TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements should be read in conjunction
with the financial statements and related notes contained in Bank of Amador's
(the "Bank") 2003 Annual Report to Shareholders. Certain information and
footnote disclosures normally presented in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of Management, the financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
Bank's financial position at September 30, 2004 and December 31, 2003, and the
results of operations for the three and nine-month periods ended September 30,
2004 and 2003, and cash flows for the nine-month periods ended September 30,
2004 and 2003. The results of operations for the nine months ended September 30,
2004 are not necessarily indicative of results to be achieved for the entire
year.
In preparing such financial statements, Management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet, and revenues and expenses for the period. Actual
results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant changes in the near term relate to
the carrying value of real estate owned and the determination of the allowance
for credit losses.
2. STOCK-BASED COMPENSATION
No stock-based compensation cost is reflected in net income as all options
granted under the Bank's stock option plans had an exercise price equal to the
market value of the underlying common stock on the date of grant.
Proforma adjustments to the Bank's net earnings and earnings per share are
disclosed during the years in which stock options become vested. The following
table illustrates the effect on net income and earnings per share if the Bank
had applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
Earnings per share have been retroactively adjusted for a 5% stock dividend
distributed in December 2003.
For the three months ended
---------------------------
September 30, September 30,
2004 2003
------------ ------------
Net income, as reported $ 505,773 $ 546,022
------------ ------------
Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects 7,368 27,310
------------ ------------
Pro forma net income $ 498,405 $ 518,712
------------ ------------
Basic earnings per share - as reported $ .32 $ .36
------------ ------------
Basic earnings per share - pro forma $ .32 $ .34
------------ ------------
Diluted earnings per share - as reported $ .31 $ .34
------------ ------------
Diluted earnings per share - pro forma $ .31 $ .32
------------ ------------
Page 10 of 19 Pages
For the nine months ended
-----------------------------
September 30, September 30,
2004 2003
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Net income, as reported $ 1,479,668 $ 1,579,360
------------- -------------
Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects 22,103 81,930
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Pro forma net income $ 1,457,565 $ 1,497,430
------------- -------------
Basic earnings per share - as reported $ .95 $ 1.04
------------- -------------
Basic earnings per share - pro forma $ .94 $ .99
------------- -------------
Diluted earnings per share - as reported $ .91 $ .99
------------- -------------
Diluted earnings per share - pro forma $ .90 $ .94
------------- -------------
3. INVESTMENT SECURITIES
Investments are classified into the following categories:
o Available-for-sale securities, reported at fair value, with unrealized
gains and losses excluded from earnings and reported, net of taxes, as
a separate component of shareholders' equity.
o Held-to-maturity securities, which management has the positive intent
and ability to hold, reported at amortized cost, adjusted for the
accretion of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at the
time of purchase and may only change the classification in certain limited
circumstances. In addition, any transfers of securities between categories are
accounted for at fair value.
Gains or losses on the sale of securities are computed on the specific
identification method. Interest earned on investment securities is reported in
interest income, net of applicable adjustments for accretion of discounts and
amortization of premiums. In addition, unrealized losses that are other than
temporary are recognized in earnings for all investments.
The carrying value and approximate market value of securities at September 30,
2004 and December 31, 2003 are as follows:
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Estimated
Available-for-sale Amortized Unrealized Unrealized Market
Cost Gain Losses Value
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September 30, 2004
- ------------------
U.S. Government agencies $ 11,903,548 $ (88,082) $ 11,815,466
Obligations of states and political
subdivisions 10,213,741 $ 666,495 10,880,236
Corporate debt securities 1,000,400 5,739 1,006,139
------------ ------------ ------------ ------------
Total investment securities $ 23,117,689 $ 672,234 $ (88,082) $ 23,701,841
============ ============ ============ ============
December 31, 2003
- -----------------
U.S. Government agencies $ 2,500,000 $ 127 $ (3,327) $ 2,496,800
Obligations of states and political
subdivisions 10,723,235 715,065 11,438,300
Corporate debt securities 1,501,898 33,002 1,534,900
------------ ------------ ------------ ------------
Total investment securities $ 14,725,133 $ 748,194 $ (3,327) $ 15,470,000
=================================================================================================
At September 30, 2004 investment securities with estimated market values
totaling $11,815,000 were in a loss position for less than twelve months. No
investment securities were in a loss position for twelve months or more.
Management periodically evaluates each investment security relying primarily on
industry analyst reports, observations of market conditions and interest rate
fluctuations. Management believes it will be able to collect all amounts due
according to the contractual terms of the underlying investment securities and
that the noted decline in fair value is due only to interest rate fluctuations.
Page 11 of 19 Pages
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The activity in the allowance for loan losses is summarized as follows:
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Three months ended Nine months ended
(in thousands) September 30, September 30,
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2004 2003 2004 2003
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Beginning balance $ 835 $ 758 $ 808 $ 705
Provision charged to expense 15 30 50 84
Loans charged off (37) (1)
Recoveries 29
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Ending Balance $ 850 $ 788 $ 850 $ 788
================================================================================
The allowance for credit losses reflects Management's judgment as to the level
that is considered adequate to absorb potential losses inherent in the loan
portfolio. This allowance is increased by provisions charged to expense and
reduced by loan charge-offs net of recoveries. In accordance with generally
accepted accounting principles, the allocation for potential credit losses on
off-balance sheet items such as unfunded Letters of Credit and undisbursed loan
commitments which total $70,000 and $60,000 at September 30, 2004 and 2003
respectively, are carried in accrued interest and other liabilities.
In determining the overall allowance to be maintained, Management evaluates many
factors including prevailing and forecasted economic conditions, regular reviews
of the quality of loans, industry experience, historical loss experience,
composition and geographic concentrations of the loan portfolio, the borrowers'
ability to repay, repayment performance and estimated collateral values.
Management believes that the allowance for loan losses at September 30, 2004 is
prudent and warranted, based on information currently available. However, no
prediction of the ultimate level of loans charged off in future years can be
made with any certainty.
Nonperforming assets are comprised of loans delinquent 90 days or more with
respect to interest or principal, loans for which the accrual of interest has
been discontinued, and other real estate that has been acquired through
foreclosure and is awaiting disposition.
Management generally places loans on nonaccrual status when they become 90 days
past due, unless the loan is well secured and in the process of collection. When
a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and the loan is accounted for on the cash or cost
recovery method thereafter, until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when all delinquent interest
and principal become current in accordance with the terms of the loan agreement
and remaining principal is considered collectible or when the loan is both well
secured and in process of collection.
Real estate and other assets acquired in satisfaction of indebtedness are
recorded at the estimated fair market value ("FMV") of the property. Any
difference between the FMV of the property and the recorded loan balance at the
date of foreclosure is charged against the allowance for loan losses (or a
recovery in the rare instance it exceeds the recorded loan balance). A valuation
allowance for losses on acquired property is maintained to provide for
subsequent temporary declines in value. Costs of maintaining the acquired
property and gains or losses on the subsequent sale are reflected in current
earnings.
Page 12 of 19 Pages
Nonperforming loans and other real estate (foreclosed properties) are summarized
below:
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(in thousands) September 30, 2004 December 31, 2003
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Nonaccrual:
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Real estate $ 64 $ 450
Commercial 90 13
Installment
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Total nonaccrual loans $ 154 $ 463
===============================================================================
Other real estate
===============================================================================
As of September 30, 2004, there were no loans past due 90 days or more and still
accruing interest. At September 30, 2004 and December 31, 2003, there were no
other loans that were considered impaired, troubled debt restructurings, or loan
concentrations in excess of 10% of total loans not otherwise disclosed.
In Management's judgement, a concentration exists in real estate construction
loans, which represents approximately 58% and 63% of the loan portfolio at
September 30, 2004 and December 31, 2003, respectively. Approximately 89% of the
real estate construction loans were for planned owner-occupied single-family
residences at September 30, 2004 and 92% were for planned owner-occupied
single-family residences at December 31, 2003.
Although Management believes the concentration to have no more than normal risk
of collectibility, a substantial decline in the economy in general, or a decline
in real estate values in the Bank's primary market areas in particular, could
have an adverse impact on collectibility of these loans.
5. BANK OWNED LIFE INSURANCE
Salary Continuance Plan
- -----------------------
In March 2004, the Bank implemented a Salary Continuation Plan to provide
retirement benefits for executive officers and other Bank employees. The plan
provides annual retirement benefits in amounts from $12,000 per year to $36,000
per year for periods of 5 years to 10 years. Under the plan, such retirement
benefits will also be accelerated and paid upon change of control of the bank.
In connection with the implementation of this plan, the Bank has invested
$500,000 in single premium life insurance policies on the lives of some of these
employees. Although the employees are the named insured, the Bank is the owner
and beneficiary under the policies. The expense recognized under these
arrangements totaled $58,418 for the nine month period ended September 30, 2004.
6. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various outstanding commitments to
extend credit that are not reflected in the financial statements, including loan
commitments of approximately $39,723,000 and letters of credit of $1,245,000 at
September 30, 2004. All such commitments, however, will not necessarily
culminate in actual extensions of credit by the Bank during 2004.
Approximately $36,800,000 of loan commitments outstanding at September 30, 2004
relate to real estate construction loans. The remainder relates primarily to
revolving lines of credit or other commercial loans, and some of these
commitments are expected to expire without being drawn upon. Therefore, the
total commitments do not necessarily represent future cash requirements.
Letters of credit are commitments written by the Bank to guarantee the
performance of a customer to a third party. These guarantees are typically
short-term in nature. The credit risks are similar to that involved in extending
loan commitments to customers. Accordingly, the Bank uses evaluation and
collateral requirements similar to those for loan commitments.
7. EARNINGS PER SHARE COMPUTATION
Basic earnings per share ("EPS"), which excludes dilution, is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock, such as stock options, result in the issuance of common stock that shares
in the earnings of the Bank. The treasury stock method has been applied to
determine the dilutive effect of stock options in computing diluted EPS.
Earnings per share have been retroactively adjusted for a 5% stock dividend
distributed in December 2003.
Page 13 of 19 Pages
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations is as follows:
Weighted
Average
Number of
Net Shares Per-Share
For the three-month periods ended: Income Outstanding Amount
- ---------------------------------- ------------ ------------ ------------
September 30, 2004
- ------------------
Basic earnings per share $ 505,773 1,566,284 $ .32
============
Effect of dilutive stock options 53,748
------------
Diluted earnings per share $ 505,773 1,620,032 $ .31
============ ============ ============
September 30, 2003
- ------------------
Basic earnings per share $ 546,022 1,520,255 $ .36
============
Effect of dilutive stock options 101,743
------------
Diluted earnings per share $ 546,022 1,621,998 $ .34
============ ============ ============
Weighted
Average
Number of
Net Shares Per-Share
For the nine-month periods ended: Income Outstanding Amount
- --------------------------------- ------------ ------------ ------------
September 30, 2004
- ------------------
Basic and diluted earnings per share $ 1,479,668 1,559,838 $ .95
============
Effect of dilutive stock options 66,544
------------
Diluted earnings per share $ 1,479,668 1,626,382 $ .91
============ ============ ============
September 30, 2003
- ------------------
Basic earnings per share $ 1,579,360 1,513,226 $ 1.04
============
Effect of dilutive stock options 78,521
------------
Diluted earnings per share $ 1,579,360 1,591,747 $ .99
============ ============ ============
8. COMPREHENSIVE INCOME
Total comprehensive income is comprised of net earnings and net unrealized gains
and losses on available-for-sale securities. Total comprehensive income for the
three month periods ended September 30, 2004 and 2003 was $701,896 and $329,012,
respectively. For the nine-month periods ended September 30, 2004 and 2003,
total comprehensive income was $1,373,587 and $1,513,594, respectively.
Page 14 of 19 Pages