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 March 31, 2002
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 ISSUERS:
Indicate the number of shares outstanding of the North Bay Bancorp's Common
Stock outstanding as of May 15, 2002: 2,073,452
NO AUDITOR HAS REVIEWED THE UNAUDITED INTERIM FINANCIAL STATEMENTS CONTAINED IN
THIS QUARTERLY REPORT ON FORM 10-Q TO DETERMINE THAT THE UNAUDITED INTERIM
FINANCIAL STATEMENTS PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL
POSITION, THE RESULTS OF OPERATIONS, CASH FLOWS AND THE CHANGES IN SHAREHOLDERS'
EQUITY OF THE COMPANY FOR EACH OF THE PERIODS REPORTED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
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 321E 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, (i)
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, and fee and other noninterest income
earned; (ii) competitive pressures among depository and other financial
institutions may increase significantly and have an effect on pricing, spending,
third-party relationships and revenues; (iii) enactment of adverse government
regulations; (iv) the potential effects of the California energy crisis; (v)
adverse conditions and volatility, as a result of recent economic uncertainty
created by the September 11, 2001 terrorists attacks on the World Trade Center
and the Pentagon, the United States' war on terrorism, in the stock market, the
public debt market and other capital markets and the impact of such conditions
of the Company; (vi) continued changes in the interest rate environment may
reduce interest margins and adversely impact net interest income; (vii) 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 ended March 31, 2002 and March 31, 2001 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 March 31, 2002 and the results of operations and cash flows for the
three months then ended. Results for interim periods should not be considered as
indicative of results for a full year.
NO AUDITOR HAS REVIEWED THE UNAUDITED INTERIM FINANCIAL STATEMENTS CONTAINED IN
THIS QUARTERLY REPORT ON FORM 10-Q TO DETERMINE THAT THE UNAUDITED INTERIM
FINANCIAL STATEMENTS PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL
POSITION, THE RESULTS OF OPERATIONS, CASH FLOWS AND THE CHANGES IN SHAREHOLDERS'
EQUITY OF THE COMPANY FOR EACH OF THE PERIODS REPORTED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
2
Item 1.
FINANCIAL STATEMENTS
North Bay Bancorp
Consolidated Balance Sheets
Unaudited
March 31, March 31, December 31,
Assets 2002 2001 2001
------------ ------------ ------------
Cash and due from banks $ 17,023,000 $ 14,524,000 $ 19,311,000
Federal funds sold 30,533,000 28,836,000 18,000,000
Time deposits with other financial institutions 100,000 100,000 100,000
------------ ------------ ------------
Total cash and cash equivalents 47,656,000 43,460,000 37,411,000
Investment Securities:
Held-to-maturity 1,293,000 1,353,000 1,314,000
Available-for-sale 73,341,000 58,117,000 83,565,000
Equity securities 1,268,000 1,262,000 1,241,000
------------ ------------ ------------
Total investment securities 75,902,000 60,732,000 86,120,000
Loans, net of allowance for loan losses of $2,861,000 in March, 2002
$2,382,000 in March, 2001 and $2,717,000 in December, 2001 193,334,000 157,527,000 183,548,000
Bank premises and equipment, net 10,216,000 6,932,000 9,329,000
Accrued interest receivable and other assets 10,889,000 6,603,000 10,398,000
------------ ------------ ------------
Total assets $337,997,000 $275,254,000 $326,806,000
============ ============ ============
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing $ 81,355,000 $ 69,792,000 $ 77,117,000
Interest bearing 222,274,000 174,330,000 215,324,000
------------ ------------ ------------
Total deposits 303,629,000 244,122,000 292,441,000
Long term debt 1,615,000 2,538,000 1,846,000
------------ ------------ ------------
Total borrowings 1,615,000 2,538,000 1,846,000
Accrued interest payable and other liabilities 2,466,000 1,239,000 2,539,000
------------ ------------ ------------
Total liabilities 307,710,000 247,899,000 296,826,000
------------ ------------ ------------
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 - 2,068,989 shares in March 2002,
1,956,040 shares in March, 2001, and 1,960,902 in December, 2001 24,247,000 21,873,000 21,973,000
Retained earnings 5,683,000 4,986,000 7,454,000
Accumulated other comprehensive income 357,000 496,000 553,000
------------ ------------ ------------
Total shareholders' equity 30,287,000 27,355,000 29,980,000
Total liabilities and shareholders' equity $337,997,000 $275,254,000 $326,806,000
============ ============ ============
The accompanying notes are an integral part of these statements
3
North Bay Bancorp
Consolidated Income Statements
(Unaudited)
Three Months Ended March 31,
2002 2001
---------- ----------
Interest Income
Loans (including fees) $3,801,000 $3,589,000
Federal funds sold 58,000 244,000
Investment securities taxable 865,000 755,000
Investment securities tax exempt 149,000 167,000
---------- ----------
Total Interest income 4,873,000 4,755,000
Interest Expense
Deposits 835,000 1,563,000
Short term borrowings 0 2,000
Long term debt 15,000 63,000
---------- ----------
Total Interest expense 850,000 1,628,000
Net interest income 4,023,000 3,127,000
Provision for loan losses 144,000 111,000
---------- ----------
Net interest income after
provision for loan losses 3,879,000 3,016,000
Non interest income 633,000 545,000
Gains on securities transactions, net 66,000 0
Non interest expenses
Salaries and employee benefits 1,904,000 1,408,000
Occupancy 234,000 221,000
Equipment 476,000 330,000
Other 753,000 712,000
---------- ----------
Total non interest expense 3,367,000 2,671,000
---------- ----------
Income before provision for
income taxes 1,211,000 890,000
Provision for income taxes 433,000 336,000
---------- ----------
Net income $ 778,000 $ 554,000
========== ==========
Basic earnings per common share: $ 0.38 $ 0.27
========== ==========
Diluted earnings per common share: $ 0.37 $ 0.27
========== ==========
The accompanying notes are an integral part of these statements
4
North Bay Bancorp
Consolidated Statement of Change in Shareholders' Equity
For the Three Months Ended
March 31, 2002
(Unaudited)
Accumulated
Other Total
Common Shares Common Retained Comprehensive Shareholders' Comprehensive
Outstanding Stock Earnings Income Equity Income
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 1,960,902 $21,973,000 $7,454,000 $553,000 $29,980,000
Stock dividend 97,408 2,143,000 (2,157,000) (14,000)
Cash dividend (392,000) (392,000)
Comprehensive income:
Net income 778,000 778,000 $778,000
Other comprehensive loss,
net of tax:
Change in net unrealized
losses on
available-for-sale
securities, net of tax (196,000) (196,000) (196,000)
--------
Comprehensive income $582,000
========
Stock options exercised 10,679 131,000 131,000
--------- ------------ -----------
BALANCE, MARCH 31, 2002 2,068,989 $ 24,247,000 $5,683,000 $357,000 $30,287,000
========= ============ ========== ======== ===========
The accompanying notes are an integral part of these statements
5
North Bay Bancorp
Consolidated Statement of Cash Flows
Unaudited
(In 000's)
Three Months
Ended March 31,
2002 2001
-------- --------
Cash Flows From Operating Activities:
Net income $ 778 $ 554
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 357 252
Provision for loan losses 144 111
Amortization of deferred loan fees (126) (98)
Premium amortization (discount accretion), net 256 (20)
Gain on securities transactions (66) 0
Changes in:
Interest receivable and other assets (352) 261
Interest payable and other liabilities (73) (187)
-------- --------
Net cash provided by operating activities 918 873
-------- --------
Cash Flows From Investing Activities:
Investment securities held-to-maturity:
Proceeds from maturities and principal payments 21 0
Investment securities available-for-sale:
Proceeds from maturities and principal payments 4,587 4,155
Proceeds from sale of securities 5,112 0
Purchases 0 (4,524)
Equity securities:
Purchases (27) (30)
Net increase in loans (9,804) (7,532)
Capital expenditures (1,244) (1,942)
-------- --------
Net cash used in investing activities (1,355) (9,873)
-------- --------
Cash Flows From Financing Activities:
Net increase in deposits 11,188 27,484
Repayment of long-term debt (231) (231)
Stock options exercised 131 134
Dividends paid (406) (383)
-------- --------
Net cash provided by financing activities 10,682 27,004
-------- --------
Net increase in cash and cash equivalents 10,245 18,004
Cash and cash equivalents at beginning of year 37,411 25,356
-------- --------
Cash and cash equivalents at end of period $ 47,656 $ 43,360
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 929 $ 1,300
Taxes paid $ 331 $ 0
The accompanying notes are an integral part of these statements
6
NORTH BAY BANCORP
Notes to the Consolidated Financial Statements
(Unaudited)
March 31, 2002
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 three months ended March
31, 2002 and 2001, 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, 2001.
NOTE 2 - Commitments
The Company has outstanding standby Letters of Credit of approximately
$1,286,000, undisbursed real estate and construction loans of approximately
$17,451,000, and undisbursed commercial and consumer lines of credit of
approximately $36,975,000, as of March 31, 2002.
NOTE 3 - Earnings Per Common Share
The Company declared a 5% stock dividend on January 28, 2002. As a result of the
stock dividend 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:
Weighted Average Per-Share
Net Income Shares Amount
---------- ------ ------
For the three months ended March 31, 2002
-----------------------------------------
Basic earnings per share $778,000 2,059,750 $.38
Dilutive effect of stock options 54,344
Diluted earnings per share 2,114,094 $.37
For the three months ended March 31, 2001
-----------------------------------------
Basic earnings per share $554,000 2,043,782 $.27
Dilutive effect of stock options 25,189
Diluted earnings per share 2,068,971 $.27
NOTE 4- 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
permitted, the Company has aggregated the results of the separate banks and
branches into a single reportable segment, and the Bancorp activities are
reported as "Other".
The components of the Company's business segments for the three months ended
March 31, 2002 were as follows:
7
(In 000's)
Community Intersegment
Banking Other Adjustments Consolidated
------- ----- ----------- ------------
Interest Income $4,886 $0 ($13) $4,873
Interest Expense 848 15 (13) 850
-------- ------- -------- --------
Net Interest Income 4,038 (15) 0 4,023
Provision for loan losses 144 0 0 144
Equity income of
subsidiaries 0 908 (908) 0
Noninterest Income 740 1,350 (1,391) 699
Noninterest Expense 3,202 1,556 (1,391) 3,367
-------- ------- -------- --------
Income Before Tax 1,432 687 (908) 1,211
Provision for
Income Taxes 524 (91) 0 433
-------- ------- -------- --------
Net Income $908 $778 ($908) $778
-------- ------- -------- --------
Assets $336,106 $33,075 ($31,183) $337,997
Loans, Net 193,334 0 0 193,334
Deposits 304,624 0 (995) 303,629
Equity 30,189 30,287 (30,189) 30,287
The components of the Company's business segments for the three months ended March 31, 2001 were as follows:
(In 000's)
Community Intersegment
Banking Other Adjustments Consolidated
------- ----- ----------- ------------
Interest Income $4,755 $0 $0 $4,755
Interest Expense 1,565 63 0 1,628
-------- ------- -------- --------
Net Interest Income 3,190 (63) 0 3,127
Provision for loan losses 111 0 0 111
Equity income of
subsidiaries 0 832 (832) 0
Noninterest Income 588 869 (912) 545
Noninterest Expense 2,299 1,284 (912) 2,671
-------- ------- -------- --------
Income Before Tax 1,368 354 (832) 890
Provision for
Income Taxes 536 (200) 0 336
-------- ------- -------- --------
Net Income $832 $554 ($832) $554
-------- ------- -------- --------
Assets $272,638 $30,295 ($27,679) $275,254
Loans, Net 157,527 0 0 157,527
Deposits 244,401 0 (279) 244,122
Equity 27,400 27,355 (27,400) 27,355
NOTE 5 - Impact of Recently Issued Accounting Standards
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.
The Company adopted the provisions of Statement 141 in fiscal year 2001 and
Statement 142 effective January 1, 2002. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 continued to be amortized
prior to the adoption of Statement 142. The Company does not have any goodwill
and intangible assets acquired in business combinations completed before July 1,
2001. The adoption of Statements No. 141 and 142 did not have a material impact
on the financial condition or operating results of the Company.
8
NOTE 6 - Accounting for Asset Retirement Obligations
The Financial Accounting Standards Board (FASB) recently issued Statement No.
143, Accounting for Asset Retirement Obligations in August 2001. This Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs.
As a result, FASB Statement No. 143 applies to all entities that have legal
obligations associated with the retirement of long-lived tangible assets that
result from the acquisition, construction, development or normal use of the
asset. As used in this Statement, a legal obligation results from existing law,
statute, ordinance, written or oral contract, or by legal construction of a
contract under the doctrine of promissory estoppels.
Statement No. 143 requires an enterprise to record the fair value of an asset
retirement obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of a tangible long-lived asset. Since
the requirement is to recognize the obligation when incurred, approaches that
have been used in the past to accrue the asset retirement obligation over the
life of the asset are no longer acceptable. Statement No. 143 also requires the
enterprise to record the contra to the initial obligation as an increase to the
carrying amount of the related long-lived asset (i.e., the associated asset
retirement costs) and to depreciate that cost over the remaining useful life of
the asset. The liability is changed at the end of each period to reflect the
passage of time (i.e., accretion expense) and changes in the estimated future
cash flows underlying the initial fair value measurement. Enterprises are
required to adopt Statement No. 143 for fiscal years beginning after June 15,
2002. Early adoption is encouraged. The Company does not expect adoption of
Statement No. 143 to have a material impact on the financial condition or
operating results of the Company.
NOTE 7 - Accounting for the Impairment or Disposal of Long-Lived Assets
On October 3, 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, it retains many of the fundamental provisions of that
Statement.
Statement No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in Opinion 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity. The Company adopted the provisions of Statement 144 on
January 1, 2002. The adoption of Statement No. 144 did not have a material
impact on the financial condition or operating results of the Company.
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, the economic uncertainty created by the September 11, 2001
terrorist attacks on the World Trade Center and the United States' war on
terrorism, 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 $778,000 or $.37 per diluted share for the three months ended
March 31, 2002, compared with $554,000 or $.27 per diluted share for the three
months ended March 31, 2001, an increase of 40%. Total assets were $337,997,000
as of March 31, 2002; equating to a 23% growth in assets during the twelve
months ended March 31, 2002.
SUMMARY OF EARNINGS
NET INTEREST INCOME
The following table provides a summary of the components of interest income,
interest expense and net interest margins for the quarters ended March 31, 2002
and March 31, 2001:
10
In 000's
2002 2001
---- ----
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
--------------------------------------------------------------------------------------
Loans (1) (2) $194,523 $3,801 7.82% $156,872 $3,589 9.15%
Investment securities:
Taxable 67,334 863 5.13% 45,525 754 6.63%
Non-taxable (3) 14,324 181 5.05% 13,913 212 6.04%
-------- ------ -------- ------
TOTAL LOANS AND INVESTMENT
SECURITIES 276,181 4,845 7.02% 216,310 4,554 8.42%
Due from banks, time 100 2 8.00% 100 1 4.00%
Federal funds sold 18,310 58 1.27% 20,502 244 4.76%
-------- ------ -------- ------
TOTAL EARNING ASSETS 294,591 $4,905 6.66% 236,912 $4,799 8.10%
-------- ------ -------- -------
Cash and due from banks 16,015 14,533
Allowance for loan losses (2,813) (2,344)
Premises and equipment, net 10,035 6,368
Accrued interest receivable
and other assets 9,864 6,207
-------- --------
TOTAL ASSETS $327,692 $261,676
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Interest bearing demand $118,446 $ 232 0.78% $ 78,845 $ 552 2.80%
Savings 23,235 55 0.95% 18,006 78 1.73%
Time 74,035 548 2.96% 69,605 933 5.36%
-------- ------ -------- ------
215,716 835 1.55% 166,456 1,563 3.76%
Long-term debt 1,615 15 3.72% 2,940 63 8.84%
Short-term borrowings 0 0 0.00% 0 2 0.00%
TOTAL INTEREST BEARING
LIABILITIES 217,331 $ 850 1.56% 169,396 $1,628 3.84%
-------- ------ -------- ------
Noninterest bearing DDA 77,128 63,459
Accrued interest payable
and other liabilities 2,678 1,650
Shareholders' equity 30,555 27,171
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $327,692 $261,676
======== ========
NET INTEREST INCOME $4,055 $3,171
====== ======
NET INTEREST INCOME TO
AVERAGE EARNING ASSETS
(Net Interest Margin (4)) 5.51% 5.35%
(1) Average loans include nonaccrual loans.
(2) Loan interest income includes loan fee income of $264,000 in 2002 and
$197,000 in 2001.
(3) Average yields shown are taxable-equivalent. On a non- taxable basis, 2002
interest income was $149,000 with an average yield of 4.16%; in 2001 non-taxable
income was $167,000 and the average yield was 4.77%.
(4) Net interest margin is calculated by dividing net interest income by the
average balance of total earning assets for the applicable period.
11
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. Non-refundable loan origination fees are deferred and
amortized into income over the life of the loan. Net interest income before the
provision for loan losses on a taxable-equivalent basis for the three months
ended March 31, 2002 and March 31, 2001 was $4,055,000 and $3,171,000,
respectively. These results equate to a 28% increase in net interest income for
the first quarter of 2002 compared to the first quarter of 2001. Loan fee
income, which is included in interest income, was $264,000 for the three months
ended March 31, 2002, compared with $197,000 for the three months ended March
31, 2001. The average balance of earnings assets increased $57,679,000 or 24%
during the twelve months ended March 31, 2002. Taxable-equivalent interest
income increased $106,000 in the first quarter of 2002 compared with the first
quarter of 2001. Increase in the volume of earning assets accounted for
$1,202,000 of this increase, offset by a decrease of $1,096,000 attributable to
lower rates. The average balance of interest-bearing liabilities increased
$47,935,000 or 28% during the first three month of 2002 compared with the same
period in 2001. Interest paid on interest-bearing liabilities decreased $778,000
or 48% in 2002 compared with 2001.The decrease is attributed to a decrease in
rates of $1,107 offset by an increase in the volume of deposits of $329,000.
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.
The following table sets forth a summary of the changes in interest earned and
interest paid for the first three months in 2002 over 2001 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
2002 Over 2001
--------------
Volume Rate Total
-----------------------------------------------------------
Increase (Decrease) In
Interest and Fee Income
Time Deposits With Other
Financial Institutions $0 $1 $1
Investment Securities:
Taxable 362 (253) 109
Non-Taxable (1) 5 (35) (30)
Federal Funds Sold (26) (160) (186)
Loans 861 (649) 212
-----------------------------------------------------------
Total Interest and Fee Income 1,202 (1,096) 106
-----------------------------------------------------------
Increase (Decrease) In
Interest Expense
Deposits:
Interest Bearing
Transaction Accounts 277 (597) (320)
Savings 22 (45) (23)
Time Deposits 59 (444) (385)
-----------------------------------------------------------
Total Deposits 358 (1,086) (728)
Long-term Debt (27) (21) (48)
Short-term Borrowings (2) 0 (2)
-----------------------------------------------------------
Total Interest Expense 329 (1,107) (778)
-----------------------------------------------------------
Net Interest Income $873 $11 $884
===========================================================
(1) The interest earned is taxable-equivalent.
12
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 conducts 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 evaluation establishes a 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 March 31, 2002 the allowance for loan losses of
$2,861,000 represented 1.46% of loans outstanding. As of March 31, 2001, the
allowance represented 1.49% of loans outstanding. During the three months ended
March 31, 2002, $144,000 was charged to expense for the loan loss provision,
compared with $111,000 for the same period in 2001. There were no net
charge-offs during the first quarter of 2002, compared with net recoveries of
$3,000 for the first quarter of 2001. The following table summarizes changes in
the allowance for loan losses:
In 000's
March 31, 2002 March 31, 2001
Balance, beginning of period $2,717 $2,268
Provision for loan losses 144 111
Loans charged off (1) 0
Recoveries of loans previously charged off 1 3
------ ------
Balance, end of period $2,861 $2,382
====== ======
Allowance for loan losses to total outstanding loans 1.46% 1.49%
There were no loans on non-accrual status as of March 31, 2002, March 31, 2001
or December 31, 2001.
NON-INTEREST INCOME
Non-interest income was $633,000 for the three months ended March 31, 2002
compared with $545,000 for the same period in 2001, a 16% increase. Non-interest
income primarily consists of service charges and other fees related to deposit
accounts. The increase in non-interest income resulted primarily from an
increase in the number of deposit accounts, transaction volumes and directly
related service charges.
GAINS ON SECURITIES
Net gain of $66,000 for the three months ended March 31, 2002 resulted from the
sale of several available-for-sale securities. There were no gains or losses on
securities for the three months ended March 31, 2001.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended March 31, 2002 and March 31,
2001 was $3,367,000 and $2,671,000, respectively, a 26% increase. The increase
compared with the prior reporting period is primarily due to the Company opening
two new branch offices during the first quarter of 2002. Salaries and employee
benefits expense for the three months ended March 31, 2002 and 2001 were
$1,904,000 and $1,408,000, respectively, a 35% increase. The increase in 2002
resulted from increased salary rates and related benefits paid to Company
officers and employees, and an increase of approximately nineteen full-time
equivalent employees from 112 at March 31, 2001 to 131 at March 31, 2002.
Occupancy expense for the three months ended March 31, 2002 and 2001 was
$234,000 and $221,000, respectively, a 6% increase. The increase in 2002 is
attributed to opening two branch offices in January 2002, offset by rental
income from leases at the Vacaville property which was purchased mid 2001. The
Company had six branch offices at March 31, 2001 compared with eight at March
31, 2002. Equipment expense for the three months ended March 31, 2002 and 2001
was $476,000 and $330,000, respectively, representing an increase of 44%. The
increase was primarily due to an increase in depreciation expense resulting from
accelerated depreciation on the host banking system which will be replaced in
2002, as well as furniture and equipment depreciation expenses of the two new
branch offices. Other expenses for the three months ended March 31, 2002 and
March 31, 2001 were $753,000 and $712,000, respectively, a 6% increase. The
increase from last year is primarily due to costs associated with operating
eight branch offices in 2002 in comparison to six in 2001.
INCOME TAXES
The Company reported a provision for income tax for the three months ended March
31, 2002 and 2001 of $433,000 and $336,000, respectively. Both the 2002 and 2001
provisions reflect tax accruals at statutory rates for both federal and state
income taxes, adjusted primarily for the effect of the Company's investments in
tax-exempt municipal securities.
BALANCE SHEET
Total assets as of March 31, 2002 were $337,997,000 compared with $275,254,000
as of March 31, 2001, and $326,806,000 at December 31, 2001 equating to a 23%
increase during the twelve months ended March 31, 2002, and a 3% increase for
the three month ended March 31, 2002. Total deposits as of March 31, 2002 were
$303,629,000 compared with $244,122,000 as of March 31, 2001, and $292,441,000
at December 31, 2001 representing a 24% increase during the twelve months then
ended, and a 4% increase for the three months ended March 31, 2002. Loans
outstanding as of March 31, 2002 were $196,195,000 compared with $159,909,000 as
of March 31, 2001, and $186,265,000 at December 31, 2001 equating to a 23%
increase during the twelve months and a 5% increase for the three months ended
March 31, 2002.
13
BORROWINGS
The Company has a $3,000,000 unsecured loan with Union Bank of California, with
a current balance of $1,615,000. The loan will mature in 2003 with principal and
interest payments due quarterly. The loan is a variable rate loan tied to Union
Bank's reference rate, currently 4.75%. 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 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 March 31, 2002 liquid
assets were 36% of total assets, compared with 37% as of March 31, 2001.
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 March 31, 2002, the Company's risk-based capital
ratio was 12.79%. The Company's tier 1 risk-based capital ratio and leverage
ratio were 11.68% and 9.20%, respectively.
As the following table indicates, the Bank currently exceeds the regulatory
capital minimum requirements. The Bank is 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 March 31, 2002:
Total Capital (to Risk
Weighted Assets)
Consolidated $32,790 12.79% $20,507 >8.00% $25,634 >10.00%
- -
The Vintage Bank 24,887 11.13% 17,881 >8.00% 22,352 >10.00%
- -
Solano Bank 7,778 18.48% 3,367 >8.00% 4,209 >10.00%
- -
Tier I Capital (to Risk
Weighted Assets)
Consolidated 29,929 11.68% 10,254 >4.00% 15,380 >6.00%
- -
The Vintage Bank 22,219 9.94% 8,941 >4.00% 13,411 >6.00%
- -
Solano Bank 7,612 18.08% 1,683 >4.00% 2,525 >6.00%
- -
Tier I Capital (to
Average Assets)
Consolidated 29,929 9.20% 13,006 >4.00% 16,258 >5.00%
-
The Vintage Bank 22,219 8.10% 10,979 >4.00% 13,723 >5.00%
- -
Solano Bank 7,612 15.02% 2,028 >4.00% 2,534 >5.00%
- -
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 be a
principal 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 purposes 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
14
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 March 31, 2002
and December 31, 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 10K for December 31, 2001.
15
PART II - OTHER INFORMATION
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 22, 2002 a 5% stock dividend was granted to shareholders of record
March 4, 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) An index of exhibits begins on page 18.
(b) On January 16, 2002 the Company filed a Current Report on Form 8-K,
reporting that the Company issued a press release announcing that President and
CEO Terry L. Robinson will be stepping aside as President and CEO of The Vintage
Bank to devote full time to management of North Bay Bancorp, and that Glen C.
Terry will become President and CEO of The Vintage Bank. On February 5, 2002,
the Company filed a Current Report on Form 8-K, reporting the declaration of a
stock dividend of one share for every twenty outstanding shares and a cash
dividend of twenty cents ($.20) per share. On February 28, 2002 the Company
filed a Current Report on Form 8-K, reporting its year-end results. No financial
statements were filed with the Current Reports on Form 8-K.
16
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: May 17, 2002 BY:/s/ Terry L. Robinson
--------------------------------
Terry L. Robinson
President & CEO
Principal Executive Officer
Date: May 17, 2002 BY:/s/ Lee-Ann Cimino
--------------------------------
Lee-Ann Cimino
Senior Vice President
Principal Financial Officer
17
Exhibit No. Description
----------- -----------
11 Statement re: computation of per share earnings is included in
Note 3 to the unaudited condensed consolidated financial
statements of Registrant.
18