As filed with the Securities and Exchange Commission on July 27, 2005
Registration No. 333-126090
SECURITIES AND EXCHANGE COMMISSION
PRE-EFFECTIVE AMENDMENT NO. 1 TO
DISCOVERY BANCORP
California (State or Other Jurisdiction of Incorporation or Organization) | 6712 (Primary Standard Industrial Classification Number) | 20-1814766 (I.R.S. Employer Identification Number) |
338 Via Vera Cruz
San Marcos, California 92078
(760) 736-8900
(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)
James P. Kelley, II
President and Chief Executive Officer
Discovery Bancorp
338 Via Vera Cruz
San Marcos, California 92078
(760) 736-8900
(Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
Copies to:
S. Alan Rosen, Esq.
Horgan, Rosen, Beckham & Coren, L.L.P.
23975 Park Sorrento, Suite 200
Calabasas, California 91302
(818) 591-2121
Approximate date of commencement of proposed sale to the public:August 1, 2005
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering.o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the earlier registration statement number of the earlier effective registration statement for the same offering.o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.o
CALCULATION OF REGISTRATION FEE
Title of Each Class of | Proposed Maximum | |||||
Securities to be Registered | Aggregate Offering Price(1) | Amount of Registration Fee | ||||
Common Stock, no par value per share | $12,832,000 | $ | 1,511 | |||
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance withSection 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
PROSPECTUS | Preliminary Prospectus Dated July 27, 2005 |
![(DISCOVERY BANCORP LOGO)](https://capedge.com/proxy/SB-2A/0000950129-05-007340/v10199a1v1019907.gif)
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“To be the preferred financial provider in the communities and markets that the Bank serves, using exceptional employees to deliver outstanding customer service.” |
“To identify the financial needs of customers and to exceed customer expectations in the delivery and quality of products and services; and to partner with communities we serve to provide lasting economic value and improve the quality of life. By achieving this mission in a professional and ethical manner, the Bank will assure the maximization of shareholder value.” |
Years of | ||||||||||
Financial | ||||||||||
Services | ||||||||||
Name | Age | Title | Experience | |||||||
Joseph C. Carona | 64 | Executive Vice President and Chief Administrative Officer | 35 | |||||||
Stanley M. Cruse | 55 | Executive Vice President and Chief Credit Officer | 34 | |||||||
James P. Kelley, II | 53 | Director, President and Chief Executive Officer | 29 | |||||||
Martin McNabb | 57 | Controller | 24 |
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Issuer | Discovery Bancorp | |
Securities Offered to the Public | 774,194 shares of Discovery Bancorp common stock | |
Offering Price Per Share | $15.50 | |
Net Proceeds | $11,200,000, if all shares are sold, net of estimated expenses related to the offering, including estimated commissions, of $800,000 | |
Minimum Subscription | $7,750 (500 shares) | |
Common Stock Outstanding | 1,037,548 shares | |
Common Stock to be Outstanding After the Offering | 1,811,742 shares, assuming all shares of common stock being offered in this offering are sold and assuming none of our outstanding warrants or stock options are exercised | |
Common Stock to be Outstanding After the Offering and the Celtic Acquisition | 1,865,355 shares, assuming all shares of common stock being offered in this offering are sold and assuming none of our outstanding warrants or stock options are exercised | |
Offering Expiration Date | September 30, 2005, unless we decide to extend or terminate earlier | |
Use of Proceeds | We plan to use approximately $4.5 million of the net proceeds of this offering to fund the Celtic acquisition (provided we raise at least $6.0 million in net proceeds), approximately $2.5 million to increase the Bank’s capital to fund the Bank’s continued growth, approximately $305,000 to pay our organizational expenses, and the balance to enhance our working capital. | |
Risk Factors | See “RISK FACTORS” and other information included in this prospectus for a discussion of factors you should carefully consider before investing in the common stock. | |
Dividend Policy | We intend to continue to follow our strategic plan of retaining earnings to increase our capital and provide additional basis for growth. Accordingly, we do not plan to pay dividends on our common stock in the near future. | |
OTC “Bulletin Board” Trading Symbol | “DVBC” | |
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At or for the Three Months | |||||||||||||||||||||||||
Ended March 31, | At or for the Year Ended December 31, | ||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001(1) | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
STATEMENT OF OPERATIONS SUMMARY: | |||||||||||||||||||||||||
Interest income | $ | 1,648 | $ | 1,050 | $ | 5,004 | $ | 3,292 | $ | 1,806 | $ | 87 | |||||||||||||
Interest expense | 506 | 237 | 1,180 | 866 | 496 | 8 | |||||||||||||||||||
Net interest income | 1,142 | 813 | 3,824 | 2,426 | 1,310 | 79 | |||||||||||||||||||
Provision for loan losses | 159 | 33 | 238 | 289 | 391 | 81 | |||||||||||||||||||
Net interest income after provision for loan losses | 983 | 780 | 3,586 | 2,137 | 919 | (2 | ) | ||||||||||||||||||
Other income | 153 | 32 | 153 | 457 | 133 | 5 | |||||||||||||||||||
Other expenses | 993 | 734 | 3,149 | 2,303 | 1,779 | 780 | |||||||||||||||||||
Income before provision for income taxes | 143 | 78 | 590 | 291 | (727 | ) | (777 | ) | |||||||||||||||||
Income taxes (credit) | 37 | 14 | (86 | ) | (149 | ) | 1 | 0 | |||||||||||||||||
Net income (loss) | $ | 106 | $ | 64 | $ | 676 | $ | 440 | $ | (728 | ) | $ | (777 | ) | |||||||||||
PER SHARE DATA: | |||||||||||||||||||||||||
Basic earnings(2) | $ | 0.10 | $ | 0.06 | $ | 0.65 | $ | 0.49 | $ | (0.92 | ) | $ | (0.98) | ||||||||||||
Diluted earnings(3) | $ | 0.10 | $ | 0.06 | $ | 0.61 | $ | 0.46 | $ | (0.92 | ) | $ | (0.98) | ||||||||||||
Book value(4) | $ | 10.05 | $ | 9.41 | $ | 9.98 | $ | 10.81 | $ | 7.77 | $ | 8.65 | |||||||||||||
Cash dividends | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | 0 | ||||||||||||||
Weighted average number of shares outstanding | 1,037,298 | 1,037,298 | 1,037,298 | 897,017 | 795,298 | 795,298 | |||||||||||||||||||
Weighted average number of shares outstanding (fully diluted) | 1,102,495 | 1,084,128 | 1,095,455 | 935,974 | 822,991 | 822,459 |
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At or for the Three Months | |||||||||||||||||||||||||
Ended March 31, | At or for the Year Ended December 31, | ||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001(1) | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
STATEMENT OF CONDITION SUMMARY: | |||||||||||||||||||||||||
Cash and due from banks | $ | 3,060 | $ | 2,482 | $ | 1,639 | $ | 1,495 | $ | 1,402 | $ | 341 | |||||||||||||
Federal funds sold | $ | 9,315 | $ | 2,885 | $ | 4,945 | $ | 615 | $ | 1,745 | $ | 2,545 | |||||||||||||
Interest-bearing deposits | $ | 2,883 | $ | 2,541 | $ | 2,692 | $ | 2,533 | $ | 498 | $ | 399 | |||||||||||||
Investment securities | $ | 3,125 | $ | 2,525 | $ | 2,706 | $ | 2,843 | $ | 654 | $ | 1,833 | |||||||||||||
Loans, net of unearned income | $ | 94,555 | $ | 65,683 | $ | 81,035 | $ | 60,696 | $ | 37,674 | $ | 6,482 | |||||||||||||
Allowance for possible loan losses | $ | 1,157 | $ | 794 | $ | 998 | $ | 760 | $ | 472 | $ | 81 | |||||||||||||
Total assets | $ | 119,408 | $ | 76,626 | $ | 99,268 | $ | 68,282 | $ | 41,955 | $ | 11,841 | |||||||||||||
Total deposits | $ | 99,876 | $ | 63,699 | $ | 79,679 | $ | 54,161 | $ | 35,396 | $ | 4,904 | |||||||||||||
Total stockholders’ equity | $ | 10,424 | $ | 9,757 | $ | 10,354 | $ | 9,696 | $ | 6,178 | $ | 6,879 | |||||||||||||
PERFORMANCE RATIOS: | |||||||||||||||||||||||||
Return on average assets | 0.39 | %(5) | 0.35 | %(5) | 0.79 | % | 0.81 | % | (2.53 | )% | (8.27 | )%(5) | |||||||||||||
Return on average equity | 4.06 | %(5) | 2.54 | %(5) | 6.73 | % | 5.74 | % | (11.17 | )% | (10.59 | )%(5) | |||||||||||||
Net interest margin | 4.67 | %(5) | 4.77 | %(5) | 4.76 | % | 4.59 | % | 4.71 | % | 3.20 | %(5) | |||||||||||||
Efficiency ratio(6) | 74.73 | % | 86.83 | % | 78.99 | % | 79.88 | % | 123.28 | % | N/A | ||||||||||||||
Average net loans as a percent of average deposits | 97.28 | % | 105.24 | % | 101.17 | % | 102.53 | % | 107.67 | % | 94.70 | % | |||||||||||||
ASSET QUALITY RATIOS: | |||||||||||||||||||||||||
Nonperforming loans to total loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||||||
Net charge-offs to average loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||||||
Allowance for loan losses to period-end loans | 1.22 | % | 1.21 | % | 1.23 | % | 1.25 | % | 1.27 | % | 1.27 | % | |||||||||||||
CAPITAL RATIOS: | |||||||||||||||||||||||||
Total stockholders’ equity as a percent of total assets | 8.72 | % | 12.73 | % | 10.43 | % | 14.20 | % | 14.73 | % | 58.09 | % | |||||||||||||
Average equity as a percent of average total assets | 9.57 | % | 13.96 | % | 11.68 | % | 14.07 | % | 22.61 | % | 78.02 | % | |||||||||||||
Leverage ratio | 9.56 | % | 13.26 | % | 10.57 | % | 15.27 | % | 14.81 | % | 73.31 | % | |||||||||||||
Tier 1 risk-based capital ratio | 10.28 | % | 14.40 | % | 11.30 | % | 15.05 | % | 19.49 | % | 96.33 | % | |||||||||||||
Total risk-based capital ratio | 11.44 | % | 15.58 | % | 12.41 | % | 16.23 | % | 20.98 | % | 97.46 | % |
(1) | For the period from commencement of operations, September 19, 2001, through December 31, 2001. |
(2) | These figures represent the net income (loss) divided by the weighted average number of shares outstanding (exclusive of shares exercisable under our Stock Option Plan). |
(3) | These figures represent the net income (loss) divided by fully diluted weighted average number of shares outstanding. |
(4) | The book value per share represents total stockholders’ equity divided by the total number of shares of our common stock outstanding at the end of the period indicated. |
(5) | These ratios have been annualized. No assurance can be given that the annualized ratios for the three months ended March 31, 2005 are indicative of the ratios that may be expected for the year ended December 31, 2005. |
(6) | The efficiency ratio is computed by dividing noninterest expense by net interest income plus noninterest income, excluding securities gains and losses. |
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• | the socioeconomic conditions of the area where the real estate collateral is located; | |
• | fluctuations in interest rates; | |
• | property and income tax laws; | |
• | local zoning ordinances governing the manner in which real estate may be used; and | |
• | federal, state and local environmental regulations. |
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• | loan delinquencies may increase; | |
• | problem assets and foreclosures may increase; | |
• | demand for our products and services may decline; | |
• | low cost or noninterest-bearing deposits may decrease; and | |
• | collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans. |
• | serve our customers better; | |
• | increase our operating efficiency by reducing operating costs; | |
• | provide a wider range of products and services to our customers; and | |
• | attract new customers. |
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Discovery Bancorp | |
338 Via Vera Cruz | |
San Marcos, California 92078 | |
Attention: Offering |
Discovery Bancorp — Stock Subscription Account |
Facsimile number: | 760.736.8906 | |||
Wire instructions: | Pacific Coast Bankers Bank FBO Discovery Bancorp ABA No.: 121042484 Attention: Stock Subscription Account For credit to Account No.: 122243347 |
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(1) | This figure is comprised of the Net Payment Amount of $3,330,346, as of March 31, 2005, the cash premium of $900,000, and an infusion of $300,000 into the Celtic Subsidiary to enhance the Celtic Subsidiary’s working capital. It is further projected that Celtic will use approximately $3,216,999 of its existing cash to reduce outstanding borrowings. |
(2) | In the event the net proceeds of this offering are sufficient to pay our organizational expenses and fund the Celtic acquisition only, we anticipate reducing the amount of the net proceeds to be utilized to reduce Celtic’s borrowings (see footnote 1 above) and retain approximately $100,000 of the net proceeds as working capital. |
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March 31, 2005(2) | ||||||
(Unaudited) | ||||||
Stockholders’ Equity: | ||||||
Common stock, no par value, 10,000,000 shares authorized | $ | 10,754,630 | ||||
Accumulated deficit | (283,918 | ) | ||||
Accumulated other comprehensive income | (46,492 | ) | ||||
Total stockholders’ equity | $ | 10,424,220 | ||||
Total number of shares of common stock outstanding | 1,037,298 | |||||
Book value per share | $ | 10.05 | ||||
Capital Ratios: | ||||||
Tier 1 leverage capital ratio | 9.56 | % | ||||
Tier 1 risk-based capital ratio | 10.28 | % | ||||
Total risk-based capital ratio | 11.44 | % |
(1) | The holding company reorganization was consummated on June 22, 2005. |
(2) | Does not reflect 65,197 unissued shares subject to outstanding stock options and 60,500 shares subject to outstanding warrants. |
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• | our book value per share; | |
• | our price-to-book ratio as compared to other community banks; | |
• | historical results of operations; | |
• | assessment of our management and financial condition; and | |
• | anticipated results of operations. |
Offering price per share | $ | 15.50 | ||
Book value per share as of March 31, 2005 | $ | 10.05 | ||
Increase in book value per share attributable to new investors | $ | 1.89 | ||
“As adjusted” book value per share after this offering | $ | 10.79 | ||
Dilution per share to new investors | $ | 3.56 |
(1) | These figures do not include the issuance of 53,613 shares in connection with the Celtic acquisition. |
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Sales Prices | ||||||||||||
Approximate Number | ||||||||||||
High | Low | of Shares Traded | ||||||||||
Quarter Ended | ||||||||||||
March 31, 2003 | $ | 13.50 | $ | 12.15 | 1,000 | |||||||
June 30, 2003 | $ | 14.50 | $ | 14.50 | 300 | |||||||
September 30, 2003 | $ | 15.00 | $ | 13.60 | 9,000 | |||||||
December 31, 2003 | $ | 14.62 | $ | 14.05 | 18,800 | |||||||
March 31, 2004 | $ | 16.00 | $ | 14.25 | 10,200 | |||||||
June 30, 2004 | $ | 18.50 | $ | 15.50 | 8,995 | |||||||
September 30, 2004 | $ | 17.50 | $ | 15.75 | 21,100 | |||||||
December 31, 2004 | $ | 16.75 | $ | 15.00 | 36,009 | |||||||
March 31, 2005 | $ | 18.00 | $ | 16.00 | 137,051 | |||||||
June 30, 2005 | $ | 16.50 | $ | 13.05 | 27,377 | |||||||
Period Ended | ||||||||||||
July 21, 2005 | N/A | N/A | 0 |
Number of Securities | |||||||||||||
Number of | Remaining Available | ||||||||||||
Securities to be | for Future Issuance | ||||||||||||
Issued Upon | Weighted Average | Under Equity | |||||||||||
Exercise of | Exercise Price of | Compensation Plans | |||||||||||
Outstanding | Outstanding | (Excluding Securities | |||||||||||
Options, Warrants | Options, Warrants | Reflected in the | |||||||||||
Plan Category | and Rights | and Rights | Second Column) | ||||||||||
Equity Compensation Plan Approved by Holders: | |||||||||||||
Discovery Bancorp 2004 Stock Option Plan | 218,510 | $ | 11.68 | 281,490 | |||||||||
Equity Compensation Plan Not Approved by Holders: | |||||||||||||
None | N/A | N/A | N/A |
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• | competition within the banking industry; | |
• | changes in the interest rate environment; | |
• | general economic conditions, nationally, regionally and in our market areas, including declines in real estate values; | |
• | the effects of terrorism and the conduct of the war on terrorism by the United States and its allies; | |
• | the regulatory environment; | |
• | business conditions and inflation; | |
• | the securities markets; | |
• | technology; | |
• | regulatory compliance issues; | |
• | planned asset growth; | |
• | unanticipated loan losses; | |
• | unanticipated increases in operating expenses; and | |
• | the ability to generate fee and other non-interest income. |
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Three Months Ended March 31, | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Interest | Rates | Interest | Rates | |||||||||||||||||||||
Average | Income/ | Earned/ | Average | Income/ | Earned/ | |||||||||||||||||||
Balance | Expense | Paid(1) | Balance | Expense | Paid(1) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Investment securities | $ | 2,907 | $ | 26 | 3.63% | $ | 2,303 | $ | 15 | 2.64% | ||||||||||||||
Interest-bearing deposits | 2,879 | 18 | 2.54% | 2,535 | 17 | 2.72% | ||||||||||||||||||
Federal funds sold | 6,191 | 40 | 2.62% | 1,957 | 5 | 1.04% | ||||||||||||||||||
Loans, net of unearned(2) | 87,254 | 1,564 | (3) | 7.27% | 62,344 | 1,013 | 6.59% | |||||||||||||||||
Total Interest-Earning Assets | 99,231 | 1,648 | 6.74% | 69,139 | 1,050 | 6.16% | ||||||||||||||||||
Noninterest-earning assets | 10,095 | 3,198 | ||||||||||||||||||||||
Total Assets | $ | 109,326 | $ | 72,337 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Transaction and NOW accounts | $ | 6,746 | 17 | 1.02% | $ | 5,026 | 13 | 1.05% | ||||||||||||||||
Savings and money market | 20,855 | 101 | 1.96% | 10,754 | 41 | 1.55% | ||||||||||||||||||
Time deposits | 45,957 | 333 | 2.94% | 32,878 | 175 | 2.16% | ||||||||||||||||||
Borrowings | 8,756 | 55 | 2.55% | 2,851 | 8 | 1.14% | ||||||||||||||||||
Total Interest-Bearing Liabilities | 82,314 | 506 | 2.49% | 51,509 | 237 | 1.87% | ||||||||||||||||||
Demand deposits | 16,140 | 10,583 | ||||||||||||||||||||||
Other liabilities | 411 | 145 | ||||||||||||||||||||||
Total Liabilities | 98,865 | 62,237 | ||||||||||||||||||||||
Stockholders’ Equity | 10,461 | 10,100 | ||||||||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 109,326 | $ | 72,337 | ||||||||||||||||||||
Net interest margin(4) | $ | 1,142 | 4.67% | $ | 813 | 4.77% | ||||||||||||||||||
Net interest spread(5) | 4.25% | 4.29% |
(1) | The rates have been annualized. No assurances can be given that the annualized rates and results of operations for the three months ended March 31, 2005 are indicative of the rates and results of operations that may be expected for the year ended December 31, 2005. |
(2) | Average loans are net of unearned loan fees and allowances for loan losses. Unearned loan fees were $179,000 and $121,000 at March 31, 2005 and 2004, respectively. Allowances for loan losses were $1,157,000 and $794,000 at March 31, 2005 and 2004, respectively. |
(3) | Interest income includes loan fees of $62,980 and $45,726 for the three months ended March 31, 2005 and 2004, respectively. |
(4) | Net interest margin is the net yield on average total interest-earning assets. |
(5) | Net interest spread is the absolute difference between the rate earned on interest-bearing assets and the rate paid on interest-bearing liabilities. |
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Year Ended December 31, | ||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
Interest | Rates | Interest | Rates | |||||||||||||||||||||
Average | Income/ | Earned/ | Average | Income/ | Earned/ | |||||||||||||||||||
Balance | Expense | Paid | Balance | Expense | Paid | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Investment securities | $ | 2,356 | $ | 89 | 3.78% | $ | 1,435 | $ | 47 | 3.28% | ||||||||||||||
Interest-bearing deposits | 2,680 | 60 | 2.24% | 1,350 | 32 | 2.37% | ||||||||||||||||||
Federal funds sold | 3,423 | 49 | 1.43% | 3,795 | 40 | 1.05% | ||||||||||||||||||
Loans, net of unearned(1) | 71,861 | 4,806 | (2) | 6.69% | 46,265 | 3,173 | 6.86% | |||||||||||||||||
Total Interest-Earning Assets | 80,320 | 5,004 | 6.23% | 52,845 | 3,292 | 6.23% | ||||||||||||||||||
Noninterest-earning assets | 5,754 | 1,862 | ||||||||||||||||||||||
Total Assets | $ | 86,074 | $ | 54,707 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Transaction and NOW accounts | $ | 6,930 | 75 | 1.08% | $ | 3,465 | 49 | 1.41% | ||||||||||||||||
Savings and money market | 14,999 | 239 | 1.59% | 7,577 | 112 | 1.48% | ||||||||||||||||||
Time deposits | 35,933 | 791 | 2.20% | 26,961 | 689 | 2.56% | ||||||||||||||||||
Borrowings | 4,723 | 75 | 1.59% | 1,321 | 16 | 1.21% | ||||||||||||||||||
Total Interest-Bearing Liabilities | 62,585 | 1,180 | 1.89% | 39,324 | 866 | 2.20% | ||||||||||||||||||
Demand deposits | 13,171 | 7,119 | ||||||||||||||||||||||
Other liabilities | 268 | 594 | ||||||||||||||||||||||
Total Liabilities | 76,024 | 47,037 | ||||||||||||||||||||||
Stockholders’ Equity | 10,050 | 7,670 | ||||||||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 86,074 | $ | 54,707 | ||||||||||||||||||||
Net interest margin(3) | $ | 3,824 | 4.76% | $ | 2,426 | 4.59% | ||||||||||||||||||
Net interest spread(4) | 4.34% | 4.03% |
(1) | Average loans are net of unearned loan fees and allowances for loan losses. Unearned loan fees were $177,000 and $130,000 at December 31, 2004 and 2003, respectively. Allowances for loan losses were $998,000 and $760,000 at December 31, 2004 and 2003, respectively. |
(2) | Interest income includes loan fees of $234,573 and $221,840 for the years ended December 31, 2004 and 2003, respectively. |
(3) | Net interest margin is the net yield on average total interest-earning assets. |
(4) | Net interest spread is the absolute difference between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. |
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For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||||
March 31, 2005 Compared | December 31, 2004 Compared | ||||||||||||||||||||||||
to the Three Months Ended | to the Year Ended | ||||||||||||||||||||||||
March 31, 2004 | December 31, 2003 | ||||||||||||||||||||||||
Increase (Decrease) | Increase (Decrease) | ||||||||||||||||||||||||
Due to Change in | Due to Change in | ||||||||||||||||||||||||
Total | Total | ||||||||||||||||||||||||
Volume | Rate | Change | Volume | Rate | Change | ||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
Interest-Earning Assets | |||||||||||||||||||||||||
Investment securities | $ | 4 | $ | 7 | $ | 11 | $ | 30 | $ | 12 | $ | 42 | |||||||||||||
Interest-earning deposits | 2 | (1 | ) | 1 | 32 | (4 | ) | 28 | |||||||||||||||||
Federal funds sold | 11 | 24 | 35 | (4 | ) | 13 | 9 | ||||||||||||||||||
Loans | 405 | 146 | 551 | 1,755 | (122 | ) | 1,633 | ||||||||||||||||||
Total Interest Income | 422 | 176 | 598 | 1,813 | (101 | ) | 1,712 | ||||||||||||||||||
Interest-Bearing Liabilities | |||||||||||||||||||||||||
Transaction and Now Accounts | 4 | 0 | 4 | 49 | (23 | ) | 26 | ||||||||||||||||||
MMDA and Savings | 39 | 21 | 60 | 110 | 17 | 127 | |||||||||||||||||||
Time Deposits | 70 | 88 | 158 | 229 | (127 | ) | 102 | ||||||||||||||||||
FHLB Advance | 17 | 30 | 47 | 41 | 18 | 59 | |||||||||||||||||||
Total Interest Expense | 130 | 139 | 269 | 429 | (115 | ) | 314 | ||||||||||||||||||
Net Interest Income | $ | 292 | $ | 37 | $ | 329 | $ | 1,384 | $ | 14 | $ | 1,398 | |||||||||||||
30
March 31, | December 31, | ||||||||||||||||
2005 | 2004 | 2004 | 2003 | ||||||||||||||
(Unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Book Value | |||||||||||||||||
Obligations of US Gov’t Agencies | $ | 3,171 | $ | 1,600 | $ | 2,716 | $ | 1,646 | |||||||||
Mutual Funds | 0 | 921 | -0- | 915 | |||||||||||||
Other (PCBB & FHLB) | 483 | 277 | 483 | 274 | |||||||||||||
Total | $ | 3,654 | $ | 2,798 | $ | 3,199 | $ | 2,835 | |||||||||
Fair Market Value | |||||||||||||||||
Obligations of US Gov’t Agencies | $ | 3,125 | $ | 1,614 | $ | 2,706 | $ | 1,663 | |||||||||
Mutual Funds | 0 | 911 | -0- | 906 | |||||||||||||
Total | $ | 3,125 | $ | 2,525 | $ | 2,706 | $ | 2,569 | |||||||||
Other (PCBB & FHLB) | 483 | 277 | 483 | 274 | |||||||||||||
Total | $ | 3,608 | $ | 2,802 | $ | 3,189 | $ | 2,843 | |||||||||
One Year through | Five Years through | ||||||||||||||||||||||||||||||||||||||||
One Year or Less | Five Years | Ten Years | Over Ten Years | Total | |||||||||||||||||||||||||||||||||||||
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
Available-for-Sale | |||||||||||||||||||||||||||||||||||||||||
U.S. Government Agencies | $ | 250 | 4.15% | $ | 2,290 | 3.36% | $ | 0 | 0.00% | $ | 631 | 4.08% | $ | 3,171 | 3.57% | ||||||||||||||||||||||||||
Total Market Value | $ | 250 | $ | 2,262 | $ | 0 | $ | 613 | $ | 3,125 | |||||||||||||||||||||||||||||||
31
March 31, | |||||||||||||||||
2005 | 2004 | ||||||||||||||||
Percent of | Percent of | ||||||||||||||||
Amount | Total | Amount | Total | ||||||||||||||
(Unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Loan Category | |||||||||||||||||
Real estate loans: | |||||||||||||||||
Construction loans | $ | 14,298 | 15 | % | $ | 10,548 | 16 | % | |||||||||
Real estate 1st trust deeds | 40,425 | 43 | 23,827 | 36 | |||||||||||||
Other real estate mortgage | 3,820 | 4 | 3,156 | 5 | |||||||||||||
Total real estate | 58,543 | 62 | 37,531 | 57 | |||||||||||||
Commercial secured loans | 28,506 | 30 | 23,024 | 35 | |||||||||||||
Commercial unsecured loans | 1,598 | 2 | 190 | 0 | |||||||||||||
Consumer and other | 6,086 | 6 | 5,058 | 8 | |||||||||||||
Total Loans | 94,733 | 100 | % | 65,803 | 100 | % | |||||||||||
Less deferred loan income | (178 | ) | (120 | ) | |||||||||||||
Less allowance for loan losses | (1,157 | ) | (794 | ) | |||||||||||||
Net Loans | $ | 93,398 | $ | 64,889 | |||||||||||||
December 31, | |||||||||||||||||
2004 | 2003 | ||||||||||||||||
Percent of | Percent of | ||||||||||||||||
Amount | Total | Amount | Total | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Loan Category | |||||||||||||||||
Real estate loans: | |||||||||||||||||
Construction loans | $ | 10,420 | 13 | % | $ | 12,444 | 20 | % | |||||||||
Real estate 1st trust deeds | 36,716 | 45 | 26,268 | 43 | |||||||||||||
Other real estate mortgage | 2,528 | 3 | 1,572 | 3 | |||||||||||||
Total real estate | 49,664 | 61 | 40,284 | 66 | |||||||||||||
Commercial secured loans | 24,855 | 31 | 16,725 | 28 | |||||||||||||
Commercial unsecured loans | 1,147 | 1 | 748 | 1 | |||||||||||||
Consumer and other | 5,546 | 7 | 3,069 | 5 | |||||||||||||
Total Loans | 81,212 | 100 | % | 60,826 | 100 | % | |||||||||||
Less deferred loan income | (177 | ) | (130 | ) | |||||||||||||
Less allowance for loan losses | (998 | ) | (760 | ) | |||||||||||||
Net Loans | $ | 80,037 | $ | 59,936 | |||||||||||||
32
33
34
Maturing | ||||||||||||||||
Within One | One to Five | After Five | ||||||||||||||
Year | Years | Years | Total | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Real estate loans: | ||||||||||||||||
Construction and Land | $ | 6,831 | $ | 3,590 | $ | 0 | $ | 10,421 | ||||||||
Real Estate 1st Trust Deeds | 2,022 | 5,243 | 29,451 | 36,716 | ||||||||||||
Other Real Estate | 1,796 | 288 | 444 | 2,528 | ||||||||||||
Total real estate | 10,649 | 9,121 | 29,895 | 49,665 | ||||||||||||
Commercial Secured Loans | 11,771 | 4,016 | 9,068 | 24,855 | ||||||||||||
Commercial Unsecured Loans | 1,130 | 16 | 0 | 1,146 | ||||||||||||
Consumer & other | 803 | 725 | 4,018 | 5,546 | ||||||||||||
Total | $ | 24,353 | $ | 13,878 | $ | 42,981 | $ | 81,212 | ||||||||
Loans with predetermined interest rates | $ | 1,291 | $ | 857 | $ | 1,830 | $ | 3,978 | ||||||||
Loans with floating or adjustable interest rates | 23,062 | 13,021 | 41,151 | 77,234 | ||||||||||||
Total | $ | 24,353 | $ | 13,878 | $ | 42,981 | $ | 81,212 | ||||||||
35
36
March 31, | December 31, | ||||||||||||||||
2005 | 2004 | 2004 | 2003 | ||||||||||||||
(Unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Outstanding loans: | |||||||||||||||||
End of the period | $ | 94,733 | $ | 65,803 | $ | 81,212 | $ | 60,826 | |||||||||
Average for the period | $ | 87,254 | $ | 62,344 | $ | 71,861 | $ | 46,265 | |||||||||
Allowance for loan losses: | |||||||||||||||||
Balance at beginning of period | $ | 998 | $ | 760 | $ | 760 | $ | 472 | |||||||||
Loans charged off | 0 | 0 | 0 | 0 | |||||||||||||
Recoveries | 0 | 0 | 0 | 0 | |||||||||||||
Provisions charged to operating expense | 159 | 33 | 238 | 288 | |||||||||||||
Balance at end of period | $ | 1,157 | $ | 794 | (1) | $ | 998 | $ | 760 | ||||||||
Ratios: | |||||||||||||||||
Net charge-offs (recoveries) to average loans | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | |||||||||
Allowance to loans at period end | 1.22 | % | 1.21 | % | 1.23 | % | 1.25 | % |
(1) | Rounded. |
December 31, | ||||||||||||||||||||||||||
March 31, 2005 | 2004 | 2003 | ||||||||||||||||||||||||
Percent of | Percent of | Percent of | ||||||||||||||||||||||||
Allowance | Loans in | Allowance | Loans in | Allowance | Loans in | |||||||||||||||||||||
for Loan | Category to | for Loan | Category to | for Loan | Category to | |||||||||||||||||||||
Losses | Total Loans | Losses | Total Loans | Losses | Total Loans | |||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||
Real Estate: | ||||||||||||||||||||||||||
Construction | $ | 172 | 15 | % | $ | 141 | 13 | % | $ | 162 | 21 | % | ||||||||||||||
1st Trust Deed R.E. | 401 | 43 | 373 | 45 | 266 | 43 | ||||||||||||||||||||
Other Real Estate | 44 | 4 | 91 | 3 | 20 | 3 | ||||||||||||||||||||
Total real estate | 617 | 62 | 605 | 61 | 448 | 66 | ||||||||||||||||||||
Commercial Secured | 402 | 30 | 322 | 31 | 278 | 28 | ||||||||||||||||||||
Commercial Unsecured | 3 | 2 | 14 | 1 | 9 | 1 | ||||||||||||||||||||
Consumer & other | 60 | 6 | 57 | 7 | 8 | 5 | ||||||||||||||||||||
Unallocated allowance | 75 | 0 | 0 | 0 | 17 | 0 | ||||||||||||||||||||
Total | $ | 1,157 | 100 | % | $ | 998 | 100 | % | $ | 760 | 100 | % | ||||||||||||||
37
Three Months | ||||||||||||
Ended | ||||||||||||
March 31, | ||||||||||||
Percentage | ||||||||||||
2005 | 2004 | Change | ||||||||||
(Unaudited) | ||||||||||||
(Dollars in thousands) | ||||||||||||
Salaries and benefits | $ | 512 | $ | 416 | 23.1 | % | ||||||
Occupancy expense | 111 | 51 | 117.7 | % | ||||||||
Furniture & Equipment | 67 | 44 | 52.3 | % | ||||||||
Data Processing | 48 | 40 | 20.0 | % | ||||||||
Advertising | 21 | 23 | (8.7 | )% | ||||||||
Professional fees | 64 | 52 | 23.1 | % | ||||||||
Office supplies | 17 | 15 | 13.3 | % | ||||||||
Other expenses | 153 | 93 | 64.5 | % | ||||||||
Total | $ | 993 | $ | 734 | 35.3 | % | ||||||
Years Ended | ||||||||||||
December 31, | ||||||||||||
Percentage | ||||||||||||
2004 | 2003 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Salaries and benefits | $ | 1,837 | $ | 1,311 | 40.1 | % | ||||||
Occupancy expense | 130 | 190 | (31.6 | )% | ||||||||
Furniture & Equipment | 173 | 97 | 78.4 | % | ||||||||
Data Processing | 182 | 126 | 44.4 | % | ||||||||
Advertising | 89 | 147 | (39.5 | )% | ||||||||
Professional fees | 228 | 121 | 88.4 | % | ||||||||
Office supplies | 55 | 28 | 96.4 | % | ||||||||
Other expenses | 455 | 284 | 60.2 | % | ||||||||
Total | $ | 3,149 | $ | 2,304 | 36.7 | % | ||||||
38
Three Months Ended March 31, 2005 | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Noninterest-bearing demand | $ | 16,140 | — | $ | 10,583 | — | ||||||||||
Transaction & NOW | 6,746 | 1.02 | % | 5,026 | 1.05 | % | ||||||||||
Savings & money market | 20,855 | 1.96 | % | 10,754 | 1.55 | % | ||||||||||
Time | 45,957 | 2.94 | % | 32,878 | 2.16 | % | ||||||||||
Total Deposits | $ | 89,698 | 2.02 | % | $ | 59,241 | 1.13 | % | ||||||||
39
Year Ended December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Noninterest-bearing demand | $ | 13,171 | — | $ | 7,119 | — | ||||||||||
Transaction & NOW | 6,930 | 1.08 | % | 3,465 | 1.41 | % | ||||||||||
Savings & money market | 14,999 | 1.59 | % | 7,577 | 1.48 | % | ||||||||||
Time | 35,933 | 2.20 | % | 26,961 | 2.56 | % | ||||||||||
Total Deposits | $ | 71,033 | 1.56 | % | $ | 45,122 | 1.92 | % | ||||||||
March 31, 2005 | |||||
(Unaudited) | |||||
(Dollars in | |||||
thousands) | |||||
Three months or less | $ | 2,651 | |||
Over three to six months | 8,779 | ||||
Over six to twelve months | 15,176 | ||||
Over twelve months | -0- | ||||
Total | $ | 26,606 | |||
December 31, | ||||||||||||||||
“Well Capitalized” | ||||||||||||||||
Requirement | March 31, 2005 | 2004 | 2003 | |||||||||||||
(Unaudited) | ||||||||||||||||
Total risk-based capital ratio | 10.00 | % | 11.44 | % | 12.41 | % | 16.23 | % | ||||||||
Tier 1 risk-based capital ratio | 6.00 | % | 10.28 | % | 11.30 | % | 15.05 | % | ||||||||
Tier 1 leverage capital ratio | 5.00 | % | 9.56 | % | 10.57 | % | 15.27 | % |
40
41
42
43
Cumulative | |||||||||||||||||||||||||
Less Than | Less Than | Less Than | Beyond | Non Rate | |||||||||||||||||||||
3 Months | 1 Year | 5 Years | 5 Years | Sensitive | Total | ||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
Deposits with financial institutions | $ | 398 | $ | 1,709 | $ | 2,883 | $ | 2,883 | $ | 0 | $ | 2,883 | |||||||||||||
Federal funds sold | 9,315 | 9,315 | 9,315 | 9,315 | 0 | 9,315 | |||||||||||||||||||
Investment Securities | 250 | 250 | 2,512 | 3,125 | 0 | 3,125 | |||||||||||||||||||
Loans gross | 75,802 | 76,268 | 85,442 | 94,723 | 10 | 94,733 | |||||||||||||||||||
Total rate sensitive assets | 85,765 | 87,542 | 100,152 | 110,046 | 10 | 110,056 | |||||||||||||||||||
All other assets | 9,613 | 9,613 | |||||||||||||||||||||||
Total Assets | $ | 85,765 | $ | 87,542 | $ | 100,152 | $ | 110,046 | $ | 9,623 | $ | 119,669 | |||||||||||||
Interest Bearing Demand | $ | 25,648 | $ | 25,648 | $ | 25,648 | $ | 25,648 | $ | 0 | $ | 25,648 | |||||||||||||
Savings | 1,592 | 1,592 | 1,592 | 1,592 | 0 | 1,592 | |||||||||||||||||||
Time deposits under 100M | 4,424 | 30,576 | 30,576 | 30,576 | 0 | 30,576 | |||||||||||||||||||
Time deposits over 100M | 2,651 | 26,606 | 26,606 | 26,606 | 0 | 26,606 | |||||||||||||||||||
Other interest liabilities | 8,500 | 8,500 | 8,500 | 8,500 | 0 | 8,500 | |||||||||||||||||||
Total rate sensitive liabilities | 42,815 | 92,922 | 92,922 | 92,222 | 0 | 92,922 | |||||||||||||||||||
All other liabilities | 16,323 | 16,323 | |||||||||||||||||||||||
Stockholders’ equity | 10,424 | 10,424 | |||||||||||||||||||||||
Total Liabilities and Equity | $ | 42,815 | $ | 92,922 | $ | 92,222 | $ | 92,222 | $ | 26,747 | $ | 119,669 | |||||||||||||
Cumulative rate sensitive gap | $ | 42,950 | $ | (5,380 | ) | $ | 7,230 | $ | 17,124 | $ | (17,124 | ) | |||||||||||||
Cumulative rate sensitive gap as a % of total assets | 35.89 | % | (4.50 | )% | 6.04 | % | 14.31 | % | (14.31 | )% |
44
Adjusted Net | Change | |||||||
Interest Rate Scenario | Interest Income | from Base | ||||||
Up 300 basis points | $ | 6,525 | 23.24 | % | ||||
Up 200 basis points | $ | 6,163 | 16.39 | % | ||||
Up 100 basis points | $ | 5,754 | 8.68 | % | ||||
Base | $ | 5,295 | 0.00 | % | ||||
Down 100 basis points | $ | 5,028 | (5.04 | )% | ||||
Down 200 basis points | $ | 4,763 | (10.04 | )% | ||||
Down 300 basis points | $ | 4,551 | (14.04 | )% |
45
46
47
48
• | competition within the finance industry; | |
• | changes in the interest rate environment; | |
• | general economic conditions, nationally, regionally and in our market areas, including declines in real estate values; | |
• | the effects of terrorism, including the events of September 11, 2001 and thereafter, and the conduct of the war on terrorism by the United States and its allies; | |
• | the regulatory environment; | |
• | business conditions and inflation; | |
• | technology; | |
• | regulatory compliance issues; | |
• | planned asset growth; |
49
• | unanticipated loan losses; | |
• | unanticipated increases in operating expenses; and | |
• | the ability to generate fee and other non-interest income. |
50
Three Months Ended March 31, | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Interest | Rates | Interest | Rates | |||||||||||||||||||||
Average | Income/ | Earned/ | Average | Income/ | Earned/ | |||||||||||||||||||
Balance | Expense | Paid(1) | Balance | Expense | Paid(1) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans, net of unearned fees(2) | $ | 20,603 | $ | 1,003 | 19.47 | % | $ | 18,493 | $ | 935 | 20.22 | % | ||||||||||||
Total Interest-Earning Assets | 20,603 | 1,003 | 19.47 | % | 18,493 | 935 | 20.22 | % | ||||||||||||||||
Noninterest-earning assets | 1,258 | 1,605 | ||||||||||||||||||||||
Total Assets | $ | 21,861 | $ | 20,098 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Notes payable, bank | $ | 17,372 | 301 | 6.93 | % | $ | 14,053 | 179 | 5.09 | % | ||||||||||||||
Subordinated notes payable | 4,629 | 108 | 9.33 | % | 5,507 | 133 | 9.66 | % | ||||||||||||||||
Total Interest-Bearing Liabilities | 22,001 | 409 | 7.44 | % | 19,560 | 312 | 6.38 | % | ||||||||||||||||
Other liabilities | 790 | 1,463 | ||||||||||||||||||||||
Total Liabilities | 22,791 | 21,023 | ||||||||||||||||||||||
Shareholders’ Equity (Deficit) | (930 | ) | (925 | ) | ||||||||||||||||||||
Total Liabilities and Shareholders’ Equity (Deficit) | $ | 21,861 | $ | 20,098 | ||||||||||||||||||||
Net interest margin(3) | $ | 594 | 11.53 | % | $ | 623 | 13.48 | % | ||||||||||||||||
Net interest spread(4) | 12.04 | % | 13.84 | % |
(1) | The ratios have been annualized. No assurances can be given that the annualized rates and results of operations for the three months ended March 31, 2005 are indicative of the rates and operation results that may be expected for the year ended December 31, 2005. |
(2) | Average loans are net of unearned loan fees. Loan interest income includes loan fees of $0 in 2005 and $61,000 in 2004. |
(3) | Net interest margin is the net yield on average total interest-earning assets. |
51
(4) | Net interest spread is the absolute difference between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. |
Year Ended December 31, | ||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
Interest | Rates | Interest | Rates | |||||||||||||||||||||
Average | Income/ | Earned/ | Average | Income/ | Earned/ | |||||||||||||||||||
Balance | Expense | Paid | Balance | Expense | Paid | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans, net of unearned fees(1) | $ | 20,790 | $ | 4,223 | 20.31 | % | $ | 18,895 | $ | 4,530 | 23.97 | % | ||||||||||||
Total Interest-Earning Assets | 20,790 | 4,223 | 20.31 | % | 18,895 | 4,530 | 23.97 | % | ||||||||||||||||
Noninterest-earning assets | 1,043 | 1,391 | ||||||||||||||||||||||
Total Assets | $ | 21,833 | $ | 20,286 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Notes payable, bank | $ | 17,719 | 1,024 | 5.78 | % | $ | 13,505 | 704 | 5.21 | % | ||||||||||||||
Subordinated notes payable | 4,247 | 415 | 9.77 | % | 6,454 | 665 | 10.30 | % | ||||||||||||||||
Total Interest-Bearing Liabilities | 21,966 | 1,439 | 6.55 | % | 19,959 | 1,369 | 6.86 | % | ||||||||||||||||
Other liabilities | 787 | 1,178 | ||||||||||||||||||||||
Total Liabilities | 22,753 | 21,137 | ||||||||||||||||||||||
Shareholders’ Equity (Deficit) | (920 | ) | (851 | ) | ||||||||||||||||||||
Total Liabilities and Shareholders’ Equity (Deficit) | $ | 21,833 | $ | 20,286 | ||||||||||||||||||||
Net interest margin(2) | $ | 2,784 | 13.39 | % | $ | 3,161 | 16.73 | % | ||||||||||||||||
Net interest spread(3) | 13.76 | % | 17.12 | % |
(1) | Average loans are net of unearned loan fees. Loan interest income includes loan fees of $298,058 in 2004 and $468,244 in 2003. |
(2) | Net interest margin is the net yield on average total interest-earning assets. |
(3) | Net interest spread is the absolute difference between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. |
Three Months Ended March 31, 2005 and 2004 |
52
Years Ended December 31, 2004 and 2003 |
For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||||
March 31, 2005 Compared to | December 31, 2004 Compared | ||||||||||||||||||||||||
the Three Months Ended | to the Year Ended | ||||||||||||||||||||||||
March 31, 2004 | December 31, 2003 | ||||||||||||||||||||||||
Changes Due to | Changes Due to | ||||||||||||||||||||||||
Total | Total | ||||||||||||||||||||||||
Volume | Rate | Change | Volume | Rate | Change | ||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
Interest-Earning Assets | |||||||||||||||||||||||||
Loans | $ | 107 | $ | (39 | ) | $ | 68 | $ | 454 | $ | (761 | ) | $ | (307 | ) | ||||||||||
Total Interest Income | 107 | (39 | ) | 68 | 454 | (761 | ) | (307 | ) | ||||||||||||||||
Interest-Bearing Liabilities | |||||||||||||||||||||||||
Notes payable, bank | 42 | 80 | 122 | 220 | 100 | 320 | |||||||||||||||||||
Subordinated notes payable | (21 | ) | (4 | ) | (25 | ) | (227 | ) | (23 | ) | (250 | ) | |||||||||||||
Total Interest Expense | 21 | 76 | 97 | (7 | ) | (77 | ) | (70 | ) | ||||||||||||||||
Net Interest Income (Expense) | $ | 86 | $ | (115 | ) | $ | (29 | ) | $ | 461 | $ | (838 | ) | $ | 377 | ||||||||||
53
Loans. |
Loan Categories |
March 31, | |||||||||||||||||
2005 | 2004 | ||||||||||||||||
Percent of | Percent of | ||||||||||||||||
Amount | Total | Amount | Total | ||||||||||||||
(Unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Loan Category | |||||||||||||||||
Account Receivable | $ | 17,044 | 88.28 | % | $ | 17,088 | 88.20 | % | |||||||||
Equipment | 1,910 | 9.89 | 1,572 | 8.11 | |||||||||||||
Inventory | 353 | 1.83 | 714 | 3.69 | |||||||||||||
Total Loans | 19,307 | 100.00 | % | 19,374 | 100.00 | % | |||||||||||
Less deferred loan income (benefit) | (164 | ) | 0 | ||||||||||||||
Less Allowance | (305 | ) | (267 | ) | |||||||||||||
Loans, net of deferred income | $ | 18,838 | $ | 19,107 | |||||||||||||
December 31, | |||||||||||||||||
2004 | 2003 | ||||||||||||||||
Percent of | Percent of | ||||||||||||||||
Amount | Total | Amount | Total | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Loan Category | |||||||||||||||||
Account Receivable | $ | 20,546 | 88.79 | % | $ | 15,455 | 89.46 | % | |||||||||
Equipment | 2,146 | 9.27 | 1,460 | 8.45 | |||||||||||||
Inventory | 449 | 1.94 | 361 | 2.09 | |||||||||||||
Total Loans | 23,141 | 100.00 | % | 17,276 | 100.00 | % | |||||||||||
Less deferred loan income (benefit) | 45 | (5 | ) | ||||||||||||||
Less Allowance | (305 | ) | (225 | ) | |||||||||||||
Loans, net of deferred income | $ | 22,791 | $ | 17,026 | |||||||||||||
54
Loan Origination and Underwriting |
Loan Maturities |
Maturing | ||||||||||||
Within | One to | |||||||||||
One Year | Five Years | Total | ||||||||||
(Dollars in thousands) | ||||||||||||
Accounts Receivable | $ | 18,241 | $ | 2,305 | $ | 20,546 | ||||||
Equipment | 2,052 | 94 | 2,146 | |||||||||
Inventory | 32 | 417 | 449 | |||||||||
Total | $ | 20,325 | $ | 2,816 | $ | 23,141 | ||||||
Loan Commitments |
55
Non-Performing Assets |
• | Meet with the borrower to discuss concerns of Celtic’s management and to rapidly develop a turnaround plan; | |
• | Strengthen Celtic’s collateral to loan position such as by reducing the advance rate, lowering the overall line of credit, or building reserves; and | |
• | Asking the borrower to find an alternative lender to pay off Celtic’s loan. |
Allowance and Provision for Loan Losses |
56
March 31, | December 31, | ||||||||||||||||
2005 | 2004 | 2004 | 2003 | ||||||||||||||
(Unaudited) | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Outstanding loans: | |||||||||||||||||
End of the period | $ | 19,308 | $ | 19,374 | $ | 23,096 | $ | 17,281 | |||||||||
Average for the period | $ | 20,603 | $ | 18,493 | $ | 20,790 | $ | 18,895 | |||||||||
Allowance for loan losses: | |||||||||||||||||
Balance at beginning of period | $ | 305 | $ | 255 | $ | 255 | $ | 328 | |||||||||
Loans charged off | 0 | 0 | 0 | 250 | |||||||||||||
Recoveries | 0 | 12 | 12 | 0 | |||||||||||||
Provisions charged to operating expense | 0 | 0 | 38 | 177 | |||||||||||||
Balance at end of period | $ | 305 | $ | 267 | $ | 305 | $ | 255 | |||||||||
Ratios: | |||||||||||||||||
Net charge-offs (recoveries) to average loans | 0.00 | % | (0.06 | )% | (0.06 | )% | 1.32 | % | |||||||||
Allowance to loans at period end | 1.58 | % | 1.38 | % | 1.32 | % | 1.48 | % |
At March 31, | |||||||||||||||||
2005 | 2004 | ||||||||||||||||
Percent of | Percent of | ||||||||||||||||
Loans in | Loans in | ||||||||||||||||
Allowance for | Category to | Allowance for | Category to | ||||||||||||||
Loan Losses | Total Loans | Loan Losses | Total Loans | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Accounts Receivable | $ | 284 | 88.28 | % | $ | 238 | 88.20 | % | |||||||||
Equipment | 16 | 9.89 | % | 20 | 8.12 | % | |||||||||||
Inventory | 5 | 1.83 | % | 9 | 3.68 | % | |||||||||||
Total | $ | 305 | 100.00 | % | $ | 267 | 100.00 | % | |||||||||
57
Three Months | ||||||||||||
Ended | ||||||||||||
March 31, | ||||||||||||
Percentage | ||||||||||||
2005 | 2004 | Change | ||||||||||
(Unaudited) | ||||||||||||
(Dollars in thousands) | ||||||||||||
Salaries and benefits | $ | 344 | $ | 392 | (12.24 | )% | ||||||
Office and occupancy | 52 | 73 | (28.77 | )% | ||||||||
Other operating | 151 | 241 | (37.34 | )% | ||||||||
Total | $ | 547 | $ | 706 | (22.52 | )% | ||||||
Year Ended | ||||||||||||
December 31, | ||||||||||||
Percentage | ||||||||||||
2004 | 2003 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Salaries and benefits | $ | 1,682 | $ | 1,662 | 1.20 | % | ||||||
Office and occupancy | 517 | 678 | (23.75 | )% | ||||||||
Other operating | 464 | 503 | (7.75 | )% | ||||||||
Merger related expenses | 0 | 122 | (100.00 | )% | ||||||||
Total | $ | 2,663 | $ | 2,965 | (10.19 | )% | ||||||
Income Taxes |
Capital Resources |
Liquidity and Liquidity Management |
58
Off Balance Sheet Arrangements |
Quantitative And Qualitative Disclosures About Market Risk |
Credit Risk |
Interest Rate Risk |
59
• | the raising of $6.0 million in net proceeds through this offering (the minimum necessary to have sufficient funds to close the Celtic acquisition as of March 31, 2005 and to meet the commitment to the Federal Reserve Bank); and | |
• | the proposed acquisition of Celtic, including the issuance of an additional $831,002 worth of the Holding Company’s common stock: | |
Pro Forma Balance Sheet | |||||||||||||||||||||
March 31, 2005 | |||||||||||||||||||||
Discovery | Net Offering | Celtic | Pro Forma | Pro Forma | |||||||||||||||||
Bancorp(1) | Proceeds(2) | Capital(3) | Adjustments | Consolidated | |||||||||||||||||
ASSETS | |||||||||||||||||||||
Cash and cash equivalents | $ | 12,374,934 | $ | 6,000,006 | $ | 3,254,772 | $ | (7,741,345 | )(4) | $ | 13,888,367 | ||||||||||
Investments | 6,490,816 | 0 | 6,490,816 | ||||||||||||||||||
Loans | 93,397,712 | 18,838,404 | (569,291 | )(5) | 111,666,825 | ||||||||||||||||
Goodwill | 0 | 1,731,002 | (6) | 1,731,002 | |||||||||||||||||
Other assets | 7,144,978 | 410,742 | (316,559 | )(7) | 7,239,161 | ||||||||||||||||
Total Assets | $ | 119,408,440 | $ | 6,000,006 | $ | 22,503,918 | $ | (6,896,193 | ) | $ | 141,016,171 | ||||||||||
LIABILITIES | |||||||||||||||||||||
Total deposits | $ | 99,876,116 | $ | 99,876,116 | |||||||||||||||||
Borrowings | 8,500,000 | $ | 18,287,722 | $ | (3,216,999 | )(8) | 23,570,723 | ||||||||||||||
Accrued interest payable and other liabilities | 608,104 | 4,944,866 | (4,944,866 | )(9) | 608,104 | ||||||||||||||||
Total Liabilities | 108,984,220 | 23,232,588 | (8,161,885 | ) | 124,054,943 | ||||||||||||||||
STOCKHOLDERS’ EQUITY | |||||||||||||||||||||
Common stock | 10,754,630 | $ | 6,000,006 | 0 | 831,002 | (10) | 17,585,638 | ||||||||||||||
Accumulated deficit | (283,918 | ) | (728,670 | ) | 434,670 | (11) | (577,918 | ) | |||||||||||||
Accumulated other comprehensive income | (46,492 | ) | 0 | (46,492 | ) | ||||||||||||||||
Total Stockholders’ Equity | 10,424,220 | 6,000,006 | (728,670 | ) | 1,265,672 | 16,961,228 | |||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 119,408,440 | $ | 6,000,006 | $ | 22,503,918 | $ | (6,896,193 | ) | $ | 141,016,171 | ||||||||||
60
(1) | Represents Discovery Bank’s March 31, 2005 historic amounts. | |
(2) | Represents the minimum net proceeds from this offering (net of estimated offering expenses, including commissions, of $526,316) necessary to close the Celtic acquisition as of March 31, 2005. For purposes of this pro forma presentation it is assumed that 421,053 shares will be sold at $15.50 per share for aggregate proceeds of $6,526,321. | |
(3) | Represents the historic assets and liabilities of Celtic at March 31, 2005. | |
(4) | Represents the estimated cash purchase price for Celtic as of March 31, 2005 (the Net Payment Amount of $3,330,346 plus the cash premium of $900,000), the projected reduction in Celtic’s outstanding borrowings being assumed of $3,216,999, less the projected reduction in interest expense of $11,000 as a result of the projected reduction of outstanding borrowings, plus the payment of the Holding Company’s estimated organizational costs of $305,000. | |
(5) | The loan balance being purchased from Celtic is net of $164,115 in deferred loan fees and $733,406 in loans not being purchased. | |
(6) | Goodwill represents the difference between the aggregate purchase price for Celtic and the estimated value of the assets being acquired net of the liabilities being assumed. | |
(7) | Celtic’s cash surrender value of life insurance, prepaid expenses, other assets and deferred income taxes, aggregating $316,559, are not being purchased. Celtic’s furniture, fixtures and equipment are being purchased. | |
(8) | Represents the projected reduction in Celtic’s outstanding borrowings being assumed. | |
(9) | Represents Celtic’s liabilities not being assumed. | |
(10) | Represents the stock consideration to be paid for the Celtic acquisition, plus the stock consideration to be provided to Mr. Mark Hafner at the closing of the Celtic acquisition pursuant to his employment agreement, at an estimated $15.50 per share. No assurance can be given regarding the valuation of the Holding Company’s common stock at the Celtic closing. | |
(11) | Represents the pro forma adjustment to eliminate Celtic’s accumulated deficit, which is not being assumed, plus the projected reduction in interest expense of $11,000 as a result of the projected reduction in Celtic’s borrowings, net of the projected Holding Company organizational costs of $305,000. |
61
• | the raising of $12.0 million through this offering (the maximum proposed offering); and | |
• | the proposed acquisition of Celtic, including the issuance of an additional $831,002 worth of the Holding Company’s common stock: | |
Pro Forma Balance Sheet | |||||||||||||||||||||
March 31, 2005 | |||||||||||||||||||||
Discovery | Net Offering | Celtic | Pro Forma | Pro Forma | |||||||||||||||||
Bancorp(1) | Proceeds(2) | Capital(3) | Adjustments | Consolidated | |||||||||||||||||
ASSETS | |||||||||||||||||||||
Cash and cash equivalents | $ | 12,374,934 | $ | 11,200,007 | $ | 3,254,772 | $ | (7,741,345 | )(4) | $ | 19,088,368 | ||||||||||
Investments | 6,490,816 | 6,490,816 | |||||||||||||||||||
Loans | 93,397,712 | 18,838,404 | (569,291 | )(5) | 111,666,825 | ||||||||||||||||
Goodwill | 1,731,002 | (6) | 1,731,002 | ||||||||||||||||||
Other assets | 7,144,978 | 410,742 | (316,559 | )(7) | 7,239,161 | ||||||||||||||||
Total Assets | $ | 119,408,440 | $ | 11,200,007 | $ | 22,503,918 | $ | (6,896,193 | ) | $ | 146,216,172 | ||||||||||
LIABILITIES | |||||||||||||||||||||
Total deposits | $ | 99,876,116 | $ | 99,876,116 | |||||||||||||||||
Borrowings | 8,500,000 | $ | 18,287,722 | $ | (3,216,999 | )(8) | 23,570,723 | ||||||||||||||
Accrued interest payable and other liabilities | 608,104 | 4,944,866 | (4,944,866 | )(9) | 608,104 | ||||||||||||||||
Total Liabilities | 108,984,220 | 23,232,588 | (8,161,865 | ) | 124,054,943 | ||||||||||||||||
STOCKHOLDERS’ EQUITY | |||||||||||||||||||||
Common stock | 10,754,630 | $ | 11,200,007 | 831,002 | (10) | 22,785,639 | |||||||||||||||
Accumulated deficit | (283,918 | ) | (728,670 | ) | 434,670 | (11) | (577,918 | ) | |||||||||||||
Accumulated other comprehensive income | (46,492 | ) | (45,492 | ) | |||||||||||||||||
Total Stockholders’ Equity | 10,424,220 | 11,200,007 | (728,670 | ) | 1,265,672 | 22,161,229 | |||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 119,408,440 | $ | 11,200,007 | $ | 22,503,918 | $ | (6,896,193 | ) | $ | 146,216,172 | ||||||||||
(1) | Represents Discovery Bank’s March 31, 2005 historic amounts. | |
(2) | Represents the maximum net proceeds from this offering (net of estimated offering expenses, including commissions, of $800,000). For purposes of this pro forma presentation it is assumed that 774,194 shares will be sold at $15.50 per share for aggregate proceeds of $12,000,007. No assurance can be given regarding the net proceeds of this offering. | |
(3) | Represents the historic assets and liabilities of Celtic at March 31, 2005. | |
(4) | Represents the estimated cash purchase price for Celtic as of March 31, 2005 (the Net Payment Amount of $3,330,345 plus the cash premium of $900,000), the projected reduction in Celtic’s outstanding borrowings being assumed of $3,216,999, less the projected reduction in interest expense of $11,000 as a result of the projected reduction of outstanding borrowings, plus the payment of the Holding Company’s estimated organizational costs of $305,000. | |
(5) | The loan balance being purchased from Celtic is net of $164,115 in deferred loan fees and $733,406 in loans not being purchased. |
62
(6) | Goodwill represents the difference between the aggregate purchase price for Celtic and the estimated value of the assets being acquired net of the liabilities being assumed. | |
(7) | Celtic’s cash surrender value of life insurance, prepaid expenses, other assets and deferred income taxes, aggregating $316,559, are not being purchased. Celtic’s furniture, fixtures and equipment are being purchased. | |
(8) | Represents the projected reduction in Celtic’s outstanding borrowings being assumed. | |
(9) | Represents Celtic’s liabilities not being assumed. |
(10) | Represents the stock consideration to be paid for the Celtic acquisition, plus the stock consideration to be provided to Mr. Mark Hafner at the closing of the Celtic acquisition pursuant to his employment agreement, at an estimated $15.50 per share. No assurance can be given regarding the valuation of the Holding Company’s common stock at the Celtic closing. |
(11) | Represents the pro forma adjustment to eliminate Celtic’s accumulated deficit, which is not being assumed, plus the projected reduction in interest expense of $11,000 as a result of the projected reduction in Celtic’s borrowings, net of the projected Holding Company organizational costs of $305,000. |
• | the raising of $6.0 million in net proceeds through this offering (the minimum necessary to have sufficient funds to close the Celtic acquisition as of December 31, 2004 and to meet the commitment to the Federal Reserve Bank); and | |
• | the proposed acquisition of Celtic, including the issuance of an additional $831,002 worth of the Holding Company’s common stock: | |
Pro Forma Balance Sheet | |||||||||||||||||||||
December 31, 2004 | |||||||||||||||||||||
Discovery | Net Offering | Celtic | Pro Forma | Pro Forma | |||||||||||||||||
Bancorp(1) | Proceeds(2) | Capital(3) | Adjustments | Consolidated | |||||||||||||||||
ASSETS | |||||||||||||||||||||
Cash and cash equivalents | $ | 6,583,876 | $ | 6,000,006 | $ | 1,318,568 | $ | (6,376,159 | )(4) | $ | 7,526,291 | ||||||||||
Investments | 5,880,357 | 5,880,357 | |||||||||||||||||||
Loans | 80,036,566 | 22,790,503 | (688,406 | )(5) | 102,138,663 | ||||||||||||||||
Goodwill | 1,731,002 | (6) | 1,731,002 | ||||||||||||||||||
Other assets | 6,767,056 | 380,580 | (300,684 | )(7) | 6,846,952 | ||||||||||||||||
Total Assets | $ | 99,267,855 | $ | 6,000,006 | $ | 24,489,651 | $ | (5,634,247 | ) | $ | 124,123,265 | ||||||||||
LIABILITIES | |||||||||||||||||||||
Total deposits | $ | 79,679,058 | $ | 79,679,058 | |||||||||||||||||
Borrowings | 9,000,000 | $ | 19,917,688 | $ | (1,685,286 | )(8) | 27,232,402 | ||||||||||||||
Accrued interest payable and other liabilities | 234,368 | 5,347,833 | (5,347,833 | )(9) | 234,368 | ||||||||||||||||
Total Liabilities | 88,913,426 | 25,265,521 | (7,033,119 | ) | 107,145,828 | ||||||||||||||||
STOCKHOLDERS’ EQUITY | |||||||||||||||||||||
Common stock | 10,754,630 | $ | 6,000,006 | 831,002 | (10) | 17,585,638 | |||||||||||||||
Accumulated deficit | (390,167 | ) | (775,870 | ) | 567,870 | (11) | (598,167 | ) | |||||||||||||
Accumulated other comprehensive income | (10,034 | ) | (10,034 | ) | |||||||||||||||||
Total Shareholders’ Equity | 10,354,429 | 6,000,006 | (775,870 | ) | 1,398,872 | 16,977,437 | |||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 99,267,855 | $ | 6,000,006 | $ | 24,489,651 | $ | (5,634,247 | ) | $ | 124,123,265 | ||||||||||
63
(1) | Represents Discovery Bank’s December 31, 2004 historic amounts. | |
(2) | Represents the minimum net proceeds from this offering (net of estimated offering expenses, including commissions, of $526,316) necessary to close the Celtic acquisition as of December 31, 2004. For purposes of this pro forma presentation it is assumed that 421,053 shares will be sold at $15.50 per share for aggregate proceeds of $6,526,321. | |
(3) | Represents the historic assets and liabilities of Celtic at December 31, 2004. | |
(4) | Represents the estimated cash purchase price for Celtic as of December 31, 2004 (the Net Payment Amount of $3,582,873 plus the cash premium of $900,000), the projected reduction in Celtic’s outstanding borrowings being assumed of $1,685,286, less the projected reduction in interest expense of $97,000 as a result of the projected reduction of outstanding borrowings, plus the payment of the Holding Company’s estimated organizational costs of $305,000. | |
(5) | The loan balance being purchased from Celtic is net of $45,000 in deferred loan fees and $733,406 in loans not being purchased. | |
(6) | Goodwill represents the difference between the aggregate purchase price for Celtic and the estimated value of the assets being acquired net of the liabilities being assumed. | |
(7) | Celtic’s cash surrender value of life insurance, prepaid expenses, other assets and deferred income taxes, aggregating $300,684, are not being purchased. Celtic’s furniture, fixtures and equipment are being purchased. | |
(8) | Represents the projected reduction in Celtic’s outstanding borrowings being assumed. | |
(9) | Represents Celtic’s liabilities not being assumed. | |
(10) | Represents the stock consideration to be paid for the Celtic acquisition, plus the stock consideration to be provided to Mr. Mark Hafner at the closing of the Celtic acquisition pursuant to his employment agreement, at an estimated $15.50 per share. No assurance can be given regarding the valuation of the Holding Company’s common stock at the Celtic closing. | |
(11) | Represents the pro forma adjustment to eliminate Celtic’s accumulated deficit, which is not being assumed, plus the projected reduction in interest expense of $97,000 as a result of the projected reduction in Celtic’s borrowings, net of the projected Holding Company organizational costs of $305,000. |
64
• | the raising of $12.0 million through this offering (the maximum proposed offering); and | |
• | the proposed acquisition of Celtic, including the issuance of an additional $831,002 worth of the Holding Company’s common stock: | |
Pro Forma Balance Sheet | |||||||||||||||||||||
December 31, 2004 | |||||||||||||||||||||
Discovery | Net Offering | Celtic | Pro Forma | Pro Forma | |||||||||||||||||
Bancorp(1) | Proceeds(2) | Capital(3) | Adjustments | Consolidated | |||||||||||||||||
ASSETS | |||||||||||||||||||||
Cash and cash equivalents | $ | 6,583,876 | $ | 11,200,007 | $ | 1,318,568 | $ | (6,376,159 | )(4) | $ | 12,726,292 | ||||||||||
Investments | 5,880,357 | 5,880,357 | |||||||||||||||||||
Loans | 80,036,566 | 22,790,503 | (688,406 | )(5) | 102,138,663 | ||||||||||||||||
Goodwill | 1,731,002 | (6) | 1,731,002 | ||||||||||||||||||
Other assets | 6,767,056 | 380,580 | (300,684 | )(7) | 6,846,952 | ||||||||||||||||
Total Assets | $ | 99,267,855 | $ | 11,200,007 | $ | 24,489,651 | $ | (5,634,247 | ) | $ | 129,323,266 | ||||||||||
LIABILITIES | |||||||||||||||||||||
Total deposits | $ | 79,679,058 | $ | 79,679,058 | |||||||||||||||||
Borrowings | 9,000,000 | $ | 19,917,688 | $ | (1,685,286 | )(8) | 27,320,402 | ||||||||||||||
Accrued interest payable and other liabilities | 234,368 | 5,347,833 | (5,347,833 | )(9) | 234,368 | ||||||||||||||||
Total Liabilities | 88,913,426 | 25,265,521 | (7,033,119 | ) | 107,145,828 | ||||||||||||||||
STOCKHOLDERS’ EQUITY | |||||||||||||||||||||
Common stock | 10,754,630 | $ | 11,200,007 | 831,002 | (10) | 22,785,639 | |||||||||||||||
Accumulated deficit | (390,167 | ) | (775,870 | ) | 567,870 | (11) | (598,167 | ) | |||||||||||||
Accumulated other comprehensive income | (10,034 | ) | (10,034 | ) | |||||||||||||||||
Total Shareholders’ Equity | 10,354,429 | 11,200,007 | (775,870 | ) | 1,398,872 | 22,177,438 | |||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 99,267,855 | $ | 11,200,007 | $ | 24,489,651 | $ | (5,634,247 | ) | $ | 129,323,266 | ||||||||||
(1) | Represents Discovery Bank’s December 31, 2004 historic amounts. | |
(2) | Represents the maximum net proceeds from this offering (net of estimated offering expenses, including commissions, of $800,000). For purposes of this pro forma presentation it is assumed that 774,194 shares will be sold at $15.50 per share for aggregate proceeds of $12,000,007. No assurance can be given regarding the net proceeds of this offering. | |
(3) | Represents the historic assets and liabilities of Celtic at December 31, 2004. | |
(4) | Represents the estimated cash purchase price for Celtic as of December 31, 2004 (the Net Payment Amount of $3,582,873 plus the cash premium of $900,000), the projected reduction in Celtic’s outstanding borrowings being assumed of $1,685,286, less the projected reduction in interest expense of $97,000 as a result of the projected reduction of outstanding borrowings, plus the payment of the Holding Company’s estimated organizational costs of $305,000. | |
(5) | The loan balance being purchased from Celtic is net of $45,000 in deferred loan fees and $733,406 in loans not being purchased. |
65
(6) | Goodwill represents the difference between the aggregate purchase price for Celtic and the estimated value of the assets being acquired net of the liabilities being assumed. | |
(7) | Celtic’s cash surrender value of life insurance, prepaid expenses, other assets and deferred income taxes, aggregating $300,684, are not being purchased. Celtic’s furniture, fixtures and equipment are being purchased. | |
(8) | Represents the projected reduction in Celtic’s outstanding borrowings being assumed. | |
(9) | Represents Celtic’s liabilities not being assumed. |
(10) | Represents the stock consideration to be paid for the Celtic acquisition, plus the stock consideration to be provided to Mr. Mark Hafner at the closing of the Celtic acquisition pursuant to his employment agreement, at an estimated $15.50 per share. No assurance can be given regarding the valuation of the Holding Company’s common stock at the Celtic closing. |
(11) | Represents the pro forma adjustment to eliminate Celtic’s accumulated deficit, which is not being assumed, plus the projected reduction in interest expense of $97,000 as a result of the projected reduction in Celtic’s borrowings, net of the projected Holding Company organizational costs of $305,000. |
Pro Forma Statement of Operations | |||||||||||||||||
for the Three Month Period Ended | |||||||||||||||||
March 31, 2005 | |||||||||||||||||
Discovery | Pro Forma | ||||||||||||||||
Bancorp | Celtic | Adjustment(1) | Combined | ||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||
Interest income | $ | 1,647 | $ | 1,003 | $ | 2,650 | |||||||||||
Interest expense | 506 | 409 | $ | (11 | ) | 904 | |||||||||||
Net interest income | 1,141 | 594 | 11 | 1,746 | |||||||||||||
Provision for possible loan losses | 159 | 0 | 159 | ||||||||||||||
Net interest income (loss) after provision for possible loan losses | 982 | 594 | 11 | 1,587 | |||||||||||||
Other income | 54 | 0 | 54 | ||||||||||||||
Other expenses | 893 | 547 | 305 | 1,745 | |||||||||||||
Income (loss) before provision for income taxes | 143 | 47 | (294 | ) | (104 | ) | |||||||||||
Income taxes (credit) | 37 | 0 | 37 | ||||||||||||||
Net income (loss) | $ | 106 | $ | 47 | $ | (294 | ) | $ | (141 | ) | |||||||
PER SHARE DATA-MINIMUM:(2) | |||||||||||||||||
Basic | $ | 0.10 | $ | (0.09 | ) | ||||||||||||
Diluted | $ | 0.10 | $ | (0.09 | ) | ||||||||||||
Book value | $ | 10.05 | $ | 11.22 | |||||||||||||
Weighted Average Shares Outstanding | 1,037,298 | 1,511,964 | |||||||||||||||
Diluted Shares Outstanding | 1,102,495 | 1,577,161 | |||||||||||||||
PER SHARE DATA-MAXIMUM:(3) | |||||||||||||||||
Basic | $ | 0.36 | $ | (0.08 | ) | ||||||||||||
Diluted | $ | 0.33 | $ | (0.07 | ) | ||||||||||||
Book value | $ | 9.98 | $ | 11.88 | |||||||||||||
Weighted Average Shares Outstanding | 1,037,298 | 1,865,105 | |||||||||||||||
Diluted Shares Outstanding | 1,102,495 | 1,930,302 |
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(1) | These pro forma adjustments represent the estimated interest expense savings of $11,000 as a result of the projected reduction of Celtic’s outstanding borrowings, at the average annual rate for the first quarter of 2005, and the Holding Company’s estimated organizational costs of $305,000. |
(2) | This pro forma per share data assumes this offering was conducted at the beginning of the period, that gross proceeds of $6.5 million (the minimum necessary to close the Celtic acquisition as of March 31, 2005) represent the sale of 421,053 shares at $15.50 per share, that an additional 53,613, shares were issued in connection with the Celtic acquisition (51,613 shares to Celtic, equal to $800,001 at $15.50 per share, plus 2,000 shares to Mr. Mark Hafner pursuant to his employment agreement), and that no earnings were generated from the net proceeds of this offering. No assurance can be given regarding the net proceeds of this offering. |
(3) | This pro forma per share data assumes this offering was conducted at the beginning of the period, that gross proceeds of $12.0 million (the maximum offering) represent the sale of 774,194 shares at $15.50 per share, that an additional 53,613 shares were issued in connection with the Celtic acquisition (51,613 shares to Celtic, equal to $800,001 at $15.50 per share, plus 2,000 shares to Mr. Mark Hafner pursuant to his employment agreement), and that no earnings were generated from the net proceeds of this offering. No assurance can be given regarding the net proceeds of this offering. |
Pro Forma Statement of Operations | |||||||||||||||||
for the Year Ended | |||||||||||||||||
December 31, 2004 | |||||||||||||||||
Discovery | Pro Forma | ||||||||||||||||
Bancorp | Celtic | Adjustment(1) | Combined | ||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||
Interest income | $ | 5,005 | $ | 4,223 | $ | 9,228 | |||||||||||
Interest expense | 1180 | 1439 | $ | (97 | ) | 2,522 | |||||||||||
Net interest income | 3,825 | 2,784 | 97 | 6,706 | |||||||||||||
Provision for possible loan losses | 238 | 38 | 276 | ||||||||||||||
Net interest income (loss) after provision for possible loan losses | 3,587 | 2,746 | 97 | 6,430 | |||||||||||||
Other income | 152 | 0 | 152 | ||||||||||||||
Other expenses | 3,149 | 2,663 | 305 | 6,117 | |||||||||||||
Income (loss) before provision for income taxes | 590 | 83 | (208 | ) | 465 | ||||||||||||
Income taxes (credit) | (86 | ) | 0 | (86 | ) | ||||||||||||
Net income (loss) | $ | 676 | $ | 83 | $ | (208 | ) | $ | 551 | ||||||||
PER SHARE DATA-MINIMUM:(2) | |||||||||||||||||
Basic | $ | 0.65 | $ | 0.36 | |||||||||||||
Diluted | $ | 0.61 | $ | 0.35 | |||||||||||||
Book value | $ | 9.98 | $ | 11.93 | |||||||||||||
Weighted Average Shares Outstanding | 1,037,298 | 1,511,964 | |||||||||||||||
Diluted Shares Outstanding | 1,095,455 | 1,570,121 | |||||||||||||||
PER SHARE DATA-MAXIMUM:(3) | |||||||||||||||||
Basic | $ | 0.36 | $ | 0.30 | |||||||||||||
Diluted | $ | 0.33 | $ | 0.29 | |||||||||||||
Book value | $ | 9.98 | $ | 11.94 | |||||||||||||
Weighted Average Shares Outstanding | 1,037,298 | 1,865,105 | |||||||||||||||
Diluted Shares Outstanding | 1,095,455 | 1,923,262 |
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(1) | These pro forma adjustments represent the estimated interest expense savings of $97,000 as a result of the projected reduction of Celtic’s outstanding borrowings, at the average annual rate for 2004, and the Holding Company’s estimated organizational costs of $305,000. |
(2) | This pro forma per share data assumes this offering was conducted at the beginning of the period, that gross proceeds of $6.5 million (the minimum necessary to close the Celtic acquisition as of December 31, 2004) represent the sale of 421,053 shares at $15.50 per share, that an additional 53,613 shares were issued in connection with the Celtic acquisition (51,613 shares to Celtic, equal to $800,001 at $15.50 per share, plus 2,000 shares to Mr. Mark Hafner pursuant to his employment agreement), and that no earnings were generated from the net proceeds of this offering. No assurance can be given regarding the net proceeds of this offering. |
(3) | This pro forma per share data assumes this offering was conducted at the beginning of the period, that gross proceeds of $12.0 million (the maximum offering) represent the sale of 774,194 shares at $15.50 per share, that an additional 53,613 shares were issued in connection with the Celtic acquisition (51,613 shares to Celtic, equal to $800,001 at $15.50 per share, plus 2,000 shares to Mr. Mark Hafner pursuant to his employment agreement), and that no earnings were generated from the net proceeds of the offering. No assurance can be given regarding the net proceeds of this offering. |
Number of | |||||||||||||
Shares Subject to | |||||||||||||
Number of Shares of | Vested Stock | ||||||||||||
Common Stock | Options and | Percent of | |||||||||||
Beneficially | Outstanding | Class Beneficially | |||||||||||
Name and Position Held | Owned(2) | Warrants(3) | Owned(3) | ||||||||||
Joseph C. Carona, | 2,900 | 5,421 | 0.80 | % | |||||||||
Executive Vice President and Chief Administrative Officer | |||||||||||||
Robert Cairns, | 29,000 | 11,889 | 3.90 | % | |||||||||
Corporate Secretary and Director | |||||||||||||
Gabriel P. Castano, | 26,400 | 5,769 | 3.18 | % | |||||||||
Director | |||||||||||||
Walter F. Cobb, | 9,240 | 4,560 | 1.32 | % | |||||||||
Director | |||||||||||||
Stanley M. Cruse, | 200 | 1,000 | 0.12 | % | |||||||||
Executive Vice President and Chief Credit Officer | |||||||||||||
Lou Ellen Ficke, | 1,000 | 5,321 | 0.61 | % | |||||||||
Executive Vice President and Chief Financial Officer | |||||||||||||
James P. Kelley, II, | 25,900 | 22,362 | 4.55 | % | |||||||||
Director, President and Chief Executive Officer | |||||||||||||
Michael A. Lenzner, | 45,072 | 9,791 | 5.24 | % | |||||||||
Director |
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Number of | |||||||||||||
Shares Subject to | |||||||||||||
Number of Shares of | Vested Stock | ||||||||||||
Common Stock | Options and | Percent of | |||||||||||
Beneficially | Outstanding | Class Beneficially | |||||||||||
Name and Position Held | Owned(2) | Warrants(3) | Owned(3) | ||||||||||
Anthony J. Pitale, | 11,852 | 1,300 | 1.27 | % | |||||||||
Director | |||||||||||||
John R. Plavan, | 26,600 | 6,251 | 3.15 | % | |||||||||
Chairman of the Board | |||||||||||||
Stuart Rubin, | 31,500 | 7,091 | 3.70 | % | |||||||||
Director | |||||||||||||
Mark W. Santar, | 28,720 | 6,701 | 3.39 | % | |||||||||
Director | |||||||||||||
All Directors and Executive Officers as a Group(12 in number) | 238,384 | 88,456 | 29.03 | % |
(1) | As used throughout this prospectus, the term “executive officer” means our President and Chief Executive Officer, and our executive vice presidents. Our Chairman of the Board, Corporate Secretary, and other vice presidents are not deemed to be executive officers. |
(2) | Includes shares held by or with such person’s spouse (except where legally separated) and minor children; shares held by any other relative of such person who has the same home; shares held by a family trust as to which such person is a trustee with sole voting and investment power (or shares power with a spouse); shares held as custodian for minor children; or shares held in an Individual Retirement Account or pension plan as to which such person has pass-through voting rights and investment power. Does not include shares which may be acquired upon exercise of stock options or warrants, which are identified separately in this table. |
(3) | Shares subject to options held by directors and executive officers that were exercisable within 60 days after May 2, 2005 (“vested”) and warrants are treated as issued and outstanding for the purpose of computing the percent of the class owned by such person but not for the purpose of computing the percent of class owned by any other person. For All Directors and Executive Officers as a Group, all vested stock options and warrants held by such persons are treated as issued and outstanding when computing the percent of class. |
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Name | Age | Position | ||||
Robert Cairns | 57 | Director and Secretary | ||||
Gabriel P. Castano | 54 | Director | ||||
Walter F. Cobb | 72 | Director | ||||
James P. Kelley, II | 52 | Director, President and Chief Executive Officer | ||||
Michael A. Lenzner | 53 | Director | ||||
Anthony J. Pitale | 62 | Director | ||||
John R. Plavan | 60 | Chairman of the Board | ||||
Stuart Rubin | 50 | Director | ||||
Mark W. Santar | 55 | Director |
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Name | Age | Position with the Bank | Position with the Holding Company | |||||
Joseph C. Carona | 64 | Executive Vice President and Chief Administrative Officer | Executive Vice President and Chief Administrative Officer | |||||
Lou Ellen Ficke(1) | 58 | Executive Vice President and Chief Financial Officer | Executive Vice President and Chief Financial Officer | |||||
Stanley M. Cruse | 55 | Executive Vice President and Chief Credit Officer | Executive Vice President | |||||
Martin McNabb(2) | 57 | Controller | Controller |
(1) | On June 10, 2005, Ms. Ficke tendered her resignations from the Holding Company and the Bank, effective September 30, 2005. |
(2) | Mr. McNabb joined the Holding Company and the Bank on July 21, 2005 as Controller. He will become the Chief Financial Officer upon Ms. Ficke’s departure. |
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Long-Term | |||||||||||||||||||||||||
Annual Compensation | Compensation Awards | ||||||||||||||||||||||||
Other Annual | Securities | All Other | |||||||||||||||||||||||
Name and Title | Year | Salary | Bonus | Compensation(1) | Underlying Options | Compensation | |||||||||||||||||||
James P. Kelley, II, | 2004 | $ | 137,500 | $ | 12,750 | $ | 15,559 | 1,200 | $ | 0 | |||||||||||||||
President and Chief | 2003 | $ | 125,000 | $ | 17,500 | $ | 12,889 | 8,500 | $ | 0 | |||||||||||||||
Executive Officer | 2002 | $ | 125,000 | $ | 9,000 | $ | 10,984 | 0 | $ | 0 | |||||||||||||||
Joseph C. Carona, | 2004 | $ | 110,000 | $ | 9,500 | $ | 20,699 | 1,000 | $ | 0 | |||||||||||||||
Executive Vice | 2003 | $ | 100,000 | $ | 11,500 | $ | 18,346 | 1,750 | $ | 0 | |||||||||||||||
President and Chief | 2002 | $ | 100,000 | $ | 7,000 | $ | 15,124 | 0 | $ | 0 | |||||||||||||||
Administrative Officer | |||||||||||||||||||||||||
Stanley M. Cruse | 2004 | $ | 98,000 | $ | 7,500 | $ | 17,065 | 5,500 | $ | 0 | |||||||||||||||
Executive Vice President and Chief Credit Officer | |||||||||||||||||||||||||
Lou Ellen Ficke, | 2004 | $ | 99,000 | $ | 9,500 | $ | 17,065 | 1,000 | $ | 0 | |||||||||||||||
Executive Vice | 2003 | $ | 90,000 | $ | 11,500 | $ | 14,406 | 1,750 | $ | 0 | |||||||||||||||
President and Chief | 2002 | $ | 85,000 | $ | 5,000 | $ | 12,292 | 0 | $ | 0 | |||||||||||||||
Financial Officer |
(1) | These figures include automobile allowance ($5,437, $7,200 and $6,000 in 2002, $5,437, $7,200 and $6,000 in 2003, and $5,437, $7,800, $6,600 and $6,500 in 2004, for Mr. Kelley, Mr. Carona, Mr. Cruse (2004 only) and Ms. Ficke, respectively), matching 401(k) Plan contributions ($1,555, $1,605 and $1,350 in 2002, $3,120, $3,000 and $2,400 in 2003, and $4,472, $3,000, $1,650 and $2,950 for Mr. Kelley, Mr. Carona , Mr. Cruse (2004 only) and Ms. Ficke, respectively) and medical insurance benefits ($3,992, $6,319 and $4,942 in 2002, $4,332, $8,147 and $6,006 in 2003 and $5,650, $9,899, $6,409 and $7,616 for Mr. Kelley, Mr. Carona, Mr. Cruse (2004 only) and Ms. Ficke, respectively). |
Stock Option Grants During 2004 | ||||||||||||||||
(Individual Grants) | ||||||||||||||||
Number of | Percent of Total | |||||||||||||||
Securities | Options/SARs | |||||||||||||||
Underlying | Granted to | |||||||||||||||
Options/SARs | Employees in | Exercise or Base | ||||||||||||||
Name | Granted | Fiscal Year | Price ($/Share) | Expiration Date | ||||||||||||
James P. Kelley, II | 1,200 | 10.1 | % | $ | 16.00 | 12/15/2014 | ||||||||||
Joseph C. Carona | 1,000 | 8.4 | % | $ | 16.00 | 12/15/2014 | ||||||||||
Stanley M. Cruse | 5,000 | 42.0 | % | $ | 14.25 | 2/2/2014 | ||||||||||
500 | 4.2 | % | $ | 16.00 | 12/15/2014 | |||||||||||
Lou Ellen Ficke | 1,000 | 8.4 | % | $ | 16.00 | 12/15/2014 |
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Value of Unexercised | ||||||||||||||||
Number of Unexercised | In-the-Money | |||||||||||||||
Options at | Options at | |||||||||||||||
December 31, 2004 | December 31, 2004(1) | |||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
James P. Kelley, II | 20,787 | 20,725 | $ | 129,015 | $ | 103,113 | ||||||||||
Joseph C. Carona | 5,121 | 5,582 | $ | 31,949 | $ | 24,933 | ||||||||||
Stanley M. Cruse | 0 | 5,500 | $ | — | $ | 11,500 | ||||||||||
Lou Ellen Ficke | 5,121 | 5,582 | $ | 31,949 | $ | 24,933 |
(1) | Assuming a market value of $16.50 per share on December 31, 2004. |
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• | the Board of Governors of the Federal Reserve System, or the FRB; | |
• | the Federal Deposit Insurance Corporation, or the FDIC; and | |
• | the California Department of Financial Institutions, or the DFI. |
• | the scope of permissible business; | |
• | investments; | |
• | reserves that must be maintained against deposits; | |
• | capital levels that must be maintained; | |
• | the nature and amount of collateral that may be taken to secure loans; | |
• | the establishment of new branches; | |
• | mergers and consolidations with other financial institutions; and | |
• | the payment of dividends. |
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• | Section 301 establishes certain oversight, independence, funding and other requirements for the audit committees of public companies, and required the SEC to issue rules that prohibit any national securities exchange or national securities association from listing the securities of a company that doesn’t comply with these audit committee requirements. | |
• | Section 302 mandated that the SEC adopt rules that require the principal executive officer(s) and principal financial officer(s) of public companies to include certain certifications in the company’s annual and quarterly reports filed under the Exchange Act. | |
• | Section 906 includes another certification requirement that is separate from the certification requirements of Section 302. Section 906 provides that all periodic reports that contain financial statements and that are filed by public companies under Sections 13(a) or 15(d) of the Exchange Act must include a written certification by the CEO and CFO (or equivalent) that (1) the report complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and (2) the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Persons who knowingly or willfully violate Section 906 are subject to specified criminal penalties. |
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• | Section 303 required the SEC to issue rules prohibiting the officers and directors of public companies, and persons acting under their direction, from fraudulently influencing, coercing, manipulating, or misleading the company’s independent auditor in order to render the financial statements materially misleading. | |
• | Section 304 requires the CEO and CFO of public companies to reimburse the company for certain compensation and profits received if the company is required to restate its financial reports due to material noncompliance resulting from misconduct, with the Federal securities laws. | |
• | Section 306(a) prohibits the directors and executive officers of any public company from purchasing, selling or transferring any equity security acquired by the director or executive officer in connection with his or her service as a director or executive officer during any “blackout period” with respect to the company’s securities. Blackout periods refer to periods when most public company employees are not permitted to sell shares in their 401(k) plans. | |
• | Section 401(b) required the SEC to issue rules that prohibit issuers from including misleading pro forma financial information in their filings with the SEC or in any public release, and that requires issuers to reconcile any pro forma financial information included in such filings or public releases with their financial statements prepared in accordance with generally accepted accounting principles. | |
• | Section 404 mandated that the SEC issue rules that require all annual reports filed under Sections 13(a) or 15(d) of the Exchange Act to include certain statements and assessments related to the issuer’s internal control structures and procedures for financial reporting. | |
• | Section 406 mandated that the SEC adopt rules that require public companies to (1) disclose in their periodic reports filed under the Exchange Act whether the company has adopted a code of ethics for its senior financial officers and, if not, the reasons why; and (2) promptly disclose on Form 8-K any change to, or waiver of, the company’s code of ethics. | |
• | Section 407 mandated that the SEC adopt rules that require public companies to disclose in their periodic reports filed under the Exchange Act whether the audit committee of the company includes at least one financial expert and, if not, the reasons why. |
• | The name of the independent auditor for the publicly traded company, a description of the services rendered by the auditor during the previous 24 months, the date of the last audit and a copy of the report; | |
• | The annual compensation paid to each director and executive officer, including options or shares granted to them that were not available to other employees of the company; | |
• | A statement indicating whether any bankruptcy has been filed by the company’s executive officers or directors during the past 10 years; and |
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• | A statement indicating whether any of the company’s executive officers or directors were convicted of fraud during the past 10 years. |
• | assets (exclusive of goodwill and other intangible assets) would be 1.25 times its liabilities (exclusive of deferred taxes, deferred income and other deferred credits); and | |
• | current assets would be at least equal to current liabilities. |
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• | directly or indirectly acquiring more than 5% ownership or control of any voting shares of another bank or bank holding company; | |
• | acquiring all or substantially all of the assets of another bank; or | |
• | merging or consolidating with another bank holding company. |
• | making or acquiring loans or other extensions of credit for its own account or for the account of others; | |
• | servicing loans and other extensions of credit; | |
• | performing functions or activities that may be performed by a trust company in the manner authorized by federal or state law under certain circumstances; | |
• | leasing personal and real property or acting as agent, broker, or adviser in leasing such property in accordance with various restrictions imposed by FRB regulations; | |
• | acting as investment or financial advisor; | |
• | providing management consulting advise under certain circumstances; | |
• | providing support services, including courier services and printing and selling MICR-encoded items; | |
• | acting as a principal, agent, or broker for insurance under certain circumstances; | |
• | making equity and debt investments in corporations or projects designed primarily to promote community welfare or jobs for residents; | |
• | providing financial, banking, or economic data processing and data transmission services; | |
• | owning, controlling, or operating a savings association under certain circumstances; | |
• | selling money orders, travelers’ checks and U.S. Savings Bonds; | |
• | providing securities brokerage services, related securities credit activities pursuant to Regulation T, and other incidental activities; and | |
• | underwriting dealing in obligations of the U.S., general obligations of states and their political subdivisions, and other obligations authorized for state member banks under federal law. |
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• | the customer must obtain or provide some additional credit, property or services from or to the Bank other than a loan, discount, deposit or trust services; | |
• | the customer must obtain or provide some additional credit, property or service from or to Bancorp or any subsidiaries; or | |
• | the customer must not obtain some other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended. |
• | assets (exclusive of goodwill and other intangible assets) would be 1.25 times its liabilities (exclusive of deferred taxes, deferred income and other deferred credits); and | |
• | current assets would be at least equal to current liabilities. |
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USA Patriot Act |
Gramm-Leach-Bliley Act |
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Qualifying Capital |
• | common stockholders’ equity; | |
• | qualifying noncumulative perpetual preferred stock (including related surplus); and | |
• | minority interests in the equity accounts of consolidated subsidiaries. |
• | a portion of the allowance for loan and lease losses; | |
• | certain types of perpetual preferred stock and related surplus; | |
• | certain types of hybrid capital instruments and mandatory convertible debt securities; and | |
• | a portion of term subordinated debt and intermediate-term preferred stock, including related surplus. |
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Risk Weighted Assets and Off-Balance Sheet Items |
Minimum Capital Standards |
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Minimum to be “Well | |||||||||||||||||||||||||
Capitalized” Under | |||||||||||||||||||||||||
Minimum for Capital | Prompt Corrective Action | ||||||||||||||||||||||||
Actual | Adequacy Purposes | Provisions | |||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||
As of March 31, 2005: | |||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 11,632,000 | 11.44 | % | $ | 8,137,000 | 8.00 | % | $ | 10,171,000 | 10.00% | ||||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 10,457,000 | 10.28 | % | $ | 4,068,000 | 4.00 | % | $ | 6,103,000 | 6.00% | ||||||||||||||
Tier 1 capital (to average assets) | $ | 10,457,000 | 9.56 | % | $ | 4,373,000 | 4.00 | % | $ | 5,466,000 | 5.00% | ||||||||||||||
As of March 31, 2004: | |||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 10,537,000 | 15.58 | % | $ | 5,411,000 | 8.00 | % | $ | 6,764,000 | 10.00% | ||||||||||||||
Tier 1 capital (to risk-weighted assets) | $ | 9,743,000 | 14.40 | % | $ | 2,706,000 | 4.00 | % | $ | 4,058,000 | 6.00% | ||||||||||||||
Tier 1 capital (to average assets) | $ | 9,743,000 | 13.26 | % | $ | 2,938,000 | 4.00 | % | $ | 3,673,000 | 5.00% |
Other Factors Affecting Minimum Capital Standards |
• | 100% of assets classified loss; | |
• | 50% of assets classified doubtful; | |
• | 15% of assets classified substandard; and | |
• | estimated credit losses on other assets. |
• | the amount of the deferred tax assets that can be realized within one year of the quarter-end report date; or | |
• | 10% of Tier 1 capital. |
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• | “well capitalized” if it has a total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-based capital ratio of 6.0% or more, has a leverage capital ratio of 5.0% or more, and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure; | |
• | “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more, and a leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of “well capitalized”; | |
• | “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0%, or a leverage capital ratio that is less than 4.0% (3.0% under certain circumstances); | |
• | “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a leverage capital ratio that is less than 3.0%; and | |
• | “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. |
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• | Group A — financially sound with only a few minor weaknesses; | |
• | Group B — demonstrates weaknesses that could result in significant deterioration; and | |
• | Group C — poses a substantial probability of loss. |
Assessment Rates | ||||||||||||
Supervisory Group | ||||||||||||
Capital Group | Group A | Group B | Group C | |||||||||
Well capitalized | 0 | 3 | 17 | |||||||||
Adequately capitalized | 3 | 10 | 24 | |||||||||
Undercapitalized | 10 | 24 | 27 |
• | the appointment of a conservator or receiver for the bank; | |
• | the issuance of a cease and desist order that can be judicially enforced; | |
• | the termination of the bank’s deposit insurance; |
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• | the imposition of civil monetary penalties; | |
• | the issuance of directives to increase capital; | |
• | the issuance of formal and informal agreements; | |
• | the issuance of removal and prohibition orders against officers, directors and other institution-affiliated parties; and | |
• | the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the deposit insurance fund or the bank would be harmed if such equitable relief was not granted. |
• | insolvency; | |
• | substantial dissipation of assets or earnings due to any violation of law or regulation or any unsafe or unsound practice; | |
• | an unsafe or unsound condition to transact business, including substantially insufficient capital or otherwise; | |
• | any willful violation of a cease and desist order which has become final; | |
• | any concealment of books, papers, records or assets of the institution; | |
• | the likelihood that the institution will not be able to meet the demands of its depositors or pay its obligations in the normal course of business; | |
• | the incurrence or likely incurrence of losses by the institution that will deplete all or substantially all of its capital with no reasonable prospect for the replenishment of the capital without federal assistance; or | |
• | any violation of any law or regulation, or an unsafe or unsound practice or condition which is likely to cause insolvency or substantial dissipation of assets or earnings, or is likely to weaken the condition of the institution or otherwise seriously prejudice the interests of its depositors. |
• | internal controls, information systems and internal audit systems; | |
• | loan documentation; |
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• | credit underwriting; | |
• | asset growth; and | |
• | compensation, fees and benefits. |
90
• | the Community Reinvestment Act, or the CRA; | |
• | the Truth in Lending Act, or the TILA; | |
• | the Fair Housing Act, or the FH Act; | |
• | the Equal Credit Opportunity Act, or the ECOA; | |
• | the Home Mortgage Disclosure Act, or the HMDA; and | |
• | the Real Estate Settlement Procedures Act, or the RESPA. |
• | overt evidence of discrimination; | |
• | evidence of disparate treatment; and | |
• | evidence of disparate impact. |
• | declining a loan for the purposes of racial discrimination; | |
• | making excessively low appraisals of property based on racial considerations; | |
• | pressuring, discouraging, or denying applications for credit on a prohibited basis; | |
• | using excessively burdensome qualifications standards for the purpose or with the effect of denying housing to minority applicants; |
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• | imposing on minority loan applicants more onerous interest rates or other terms, conditions or requirements; and | |
• | racial steering, or deliberately guiding potential purchasers to or away from certain areas because of race. |
• | its open-market dealings in United States government securities; | |
• | adjusting the required level of reserves for financial institutions subject to reserve requirements; | |
• | placing limitations upon savings and time deposit interest rates; and | |
• | adjustments to the discount rate applicable to borrowings by banks which are members of the Federal Reserve System. |
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Page | ||
Unaudited Financial Statements of Discovery Bank | ||
F-2 | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-6 | ||
Audited Financial Statements of Discovery Bank | ||
F-9 | ||
F-10 | ||
F-11 | ||
F-12 | ||
F-13 | ||
F-14 | ||
F-28 | ||
F-29 | ||
F-30 | ||
F-31 | ||
F-32 | ||
F-33 | ||
Unaudited Financial Statements of Celtic Capital Corporation and Columbia Capital Corporation | ||
F-46 | ||
F-47 | ||
F-48 | ||
F-49 | ||
F-50 | ||
F-51 | ||
F-52 | ||
Audited Financial Statements of Celtic Capital Corporation and Columbia Capital Corporation | ||
F-53 | ||
F-54 | ||
F-55 | ||
F-56 | ||
F-57 | ||
F-58 | ||
F-66 | ||
F-67 | ||
F-68 | ||
F-69 |
F-1
March 31, | |||||||||
2005 | 2004 | ||||||||
(Unaudited) | |||||||||
ASSETS | |||||||||
Cash & Due From Banks | $ | 3,059,934 | $ | 2,482,145 | |||||
Fed Funds Sold | 9,315,000 | 2,885,000 | |||||||
Cash and cash equivalents | 12,374,934 | 5,367,145 | |||||||
Interest-bearing deposits at banks | 2,883,226 | 2,540,842 | |||||||
Investment securities | 3,124,590 | 2,524,863 | |||||||
Common stock, substantially restricted | 483,000 | 276,900 | |||||||
Loans, Net | 93,397,712 | 64,888,537 | |||||||
Accrued interest receivable and other assets | 817,132 | 509,332 | |||||||
Deferred income tax asset, net of valuation allowance | 262,412 | 205,000 | |||||||
Premises and equipment, net | 6,065,434 | 313,351 | |||||||
TOTAL ASSETS | $ | 119,408,440 | $ | 76,625,970 | |||||
LIABILITIES | |||||||||
Deposits | |||||||||
Non-interest-bearing demand | $ | 15,453,496 | $ | 12,824,900 | |||||
Interest-bearing demand | 25,647,979 | 15,175,440 | |||||||
Savings | 1,592,333 | 1,220,072 | |||||||
Time, under $100,000 | 30,575,940 | 19,756,786 | |||||||
Time, $100,000 and over | 26,606,368 | 14,721,515 | |||||||
Total deposits | 99,876,116 | 63,698,713 | |||||||
Borrowings | 8,500,000 | 3,000,000 | |||||||
Accrued interest payable and other liabilities | 608,104 | 170,055 | |||||||
STOCKHOLDERS’ EQUITY | |||||||||
Common stock | 10,754,630 | 10,754,630 | |||||||
Accumulated deficit | (283,918 | ) | (1,001,652 | ) | |||||
Accumulated other comprehensive income (loss) | (46,492 | ) | 4,224 | ||||||
10,424,220 | 9,757,202 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 119,408,440 | $ | 76,625,970 | |||||
F-2
For the Three Months Ended | |||||||||
March 31, | |||||||||
2005 | 2004 | ||||||||
(Unaudited) | |||||||||
INTEREST INCOME | |||||||||
Interest and fees on loans | $ | 1,564,447 | $ | 1,012,969 | |||||
Interest on federal funds sold | 39,829 | 5,209 | |||||||
Interest on securities | 25,960 | 15,341 | |||||||
Other | 17,542 | 16,527 | |||||||
1,647,778 | 1,050,046 | ||||||||
INTEREST EXPENSE | |||||||||
Deposits | 451,361 | 228,868 | |||||||
Other | 55,023 | 8,011 | |||||||
506,384 | 236,879 | ||||||||
NET INTEREST INCOME | 1,141,394 | 813,167 | |||||||
PROVISION FOR LOAN LOSSES | 158,942 | 33,411 | |||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 982,452 | 779,756 | |||||||
NON-INTEREST INCOME | |||||||||
Service charges and other income | 153,302 | 32,044 | |||||||
NON-INTEREST EXPENSE | |||||||||
Salaries and employee benefits | 511,341 | 416,213 | |||||||
Net occupancy | 111,378 | 50,909 | |||||||
Furniture and equipment | 66,829 | 44,352 | |||||||
Data processing | 48,323 | 40,555 | |||||||
Advertising | 20,507 | 22,797 | |||||||
Professional | 64,619 | 52,013 | |||||||
Office supplies | 16,969 | 14,803 | |||||||
Other operating | 152,802 | 92,471 | |||||||
992,768 | 734,113 | ||||||||
INCOME BEFORE INCOME TAXES | 142,986 | 77,687 | |||||||
INCOME TAX PROVISION | 36,740 | 13,595 | |||||||
NET INCOME | $ | 106,246 | $ | 64,092 | |||||
Earnings per share | $ | 0.10 | $ | 0.06 | |||||
Diluted Earnings per share | $ | 0.10 | $ | 0.06 |
F-3
Common Stock No Par Value; | ||||||||||||||||||||
10,000,000 Shares Authorized | Accumulated | |||||||||||||||||||
Other | Total | |||||||||||||||||||
Shares | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||
Outstanding | Amount | Deficit | Income (Loss) | Equity | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Balance,January 1, 2004 | 1,037,298 | $ | 10,754,630 | $ | (1,065,744 | ) | $ | 7,356 | $ | 9,696,242 | ||||||||||
Net income | 64,092 | 64,092 | ||||||||||||||||||
Unrealized losses on investment securities | (3,132 | ) | (3,132 | ) | ||||||||||||||||
Total comprehensive income | 60,960 | |||||||||||||||||||
Balance,March 31, 2004 | 1,037,298 | $ | 10,754,630 | $ | (1,001,652 | ) | $ | 4,224 | $ | 9,757,202 | ||||||||||
Balance,January 1, 2005 | 1,037,298 | $ | 10,754,630 | $ | (390,167 | ) | $ | (10,034 | ) | $ | 10,354,429 | |||||||||
Net income | 106,246 | 106,246 | ||||||||||||||||||
Unrealized losses on investment securities | (36,458 | ) | (36,458 | ) | ||||||||||||||||
Total comprehensive income | 55,340 | |||||||||||||||||||
Balance,March 31, 2005 | 1,037,298 | $ | 10,754,630 | $ | (283,918 | ) | $ | (46,492 | ) | $ | 10,424,220 | |||||||||
F-4
March 31, | |||||||||
2005 | 2004 | ||||||||
(Unaudited) | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net Income | $ | 106,246 | $ | 64,092 | |||||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | |||||||||
Provision for loan losses | 158,942 | 33,411 | |||||||
Depreciation and amortization | 93,428 | 28,086 | |||||||
Amortization of deferred loan fees | (56,430 | ) | (45,726 | ) | |||||
Deferred tax assets | 29,188 | ||||||||
Accrued interest receivable and other assets | (275,278 | ) | (96,793 | ) | |||||
Accrued interest payable and other liabilities | 373,734 | 50,353 | |||||||
Net cash provided by/(used in) operating activities | 429,830 | 33,423 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
Purchases of premises and equipment | (225,262 | ) | (105,109 | ) | |||||
Capitalization of deferred loan fees | 58,567 | 36,034 | |||||||
Purchases of interest bearing deposits at banks | (191,603 | ) | (7,548 | ) | |||||
Purchase of common stock substantially restricted | — | (3,100 | ) | ||||||
Sales, maturities and paydowns of securities available-for-sale | 49,723 | 1047,411 | |||||||
Purchases of securities available-for-sale | (505,039 | ) | (1,000,000 | ) | |||||
Net change in loans | (13,522,218 | ) | (4,976,676 | ) | |||||
Net cash used for investing activities | (14,335,832 | ) | (5,008,988 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
Borrowings net of repayments | (500,000 | ) | (1,305,000 | ) | |||||
Net change in deposits | 20,197,060 | 9,537,322 | |||||||
Net cash provided by financing activities | 19,697,060 | 8,232,322 | |||||||
Increase in cash and cash equivalents | 5,791,058 | 3,256,757 | |||||||
CASH AND CASH EQUIVALENTS BALANCE | |||||||||
Beginning of year or period | 6,583,876 | 2,110,388 | |||||||
End of year or period | $ | 12,374,934 | $ | 5,367,145 | |||||
Supplemental Disclosures of Cash Flow Information | |||||||||
Cash paid during the year for: | |||||||||
Income taxes | $ | — | $ | 34,852 | |||||
Interest | $ | 435,228 | $ | 162,001 | |||||
Supplemental Disclosures of Noncash Activities | |||||||||
Total change in unrealized (gains) losses on securities available-for-sale | $ | (36,458 | ) | $ | (3,132 | ) | |||
F-5
2005 | 2004 | |||||||
Net income | $ | 106,246 | $ | 64,097 | ||||
Additional compensation for fair value of stock options | 14,644 | 5,763 | ||||||
Pro forma net income | $ | 91,602 | $ | 58,329 | ||||
F-6
Weighted | ||||||||||||
Net | Average Shares | Per Share | ||||||||||
Income | Outstanding | Amount | ||||||||||
Basic EPS: | ||||||||||||
Income available to common shareholders | $ | 106,246 | 1,037,298 | $ | 0.10 | |||||||
Effect of dilutive securities: | ||||||||||||
Stock options | — | 65,197 | (0.00 | ) | ||||||||
Diluted EPS: | ||||||||||||
Income available to common shareholders | $ | 106,246 | 1,102,495 | $ | 0.10 |
Weighted | ||||||||||||
Net | Average Shares | Per Share | ||||||||||
Income | Outstanding | Amount | ||||||||||
Basic EPS: | ||||||||||||
Income available to common shareholders | $ | 64,092 | 1,037,298 | $ | 0.06 | |||||||
Effect of dilutive securities: | ||||||||||||
Stock options | — | 46,830 | (0.00 | ) | ||||||||
Diluted EPS: | ||||||||||||
Income available to common shareholders | $ | 64,092 | 1,084,128 | $ | 0.06 |
F-7
F-8
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F-9
December 31, | |||||||||
2004 | 2003 | ||||||||
ASSETS | |||||||||
Cash and due from banks | $ | 1,638,876 | $ | 1,495,388 | |||||
Federal funds sold | 4,945,000 | 615,000 | |||||||
Cash and cash equivalents | 6,583,876 | 2,110,388 | |||||||
Interest-bearing deposits at banks | 2,691,623 | 2,533,294 | |||||||
Investment securities, available-for-sale | 2,705,734 | 2,568,846 | |||||||
Common stocks substantially restricted | 483,000 | 273,800 | |||||||
Loans, net | 80,036,566 | 59,935,580 | |||||||
Deferred income tax asset, net of valuation allowance | 291,600 | 205,000 | |||||||
Premises and equipment, net | 5,933,602 | 242,888 | |||||||
Accrued interest receivable and other assets | 541,854 | 412,540 | |||||||
TOTAL ASSETS | $ | 99,267,855 | $ | 68,282,336 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY | |||||||||
Deposits | |||||||||
Non-interest-bearing demand | $ | 14,768,302 | $ | 9,406,444 | |||||
Interest-bearing demand | 27,487,866 | 14,945,397 | |||||||
Savings | 1,449,503 | 819,653 | |||||||
Time, under $100,000 | 18,035,413 | 17,034,658 | |||||||
Time, $100,000 and over | 17,937,972 | 11,955,238 | |||||||
Total deposits | 79,679,056 | 54,161,390 | |||||||
Borrowings | 9,000,000 | 4,305,000 | |||||||
Accrued interest payable and other liabilities | 234,368 | 119,704 | |||||||
TOTAL LIABILITIES | 88,913,424 | 58,586,094 | |||||||
Commitments and contingencies (Note 9 and 13) | |||||||||
STOCKHOLDERS’ EQUITY | |||||||||
Common stock | 10,754,630 | 10,754,630 | |||||||
Accumulated deficit | (390,167 | ) | (1,065,744 | ) | |||||
Accumulated other comprehensive income | (10,034 | ) | 7,356 | ||||||
10,354,429 | 9,696,242 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 99,267,855 | $ | 68,282,336 | |||||
F-10
For the Years Ended | |||||||||
December 31, | |||||||||
2004 | 2003 | ||||||||
INTEREST INCOME | |||||||||
Interest and fees on loans | $ | 4,805,935 | $ | 3,172,662 | |||||
Interest on federal funds sold | 49,136 | 40,094 | |||||||
Interest on securities | 77,782 | 47,148 | |||||||
Other | 71,715 | 32,355 | |||||||
5,004,568 | 3,292,259 | ||||||||
INTEREST EXPENSE | |||||||||
Deposits | 1,105,032 | 850,093 | |||||||
Other | 75,302 | 15,983 | |||||||
1,180,334 | 866,076 | ||||||||
NET INTEREST INCOME | 3,824,234 | 2,426,183 | |||||||
PROVISION FOR LOAN LOSSES | 237,798 | 288,589 | |||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 3,586,436 | 2,137,594 | |||||||
NON-INTEREST INCOME | |||||||||
Service charges and other income | 152,379 | 456,786 | |||||||
NON-INTEREST EXPENSE | |||||||||
Salaries and employee benefits | 1,836,912 | 1,310,738 | |||||||
Occupancy | 130,312 | 190,190 | |||||||
Furniture and equipment | 173,392 | 97,032 | |||||||
Data processing | 182,226 | 125,823 | |||||||
Advertising | 89,281 | 147,077 | |||||||
Professional | 227,932 | 120,423 | |||||||
Office supplies | 54,554 | 28,035 | |||||||
Other operating | 454,429 | 284,385 | |||||||
3,149,038 | 2,303,703 | ||||||||
INCOME BEFORE INCOME TAXES | 589,777 | 290,677 | |||||||
INCOME TAX BENEFIT | (85,800 | ) | (149,200 | ) | |||||
NET INCOME | $ | 675,577 | $ | 439,877 | |||||
Earnings per share | $ | 0.65 | $ | 0.49 | |||||
Diluted Earnings per share | $ | 0.61 | $ | 0.46 | |||||
F-11
Common Stock, No Par Value | Accumulated | ||||||||||||||||||||
10,000,000 Shares Authorized | |||||||||||||||||||||
Other | Total | ||||||||||||||||||||
Shares | Accumulated | Comprehensive | Shareholders’ | ||||||||||||||||||
Outstanding | Amount | Deficit | Income (Loss) | Equity | |||||||||||||||||
Balance December 31, 2002 | 795,298 | 7,669,642 | $ | (1,505,620 | ) | $ | 13,608 | $ | 6,177,630 | ||||||||||||
Proceeds from Offering | 242,000 | 3,084,988 | 3,084,988 | ||||||||||||||||||
Net Income | 439,876 | 439,876 | |||||||||||||||||||
Unrealized Gains on Investments | (6,252 | ) | (6,252 | ) | |||||||||||||||||
Total Comprehensive Loss | 433,624 | ||||||||||||||||||||
Balance December 31, 2003 | 1,037,298 | 10,754,630 | (1,065,744 | ) | 7,356 | 9,696,242 | |||||||||||||||
Net Income | 675,577 | 675,577 | |||||||||||||||||||
Unrealized Losses on Investments | (17,390 | ) | (17,390 | ) | |||||||||||||||||
Total Comprehensive Loss | 658,187 | ||||||||||||||||||||
Balance December 31, 2004 | 1,037,298 | $ | 10,754,630 | $ | (390,167 | ) | $ | (10,034 | ) | $ | 10,354,429 | ||||||||||
F-12
For the Years Ended | |||||||||
December 31, | |||||||||
2004 | 2003 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net Income | $ | 675,577 | $ | 439,876 | |||||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | |||||||||
Provision for loan losses | 237,798 | 288,589 | |||||||
Depreciation and amortization | 161,163 | 86,282 | |||||||
Amortization of deferred loan fees | (234,573 | ) | (51,237 | ) | |||||
Loss on disposal of fixed assets | 1,986 | — | |||||||
Change in: | |||||||||
Deferred tax assets | (86,600 | ) | (205,000 | ) | |||||
Accrued interest receivable and other assets | (129,314 | ) | (171,885 | ) | |||||
Accrued interest payable and other liabilities | 114,664 | (262,112 | ) | ||||||
Net cash provided by/(used in) operating activities | 740,701 | 124,513 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
Purchases of premises and equipment | (5,872,637 | ) | (116,019 | ) | |||||
Proceeds from sales of premises and equipment | 19,986 | ||||||||
Capitalization of deferred loan fees | 213,086 | 132,797 | |||||||
Purchases of interest bearing deposits at banks | (158,329 | ) | (2,533,294 | ) | |||||
Redemption of interest bearing deposits at banks | — | 498,000 | |||||||
Purchase of common stock substantially restricted | (209,200 | ) | (213,800 | ) | |||||
Sales, maturities and paydowns of securities available-for-sale | 2,343,776 | — | |||||||
Purchases of securities available-for-sale | (2,492,600 | ) | (1,980,877 | ) | |||||
Net change in loans | (20,384,931 | ) | (23,103,655 | ) | |||||
Net cash used for investing activities | (26,540,849 | ) | (27,316,848 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
Proceeds from borrowings, net of repayments | 4,755,968 | 4,305,000 | |||||||
Proceeds from issuance of common stock, net of capital raising costs | — | 3,084,988 | |||||||
Net change in deposits | 25,517,668 | 18,765,575 | |||||||
Net cash provided by financing activities | 30,273,636 | 26,155,563 | |||||||
(Decrease) Increase in cash and cash equivalents | 4,473,488 | (1,036,772 | ) | ||||||
CASH AND CASH EQUIVALENTS BALANCE | |||||||||
Beginning of year or period | 2,110,388 | 3,147,160 | |||||||
End of year or period | $ | 6,583,876 | $ | 2,110,388 | |||||
Supplemental Disclosures of Cash Flow Information | |||||||||
Cash paid during the year for: | |||||||||
Income taxes | $ | 28,500 | $ | 800 | |||||
Interest | $ | 1,159,713 | $ | 863,597 | |||||
Supplemental Disclosures of Noncash Activities | |||||||||
Total change in unrealized (gains) losses on securities available-for-sale | $ | (17,390 | ) | $ | (6,252 | ) | |||
F-13
NOTE 1 — | OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
F-14
F-15
F-16
2004 | 2003 | |||||||
Net income | $ | 675,577 | $ | 439,876 | ||||
Additional compensation for fair value of stock options | 107,282 | 71,139 | ||||||
Pro forma net income | $ | 568,295 | $ | 368,737 | ||||
Weighted | ||||||||||||
Net | Average Shares | Per Share | ||||||||||
Income | Outstanding | Amount | ||||||||||
Basic EPS: | ||||||||||||
Income available to common shareholders | $ | 675,577 | 1,037,298 | $ | 0.65 | |||||||
Effect of dilutive securities: | ||||||||||||
Stock options | — | 58,157 | (0.04 | ) | ||||||||
Diluted EPS: | ||||||||||||
Income available to common shareholders | $ | 675,577 | 1,095,455 | $ | 0.61 | |||||||
Weighted | ||||||||||||
Net | Average Shares | Per Share | ||||||||||
Income | Outstanding | Amount | ||||||||||
Basic EPS: | ||||||||||||
Income available to common shareholders | $ | 439,876 | 897,017 | $ | 0.49 | |||||||
Effect of dilutive securities: | ||||||||||||
Stock options | — | 38,957 | (0.03 | ) | ||||||||
Diluted EPS: | ||||||||||||
Income available to common shareholders | $ | 439,876 | 935,974 | $ | 0.46 | |||||||
F-17
F-18
NOTE 2 — | INVESTMENT SECURITIES |
2004 | |||||||||||||||||
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Available-for-sale securities: | |||||||||||||||||
U.S. government agency Securities | $ | 2,715,768 | $ | 6,141 | $ | (16,175 | ) | $ | 2,705,734 | ||||||||
Total securities | $ | 2,715,768 | $ | 6,141 | $ | (16,175 | ) | $ | 2,705,734 | ||||||||
2003 | |||||||||||||||||
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Available-for-sale securities: | |||||||||||||||||
U.S. government agency Securities | $ | 1,645,672 | $ | 17,806 | $ | (969 | ) | $ | 1,662,509 | ||||||||
Mutual funds | 915,818 | $ | — | (9,481 | ) | 906,337 | |||||||||||
Total securities | $ | 2,561,490 | $ | 17,806 | $ | (10,450 | ) | $ | 2,568,846 | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Due in one year or less | $ | 250,000 | $ | 251,325 | ||||
Due after one year through five years | 1,811,129 | 1,807,690 | ||||||
Due after five years | 654,639 | 646,719 | ||||||
Totals | $ | 2,715,766 | $ | 2,705,734 | ||||
F-19
NOTE 3 — | LOANS |
2004 | 2003 | |||||||
Real estate | $ | 49,663,687 | $ | 40,283,738 | ||||
Commercial | 26,001,621 | 17,473,037 | ||||||
Consumer | 5,545,858 | 3,069,460 | ||||||
Gross loans | 81,211,166 | 60,826,235 | ||||||
Less: deferred loan fees | (176,463 | ) | (130,316 | ) | ||||
Less: allowance for loan losses | (998,137 | ) | (760,339 | ) | ||||
$ | 80,036,566 | $ | 59,935,580 | |||||
2004 | 2003 | |||||||
Balance, beginning of year | $ | 760,339 | $ | 471,750 | ||||
Provision for loan losses charged to expense | 237,798 | 288,589 | ||||||
Loans charged-off | — | — | ||||||
Recoveries of loans previously charged-off | — | — | ||||||
Balance, end of year | $ | 998,137 | $ | 760,339 | ||||
NOTE 4 — | PREMISES AND EQUIPMENT |
2004 | 2003 | |||||||
Building | $ | 4,107,383 | $ | — | ||||
Equipment, furniture and fixtures | 1,001,737 | 302,625 | ||||||
Leasehold improvements | — | 117,095 | ||||||
Land | 1,000,000 | — | ||||||
6,109,120 | 419,720 | |||||||
Less: accumulated depreciation and amortization | (175,518 | ) | (176,832 | ) | ||||
Premises and equipment, net | $ | 5,933,602 | $ | 242,888 | ||||
F-20
NOTE 5 — | DEPOSITS |
Time | Time | |||||||
Deposits | Deposits | |||||||
< $100,000 | > $100,000 | |||||||
2005 | $ | 18,035,413 | $ | 17,937,972 | ||||
2006 | — | — | ||||||
Thereafter | — | — | ||||||
$ | 18,035,413 | $ | 17,937,972 | |||||
NOTE 6 — | BORROWINGS |
NOTE 7 — | INCOME TAXES |
2004 | 2003 | ||||||||
Current: | |||||||||
Federal | $ | — | $ | — | |||||
State | 800 | 55, 800 | |||||||
800 | 55,800 | ||||||||
Deferred: | |||||||||
Federal | 148,800 | 73,530 | |||||||
State | 71,100 | 27,970 | |||||||
219,900 | 101,500 | ||||||||
Increase (decrease) in valuation allowance | (306,500 | ) | (306,500 | ) | |||||
(Benefit) provision for income taxes | $ | (85,800 | ) | $ | (149,200 | ) | |||
F-21
2004 | 2003 | |||||||
Tax provision at federal statutory rate | 34.0 | % | 34.0 | % | ||||
State franchise tax, net of federal income tax benefit | 7.1 | 7.1 | ||||||
Permanent adjustments | .1 | 1.3 | ||||||
Other | (3.7 | ) | 11.6 | |||||
Increase (decrease) in valuation allowance | (52.0 | ) | (105.3 | ) | ||||
Tax (benefit) provision | (14.5 | )% | (51.3 | )% | ||||
2004 | 2003 | |||||||
Depreciation | $ | (114,700 | ) | $ | (65,337 | ) | ||
Allowance for loan losses | 315,200 | 312,500 | ||||||
Certain prepaid assets | (46,200 | ) | (48,109 | ) | ||||
Federal net operating loss carryforward | 150,900 | 255,488 | ||||||
California net operating loss carryforward | 41,200 | -0- | ||||||
Organizational expenditures and start-up costs | 46,500 | 41,086 | ||||||
Accrual to cash adjustment | (101,300 | ) | 15,872 | |||||
Deferred tax asset | 291,600 | 511,500 | ||||||
Less valuation allowance | -0- | (306,500 | ) | |||||
Net deferred tax asset | $ | 291,600 | $ | 205,000 | ||||
NOTE 8 — | REGULATORY CAPITAL |
F-22
Minimum Capital | Minimum to be Well | |||||||||||||||||||||||
Actual | Requirement | Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
December 31, 2004: | ||||||||||||||||||||||||
Total Risk-based Capital to Risk Weighted Assets | $ | 11,385,000 | 12.41 | % | $ | 7,341,000 | 8.00 | % | $ | 9,176,000 | 10.00 | % | ||||||||||||
Tier 1 Capital to Risk — Weighted Assets | $ | 10,365,000 | 11.30 | % | $ | 3,670,000 | 4.00 | % | $ | 5,505,000 | 6.00 | % | ||||||||||||
Tier 1 Capital to Average Assets | $ | 10,365,000 | 10.57 | % | $ | 3,923,000 | 4.00 | % | $ | 4,904,000 | 5.00 | % | ||||||||||||
December 31, 2003: | ||||||||||||||||||||||||
Total Risk-based Capital to Risk Weighted Assets | $ | 10,400,000 | 16.23 | % | $ | 5,146,000 | 8.00 | % | $ | 6,433,000 | 10.00 | % | ||||||||||||
Tier 1 Capital to Risk — Weighted Assets | $ | 9,680,000 | 15.05 | % | $ | 2,573,000 | 4.00 | % | $ | 3,860,000 | 6.00 | % | ||||||||||||
Tier 1 Capital to Average Assets | $ | 9,680,000 | 15.27 | % | $ | 2,536,000 | 4.00 | % | $ | 3,171,000 | 5.00 | % |
NOTE 9 — | LEASE COMMITMENTS |
2008 | $ | 32,581 | ||
2009 | 32,580 | |||
2010 | 27,150 |
NOTE 10 — | RELATED PARTY TRANSACTIONS |
F-23
12-31-03 Beginning Balance | Additions | Repayment | 2004 Ending Balance | ||||||||
$1,784,000 | $ | 3,258,000 | $ | 1,032,000 | $4,010,000 | ||||||
12-31-02 Beginning Balance | Additions | Repayment | 2003 Ending Balance | ||||||||
$496,000 | $ | 1,677,000 | $ | 389,000 | $1,784,000 |
NOTE 11 — | EMPLOYEE BENEFIT PLAN |
NOTE 12 — | STOCK OPTION PLAN |
2004 | 2003 | |||||||
Vesting period | 5 Years | 5 Years | ||||||
Risk-free interest rate | 4.19% | 3.99% | ||||||
Dividend yield rate | 0% | 0% | ||||||
Price volatility | 23% | 25% | ||||||
Weighted average expected life of options | 5 Years | 5 Years |
F-24
2004 | 2003 | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Grand Options | Exercise Price of | Granted Options | Exercise Price of | |||||||||||||
for Common | Shares Under | for Common | Shares Under | |||||||||||||
Stock | Plan | Stock | Plan | |||||||||||||
Beginning balance | 173,326 | $ | 10.54 | 140,092 | $ | 10.00 | ||||||||||
Granted | 33,884 | $ | 15.64 | 34,234 | $ | 10.62 | ||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited | (1,000 | ) | $ | 11.30 | (1,000 | ) | $ | 10.00 | ||||||||
Ending Balance | 206,210 | $ | 11.38 | 173,326 | $ | 10.54 | ||||||||||
Weighted | |||||||||||||||||
Average | Weighted | ||||||||||||||||
Remaining | Average | ||||||||||||||||
Number | Contractual | Exercise | Number | ||||||||||||||
Outstanding | Life | Price | Exercisable | ||||||||||||||
Incentive stock options | 80,268 | 7.5 Years | $ | 11.42 | 39,491 | ||||||||||||
Non-qualified options | 125,942 | 7.5 Years | $ | 11.42 | 54,061 | ||||||||||||
206,210 | 7.5 Years | $ | 11.38 | 93,552 | |||||||||||||
NOTE 13 — | FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK |
2004 | 2003 | |||||||
Unfunded commitments under lines of credit | $ | 21,896,174 | $ | 17,516,235 | ||||
Commercial and standby letters of credit | 482,137 | 312,681 |
F-25
F-26
2004 | 2003 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
FINANCIAL ASSETS | ||||||||||||||||
Cash and other short term Investments | $ | 6,583,876 | $ | 6,583,876 | $ | 2,110,388 | $ | 2,110,388 | ||||||||
Interest-bearing deposits with Banks | 2,691,623 | 2,691,623 | 2,533,294 | 2,533,294 | ||||||||||||
Investment securities, available for sale | 2,705,734 | 2,705,734 | 2,568,846 | 2,568,846 | ||||||||||||
Loans | 80,036,566 | 79,616,594 | 59,935,580 | 59,905,845 | ||||||||||||
FINANCIAL LIABILITIES | ||||||||||||||||
Deposits | $ | 79,679,058 | $ | 79,679,058 | $ | 54,161,390 | $ | 54,161,390 | ||||||||
Borrowings | 9,000,000 | 9,000,000 | 4,305,000 | 4,305,000 |
NOTE 15 — | EMPLOYMENT AGREEMENTS |
F-27
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F-28
December 31, | |||||||||
2003 | 2002 | ||||||||
ASSETS | |||||||||
Cash and due from banks | $ | 1,495,388 | $ | 1,402,160 | |||||
Federal funds sold | 615,000 | 1,745,000 | |||||||
Cash and cash equivalents | 2,110,388 | 3,147,160 | |||||||
Interest-bearing deposits at banks | 2,533,294 | 498,000 | |||||||
Investment securities, available-for-sale | 2,842,646 | 654,221 | |||||||
Loans, net | 59,935,580 | 37,202,074 | |||||||
Accrued interest receivable and other assets | 412,540 | 240,655 | |||||||
Deferred income tax asset, net of valuation allowance | 205,000 | — | |||||||
Premises and equipment, net | 242,888 | 213,151 | |||||||
TOTAL ASSETS | $ | 68,282,336 | $ | 41,955,261 | |||||
LIABILITIES | |||||||||
Deposits | |||||||||
Non-interest-bearing demand | $ | 9,406,444 | $ | 5,834,829 | |||||
Interest-bearing demand | 14,945,397 | 5,181,688 | |||||||
Savings | 819,653 | 423,849 | |||||||
Time, under $100,000 | 17,034,658 | 16,887,312 | |||||||
Time, $100,000 and over | 11,955,238 | 7,068,137 | |||||||
Total deposits | 54,161,390 | 35,395,815 | |||||||
Borrowings | 4,305,000 | — | |||||||
Accrued interest payable and other liabilities | 119,704 | 381,816 | |||||||
TOTAL LIABILITIES | 58,586,094 | 35,777,631 | |||||||
Commitments and contingencies (Note 9) | |||||||||
STOCKHOLDERS’ EQUITY | |||||||||
Common stock | 10,754,630 | 7,669,642 | |||||||
Accumulated deficit | (1,065,744 | ) | (1,505,620 | ) | |||||
Accumulated other comprehensive income | 7,356 | 13,608 | |||||||
9,696,242 | 6,177,630 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 68,282,336 | $ | 41,955,261 | |||||
F-29
For the Years Ended | |||||||||
December 31, | |||||||||
2003 | 2002 | ||||||||
INTEREST INCOME | |||||||||
Interest and fees on loans | $ | 3,172,662 | $ | 1,709,777 | |||||
Interest on federal funds sold | 40,094 | 34,649 | |||||||
Interest on securities | 47,148 | 47,176 | |||||||
Other | 32,355 | 14,576 | |||||||
3,292,259 | 1,806,178 | ||||||||
INTEREST EXPENSE | |||||||||
Deposits | 850,093 | 495,822 | |||||||
Other | 15,983 | — | |||||||
866,076 | 495,822 | ||||||||
NET INTEREST INCOME | 2,426,183 | 1,310,356 | |||||||
PROVISION FOR LOAN LOSSES | 288,589 | 390,713 | |||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 2,137,594 | 919,643 | |||||||
NON-INTEREST INCOME | |||||||||
Service charges and other income | 456,786 | 133,095 | |||||||
NON-INTEREST EXPENSE | |||||||||
Salaries and employee benefits | 1,310,738 | 1,048,773 | |||||||
Occupancy | 190,190 | 158,491 | |||||||
Furniture and equipment | 97,032 | 80,923 | |||||||
Data processing | 125,823 | 99,126 | |||||||
Advertising | 147,077 | 66,862 | |||||||
Professional | 120,423 | 144,307 | |||||||
Office supplies | 28,035 | 50,157 | |||||||
Other operating | 284,385 | 131,476 | |||||||
2,303,703 | 1,780,115 | ||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 290,677 | (727,377 | ) | ||||||
INCOME TAX (BENEFIT) PROVISION | (149,200 | ) | 800 | ||||||
NET INCOME (LOSS) | $ | 439,877 | $ | (728,177 | ) | ||||
Earnings (loss) per share | $ | 0.49 | $ | (0.92 | ) | ||||
Diluted Earnings per share | $ | 0.46 | $ | (0.92 | ) | ||||
F-30
Common Stock No Par Value; | ||||||||||||||||||||
10,000,000 Shares Authorized | Accumulated | |||||||||||||||||||
Other | Total | |||||||||||||||||||
Shares | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||
Outstanding | Amount | Deficit | Income (Loss) | Equity | ||||||||||||||||
Balance,December 31, 2001 | 795,298 | $ | 7,669,642 | $ | (777,443 | ) | $ | (13,437 | ) | $ | 6,878,762 | |||||||||
Net loss | — | — | (728,177 | ) | — | (728,177 | ) | |||||||||||||
Unrealized losses on investment securities | — | — | — | 27,045 | 27,045 | |||||||||||||||
Total comprehensive loss | (701,132 | ) | ||||||||||||||||||
Balance,December 31, 2002 | 795,298 | 7,669,642 | (1,505,620 | ) | 13,608 | 6,177,630 | ||||||||||||||
Proceeds from stock offering | 242,000 | 3,084,988 | — | — | 3,084,988 | |||||||||||||||
Net income | — | — | 439,876 | — | 439,876 | |||||||||||||||
Unrealized gains on investment securities | — | — | — | (6,252 | ) | (6,252 | ) | |||||||||||||
Total comprehensive income | 433,624 | |||||||||||||||||||
Balance,December 31, 2003 | 1,037,298 | $ | 10,754,630 | $ | (1,065,744 | ) | $ | 7,356 | $ | 9,696,242 | ||||||||||
F-31
For the Years Ended | ||||||||||
December 31, | ||||||||||
2003 | 2002 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net income (loss) | $ | 439,876 | $ | (728,177 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||
Provision for loan losses | 288,589 | 390,713 | ||||||||
Depreciation and amortization | 86,282 | 81,507 | ||||||||
Amortization of deferred loan fees | (51,237 | ) | (13,138 | ) | ||||||
Change in: | ||||||||||
Deferred tax assets, net | (205,000 | ) | — | |||||||
Accrued interest receivable and other assets | (171,885 | ) | (157,285 | ) | ||||||
Accrued interest payable and other liabilities | (262,112 | ) | 323,741 | |||||||
Net cash provided by (used in) operating activities | 124,513 | (102,639 | ) | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Purchases of premises and equipment | (116,019 | ) | (25,732 | ) | ||||||
Capitalization of deferred loan fees | 132,797 | 60,775 | ||||||||
Purchases of certificates of deposit | (2,533,294 | ) | (99,000 | ) | ||||||
Purchase of FHLB stock | (213,800 | ) | — | |||||||
Redemption of certificates of deposit | 498,000 | — | ||||||||
Purchases of securities available-for-sale | (1,980,877 | ) | — | |||||||
Sales, maturities and paydowns of securities available for sale | 0 | 1,175,139 | ||||||||
Net change in loans | (23,103,655 | ) | (31,239,602 | ) | ||||||
Net cash used for investing activities | (27,316,848 | ) | (30,128,420 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Proceeds from issuance of common stock, net of capital raising costs | 3,084,988 | — | ||||||||
Increase in borrowings | 4,305,000 | — | ||||||||
Net change in deposits | 18,765,575 | 30,491,912 | ||||||||
Net cash provided by financing activities | 26,155,563 | 30,491,912 | ||||||||
(Decrease) increase in cash and cash equivalents | (1,036,772 | ) | 260,853 | |||||||
CASH BALANCE | ||||||||||
Beginning of year | 3,147,160 | 2,886,307 | ||||||||
End of year | $ | 2,110,388 | $ | 3,147,160 | ||||||
Supplemental Disclosures of Cash Flow Information | ||||||||||
Cash paid during the year for: | ||||||||||
Income taxes | $ | 800 | $ | 800 | ||||||
Interest | $ | 863,597 | $ | 463,715 | ||||||
Supplemental Disclosures of Noncash Activities: | ||||||||||
Total change in unrealized (gains) losses on securities available-for-sale | $ | (6,252 | ) | $ | 27,045 | |||||
F-32
NOTE 1 — | OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
F-33
F-34
2003 | 2002 | |||||||
Net income (loss) | $ | 439,876 | $ | (728,177 | ) | |||
Additional compensation for fair value of stock options | 71,139 | 40,648 | ||||||
Pro forma net income (loss) | $ | 368,737 | $ | (768,825 | ) |
F-35
Weighted | ||||||||||||
Net | Average Shares | Per Share | ||||||||||
Income | Outstanding | Amount | ||||||||||
Basic EPS: | ||||||||||||
Income available to common shareholders | $ | 439,876 | 897,017 | $ | 0.49 | |||||||
Effect of dilutive securities: | ||||||||||||
Stock options | — | 38,957 | (0.03 | ) | ||||||||
Diluted EPS: | ||||||||||||
Income available to common shareholders | $ | 439,876 | 935,974 | $ | 0.46 | |||||||
Weighted | ||||||||||||
Net | Average Shares | Per Share | ||||||||||
Loss | Outstanding | Amount | ||||||||||
Basic EPS: | ||||||||||||
Loss available to common shareholders | $ | (728,177 | ) | 795,298 | $ | (0.92 | ) | |||||
Effect of dilutive securities: | ||||||||||||
Stock options | — | 27,693 | — | |||||||||
Diluted EPS: | ||||||||||||
Income available to common shareholders | $ | (728,177 | ) | 822,991 | $ | (0.92 | ) | |||||
F-36
NOTE 2 — | INVESTMENT SECURITIES, AVAILABLE-FOR-SALE |
2003 | |||||||||||||||||
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Available-for-sale securities: | |||||||||||||||||
U.S. government agency securities | $ | 1,645,672 | $ | 17,806 | $ | (969 | ) | $ | 1,662,509 | ||||||||
Mutual funds | 915,818 | — | (9,481 | ) | 906,337 | ||||||||||||
FHLB stock | 213,800 | — | — | 213,800 | |||||||||||||
PCBB stock | 60,000 | — | — | 60,000 | |||||||||||||
Total securities | $ | 2,835,290 | $ | 17,806 | $ | (10,450 | ) | $ | 2,842,646 | ||||||||
2002 | |||||||||||||||||
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | ||||||||||||||
Available-for-sale securities: | |||||||||||||||||
U.S. government agency securities | $ | 580,613 | $ | 13,608 | $ | — | $ | 594,221 | |||||||||
PCBB stock | 60,000 | — | — | 60,000 | |||||||||||||
Total securities | $ | 640,613 | $ | 13,608 | $ | — | $ | 654,221 | |||||||||
F-37
Amortized | Fair | |||||||
Cost | Value | |||||||
Due in one year or less | $ | — | $ | — | ||||
Due after one year through five years | 1,285,016 | 1,297,302 | ||||||
Due after five years through ten years | 360,656 | 365,207 | ||||||
No stated maturity date (common stock and mutual funds) | 1,189,618 | 1,180,137 | ||||||
Totals | $ | 2,835,290 | $ | 2,842,646 | ||||
NOTE 3 — | LOANS |
2003 | 2002 | |||||||
Real estate | $ | 40,283,738 | $ | 26,668,803 | ||||
Commercial | 17,473,037 | 9,260,351 | ||||||
Consumer | 3,069,460 | 1,793,426 | ||||||
Gross loans | 60,826,235 | 37,722,580 | ||||||
Less: deferred loan fees | (130,316 | ) | (48,756 | ) | ||||
Less: allowance for loan losses | (760,339 | ) | (471,750 | ) | ||||
$ | 59,935,580 | $ | 37,202,074 | |||||
2003 | 2002 | |||||||
Balance, beginning of year | $ | 471,750 | $ | 81,037 | ||||
Provision for loan losses charged to expense | 288,589 | 390,713 | ||||||
Loans charged-off | — | — | ||||||
Recoveries of loans previously charged-off | — | — | ||||||
Balance, end of year | $ | 760,339 | $ | 471,750 | ||||
F-38
NOTE 4 — | PREMISES AND EQUIPMENT |
2003 | 2002 | |||||||
Equipment, furniture and fixtures | $ | 302,625 | $ | 186,606 | ||||
Leasehold improvements | 117,095 | 117,095 | ||||||
419,720 | 303,701 | |||||||
Less: accumulated depreciation and amortization | (176,832 | ) | (90,550 | ) | ||||
Premises and equipment, net | $ | 242,888 | $ | 213,151 | ||||
NOTE 5 — | DEPOSITS |
Time Deposits | Time Deposits | |||||||
< $100,000 | > $100,000 | |||||||
2004 | $ | 16,935,658 | $ | 11,654,030 | ||||
2005 | 99,000 | 200,000 | ||||||
Thereafter | — | 101,208 | ||||||
$ | 17,034,658 | $ | 11,955,238 | |||||
NOTE 6 — | LINE OF CREDIT |
F-39
NOTE 7 — | INCOME TAXES |
2003 | 2002 | ||||||||
Current: | |||||||||
Federal | $ | — | $ | — | |||||
State | 55,800 | 800 | |||||||
55,800 | 800 | ||||||||
Deferred: | |||||||||
Federal | 73,530 | (155,113 | ) | ||||||
State | 27,970 | (27,373 | ) | ||||||
101,500 | (182,486 | ) | |||||||
Increase (decrease) in valuation allowance | (306,500 | ) | 182,486 | ||||||
(Benefit) provision for income taxes | $ | (149,200 | ) | $ | 800 | ||||
2003 | 2002 | |||||||
Tax provision at federal statutory rate | 34.0 | % | (34.0 | )% | ||||
State franchise tax, net of federal income tax benefit | 7.1 | (4.3 | ) | |||||
Permanent adjustments | 1.3 | (1.3 | ) | |||||
Other | 11.6 | — | ||||||
Increase (decrease) in valuation allowance | (105.3 | ) | 39.7 | |||||
Tax (benefit) provision | (51.3 | )% | 0.1 | % | ||||
2003 | 2002 | |||||||
Net unrealized gain/loss on securities available-for-sale | $ | — | $ | — | ||||
Depreciation | (65,337 | ) | 2,600 | |||||
Allowance for loan losses | 312,500 | 194,100 | ||||||
Certain prepaid assets | (48,109 | ) | �� | (31,800 | ) | |||
Net benefit for state taxes | — | 300 | ||||||
Net operating loss carryforward | 255,488 | 360,100 | ||||||
Organizational expenditures and start-up costs | 41,086 | 56,600 | ||||||
Software amortization | 15,872 | 31,100 | ||||||
Deferred tax asset | 511,500 | 613,000 | ||||||
Less valuation allowance | (306,500 | ) | (613,000 | ) | ||||
Net deferred tax asset | $ | 205,000 | $ | — | ||||
F-40
NOTE 8 — | REGULATORY CAPITAL |
Minimum Capital | Minimum to be Well | |||||||||||||||||||||||
Actual | Requirement | Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
December 31, 2003: | ||||||||||||||||||||||||
Total Risk-based Capital to Risk Weighted Assets | $ | 10,400,000 | 16.23 | % | $ | 5,146,000 | 8.00 | % | $ | 6,433,000 | 10.00 | % | ||||||||||||
Tier 1 Capital to Risk — Weighted Assets | $ | 9,680,000 | 15.05 | % | $ | 2,573,000 | 4.00 | % | $ | 3,860,000 | 6.00 | % | ||||||||||||
Tier 1 Capital to Average Assets | $ | 9,680,000 | 15.27 | % | $ | 2,536,000 | 4.00 | % | $ | 3,171,000 | 5.00 | % |
Minimum Capital | Minimum to be Well | |||||||||||||||||||||||
Actual | Requirement | Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
December 31, 2002: | ||||||||||||||||||||||||
Total Risk-based Capital to Risk Weighted Assets | $ | 6,636,000 | 16.83 | % | $ | 3,155,000 | 8.00 | % | $ | 3,944,000 | 10.00 | % | ||||||||||||
Tier 1 Capital to Risk — Weighted Assets | $ | 6,163,286 | 15.63 | % | $ | 1,577,000 | 4.00 | % | $ | 2,366,000 | 6.00 | % | ||||||||||||
Tier 1 Capital to Average Assets | $ | 6,163,286 | 15.09 | % | $ | 1,134,000 | 4.00 | % | $ | 2,043,000 | 5.00 | % |
F-41
NOTE 9 — | LEASE COMMITMENTS |
2004 | $ | 110,539 | ||
2005 | 84,756 | |||
2006 | 58,668 | |||
2007 | 27,150 |
NOTE 10 — | RELATED PARTY TRANSACTIONS |
NOTE 11 — | EMPLOYEE BENEFIT PLAN |
NOTE 12 — | STOCK OPTION PLAN |
F-42
2003 | 2002 | |||||||
Vesting period | 5 Years | 5 Years | ||||||
Risk-free interest rate | 3.99% | 4.19% | ||||||
Dividend yield rate | 0% | 0% | ||||||
Price volatility | 25% | 0% | ||||||
Weighted average expected life of options | 5 Years | 5 Years |
2003 | 2002 | |||||||||||||||
Weighted Average | Weighted Average | |||||||||||||||
Granted Options | Exercise Price of | Granted Options | Exercise Price of | |||||||||||||
for Common | Shares Under | for Common | Shares Under | |||||||||||||
Stock | Plan | Stock | Plan | |||||||||||||
Beginning balance | 140,092 | $ | 10.00 | 142,045 | $ | 10.00 | ||||||||||
Granted | 34,234 | $ | 10.62 | 8,250 | $ | 10.62 | ||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited | (1,000 | ) | $ | 10.00 | (10,203 | ) | $ | 10.06 | ||||||||
Ending balance | 173,326 | $ | 10.54 | 140,092 | $ | 10.00 | ||||||||||
Weighted | |||||||||||||||||
Average | Weighted | ||||||||||||||||
Remaining | Average | ||||||||||||||||
Number | Contractual | Exercise | Number | ||||||||||||||
Outstanding | Life | Price | Exercisable | ||||||||||||||
Incentive stock options | 69,268 | 8 Years | $ | 10.75 | 25,638 | ||||||||||||
Non-qualified options | 104,058 | 8 Years | $ | 10.45 | 33,250 | ||||||||||||
173,326 | 8 Years | $ | 10.54 | 58,888 | |||||||||||||
NOTE 13 — | FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK |
F-43
2003 | 2002 | |||||||
Unfunded commitments under lines of credit | $ | 17,516,235 | $ | 11,489,424 | ||||
Commercial and standby letters of credit | 312,681 | 5,000 |
NOTE 14 — | FAIR VALUE OF FINANCIAL INSTRUMENTS |
F-44
2003 | 2002 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
FINANCIAL ASSETS | ||||||||||||||||
Cash and other short-term Investments | $ | 2,110,388 | $ | 2,110,388 | $ | 3,147,160 | $ | 3,147,160 | ||||||||
Interest-bearing deposits with banks | 2,533,294 | 2,533,294 | 498,000 | 498,000 | ||||||||||||
Investment securities, available-for-sale | 2,842,646 | 2,842,646 | 654,221 | 654,221 | ||||||||||||
Loans | 59,935,580 | 59,905,845 | 37,202,074 | 37,186,265 | ||||||||||||
FINANCIAL LIABILITIES | ||||||||||||||||
Deposits | $ | 54,161,390 | $ | 54,161,390 | $ | 35,395,815 | $ | 35,395,815 | ||||||||
Short-term borrowings | 4,305,000 | 4,305,000 | — | — |
F-45
2005 | 2004 | ||||||||
ASSETS | |||||||||
Cash | $ | 3,253,702 | $ | 964,596 | |||||
Finance receivables, net | 18,838,404 | 19,107,435 | |||||||
Fixed assets, net | 94,183 | 93,399 | |||||||
Cash surrender value of life insurance | 224,252 | 178,713 | |||||||
Prepaid expenses | 14,514 | 60,697 | |||||||
Note receivable, officer | 12,500 | 12,500 | |||||||
Other assets | 56,791 | 35,436 | |||||||
Deferred income taxes | 28,100 | 28,400 | |||||||
$ | 22,522,446 | $ | 20,481,176 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||
Liabilities | |||||||||
Note payable, bank | $ | 18,287,722 | $ | 15,040,861 | |||||
Accounts payable and accrued expenses | 180,691 | 133,103 | |||||||
Notes payable, other | 824 | 730,734 | |||||||
Subordinated notes payable | 3,997,796 | 3,501,371 | |||||||
Junior subordinated debt | — | 1,250,000 | |||||||
22,467,033 | 20,656,069 | ||||||||
Stockholders’ equity (deficit) | |||||||||
Common stock | 76,320 | 75,000 | |||||||
Additional paid-in capital | 460,604 | 441,424 | |||||||
Accumulated deficit | (481,511 | ) | (691,317 | ) | |||||
55,413 | (174,893 | ) | |||||||
$ | 22,522,446 | $ | 20,481,176 | ||||||
F-46
2005 | 2004 | ||||||||
Interest income | |||||||||
Interest and fees on finance receivables | $ | 1,124,977 | $ | 956,151 | |||||
Less interest paid to participants | 121,760 | 21,513 | |||||||
1,003,217 | 934,638 | ||||||||
Interest expense | 391,012 | 296,564 | |||||||
Net interest income | 612,205 | 638,074 | |||||||
Provision for credit losses | — | 35 | |||||||
Net interest income after provision for credit losses | 612,205 | 638,039 | |||||||
Costs and expenses | |||||||||
Salaries and employee benefits | 345,253 | 393,013 | |||||||
Office and occupancy expense | 54,362 | 74,562 | |||||||
Other operating expenses | 161,772 | 246,546 | |||||||
561,387 | 714,121 | ||||||||
Income (loss) before income tax expense | 50,818 | (76,082 | ) | ||||||
Income tax expense | — | — | |||||||
Net income (loss) | 50,818 | (76,082 | ) | ||||||
Accumulated deficit, beginning of period | (529,531 | ) | (612,437 | ) | |||||
Distributions | 2,798 | 2,798 | |||||||
Accumulated deficit, end of period | $ | (481,511 | ) | $ | (691,317 | ) | |||
F-47
2005 | 2004 | |||||||||||
Cash flows from operating activities | ||||||||||||
Net income (loss) | $ | 50,818 | $ | (76,082 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||||||
Depreciation | 6,215 | 7,699 | ||||||||||
Provision for credit losses | — | 35 | ||||||||||
Interest expense added to subordinated notes | 25,746 | 22,843 | ||||||||||
Change in: | ||||||||||||
Accounts payable and accrued expenses | (108,050 | ) | (104,186 | ) | ||||||||
Net change in other operating assets and liabilities | (16,249 | ) | (7,236 | ) | ||||||||
Net cash used in operating activities | (41,520 | ) | (156,927 | ) | ||||||||
Cash flows from investing activities | ||||||||||||
Purchase of fixed assets | (20,502 | ) | (8,700 | ) | ||||||||
Net change in finance receivables, net of participations | 3,952,099 | (2,080,826 | ) | |||||||||
Net cash provided by (used in) investing activities | 3,931,597 | (2,089,526 | ) | |||||||||
Cash flows from financing activities | ||||||||||||
Net borrowings (repayments) on notes payable, bank | (1,629,966 | ) | 2,543,726 | |||||||||
Net borrowings (repayments) on subordinated notes payable | 411,972 | (44,082 | ) | |||||||||
Net borrowings (repayments) on notes payable, other | (732,582 | ) | 15 | |||||||||
Borrowings on junior subordinated debt | — | 2,708 | ||||||||||
Dividends paid | (2,798 | ) | (2,798 | ) | ||||||||
Net cash provided by (used in) financing activities | (1,953,374 | ) | 2,499,569 | |||||||||
Increase in cash | 1,936,703 | 253,116 | ||||||||||
Beginning cash balance | 1,316,999 | 711,480 | ||||||||||
Ending cash balance | $ | 3,253,702 | $ | 964,596 | ||||||||
F-48
Celtic | Columbia | |||||||||||||||||
Capital | Capital | Combining | ||||||||||||||||
Corporation | Corporation | Eliminations | Combined | |||||||||||||||
ASSETS | ||||||||||||||||||
Cash | $ | 3,254,772 | $ | (1,070 | ) | $ | — | $ | 3,253,702 | |||||||||
Finance receivables, net | 18,838,404 | 1,043,832 | (1,043,832 | ) | 18,838,404 | |||||||||||||
Fixed assets, net | 94,183 | — | — | 94,183 | ||||||||||||||
Cash surrender value of life insurance | 224,252 | — | — | 224,252 | ||||||||||||||
Prepaid expenses | 14,514 | — | — | 14,514 | ||||||||||||||
Note receivable, officer | — | 12,500 | — | 12,500 | ||||||||||||||
Other assets | 49,693 | 7,098 | — | 56,791 | ||||||||||||||
Deferred income taxes | 28,100 | — | — | 28,100 | ||||||||||||||
Total assets | $ | 22,503,918 | $ | 1,062,360 | $ | (1,043,832 | ) | $ | 22,522,446 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||
Liabilities | ||||||||||||||||||
Note payable, bank | $ | 18,287,722 | $ | — | $ | — | $ | 18,287,722 | ||||||||||
Accounts payable and accrued expenses | 178,505 | 2,186 | — | 180,691 | ||||||||||||||
Notes payable, other | 824 | — | — | 824 | ||||||||||||||
Subordinated notes payable | 4,765,535 | 276,093 | (1,043,832 | ) | 3,997,796 | |||||||||||||
Total liabilities | 23,232,586 | 278,279 | (1,043,832 | ) | 22,467,033 | |||||||||||||
Stockholders’ equity (deficit) | ||||||||||||||||||
Common stock | 26,320 | 50,000 | — | 76,320 | ||||||||||||||
Additional paid-in capital | 162,747 | 297,857 | — | 460,604 | ||||||||||||||
Retained earnings (deficit) | (917,735 | ) | 436,224 | — | (481,511 | ) | ||||||||||||
(728,668 | ) | 784,081 | — | 55,413 | ||||||||||||||
$ | 22,503,918 | $ | 1,062,360 | $ | (1,043,832 | ) | $ | 22,522,446 | ||||||||||
F-49
Celtic | Columbia | |||||||||||||||||
Capital | Capital | Combining | ||||||||||||||||
Corporation | Corporation | Eliminations | Combined | |||||||||||||||
ASSETS | ||||||||||||||||||
Cash | $ | 959,985 | $ | 4,611 | $ | — | $ | 964,596 | ||||||||||
Finance receivables, net | 19,107,435 | 1,031,706 | (1,031,706 | ) | 19,107,435 | |||||||||||||
Fixed assets, net | 92,985 | 414 | — | 93,399 | ||||||||||||||
Cash surrender value of life insurance | 178,713 | — | — | 178,713 | ||||||||||||||
Prepaid expenses | 60,697 | — | — | 60,697 | ||||||||||||||
Note receivable, officer | — | 12,500 | — | 12,500 | ||||||||||||||
Other assets | 29,459 | 5,977 | — | 35,436 | ||||||||||||||
Deferred income taxes | 28,400 | — | — | 28,400 | ||||||||||||||
Total assets | $ | 20,457,674 | $ | 1,055,208 | $ | (1,031,706 | ) | $ | 20,481,176 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||
Liabilities | ||||||||||||||||||
Note payable, bank | $ | 15,040,861 | $ | — | $ | — | $ | 15,040,861 | ||||||||||
Accounts payable and accrued expenses | 129,238 | 3,865 | — | 133,103 | ||||||||||||||
Notes payable, other | 730,734 | — | — | 730,734 | ||||||||||||||
Subordinated notes payable | 4,268,849 | 264,228 | (1,031,706 | ) | 3,501,371 | |||||||||||||
Junior subordinated debt | 1,250,000 | — | — | 1,250,000 | ||||||||||||||
Total liabilities | 21,419,682 | 268,093 | (1,031,706 | ) | 20,656,069 | |||||||||||||
Stockholders’ equity (deficit) | ||||||||||||||||||
Common stock | 25,000 | 50,000 | — | 75,000 | ||||||||||||||
Additional paid-in capital | 143,567 | 297,857 | — | 441,424 | ||||||||||||||
Retained earnings (deficit) | (1,130,575 | ) | 439,258 | — | (691,317 | ) | ||||||||||||
(962,008 | ) | 787,115 | — | (174,893 | ) | |||||||||||||
$ | 20,457,674 | $ | 1,055,208 | $ | (1,031,706 | ) | $ | 20,481,176 | ||||||||||
F-50
Celtic | Columbia | ||||||||||||||||
Capital | Capital | Combining | |||||||||||||||
Corporation | Corporation | Eliminations | Combined | ||||||||||||||
Interest income | |||||||||||||||||
Interest and fees on finance receivables | $ | 1,124,977 | $ | 24,303 | $ | (24,303 | ) | $ | 1,124,977 | ||||||||
Less interest paid to participants | 121,760 | — | — | 121,760 | |||||||||||||
1,003,217 | 24,303 | (24,303 | ) | 1,003,217 | |||||||||||||
Interest expense | 408,899 | 6,416 | (24,303 | ) | 391,012 | ||||||||||||
Net interest income | 594,318 | 17,887 | — | 612,205 | |||||||||||||
Provision for credit losses | — | — | — | — | |||||||||||||
Net interest income after provision for credit losses | 594,318 | 17,887 | — | 612,205 | |||||||||||||
Costs and expenses | |||||||||||||||||
Salaries and employee benefits | 343,878 | 1,375 | — | 345,253 | |||||||||||||
Office and occupancy expense | 52,187 | 2,175 | — | 54,362 | |||||||||||||
Other operating expenses | 151,052 | 10,720 | — | 161,772 | |||||||||||||
547,117 | 14,270 | — | 561,387 | ||||||||||||||
Income before income tax expense | 47,201 | 3,617 | — | 50,818 | |||||||||||||
Income tax expense | — | �� | — | — | |||||||||||||
Net income | 47,201 | 3,617 | — | 50,818 | |||||||||||||
Retained earnings (deficit), beginning of period | (964,936 | ) | 435,405 | — | (529,531 | ) | |||||||||||
Distributions | — | 2,798 | — | 2,798 | |||||||||||||
Returned earnings (deficit), end of period | $ | (917,735 | ) | $ | 436,224 | $ | — | $ | (481,511 | ) | |||||||
F-51
Celtic | Columbia | ||||||||||||||||
Capital | Capital | Combining | |||||||||||||||
Corporation | Corporation | Eliminations | Combined | ||||||||||||||
Interest income | |||||||||||||||||
Interest and fees on finance receivables | $ | 956,151 | $ | 20,598 | $ | (20,598 | ) | $ | 956,151 | ||||||||
Less interest paid to participants | 21,513 | — | — | 21,513 | |||||||||||||
934,638 | 20,598 | (20,598 | ) | 934,638 | |||||||||||||
Interest expense | 311,895 | 5,267 | (20,598 | ) | 296,564 | ||||||||||||
Net interest income | 622,743 | 15,331 | — | 638,074 | |||||||||||||
Provision for credit losses | 35 | — | — | 35 | |||||||||||||
Net interest income after provision for credit losses | 622,708 | 15,331 | — | 638,039 | |||||||||||||
Costs and expenses | |||||||||||||||||
Salaries and employee benefits | 391,638 | 1,375 | — | 393,013 | |||||||||||||
Office and occupancy expense | 73,478 | 1,084 | — | 74,562 | |||||||||||||
Other operating expenses | 240,720 | 5,826 | — | 246,546 | |||||||||||||
705,836 | 8,285 | — | 714,121 | ||||||||||||||
Income (loss) before income tax expense | (83,128 | ) | 7,046 | — | (76,082 | ) | |||||||||||
Income tax expense | — | — | — | — | |||||||||||||
Net income (loss) | (83,128 | ) | 7,046 | — | (76,082 | ) | |||||||||||
Retained earnings (deficit), beginning of period | (1,047,447 | ) | 435,010 | — | (612,437 | ) | |||||||||||
Distributions | — | 2,798 | — | 2,798 | |||||||||||||
Retained earnings (deficit), end of period | $ | (1,130,575 | ) | $ | 439,258 | $ | — | $ | (691,317 | ) | |||||||
F-52
![]() |
F-53
2004 | 2003 | ||||||||
ASSETS | |||||||||
Cash | $ | 1,316,999 | $ | 711,480 | |||||
Finance receivables, net | 22,790,503 | 17,026,644 | |||||||
Fixed assets, net | 79,896 | 92,398 | |||||||
Cash surrender value of life insurance | 224,252 | 178,713 | |||||||
Prepaid expenses | 14,514 | 57,595 | |||||||
Note receivable, officer | 12,500 | 12,500 | |||||||
Other assets | 40,542 | 31,302 | |||||||
Deferred income taxes | 28,100 | 28,400 | |||||||
$ | 24,507,306 | $ | 18,139,032 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||
Liabilities | |||||||||
Note payable, bank | $ | 19,917,688 | $ | 12,497,135 | |||||
Accounts payable and accrued expenses | 288,741 | 237,289 | |||||||
Notes payable, other | 733,406 | 730,719 | |||||||
Subordinated notes payable | 3,560,078 | 3,522,610 | |||||||
Junior subordinated debt | — | 1,247,292 | |||||||
24,499,913 | 18,235,045 | ||||||||
Commitments and contingencies (Notes 9 and 13) | |||||||||
Stockholders’ equity (deficit) | |||||||||
Common stock (see Note 14) | 76,320 | 75,000 | |||||||
Additional paid-in capital | 460,604 | 441,424 | |||||||
Accumulated deficit | (529,531 | ) | (612,437 | ) | |||||
7,393 | (96,013 | ) | |||||||
$ | 24,507,306 | $ | 18,139,032 | ||||||
F-54
2004 | 2003 | |||||||||
Interest income | ||||||||||
Interest and fees on finance receivables | $ | 4,512,152 | $ | 4,777,484 | ||||||
Less interest paid to participants | 289,440 | 246,816 | ||||||||
4,222,712 | 4,530,668 | |||||||||
Interest expense | 1,374,979 | 1,306,901 | ||||||||
Net interest income | 2,847,733 | 3,223,767 | ||||||||
Provision for credit losses | 38,035 | 177,500 | ||||||||
Net interest income after provision for credit losses | 2,809,698 | 3,046,267 | ||||||||
Costs and expenses | ||||||||||
Salaries and employee benefits | 1,683,317 | 1,663,042 | ||||||||
Office and occupancy expense | 535,584 | 703,673 | ||||||||
Other operating expenses | 496,399 | 541,521 | ||||||||
Costs of abandoned merger | — | 122,339 | ||||||||
2,715,300 | 3,030,575 | |||||||||
Income before income tax expense | 94,398 | 15,692 | ||||||||
Income tax expense | 300 | 3,150 | ||||||||
Net income | $ | 94,098 | $ | 12,542 | ||||||
F-55
Additional |
Common | Paid-In | Accumulated | |||||||||||||||
Stock | Capital | Deficit | Total | ||||||||||||||
Balance, January 1, 2003 | $ | 75,000 | $ | 441,424 | $ | (613,787 | ) | $ | (97,363 | ) | |||||||
Net income | — | — | 12,542 | 12,542 | |||||||||||||
Dividends | — | — | (11,192 | ) | (11,192 | ) | |||||||||||
Balance, December 31, 2003 | 75,000 | 441,424 | (612,437 | ) | (96,013 | ) | |||||||||||
Net income | — | — | 94,098 | 94,098 | |||||||||||||
Issuance of stock (Note 11) | 1,320 | 19,180 | — | 20,500 | |||||||||||||
Dividends | — | — | (11,192 | ) | (11,192 | ) | |||||||||||
Balance, December 31, 2004 | $ | 76,320 | $ | 460,604 | $ | (529,531 | ) | $ | 7,393 | ||||||||
F-56
2004 | 2003 | |||||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 94,098 | $ | 12,542 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 32,658 | 41,749 | ||||||||||
Provision for credit losses | 38,035 | 177,500 | ||||||||||
Deferred taxes | 300 | 3,600 | ||||||||||
Amortization of loan discount | — | 16,248 | ||||||||||
Amortization of loan acquisition cost | — | 6,769 | ||||||||||
Interest expense added to subordinated notes | 11,216 | 126,094 | ||||||||||
Change in: | ||||||||||||
Accounts payable and accrued expenses | 51,452 | (100,644 | ) | |||||||||
Net change in other operating assets and liabilities | (11,698 | ) | 66,114 | |||||||||
Net cash provided by operating activities | 216,061 | 349,972 | ||||||||||
Cash flows from investing activities | ||||||||||||
Purchase of fixed assets | (20,156 | ) | (14,667 | ) | ||||||||
Net change in finance receivables, net of participations | (5,801,894 | ) | 2,880,976 | |||||||||
Net cash provided by (used in) investing activities | (5,822,050 | ) | 2,866,309 | |||||||||
Cash flows from financing activities | ||||||||||||
Net borrowings (repayments) on notes payable, bank | 7,420,553 | (2,093,412 | ) | |||||||||
Net borrowings (repayments) on subordinated notes payable | 26,252 | (147,820 | ) | |||||||||
Net repayments on notes payable, other | 2,687 | (78,750 | ) | |||||||||
Repayments on Junior Subordinated debt | (1,247,292 | ) | (1,250,000 | ) | ||||||||
Dividends paid | (11,192 | ) | (11,192 | ) | ||||||||
Common stock issued | 20,500 | — | ||||||||||
Net cash provided by (used in) financing activities | 6,211,508 | (3,581,174 | ) | |||||||||
Increase (decrease) in cash | 605,519 | (364,893 | ) | |||||||||
Beginning cash balance | 711,480 | 1,076,373 | ||||||||||
Ending cash balance | $ | 1,316,999 | $ | 711,480 | ||||||||
Supplemental disclosures of cash flows information | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest | $ | 1,504,085 | $ | 1,420,936 | ||||||||
Income taxes | $ | 800 | $ | 1,600 | ||||||||
F-57
1. | Business activity and summary of significant accounting policies |
Business activity and basis of presentation |
Concentrations of credit risk |
Allowance for credit losses |
Property and equipment and depreciation |
Income and deferred taxes |
F-58
Advertising costs |
Estimates |
Reclassifications |
Revenue recognition |
F-59
2. | Finance receivables |
2004 | 2003 | |||||||
Accounts receivable loans | $ | 23,089,725 | $ | 16,108,740 | ||||
Equipment loans | 3,242,243 | 1,655,939 | ||||||
Inventory loans | 527,559 | 361,496 | ||||||
26,859,527 | 18,126,175 | |||||||
Less: Pari passu participations | (3,719,024 | ) | (850,036 | ) | ||||
23,140,503 | 17,276,139 | |||||||
Less: Allowance for credit losses | (305,000 | ) | (255,000 | ) | ||||
Deferred income | (45,000 | ) | 5,505 | |||||
$ | 22,790,503 | $ | 17,026,644 | |||||
2005 | 2006 | 2007 | Total | |||||||||||||
Accounts receivable loans | $ | 18,240,613 | $ | 2,056,281 | $ | 248,337 | $ | 20,545,231 | ||||||||
Equipment loans | 2,051,966 | — | 93,854 | 2,145,820 | ||||||||||||
Inventory loans | 32,498 | 305,119 | 111,835 | 449,452 | ||||||||||||
$ | 20,325,077 | $ | 2,361,400 | $ | 454,026 | $ | 23,140,503 | |||||||||
F-60
Balance as of December 31, 2002 | $ | 327,500 | ||
Provision for credit losses | 177,500 | |||
Loans charged off | (250,000 | ) | ||
Recoveries | — | |||
Balance as of December 31, 2003 | 255,000 | |||
Provision for credit losses | 38,035 | |||
Loans charged off | — | |||
Recoveries | 11,965 | |||
Balance as of December 31, 2004 | $ | 305,000 | ||
3. | Fixed assets |
Asset Life | 2004 | 2003 | ||||||||||
Office furniture, equipment and computer software | 5-7 | $ | 369,335 | $ | 386,033 | |||||||
Less accumulated depreciation | (289,439 | ) | (293,635 | ) | ||||||||
Fixed assets, net | $ | 79,896 | $ | 92,398 | ||||||||
4. | Note receivable, officer |
5. | Note payable, bank |
F-61
6. | Notes payable, other |
7. | Subordinated notes payable |
8. | Junior subordinated debt and stock warrant |
9. | Financial instruments with off-balance-sheet risk |
F-62
10. | Income taxes |
2004 | 2003 | ||||||||
Current: | |||||||||
State | $ | 800 | $ | 800 | |||||
Deferred | 300 | 3,600 | |||||||
Over accrual of prior year taxes | (800 | ) | (1,250 | ) | |||||
$ | 300 | $ | 3,150 | ||||||
2004 | 2003 | |||||||
Total deferred tax assets | $ | 28,100 | $ | 28,400 | ||||
11. | Incentive compensation plan and stock compensation plan |
F-63
12. | Retirement plan |
13. | Commitments and contingencies |
Commitments |
Years Ending December 31, | ||||
2005 | $ | 124,785 | ||
2006 | 128,539 | |||
2007 | 132,379 | |||
2008 | 136,337 | |||
2009 | 92,702 | |||
Total | $ | 614,742 | ||
F-64
14. | Capitalization |
2004 | 2003 | ||||||||
Common stock: | |||||||||
Celtic Capital Corporation, 1,000,000 no-par shares authorized, 2,632 and 2,500 shares issued and outstanding, respectively | $ | 26,320 | $ | 25,000 | |||||
Columbia Capital Corporation, 100,000 no-par shares authorized, 1,000 shares issued and outstanding | 50,000 | 50,000 | |||||||
$ | 76,320 | $ | 75,000 | ||||||
Additional paid-in capital: | |||||||||
Celtic Capital Corporation | $ | 162,747 | $ | 143,567 | |||||
Columbia Capital Corporation | 297,857 | 297,857 | |||||||
$ | 460,604 | $ | 441,424 | ||||||
15. | Subsequent event |
F-65
Celtic | Columbia | |||||||||||||||||
Capital | Capital | Combining | ||||||||||||||||
Corporation | Corporation | Eliminations | Combined | |||||||||||||||
ASSETS | ||||||||||||||||||
Cash | $ | 1,318,568 | $ | (1,569 | ) | $ | — | $ | 1,316,999 | |||||||||
Finance receivables, net | 22,790,503 | 1,040,449 | (1,040,449 | ) | 22,790,503 | |||||||||||||
Fixed assets, net | 79,896 | — | — | 79,896 | ||||||||||||||
Cash surrender value of life insurance | 224,252 | — | — | 224,252 | ||||||||||||||
Prepaid expenses | 14,514 | — | — | 14,514 | ||||||||||||||
Note receivable, officer | — | 12,500 | — | 12,500 | ||||||||||||||
Other assets | 33,818 | 6,724 | — | 40,542 | ||||||||||||||
Deferred income taxes | 28,100 | — | — | 28,100 | ||||||||||||||
Total assets | $ | 24,489,651 | $ | 1,058,104 | $ | (1,040,449 | ) | $ | 24,507,306 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||
Liabilities | ||||||||||||||||||
Note payable, bank | $ | 19,917,688 | $ | — | $ | — | $ | 19,917,688 | ||||||||||
Accounts payable and accrued expenses | 286,695 | 2,046 | — | 288,741 | ||||||||||||||
Notes payable, other | 733,406 | — | — | 733,406 | ||||||||||||||
Subordinated notes payable | 4,327,732 | 272,795 | (1,040,449 | ) | 3,560,078 | |||||||||||||
Junior subordinated debt | — | — | — | — | ||||||||||||||
Total liabilities | 25,265,521 | 274,841 | (1,040,449 | ) | 24,499,913 | |||||||||||||
Stockholders’ equity (deficit) | ||||||||||||||||||
Common stock | 26,320 | 50,000 | — | 76,320 | ||||||||||||||
Additional paid-in capital | 162,747 | 297,857 | — | 460,604 | ||||||||||||||
Retained earnings (deficit) | (964,937 | ) | 435,406 | — | (529,531 | ) | ||||||||||||
(775,870 | ) | 783,263 | — | 7,393 | ||||||||||||||
$ | 24,489,651 | $ | 1,058,104 | $ | (1,040,449 | ) | $ | 24,507,306 | ||||||||||
F-66
Celtic | Columbia | |||||||||||||||||
Capital | Capital | Combining | ||||||||||||||||
Corporation | Corporation | Eliminations | Combined | |||||||||||||||
ASSETS | ||||||||||||||||||
Cash | $ | 713,220 | $ | (1,740 | ) | $ | — | $ | 711,480 | |||||||||
Finance receivables, net | 17,026,644 | 1,029,039 | (1,029,039 | ) | 17,026,644 | |||||||||||||
Fixed assets, net | 91,984 | 414 | — | 92,398 | ||||||||||||||
Cash surrender value of life insurance | 178,713 | — | — | 178,713 | ||||||||||||||
Prepaid expenses | 57,595 | — | — | 57,595 | ||||||||||||||
Note receivable, officer | — | 12,500 | — | 12,500 | ||||||||||||||
Other assets | 25,325 | 5,977 | — | 31,302 | ||||||||||||||
Deferred income taxes | 28,400 | — | — | 28,400 | ||||||||||||||
Total assets | $ | 18,121,881 | $ | 1,046,190 | $ | (1,029,039 | ) | $ | 18,139,032 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||
Liabilities | ||||||||||||||||||
Note payable, bank | $ | 12,497,135 | $ | — | $ | — | $ | 12,497,135 | ||||||||||
Accounts payable and accrued expenses | 235,545 | 1,744 | — | 237,289 | ||||||||||||||
Notes payable, other | 730,719 | — | — | 730,719 | ||||||||||||||
Subordinated notes payable | 4,290,070 | 261,579 | (1,029,039 | ) | 3,522,610 | |||||||||||||
Junior subordinated debt | 1,247,292 | — | — | 1,247,292 | ||||||||||||||
Total liabilities | 19,000,761 | 263,323 | (1,029,039 | ) | 18,235,045 | |||||||||||||
Stockholders’ equity (deficit) | ||||||||||||||||||
Common stock | 25,000 | 50,000 | — | 75,000 | ||||||||||||||
Additional paid-in capital | 143,567 | 297,857 | — | 441,424 | ||||||||||||||
Retained earnings (deficit) | (1,047,447 | ) | 435,010 | — | (612,437 | ) | ||||||||||||
(878,880 | ) | 782,867 | — | (96,013 | ) | |||||||||||||
$ | 18,121,881 | $ | 1,046,190 | $ | (1,029,039 | ) | $ | 18,139,032 | ||||||||||
F-67
Celtic | Columbia | ||||||||||||||||
Capital | Capital | Combining | |||||||||||||||
Corporation | Corporation | Eliminations | Combined | ||||||||||||||
Interest income | |||||||||||||||||
Interest and fees on finance receivables | $ | 4,512,152 | $ | 85,752 | $ | (85,752 | ) | $ | 4,512,152 | ||||||||
Less interest paid to participants | 289,440 | — | — | 289,440 | |||||||||||||
4,222,712 | 85,752 | (85,752 | ) | 4,222,712 | |||||||||||||
Interest expense | 1,438,542 | 22,189 | (85,752 | ) | 1,374,979 | ||||||||||||
Net interest income | 2,784,170 | 63,563 | — | 2,847,733 | |||||||||||||
Provision for credit losses | 38,035 | — | — | 38,035 | |||||||||||||
Net interest income after provision for credit losses | 2,746,135 | 63,563 | — | 2,809,698 | |||||||||||||
Costs and expenses | |||||||||||||||||
Salaries and employee benefits | 1,681,942 | 1,375 | — | 1,683,317 | |||||||||||||
Office and occupancy expense | 516,856 | 18,728 | — | 535,584 | |||||||||||||
Other operating expenses | 464,527 | 31,872 | — | 496,399 | |||||||||||||
2,663,325 | 51,975 | — | 2,715,300 | ||||||||||||||
Income before income tax expense | 82,810 | 11,588 | — | 94,398 | |||||||||||||
Income tax expense | 300 | — | — | 300 | |||||||||||||
Net income | $ | 82,510 | $ | 11,588 | $ | — | $ | 94,098 | |||||||||
F-68
Celtic | Columbia | ||||||||||||||||
Capital | Capital | Combining | |||||||||||||||
Corporation | Corporation | Eliminations | Combined | ||||||||||||||
Interest income | |||||||||||||||||
Interest and fees on finance receivables | $ | 4,777,484 | $ | 83,150 | $ | (83,150 | ) | $ | 4,777,484 | ||||||||
Less interest paid to participants | 246,816 | — | — | 246,816 | |||||||||||||
4,530,668 | 83,150 | (83,150 | ) | 4,530,668 | |||||||||||||
Interest expense | 1,369,185 | 20,866 | (83,150 | ) | 1,306,901 | ||||||||||||
Net interest income | 3,161,483 | 62,284 | — | 3,223,767 | |||||||||||||
Provision for credit losses | 177,500 | — | — | 177,500 | |||||||||||||
Net interest income after provision for credit losses | 2,983,983 | 62,284 | — | 3,046,267 | |||||||||||||
Costs and expenses | |||||||||||||||||
Salaries and employee benefits | 1,661,354 | 1,688 | — | 1,663,042 | |||||||||||||
Office and occupancy expense | 678,140 | 25,533 | — | 703,673 | |||||||||||||
Other operating expenses | 503,202 | 38,319 | — | 541,521 | |||||||||||||
Costs of abandoned merger | 122,339 | — | — | 122,339 | |||||||||||||
2,965,035 | 65,540 | — | 3,030,575 | ||||||||||||||
Income (loss) before income tax expense | 18,948 | (3,256 | ) | — | 15,692 | ||||||||||||
Income tax expense | 3,150 | — | — | 3,150 | |||||||||||||
Net income (loss) | $ | 15,798 | $ | (3,256 | ) | $ | — | $ | 12,542 | ||||||||
F-69
![(DISCOVERY BANCORP LOGO)](https://capedge.com/proxy/SB-2A/0000950129-05-007340/v10199a1v1019907.gif)
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant’s Bylaws provide that the Registrant shall, to the maximum extent and in the manner permitted by the California Corporations Code (the “Code”), indemnify each of its directors against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that such person is or was a director of the Registrant. Furthermore, pursuant to Registrant’s Articles of Incorporation and Bylaws, the Registrant has power, to the maximum extent and in the manner permitted by the Code, to indemnify its employees, officers and agents (other than directors) against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that such person is or was an employee, officer or agent of Registrant.
Under Section 317 of the Code, a corporation may indemnify a director, officer, employee or agent of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In the case of an action brought by or in the right of a corporation, the corporation may indemnify a director, officer, employee or agent of the corporation against expenses (including attorneys’ fees) actually and reasonably incurred by him or her if he or she acted in good faith and in a manner he or she reasonably believed to be in the best interests of the corporation, except that no indemnification shall be made: (1) in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless a court finds that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses as the court shall deem proper, (2) of amounts paid in settling or otherwise disposing of a pending action without court approval, and (3) of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.
The Registrant’s Articles of Incorporation provides that to the fullest extent permitted by the Code as the same exists or may hereafter be amended, a director of the Registrant shall not be liable to the Registrant or its shareholders for monetary damages for breach of fiduciary duty as a director. The Code permits California corporations to include in their articles of incorporation a provision eliminating or limiting director liability for monetary damages arising from breaches of their fiduciary duty. The only limitations imposed under the statute are that the provision may not eliminate or limit a director’s liability (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, (vi) under a contract or transaction between the corporation and a director or between the corporation and any corporation in which one more of its directors has a material financial interest, or (vii) for approving any of the following corporate actions: (1) the making of any distribution to its shareholders that would cause the corporation to be unable to meet its liabilities, (2) the making of any distribution to the corporation’s shareholders on any shares of its stock of any class or series that are junior to outstanding shares of any other class or series with respect to distribution of assets on liquidation if, after giving effect thereto, the excess of its assets (exclusive of goodwill, capitalized research and development expenses and deferred charges) over its liabilities (not including deferred taxes, deferred income and other deferred credits) would be less than the liquidation preference of all shares having a preference on liquidation over the class or series to which the distribution is made; provided, however, that for the purpose of applying the aforementioned to a distribution by a corporation of cash or property in payment by the corporation in connection with the purchase of its shares, there shall be deducted from liabilities all amounts that had been previously added thereto with respect to obligations incurred in connection with the corporation’s repurchase of its shares and reflected on the corporation’s balance sheet, but not in excess of the principal of the obligations that will remain unpaid after the distribution; provided, further, that no deduction from liabilities shall occur on account of any obligation that is a distribution to the corporation’s shareholders at the time
the obligation is incurred, (3) the distribution of assets to shareholders after institution of dissolution proceeding of the corporation, without paying or adequately providing for all known liabilities of the corporation, excluding any claims not filed by creditors within the time limit set by the court in a notice given to creditors under Chapters 18, 19 and 20, (4) the making of any loan to or guarantee the obligation of any director or officer, unless the transaction is approved by a majority of the shareholders to act thereon, or (5) the making of any loan to or guarantee the obligation of, any person upon the security of shares of the corporation or of its parent if the corporation’s recourse in the event of default is limited to the security for the loan or guaranty, unless the loan or guarantee is adequately secured without considering these shares, or the loan or guaranty is approved by a majority of the shareholders entitled to act thereon.
Registrant is insured against liabilities which it may incur by reason of its indemnification of officers and directors in accordance with its Bylaws and it is anticipated that the Registrant will assume that policy on its and Registrant’s behalf.
In October 2004, Registrant entered into Indemnification Agreements with each of its executive officers and directors pursuant to which Registrant agreed to indemnify each executive officer and director for expenses, judgments, fines, settlements and other amounts incurred in connection with any proceeding arising by reason of the fact that such director was an “agent” of Registrant to the fullest extent permissible under California law, subject to the terms and conditions of the Indemnification Agreements. The indemnification provisions also apply to liability under the Federal Securities Laws. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling Registrant pursuant to the foregoing provisions, Registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
At present, Registrant is not aware of any pending or threatened litigation or proceeding involving its directors, officers, employees or agents in which indemnification would be required or permitted. Registrant believes that its Articles of Incorporation and Bylaw provisions and indemnification agreements with its directors are necessary to attract and retain qualified persons as directors and officers.
The foregoing summaries are necessarily subject to the complete text of the statute, Articles of Incorporation, Bylaws and agreements referred to above and are qualified in their entirety by reference thereto.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses in connection with the issuance and distribution of the securities being registered. All of the amounts shown are estimates.
Commissions | $ | 600,000 | ||
Marketing Expenses | 10,000 | |||
Accounting Fees | 80,000 | |||
Legal Fees | 80,000 | |||
Printing, Postage and Mailing | 8,000 | |||
Filing Fees | 2,000 | |||
Underwriter Expenses | 20,000 | |||
Total | $ | 800,000 |
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 27. EXHIBITS
Exhibit No. | Description of Exhibit | |
1 | Underwriting Agreement(3) | |
2 | Plan of Reorganization and Merger Agreement, dated October 20, 2004 by and between Discovery Bank and DB Merger Company(1) | |
3.1 | Articles of Incorporation of Discovery Bancorp(1) | |
3.2 | Bylaws of Discovery Bancorp(1) | |
4.1 | Form of Discovery Bank Warrant(1) | |
4.2 | Shareholder Agreement dated October 20, 2004(1) | |
5 | Opinion of Horgan, Rosen, Beckham & Coren, L.L.P., and Consent(3) | |
10.1 | Discovery Bancorp 2004 Stock Option Plan, as amended(2) | |
10.2 | Form of Discovery Bancorp Stock Option Agreement(1) | |
10.3 | Form of Discovery Bancorp Indemnity Agreement(1) | |
10.4 | Lease Agreement (338 Via Vera Cruz) (1) | |
10.5 | Employment Agreement dated January 1, 2005 with James P. Kelley, II(2) | |
10.6 | Employment Agreement dated January 1, 2005 with Joseph C. Carona(2) | |
10.7 | Employment Agreement dated January 1, 2005 with Lou Ellen Ficke(2) | |
10.8 | Employment Agreement dated January 1, 2005 with Stanley Cruse(2) | |
10.9 | Celtic Asset Purchase Agreement dated January 27, 2005(2) | |
10.10 | Employment Agreement dated July 21, 2005 with Martin McNabb | |
21 | Subsidiaries | |
23.1 | Consent of Horgan, Rosen, Beckham & Coren, L.L.P. (included as part of Exhibit 5) | |
23.2 | Consent of Moss Adams, LLP(3) | |
23.3 | Consent of Good, Swartz, Brown & Berns, LLP(3) | |
24 | Power of Attorney (included with Signatures)(3) |
(1) These exhibits are incorporated by reference from the Registrant’s Registration Statement on Form S-4, filed January 18, 2005.
(2) These exhibits are incorporated by reference from the Registrant’s Pre-Effective Amendment No. 1 to the Registration Statement on Form S-4, filed April 6, 2005.
(3) These documents were filed previously as exhibits to Registrant’s Registration Statement on Form SB-2, filed on June 23, 2005.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
(i) | Include any prospectus required by section 10(a)(3) of the Securities Act; | |||
(ii) | Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and | |||
(iii) | Include any additional or changed material information on the plan of distribution. |
(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that is has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Pre-Effective Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, in the city of San Marcos, State of California, on July 25, 2005.
Discovery Bancorp | ||||
By: | /s/ James P. Kelley, II* | |||
James P. Kelley, II, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Robert Cairns* | Director and Corporate Secretary | July 25, 2005 | ||
Robert Cairns | ||||
/s/ Gabriel P. Castano* | Vice Chairman | July 25, 2005 | ||
Gabriel P. Castano | ||||
/s/ Walter F. Cobb* | Director | July 25, 2005 | ||
Walter F. Cobb | ||||
/s/ Lou Ellen Ficke* | Executive Vice President and Chief Financial | July 25, 2005 | ||
Lou Ellen Ficke | Officer (Principal Financial Officer and Principal Accounting Officer) | |||
/s/ James P. Kelley, II* | Director, President and Chief Executive officer | July 25, 2005 | ||
James P. Kelley, II | (Principal Executive Officer) | |||
/s/ Michael A. Lenzner* | Director | July 25, 2005 | ||
Michael A. Lenzner | ||||
/s/ Anthony J. Pitale* | Director | July 25, 2005 | ||
Anthony J. Pitale | ||||
/s/ John R. Plavan* | Chairman of the Board | July 25, 2005 | ||
John R. Plavan | ||||
/s/ Stuart Rubin* | Director | July 25, 2005 | ||
Stuart Rubin | ||||
/s/ Mark W. Santar* | Director | July 25, 2005 | ||
Mark W. Santar | ||||
* By S. Alan Rosen, Attorney-in-Fact |