SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarter period ended June 30, 2001
Commission File No. 0-31080
NORTH BAY BANCORP
(Exact name of registrant as specified in its charter)
California 68-0434802
(State or Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
1500 Soscol Avenue, Napa, California 94559-1314
(Address of principal executive office including Zip Code)
Registrant's telephone number, including area code: (707) 257-8585
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSURES:
Indicate the number of shares outstanding of the North Bay Bancorp's Common
Stock outstanding as of August 8, 2001: 1,956,525
PART 1.
FINANCIAL INFORMATION
FORWARD LOOKING STATEMENTS
In addition to the historical information, this Quarterly Report contains
certain forward-looking information within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the "Safe Harbor" created by those
Sections. The reader of this Quarterly Report should understand that all such
forward-looking statements are subject to various uncertainties and risks that
could affect their outcome. The Company's actual results could differ materially
from those suggested by such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to,
variances in the actual versus projected growth in assets, return on assets,
loan losses, expenses, rates charged on loans and earned on securities
investments, rates paid on deposits, competition effects, the potential effects
of the California energy crisis, fee and other noninterest income earned as well
as other factors. This entire Quarterly Report should be read to put such
forward-looking statements in context and to gain a more complete understanding
of the uncertainties and risks involved in the Company's business.
Moreover, wherever phrases such as or similar to "In Management's opinion", or
"Management considers" are used, such statements are as of and based upon the
knowledge of Management, at the time made and are subject to change by the
passage of time and/or subsequent events, and accordingly such statements are
subject to the same risks and uncertainties noted above with respect to
forward-looking statements.
FINANCIAL INFORMATION
The information for the three months and six months ended June 30, 2001 and June
30, 2000, is unaudited, but in the opinion of management reflects all
adjustments which are necessary to present fairly the financial condition of
North Bay Bancorp (Company) at June 30, 2001 and the results of operations and
cash flows for the three months and six months then ended. Results for interim
periods should not be considered as indicative of results for a full year.
2
ITEM 1.
FINANCIAL STATEMENTS
North Bay Bancorp
Consolidated Balance Sheets
(Unaudited)
June 30, June 30, December 31,
Assets 2001 2000 2000
------------- ------------- -------------
Cash and due from banks $ 16,971,000 $ 9,794,000 $ 15,881,000
Federal funds sold 45,436,000 6,224,000 9,475,000
Time deposits with other financial institutions 100,000 100,000 100,000
------------- ------------- -------------
Total cash and cash equivalents 62,507,000 16,118,000 25,456,000
Investment securities:
Held-to-maturity 1,334,000 1,372,000 1,353,000
Available-for-sale 65,123,000 50,127,000 58,251,000
Loans, net of allowance for loan losses of $2,494,000 in June, 2001
$2,068,000 in June, 2000 and $2,268,000 in December, 2000 169,196,000 138,972,000 150,008,000
Bank premises and equipment, net 7,173,000 4,972,000 5,242,000
Accrued interest receivable and other assets 5,828,000 6,896,000 7,159,000
------------- ------------- -------------
Total assets $ 311,161,000 $ 218,457,000 $ 247,469,000
============= ============= =============
Liabilities and Shareholders' Equity Liabilities:
Deposits:
Non-interest bearing $ 70,198,000 $ 52,304,000 $ 60,676,000
Interest bearing 209,010,000 142,028,000 155,962,000
------------- ------------- -------------
Total deposits 279,208,000 194,332,000 216,638,000
Long term borrowings 2,308,000 0 2,769,000
Short term borrowings 0 500,000 0
------------- ------------- -------------
2,308,000 500,000 2,769,000
Accrued interest payable and other liabilities 1,648,000 1,508,000 1,426,000
------------- ------------- -------------
Total liabilities 283,164,000 196,340,000 220,833,000
------------- ------------- -------------
Shareholders' equity:
Preferred stock - no par value:
Authorized, 500,000 shares;
Issued and outstanding - none
Common stock - no par value:
Authorized, 10,000,000 shares;
Issued and outstanding - 1,956,040 shares in June 2001,
1,742,119 shares in June, 2000, and 1,850,445 in December, 2000 21,873,000 17,611,000 19,801,000
Retained earnings 5,608,000 5,600,000 6,753,000
Accumulated other comprehensive income (loss) 516,000 (1,094,000) 82,000
------------- ------------- -------------
Total shareholders' equity 27,997,000 22,117,000 26,636,000
Total liabilities and shareholders' equity $ 311,161,000 $ 218,457,000 247,469,000
============= ============= =============
The accompanying notes are an integral part of these statements
3
NORTH BAY BANCORP
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Interest Income
Loans (including fees) $ 3,792,000 $ 3,145,000 $ 7,381,000 $ 5,953,000
Federal funds sold 361,000 50,000 605,000 121,000
Investment securities - taxable 768,000 660,000 1,523,000 1,334,000
Investment securities - tax exempt 165,000 170,000 332,000 340,000
----------- ----------- ----------- -----------
Total interest income 5,086,000 4,025,000 9,841,000 7,748,000
Interest Expense
Deposits 1,639,000 1,292,000 3,202,000 2,511,000
Short term borrowings 0 18,000 2,000 88,000
Long term borrowings 44,000 16,000 107,000 16,000
----------- ----------- ----------- -----------
Total interest expense 1,683,000 1,326,000 3,311,000 2,615,000
Net interest income 3,403,000 2,699,000 6,530,000 5,133,000
Provision for loan losses 111,000 90,000 222,000 180,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 3,292,000 2,609,000 6,308,000 4,953,000
Non interest income 567,000 637,000 1,112,000 1,151,000
Gains (losses) on securities
transactions, net 0 (8,000) 0 (8,000)
Non interest expenses
Salaries and employee benefits 1,542,000 1,039,000 2,950,000 2,022,000
Occupancy 200,000 140,000 421,000 252,000
Equipment 218,000 186,000 548,000 348,000
Other 915,000 567,000 1,627,000 1,078,000
----------- ----------- ----------- -----------
Total non interest expense 2,875,000 1,932,000 5,546,000 3,700,000
----------- ----------- ----------- -----------
Income before provision for
income taxes 984,000 1,306,000 1,874,000 2,396,000
Provision for income taxes 362,000 517,000 698,000 936,000
----------- ----------- ----------- -----------
Net income $ 622,000 $ 789,000 $ 1,176,000 $ 1,460,000
=========== =========== =========== ===========
Basic earnings per common share: $ 0.32 $ 0.45 $ 0.60 $ 0.85
=========== =========== =========== ===========
Diluted earnings per common share: $ 0.31 $ 0.44 $ 0.60 $ 0.83
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements
4
NORTH BAY BANCORP
CONSOLIDATED STATEMENT OF CHANGE IN SHAREHOLDERS' EQUITY
JUNE 30, 2001
(UNAUDITED)
Accumulated
Other Total
Common Shares Common Retained Comprehensive Shareholders' Comprehensive
Outstanding Stock Earnings Income Equity Income
------------ ----------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 1,850,445 $19,801,000 $ 6,753,000 $ 82,000 $ 26,636,000
Stock dividend 92,307 1,938,000 (1,950,000) (12,000)
Cash dividend (371,000) (371,000)
Comprehensive income:
Net income 1,176,000 1,176,000 $ 1,176,000
Other comprehensive income, net
of tax:
Change in net unrealized gains on
available-for-sale securities, net
of tax 434,000 434,000 434,000
------------
Comprehensive income $ 1,610,000
============
Stock options exercised 13,288 134,000 134,000
------------ ----------- ----------- ------------ ------------
BALANCE, June 30, 2001 1,956,040 $21,873,000 $ 5,608,000 $ 516,000 $ 27,997,000
============ =========== =========== ============ ============
The accompanying notes are an integral part of these statements
5
NORTH BAY BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN 000'S)
Six months Ended June 30,
-------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,176 $ 1,460
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 515 215
Provision for loan losses 222 180
Amortization of deferred loan fees (200) (133)
Premium amortization (discount accretion), net (6) 15
Net loss on sale of investment securities 0 8
Net loss on sale of assets 0 8
Changes in:
Interest receivable and other assets 1,021 388
Interest payable and other liabilities 223 (128)
-------- --------
Total adjustments 1,775 553
-------- --------
Net cash provided by operating activities 2,951 2,013
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities held-to-maturity:
Proceeds from maturities and principal payments 19 18
Investment securities available-for-sale:
Proceeds from maturities and principal payments 7,867 6,213
Proceeds from sales 0 5,151
Purchases (13,990) (6,119)
Net increase in loans (19,210) (18,853)
Capital expenditures (2,446) (2,313)
-------- --------
Net cash used in investing activities (27,760) (15,903)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 62,570 21,952
Decrease in short-term borrowings 0 (4,500)
Repayment of long-term borrowings (461) 0
Stock issued 0 2,787
Stock options exercised 134 18
Dividends paid (383) (315)
-------- --------
Net cash provided by financing activities 61,860 19,942
-------- --------
Net increase in cash and cash equivalents 37,051 6,052
Cash and cash equivalents at beginning of year 25,456 10,066
-------- --------
Cash and cash equivalents at end of period $ 62,507 $ 16,118
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 2,900 $ 2,538
Income taxes paid $ 271 $ 892
Retired Assets $ 15 $ 0
The accompanying notes are an integral part of these statements
6
NORTH BAY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements, which include the accounts
of North Bay Bancorp and its subsidiaries (the "Company"), have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) and in Management's opinion, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results for
such interim periods. The subsidiaries consist of two community banks, The
Vintage Bank, established in 1985, and Solano Bank, which was opened July 17,
2000. All significant intercompany transactions and balances have been
eliminated. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to SEC rules or regulations; however, the
Company believes that the disclosures made are adequate to make the information
presented not misleading. The interim results for the six months ended June 30,
2001 and 2000, are not necessarily indicative of results for the full year. It
is suggested that these financial statements be read in conjunction with the
financial statements and the notes included in the Company's Annual Report for
the year ended December 31, 2000.
NOTE 2 - COMMITMENTS
The Company has outstanding standby Letters of Credit of approximately
$2,115,000, undisbursed real estate and construction loans of approximately
$33,440,000, and undisbursed commercial and consumer lines of credit of
approximately $15,274,000, as of June 30, 2001.
NOTE 3 - EARNINGS PER COMMON SHARE
The Company declared 5% stock dividends on January 18, 2000 and January 29,
2001. As a result of the stock dividends the number of common shares outstanding
and earnings per share data was adjusted retroactively for all periods
presented.
The following table reconciles the numerator and denominator of the Basic and
Diluted earnings per share computations:
7
Weighted Average Per-Share
Net Income Shares Amount
---------- --------- ------
For the three months ended June 30, 2001
-----------------------------------------
Basic earnings per share $622,000 1,956,040 $ .32
Stock options 21,407
Diluted earnings per share 1,977,447 $ .31
For the three months ended June 30, 2000
-----------------------------------------
Basic earnings per share $789,000 1,740,041 $ .45
Stock options 33,870
Diluted earnings per share 1,773,911 $ .44
Weighted Average Per-Share
Net Income Shares Amount
---------- --------- ------
For the six months ended June 30, 2001
-----------------------------------------
Basic earnings per share $1,176,000 1,951,276 $ .60
Stock options 23,921
Diluted earnings per share 1,975,197 $ .60
For the six months ended June 30, 2000
-----------------------------------------
Basic earnings per share $1,460,000 1,717,131 $ .85
Stock options 35,259
Diluted earnings per share 1,752,390 $ .83
NOTE 4 - COMPREHENSIVE INCOME
For the Company, comprehensive income includes net income reported on the
statement of income and changes in the fair value of its available-for-sale
investments reported as a component of shareholders' equity. The following table
presents net income adjusted by the change in unrealized gains or losses on the
available-for-sale investments as a component of comprehensive income (in
thousands).
Three Months Ended June 30,
---------------------------
2001 2000
------ ------
Net Income $ 622 $ 789
Net change in unrealized gains on
available-for-sale investments, net
of tax 20 167
------ ------
Comprehensive Income $ 642 $ 956
====== ======
Six Months Ended June 30,
-------------------------
2001 2000
------ ------
Net Income $1,176 $1,460
Net change in unrealized gains on
available-for-sale investments, net
of tax 434 77
------ ------
Comprehensive Income $1,610 $1,537
====== ======
NOTE 5 - SEGMENT REPORTING
The Company's operating segments consist of its traditional community banking
activities provided through its Banks and activities related to the Bancorp.
Community banking activities include the Banks' commercial and retail lending,
deposit gathering and investment and liquidity management activities. As
8
permitted, the Company has aggregated the results of the separate banks and
branches into a single reportable segment, and the Bancorp activities reported
as "Other".
The components of the Company's business segments for the six months ended June
30, 2001 were as follows:
(In 000's)
----------------------------------------------
Community Intersegment
Banking Other Adjustments Consolidated
-------- -------- -------- --------
Interest Income $ 9,841 $ 0 $ 0 $ 9,841
Interest Expense 3,205 106 0 3,311
-------- -------- -------- --------
Net Interest Income 6,636 (106) 0 6,530
Provision for loan losses 222 0 0 222
Equity income of
subsidiaries 0 1,491 1,491 0
Noninterest Income 1,197 2,204 2,289 1,112
Noninterest Expense 5,195 2,640 2,289 5,546
-------- -------- -------- --------
Income Before Tax 2,416 949 1,491 1,874
Provision for
Income Taxes 925 (227) 0 698
-------- -------- -------- --------
Net Income $ 1,491 $ 1,176 $ 1,491 $ 1,176
-------- -------- -------- --------
Assets $308,999 $ 30,907 $ 28,745 $311,161
Loans, Net 169,196 0 0 169,196
Deposits 280,874 0 1,666 279,208
Equity 27,079 27,997 27,079 27,997
The components of the Company's business segments for the six months ended June
30, 2000 were as follows:
(In 000's)
----------------------------------------------
Community Intersegment
Banking Other Adjustments Consolidated
-------- -------- -------- --------
Interest Income $ 7,748 $ 0 $ 0 $ 7,748
Interest Expense 2,599 16 0 2,615
-------- -------- -------- --------
Net Interest Income 5,149 (16) 0 5,133
Provision for loan losses 180 0 0 180
Noninterest Income 1,226 1,078 1,161 1,143
Noninterest Expense 3,193 1,668 1,161 3,700
-------- -------- -------- --------
Income (Loss) Before Tax 3,002 (606) 0 2,396
Provision for
Income Taxes 1,188 (252) 0 936
-------- -------- -------- --------
Net Income (Loss) $ 1,814 ($ 354) $ 0 $ 1,460
-------- -------- -------- --------
Assets $215,940 $ 22,853 $ 20,336 $218,457
Loans, Net 138,972 0 0 138,972
Deposits 196,730 0 2,398 194,332
Equity 17,938 22,117 17,938 22,117
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
In addition to the historical information, this Quarterly Report contains
certain forward-looking statements. The reader of this Quarterly Report should
understand that all such forward-looking statements are subject to various
uncertainties and risks that could affect their outcome. The Company's actual
results could differ materially from those suggested by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, variances in the actual versus projected growth in
assets, return on assets, loan losses, expenses, rates charged on loans and
earned on securities investments, rates paid on deposits, competition effects,
the potential effects of the California energy crisis, fee and other noninterest
income earned as well as other factors. This entire Quarterly Report should be
read to put such forward-looking statements in context and to gain a more
complete understanding of the uncertainties and risks involved in the Company's
business.
Moreover, wherever phrases such as or similar to "In Management's opinion",
"Management considers" are used, such statements are as of and based upon the
knowledge of Management, at the time made and are subject to change by the
passage of time and/or subsequent events, and accordingly such statements are
subject to the same risks and uncertainties noted above with respect to
forward-looking statements.
OVERVIEW
Net income was $622,000 or $.31 per diluted share for the three months ended
June 30, 2001, compared with $789,000 or $.44 per diluted share for the three
months ended June 30, 2000, a decrease of 21%. Net income was $1,176,000 or $.60
per diluted share for the six months ended June 30, 2001, compared with
$1,460,000 or $.83 per diluted share for the six months ended June 30, 2000, a
decrease of 19%. Total assets were $311,161,000 as of June 30, 2001; equating to
a 42% growth in assets during the twelve months ended June 30, 2001.
SUMMARY OF EARNINGS
NET INTEREST INCOME
The following table provides a summary of the components of interest income,
interest expense and net interest margin for the six months ended June 30, 2001
and June 30, 2000:
10
In 000's
------------------------------------------------------------------------
2001 2000
---------------------------------- -----------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
--------- --------- ---------- ---------- --------- ----------
Loans (1)(2) $ 163,007 $ 7,381 9.06% $ 132,652 $ 5,953 8.98%
--------- --------- ---------- ---------
Investment securities:
Taxable 47,430 1,520 6.41% 40,050 1,331 6.65%
Non-taxable (3) 13,828 420 6.07% 14,061 430 6.12%
--------- --------- ---------- ---------
TOTAL LOANS AND INVESTMENT
SECURITIES 224,265 9,321 8.31% 186,763 7,714 8.26%
Due from banks, time 100 3 6.00% 100 3 6.00%
Federal funds sold 28,203 605 4.29% 3,939 121 6.14%
--------- --------- ---------- ---------
TOTAL EARNING ASSETS 252,568 $ 9,929 7.86% 190,802 $ 7,838 8.22%
--------- --------- ---------- ---------
Cash and due from banks 15,467 9,659
Allowance for loan losses (2,400) (1,988)
Premises and equipment, net 6,687 3,790
Accrued interest receivable
and other assets 6,065 6,802
--------- ----------
TOTAL ASSETS $ 278,387 $ 209,065
========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Interest bearing demand $ 92,126 $ 1,239 2.69% $ 61,595 $ 696 2.26%
Savings 18,393 129 1.40% 15,829 149 1.88%
Time 70,568 1,834 5.20% 64,491 1,665 5.16%
--------- --------- ---------- ---------
181,087 3,202 141,915 2,510
Long-term borrowings 2,461 107 8.70% 168 16 19.05%
Short-term borrowings 90 2 4.44% 2833 88 6.21%
--------- --------- ---------- ---------
2,551 109 3,001 104
TOTAL INTEREST BEARING
LIABILITIES 183,638 $ 3,311 3.61% 144,916 $ 2,614 3.61%
--------- --------- ---------- ---------
Noninterest bearing DDA 65,778 43,656
Accrued interest payable
and other liabilities 1,542 1,188
Shareholders' equity 27,429 19,305
--------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 278,387 $ 209,065
========= ==========
NET INTEREST INCOME $ 6,618 $ 5,224
========= =========
NET INTEREST INCOME TO
AVERAGE EARNING ASSETS
(Net Interest Margin (4)) 5.24% 5.48%
11
(1) Average loans include nonaccrual loans
(2) Loan interest income includes loan fee income of $452 in 2001 and $313 in
2000
(3) Average yields shown are taxable-equivalent. On a non- taxable basis, 2001
interest income was $332 with an average yield of 4.80%; in 2000
non-taxable income was $340 and the average yield was 4.84%.
(4) Net interest margin is calculated by dividing net interest income by the
average balance of total earning assets for the applicable period
Net interest income represents the amount by which interest earned on earning
assets (primarily loans and investments) exceed the amount of interest paid on
deposits. Net interest income is a function of volume, interest rates and level
of non-accrual loans.
Net interest income before the provision for loan losses on a taxable-equivalent
basis for the three months ended June 30, 2001 and June 30, 2000 was $3,447,000
and $2,744,000, respectively. These results equate to a 26% increase in net
interest income for the second quarter of 2001 compared to the second quarter of
2000. Loan fee income, which is included in interest income from loans, was
$255,000 for the three months ended June 30, 2001, compared with $179,000 for
the three months ended June 30, 2000. Net interest income before the provision
for loan losses on a taxable-equivalent basis for the six months ended June 30,
2001 and June 30, 2000 was $6,618,000 and $5,223,000, respectively. These
results equate to a 27% increase in net interest income for the first six months
of 2001 compared to the same period in 2000. Loan fee income, which is included
in interest income from loans, was $452,000 for the six months ended June 30,
2001, compared with $313,000 for the six months ended June 30, 2000.The average
balance of earning assets increased $61,766,000 or 32% during the twelve months
ended June 30, 2001. Taxable-equivalent interest income increased $2,091,000 or
27% in the first six months of 2001 compared with the same period of 2000.
Increase in the volume of earning assets accounted for $2,350,000 of this
increase, with a decrease of $259,000 attributable to lower rates. The average
balance of interest-bearing liabilities increased $38,722,000 or 27% during the
first six month of 2001 compared with the same period in 2000. Interest paid on
interest-bearing liabilities increased $697,000 in 2001 compared with 2000.
Increase in the volume of deposits and other borrowings accounted for $511,000
of this increase, while an $185,000 increase was attributed to an increase in
rates. Management does not expect a material change in the Company's net
interest margin during the next twelve months as the result of a modest increase
or decrease in general interest rates.
12
The following table sets forth a summary of the changes in interest income and
interest expense for the six months ended June 30, 2001 over June 30, 2000
resulting from changes in assets and liabilities volumes and rates. The change
in interest due to both rate and volume has been allocated in proportion to the
relationship of absolute dollar amounts of change in each
In 000's
2001 Over 2000
---------------------------------
Volume Rate Total
------- ------- -------
Increase (Decrease) In
Interest and Fee Income
Time Deposits With Other
Financial Institutions $ (0) $ 0 $ (0)
Investment Securities:
Taxable 246 (57) 189
Non-Taxable (1) (7) (3) (10)
Federal Funds Sold 745 (261) 484
Loans 1,366 62 1,428
------- ------- -------
Total Interest and Fee Income 2,350 (259) 2,091
------- ------- -------
Increase (Decrease) In
Interest Expense
Deposits:
Interest Bearing
Transaction Accounts 345 198 543
Savings 24 (44) (20)
Time Deposits 156 13 169
------- ------- -------
Total Deposits 525 167 692
Short-term Borrowings (85) (1) (86)
Long-term Borrowings 72 19 91
------- ------- -------
Total Interest Expense 512 185 697
------- ------- -------
Net Interest Income $ 1,838 ($ 444) $ 1,394
======= ======= =======
(1) The interest earned is taxable-equivalent.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses at a level considered
adequate to provide for losses that can be reasonably anticipated. The allowance
is increased by the provision for loan losses and reduced by net charge offs.
The allowance for loan losses is based on estimates, and ultimate losses may
vary from current estimates. These estimates are reviewed periodically and as
adjustments become necessary they are reported in earnings in the periods in
which they become known. The Company makes credit reviews of the loan portfolio
and considers current economic conditions, historical loan loss experience and
other factors in determining the adequacy of the allowance balance. This
13
evaluation considers the need for specific allowance for all classified loans
over $50,000 and establishes percentage allowance requirements for all other
loans, according to the classification as determined by the Company's internal
grading system. As of June 30, 2001 the allowance for loan losses of $2,494,000
represented 1.45% of loans outstanding. As of June 30, 2000, the allowance
represented 1.47% of loans outstanding. During the six months ended June 30,
2001, $222,000 was charged to expense for the loan loss provision, compared with
$180,000 for the same period in 2000. Net loan recoveries were $4,000 for the
first six months of 2001 compared with net charge-offs of $99,000, or 0.1% of
total loans as of June 30, 2000.
The following table summarizes changes in the allowance for loan losses:
In 000's
-----------------------------
June 30, 2001 June 30, 2000
------------- -------------
Balance, beginning of year $2,268 $1,987
Provision for loan losses 222 180
Loans charged off 0 102
Recoveries of loans previously charged off 4 3
------ ------
Balance, end of period $2,494 $2,068
====== ======
Allowance for loan losses to total outstanding loans 1.45% 1.47%
There were no loans on non-accrual at June 30, 2001 or June 30, 2000.
NON-INTEREST INCOME
Non-interest income was $567,000 for the three months ended June 30, 2001
compared with $637,000 for the same period in 2000, an 11% decrease.
Non-interest income was $1,112,000 for the six months ended June 30, 2001
compared with $1,151,000 for the same period in 2000, a 3% decrease. The primary
reason for the decrease in 2001 from 2000 was that the Company realized a
one-time increase in non-interest income of $142,000 during the second quarter
of 2000. This was the result of selling stock acquired as the result of a
demutualization of an insurance company in which the Company holds policies.
Other increases in non-interest income resulted primarily from an increase in
the number of deposit accounts, transaction volumes and directly related service
charges.
GAIN (LOSSES) ON SECURITIES
There were no gains or losses on securities for the three or six months ended
June 30, 2001. Net losses of $8,000 for the three and six months ended June 30,
2000 resulted from the sale of several available-for-sale securities.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended June 30, 2001 and June 30, 2000
was $2,875,000 and $1,932,000, respectively, a 49% increase. Non-interest
expense for the six months ended June 30, 2001 and June 30, 2000 was $5,546,000
and $3,700,000, respectively, a 50% increase. The increase compared with the
prior reporting period is primarily due to the Company opening its subsidiary de
novo bank, Solano Bank, on July, 17, 2000. Salaries and employee benefits
expense for the three months ended June 30, 2001 and 2000 were $1,542,000 and
$1,039,000, respectively, a 48% increase. Salaries and employee benefits expense
for the six months ended June 30, 2001 and 2000 were $2,950,000 and $2,022,000,
respectively, a 46% increase. The increase in 2001 resulted from increased
salaries paid to Company officers and employees, and an increase of
approximately twenty-nine full-time equivalent employees from 96 at June 30,
2000 to 125 at June 30, 2001. Occupancy expense for the three months ended June
30, 2001 and 2000 were $200,000 and $140,000, respectively, a 43% increase.
Occupancy expense for the six months ended June 30, 2001 and 2000 were $421,000
and $252,000, respectively, representing a 67% increase. The increase in 2001 is
attributed to opening three branch offices of Solano Bank in mid 2000. The
Company had three branch offices at June 30, 2000 compared with six at June 30,
14
2001. Equipment expense for the three months ended June 31, 2001 and 2000 was
$218,000 and $186,000, respectively, representing an increase of 17.20%.
Equipment expenses for the six months ended June 30, 2001 and 2000 was $548,000
and $348,000, respectively, an increase of 57%. The increase was primarily due
to an increase in depreciation expense for the new host banking systems and the
new item processing and imaging systems, as well as, furniture and equipment
depreciation expenses of the three new branch offices. Other expenses for the
three months ended June 30, 2001 and June 30, 2000 were $915,000 and $567,000,
respectively, a 61% increase. Other expenses for the six months ended June 30,
2001 and June 30, 2000 were $1,627,000 and $1,078,000, respectively, a 51%
increase. The increase from last year is primarily due to costs associated with
operating six branch offices in 2001 in comparison to three in 2000.
INCOME TAXES
The Company reported a provision for income tax for the three months ended June
30, 2001 and 2000 of $362,000 and $517,000, respectively. The Company reported a
provision for income tax for the six months ended June 30, 2001 and 2000 of
$698,000 and $936,000, respectively. Both the 2001 and 2000 provisions reflect
tax accruals at maximum rates for both federal and state income taxes, adjusted
for the effect of the Company's investments in tax-exempt municipal securities.
BALANCE SHEET
Total assets as of June 30, 2001 were $311,161,000 compared with $218,457,000 as
of June 30, 2000, and $247,469,000 at December 31, 2000 equating to a 42%
increase during the twelve months and a 26% increase for the six months ended
June 30, 2001. Total deposits as of June 30, 2001 were $279,208,000 compared
with $194,332,000 as of June 30, 2000, and $216,638,000 at December 31, 2000
representing a 44% increase during the twelve months and a 29% increase for the
six months ended June 30, 2001. Total loans outstanding as of June 30, 2001 were
$171,690,000 compared with $140,040,000 as of June 30, 2000, and $152,276,000 at
December 31, 2000 equating to a 23% increase during the twelve months and a 13%
increase for the three months ended June 30, 2001.
BORROWINGS
There were no short-term borrowings at June 30, 2001 or December 30, 2000
compared with $500,000 at June 30, 2000. Short-term borrowings consist primarily
of federal funds purchased and borrowings from Federal Home Loan Bank. The
Company has a $3,000,000 unsecured loan with Union Bank of California, with a
current balance of $2,308,000. The term of the loan is three and one half years
with principal and interest payments due quarterly. The loan is a variable rate
loan tied to Union Bank's reference rate, currently 6.75%. The proceeds of this
loan were primarily invested into the Company's subsidiary, Solano Bank.
LIQUIDITY AND CAPITAL ADEQUACY
The Company's liquidity is determined by the level of assets (such as cash,
Federal Funds, and investment in unpledged marketable securities) that are
readily convertible to cash to meet customer withdrawals and borrowings.
Management reviews the Company's liquidity position on a regular basis to ensure
that it is adequate to meet projected loan funding and potential withdrawal of
deposits. The Company has a comprehensive Asset/Liability Management and
Liquidity Policy, which it uses to determine adequate liquidity. As of June 30,
2001 liquid assets were 41% of total assets, compared with 30% as of June 30,
2000 and 33% at December 31, 2000.
The Federal Deposit Insurance Corporation Improvement Act (FDICA) established
ratios used to determine whether a Company is "Well Capitalized," "Adequately
Capitalized," "Undercapitalized," "Significantly Undercapitalized," or
"Critically Undercapitalized." A Well Capitalized Company has risk-based capital
of at least 10%, tier 1 risked-based capital of at least 6%, and a leverage
ratio of at least 5%. As of June 30, 2001, the Company's risk-based capital
ratio was 12.58%. The Company's tier 1 risk-based capital ratio and leverage
ratio were 11.54% and 9.54%, respectively.
15
As the following table indicates, The Company, The Vintage Bank and Solano Bank
currently exceeds the regulatory capital minimum requirements and are considered
"Well Capitalized" according to regulatory guidelines.
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- -------------------
(In 000's)
----------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- ------ ------- -------
As of June 30, 2001:
Total Capital (to Risk
Weighted Assets)
Consolidated $29,976 13.09% $18,314 >=8.00% $22,892 >=10.00%
The Vintage Bank 21,000 10.31% 16,300 >=8.00% 20,375 >=10.00%
Solano Bank 8,056 35.73% 1,804 >=8.00% 2,255 >=10.00%
Tier I Capital (to Risk
Weighted Assets)
Consolidated 27,482 12.00% 9,157 >=4.00% 13,735 >=6.00%
The Vintage Bank 18,573 9.12% 8,150 >=4.00% 12,225 >=6.00%
Solano Bank 7,989 35.43% 902 >=4.00% 1,353 >=6.00%
Tier I Capital (to
Average Assets)
Consolidated 27,482 9.54% 11,519 >=4.00% 14,393 >=5.00%
The Vintage Bank 18,573 7.37% 10,082 >=4.00% 12,602 >=5.00%
Solano Bank 7,989 22.23% 1,437 >=4.00% 1,797 >=5.00%
16
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. Although
the Company manages other risks, as in credit quality and liquidity risk, in the
normal course of business, management considers interest rate risk to
principally be a market risk. Other types of market risks, such as foreign
currency exchange rate risk, do not arise in the normal course of the Company's
business activities. The majority of the Company's interest rate risk arises
from instruments, positions and transactions entered into for the purpose other
than trading. They include loans, securities available-for-sale, deposit
liabilities, short-term borrowings and long-term debt. Interest rate risk occurs
when assets and liabilities reprice at different times as interest rate changes.
The Company manages interest rate risk through an Asset Liability Committee
(ALCO). The ALCO monitors exposure to interest rate risk on a quarterly basis
using both a traditional gap analysis and simulation analysis. Traditional gap
analysis identifies short and long-term interest rate positions or exposure.
Simulation analysis uses an income simulation approach to measure the change in
interest income and expense under rate shock conditions. The model considers the
three major factors of (a) volume differences, (b) repricing differences and (c)
timing in its income simulation. The model begins by disseminating data into
appropriate repricing buckets based on internally supplied algorithms (or
overridden by calibration). Next, each major asset and liability type is
assigned a "multiplier" or beta to simulate how much that particular balance
sheet category type will reprice when interest rates change. The model uses
eight asset and liability multipliers consisting of bank-specific or defaults
multipliers. The remaining step is to simulate the timing effect of assets and
liabilities by modeling a month-by-month simulation to estimate the change in
interest income and expense over the next 12-month period. The results are then
expressed as the change in pre-tax net interest income over a 12-month period
for +1%, and +2% shocks.
Utilizing the simulation model to measure interest rate risk at June 30, 2001
the Company is within the established exposure of a 4% change in "return on
equity" tolerance limit. There were no significant changes in interest rate risk
from the annual report on form 10KSB for December 31, 2000.
PART II - OTHER INFORMATION
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to the business of the
Company, there were no material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Second Annual Meeting of the shareholders of the Company was held
on April 24, 2001.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A under
the Act, there were no solicitations in opposition to management's nominees as
listed in the proxy statement, and all such nominees were elected.
(c) There was no settlement between the Company and any other person
terminating any solicitation subject to Rule 14a-11.
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) An index of exhibits begins on page 16.
(b) On May 1, 2001, the Company filed a Current Report on Form 8-K,
reporting the issuance of a press release announcing the Company's earnings for
the quarter ended March 31, 2001. No financial statements were filed with the
Current Report on Form 8-K.
18
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this quarterly report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTH BAY BANCORP
A California Corporation
Date: August 9, 2001 BY: /s/ Terry L. Robinson
------------------------------------
Terry L. Robinson
President & CEO
(Principal Executive Officer)
Date: August 9, 2001 BY: /s/ Lee-Ann Cimino
------------------------------------
Lee-Ann Cimino
Sr. Vice President & CFO
(Principal Financial Officer)
19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Amended and Restated Employment Agreement entered into as of May
1, 2001 by and between North Bay Bancorp and Terry L. Robinson
10.2 Employment Agreement entered into as of May 1, 2001 by and
between Solano Bank and Glen C. Terry
10.3 Employment Agreement entered into as of May 1, 2001 by and
between North Bay Bancorp and Kathi Metro
10.4 Employment Agreement entered into as of May 1, 2001 by and
between North Bay Bancorp and Dale Brain
11 Statement re: computation of per share earnings is included in
Note 3 to the unaudited condensed consolidated financial
statements of Registrant