[Photo Omitted]
Terry Robinson
President and CEO
The Vintage Bank
Main
1500 Soscol Avenue
Napa, CA 94559
Bel-Aire
3636 Bel-Aire Plaza
Napa, CA 94558
St. Helena
1065 Main Street
St. Helena, CA 94558
Gateway
1190 Airport Rd. Suite #100
Napa, CA 94558
Solano Bank
Vacaville
403 Davis Street
Vacaville, CA 95688
Fairfield
1411 Oliver Rd. Suite #100
Fairfield, CA 94553
Vallejo
976 Admiral Calaghan Lane
Vallejo, CA 94590
Benicia
1395 E. Second Street
Benicia, CA 94510
For More Information:
North Bay Bancorp
P.O. Box 2200
Napa, CA 94558
Phone: (707) 252-5026
Toll Free: (800) 888-4682
Fax: (707) 252-5027
www.NorthBayBancorp.com
[LOGO OMITTED]
Nb North Bay Investor
BANCORP News
Volume 2, Issue 2
Third Quarter 2003
PRESIDENT'S LETTER
This issue marks the resumption of our quarterly communications to shareholders.
Henceforth, you will receive these newsletters following release of financial
results for the first, second and third quarters of each year. We will not
produce a newsletter following the fourth quarter as shareholders will receive
our Annual Report in lieu.
The months since our last shareholders' newsletter have been challenging ones.
The first half of the year was notable for some key management changes followed
by a significant reorganization of the holding company and resolution of
litigation with our former host system provider. Also during the first half of
2003, we felt the negative financial effects of unprecedented low interest
rates. As the fed funds rate approached zero, a narrowing net interest margin
was unavoidable. This lower margin impacted us at the same time we were
absorbing non-recurring expenses related to the litigation, new regulations, our
internal reorganization, opening of our ninth branch office and relocation of
holding company administrative offices.
As reported elsewhere in this newsletter, we announced record profits for the
third quarter 2003 and a return to what I described as "normalized" earnings.
While the first half of 2003 was impacted by non-recurring events, we view the
second half of the year as being more representative of ongoing profitability. I
am bullish on our prospects for year 2004. We have our key positions filled with
outstanding people, our Banks have effective sales program to help sustain our
growth, we will continue our tradition of high asset quality and our overhead
performance will improve through a combination of growth and improved expense
management.
I would like to acknowledge and thank the management team that has carried us
through this challenging period and will help us capitalize on the great
opportunities ahead. Our two Bank Presidents and Chief Executive Officers, Glen
Terry (The Vintage Bank) and John Nerland (Solano Bank) have strengthened their
organizations in key areas and instilled a "sales and service" culture within
their respective Banks. Executive Vice President Kathi Metro, who started with
The Vintage Bank in 1985, now handles Credit Administration from the holding
company; Kathi deserves a great deal of the credit for the Company's exceptional
asset quality. Senior Vice President & Chief Financial Officer Lee-Ann Cimino,
another employee with us since the early days of The Vintage Bank, has
effectively handled the many challenges presented by new legislation and audit
standards required of public companies. Under the guidance of Senior Vice
President and Human Resources Manager Susan Fonseca, we have upgraded our
recruitment and hiring practices and are rapidly improving our quality and
quantity of employee training. Senior Vice President & Manager of Information
Services Suzette Junier has effectively directed her department's daily
activities while overseeing projects that enhance the quality of management
information. Vice President Lynn Tuttle has effectively managed Loan Operations
during a year when volumes nearly doubled, all the while retaining
responsibility for Compliance and Internal Audit. Jaime Buffington, Vice
President and Operations Administrator, has implemented changes that have
improved the service quality and efficiencies of our Call Center, Merchant
Bankcard and Internet Banking programs. Recently, our management team has been
strengthened with the addition of Vice President & Marketing Manager Stacey
Heater-Divine and the return of Stephanie Rode, who is assuming responsibility
as Vice President for Compliance and Internal Audit.
Continued on page 6
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North Bay Bancorp Investor News Page 1 Vol. 2 No.2
(LOGO Omitted)
North Bay Bancorp
Income Statements
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
INTEREST INCOME:
Loans (including fees) $4,853,000 $4,290,000 $13,780,000 $12,187,000
Federal funds sold 38,000 135,000 157,000 291,000
Investment securities taxable 482,000 906,000 1,999,000 2,561,000
Investment securities tax exempt 181,000 164,000 473,000 502,000
---------- ---------- ----------- -----------
Total Interest income 5,554,000 5,495,000 16,409,000 15,541,000
INTEREST EXPENSE:
Deposits 550,000 859,000 1,907,000 2,511,000
Short term borrowings 2,000 0 10,000 0
Long term borrowings 129,000 153,000 411,000 192,000
---------- ---------- ----------- -----------
Total Interest Expense 681,000 1,012,000 2,328,000 2,703,000
Net interest income 4,873,000 4,483,000 14,081,000 12,838,000
PROVISION FOR LOAN LOSSES 45,000 144,000 135,000 432,000
Net interest income after
provision for loan losses 4,828,000 4,339,000 13,946,000 12,406,000
NONINTEREST INCOME: 848,000 731,000 2,285,000 2,009,000
Gains on securities transactions, net 207,000 0 637,000 66,000
NONINTEREST EXPENSE:
Salaries and employee benefits 2,338,000 1,978,000 6,896,000 5,858,000
Occupancy 356,000 228,000 931,000 680,000
Equipment 485,000 450,000 1,230,000 1,392,000
Other 1,088,000 1,041,000 3,536,000 2,589,000
---------- ---------- ----------- -----------
Total nonInterest expense 4,267,000 3,697,000 12,593,000 10,519,000
Income before provision for
income taxes 1,616,000 1,373,000 4,275,000 3,962,000
PROVISION FOR INCOME TAXES 452,000 446,000 1,204,000 1,380,000
NET INCOME $1,164,000 $ 927,000 $ 3,071,000 $ 2,582,000
========== ========== =========== ===========
BASIC EARNINGS PER SHARE: $ 0.51 $ 0.42 $ 1.36 $ 1.18
========== ========== =========== ===========
DILUTED EARNINGS PER SHARE: $ 0.50 $ 0.41 $ 1.32 $ 1.15
========== ========== =========== ===========
DIVIDENDS PAID PER SHARE: $ 0.00 $ 0.00 $ 0.20 $ 0.20
========== ========== =========== ===========
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North Bay Bancorp Investor News Page 2 Vol. 2 No. 2
(LOGO Omitted)
North Bay Bancorp
Consolidated Balance Sheets
(Unaudited)
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September September December
30, 30, 31,
ASSETS 2003 2002 2002
---- ---- ----
CASH AND DUE FROM BANKS $ 34,777,000 $ 20,091,000 $ 23,785,000
FEDERAL FUNDS SOLD 21,750,000 25,154,000 28,525,000
TIME DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS 100,000 100,000 100,000
------------ ------------ ------------
Total cash and cash equivalents 56,627,000 45,345,000 52,410,000
INVESTMENT SECURITIES:
Held-to-maturity 1,250,000 1,272,000 1,272,000
Available-for-sale 83,177,000 106,280,000 104,473,000
Equity securities 1,349,000 1,352,000 1,349,000
------------ ------------ ------------
TOTAL INVESTMENT SECURITIES 85,776,000 108,904,000 107,094,000
LOANS, net of allowance for loan losses of $3,421,000 in September 2003,
$3,143,000 in September 2002 and $3,290,000 in December 2002 274,491,000 219,245,000 234,337,000
LOANS HELD-FOR-SALE 10,786,000 0 0
BANK PREMISES AND EQUIPMENT, net 11,137,000 10,691,000 10,800,000
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS 12,499,000 11,743,000 11,817,000
------------ ------------ ------------
Total assets $451,316,000 $395,928,000 $416,458,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non-interest bearing $104,594,000 $ 94,833,000 $104,142,000
Interest bearing 294,827,000 253,266,000 263,661,000
------------ ------------ ------------
Total deposits 399,421,000 348,099,000 367,803,000
Floating rate subordinated
debenture (trust preferred securities) 10,000,000 10,000,000 10,000,000
Accrued interest payable and other liabilities 3,836,000 3,377,000 3,312,000
------------ ------------ ------------
Total liabilities 413,257,000 361,476,000 381,115,000
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 - 2,285,646 shares in September 2003,
2,123,687 shares in September 2002 and 2,130,288 in December 2002 29,209,000 25,269,000 25,387,000
Retained earnings 8,324,000 7,487,000 8,612,000
Accumulated other comprehensive income 526,000 1,696,000 1,344,000
------------ ------------ ------------
Total shareholders' equity 38,059,000 34,452,000 35,343,000
Total liabilities and shareholders' equity $451,316,000 $395,928,000 $416,458,000
============ ============ ============
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North Bay Bancorp Investor News Page 3 Vol. 2 No. 2
Third Quarter Earnings (News Release dated October 28, 2003)
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NAPA, Calif.--(BUSINESS WIRE)--Oct. 28, 2003--North Bay Bancorp (Nasdaq:NBAN),
holding company for The Vintage Bank and Solano Bank, today announced financial
results for the three months and nine months ended September 30, 2003.
Net income for the three months ended September 30, 2003 was $1,164,000, or $.50
per share (diluted), as compared with net income of $927,000, or $.41 per share
(diluted), for the third quarter of 2002, representing a 26% increase in net
income and a 22% increase in earnings per share. Net income for the nine months
ended September 30, 2003 was $3,071,000, or $1.32 per share (diluted), compared
with net income of $2,582,000, or $1.15 per share (diluted), for the first nine
months of 2002, representing a 19% increase in net income and a 15% increase in
earnings per share. Total assets were $451,316,000 as of September 30, 2003,
equating to growth of 14% over the preceding twelve months. Total assets grew by
approximately $16 million from June 30, 2003.
"We believe the increased profits reported for the third quarter represent
sustainable returns for North Bay Bancorp. Earnings for the first half of 2003
were negatively impacted by a narrowing of our net interest margin and booking
of certain expenses related to litigation and professional services. Strong loan
growth is improving our net interest margin and noninterest expenses as a
percentage of assets are declining significantly," stated Terry Robinson,
President and CEO.
FINANCIAL HIGHLIGHTS
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Earnings
Net interest income for the third quarter of 2003 increased $390,000 or 9%
compared with the third quarter of 2002. Year-to-date net interest income
increased $1,243,000 or 10%. The net interest margin has decreased to 4.94%
during the first nine months of 2003 from 5.31% for the year 2002. The major
factor contributing to the declining margin was lower yields on investments and
loans; rates paid on deposits did not reflect a corresponding decline. The net
interest margin for the third quarter of 2003 was 4.98%, slightly higher than
the year-to-date average, reflecting the impact of an increasing loan-to-deposit
ratio.
Noninterest income for the third quarter of 2003 increased $117,000 or 16%
compared with the third quarter of 2002.
Year-to-date noninterest income increased $276,000, or 14%, compared with the
first nine months of 2002. Most noninterest income was derived from service
charges on deposit accounts. The percentage increase in service charge income in
2003 is consistent with the general increase in numbers of deposit accounts.
Effective September 15, 2003, the subsidiary banks implemented an Overdraft
Privilege Program that is expected to increase service charge income commencing
with the fourth quarter of 2003.
Gains on securities transactions were $207,000 during the third quarter of 2003
compared with no securities gains during the third quarter of 2002. Year-to-date
securities gains were $637,000 compared to $66,000 for the first nine months of
2002. The securities gains recognized thus far in 2003 have resulted primarily
from the sale of specific securities within a year of their respective
maturities. Proceeds from the sales have provided funding for loans in process.
Noninterest expense for the third quarter of 2003 increased $570,000 or 15%
compared with the third quarter of 2002. Year-to-date noninterest expense for
2003 increased $2,074,000 or 20% compared with the first nine months of 2002.
The disproportionate increase in expenses during the first half of 2003 was
primarily due to legal fees incurred in connection with litigation with our
former host system provider settled in June 2003 and various professional fees.
The year-to-date increase was due primarily to a combination of the
litigation-related legal fees, an 18% increase in salaries and employee benefits
resulting from increased staffing and a 37% increase in occupancy expense
resulting from the addition of The Vintage Bank's Gateway Office, relocation of
Solano Bank's Fairfield Office and leasing of new holding company administrative
office space.
Continued on page 5
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North Bay Bancorp Investor News Page 4 Vol. 2 No. 2
Continued from page 4
Balance Sheet
Total assets were $451.3 million as of September 30, 2003, a 14% increase from
September 30, 2002. Deposits grew $51 million or 15% during the previous twelve
months. Loans, net of the allowance for loan losses, grew $55 million or 25%
during the twelve months ended September 30, 2003. The strong loan growth
resulted primarily from aggressive business development activity.
Liquidity levels significantly exceeded policy requirements throughout the year.
As of September 30, 2003 liquid assets represented 30% of total assets.
Asset quality remains excellent. As of September 30, 2003, the allowance for
loan losses was $3.4 million, or 1.23% of loans outstanding. No loan loss
provision was accrued for The Vintage Bank during the first nine months of 2003
based upon our revised loan loss reserve analysis; $135,000 was expensed for the
provision at Solano Bank. Net charge-offs were a nominal $4,000 for the first
nine months of 2003. There were no nonperforming loans as of September 30, 2003.
OUTLOOK
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Regarding the longer-term outlook, Robinson stated, "These third quarter results
bode well for the fourth quarter of 2003 and the year 2004. While we anticipate
ending 2003 slightly below our ambitious growth and earnings goals for the year,
we anticipate 2003 will be recognized as a year of solid growth and improved
profitability. More importantly, we are optimistic regarding our growth and
earnings prospects for 2004, given the age and position of our six offices
opened since July of 2000 and our anticipated increasing noninterest income and
improved management of noninterest expense."
ABOUT NORTH BAY BANCORP
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North Bay Bancorp is the parent company of two community banks in the North Bay
Region of Northern California -- The Vintage Bank based in Napa County and
Solano Bank based in Solano County. Both subsidiaries are full service
commercial banks offering a wide selection of deposit, loan and investment
services to local consumers and small business customers. Each bank has a
separate board of directors composed of local business and community leaders.
The Vintage Bank, which opened for business in 1985, currently operates five
banking offices in Napa County, Northern California's number one tourist
destination and the nation's premier wine producing region. The Bank's main
office and two branch offices are located in the City of Napa. Vintage also has
a branch in the City of St. Helena and a branch on Airport Road in the Southern
industrial area of Napa County. Solano Bank, which opened in July 2000, operates
offices in the primary cities along the I-80 corridor of Solano County. The
Bank's main office is located in Vacaville, with branch offices in Fairfield,
Vallejo and Benicia. This region, projected to be the fastest growing county in
Northern California through year 2020, is attracting growth with a quality
lifestyle, affordable housing and business-friendly attitudes. Solano Bank's
Fairfield Office was relocated to an upgraded location during the third quarter
of 2003 in accordance with a long-standing plan; ATM and night depository
service were retained at the prior location.
North Bay Bancorp stock trades on the Nasdaq National Market under the symbol
NBAN.
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This news release contains forward-looking statements with respect to the
financial condition, results of operation and business of North Bay Bancorp and
its subsidiaries. These include, but are not limited to, statements that relate
to or are dependent on estimates or assumptions relating to the prospects of
loan growth, credit quality and certain operating efficiencies resulting from
the operations of The Vintage Bank and Solano Bank. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) competitive pressure among financial services companies increases
significantly; (2) changes in the interest rate environment reduce interest
margins; (3) general economic conditions, internationally, nationally or in the
State of California are less favorable than expected; (4) legislation or
regulatory requirements or changes adversely affect the business in which the
combined organization will be engaged; and (5) other risks detailed in the North
Bay Bancorp reports filed with the Securities and Exchange Commission.
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North Bay Bancorp Investor News Page 5 Vol. 2 No. 2
Continued from page 1
In summary, our management team is competent, engaged and committed to seeing
North Bay Bancorp realize its vision of growing our Company beyond $1 billion in
total assets while generating above-peer financial returns. I have every
confidence we will succeed in tins endeavor.
I would like to thank our shareholders for supporting all the proposals as
recommended by your Board. Also, I appreciate any feedback our shareholders may
have regarding these investor newsletters. Please feel free to call (707)
252-5024 or e-mail me (trobinson@northbaybancorp.com) with your questions or
comments.
Sincerely.
/s/ Terry L. Robinson
- ------------------------------
Terry L. Robinson
President & CEO
FORWARD-LOOKING STATEMENTS
--------------------------
This letter contains forward-looking statements with respect to the financial
condition, results of operation and business of North Bay Bancorp and its
subsidiaries. These include, but are not limited to, statements that relate to
or are dependent on estimates or assumptions relating to the prospects of loan
growth, credit quality and certain operating efficiencies resulting from the
operations of The Vintage Bank and Solano Bank. These forward-looking statements
involve certain risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated by such forward-looking statements
include, among others, the following possibilities: (1) competitive pressure
among financial services companies increases significantly; (2) changes in the
interest rate environment reduce interest margins; (3) general economic
conditions, internationally, nationally or in the State of California are less
favorable than expected; (4) legislation or regulatory requirements or changes
adversely affect the business in which the combined organization will be
engaged; and (5) other risks detailed in the North Bay Bancorp reports filed
with the Securities and Exchange Commission.
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North Bay Bancorp Investor News Page 6 Vol. 2 No.2