EXHIBIT 13
North Bay Bancorp 2004 Annual Report to Shareholders
FORWARD LOOKING STATEMENT
This annual report 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; (5) the ability to satisfy the
requirements of the Sarbanes-Oxley Act and other regulations governing internal
controls; and (6) other risks detailed in the North Bay Bancorp reports filed
with the Securities and Exchange Commission.
1
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TABLE OF CONTENTS
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To Our Shareholders
Selected Financial Data
Management's Discussion
and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosure about Market Risk
Description of Operations
Market Information
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Directors
Corporate Information
2
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TO OUR SHAREHOLDERS
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March 31, 2005
Dear Fellow Shareholders:
Twenty years ago, in January 1985, The Vintage Bank first opened its doors for
business. Now, two decades later, your company has achieved year-after-year
growth in nineteen of our twenty years in business. Along the way, we have
invested in our infrastructure, growing to two franchises with ten offices
supported by a technology-rich enterprise that will serve our markets now and
into the future. These investments continue to propel us from one milestone to
the next, and 2004 was no exception. In 2004, your company:
>> Completed our "footprint" in Napa and Solano Counties with the opening
of our 10th office in American Canyon, a high-growth area in southern
Napa County.
>> Maintained exemplary loan quality with zero non-performing assets at
year-end, our sixth consecutive year-end with unblemished asset
quality.
>> Passed $500 million in total assets--a 23% compounded average growth
rate over five years.
>> Consolidated and streamlined our corporate structure to improve
efficiency and transparency.
>> Completed a 3-for-2 stock split to improve liquidity for shareholders.
>> Dramatically improved productivity, with the efficiency ratio dropping
217 basis points to 66.93%.
In its first 20 years, The Vintage Bank has built a premier bank in the Napa
area with a 15% share of the $2.3 billion in deposits in the county. When I
joined the Company in the Fall of 1988, we had two offices, $26 million in
assets and 35 employees. Today we stand at $562 million in assets and 160
employees. Many of those employees have been with us in excess of 15 years.
Based on deposits, The Vintage Bank ranks second in Napa County market share
among commercial banks and is closing in on number one. Solano Bank continues to
raise its profile within its communities and rapidly gaining market share. Napa
and Solano Counties are home to many thriving small businesses and we are proud
to be the bankers of choice for many of the leading firms in these markets.
The beginning of 2005 not only marks our 20th anniversary, but also a turning
point in our business focus. In the past two decades, we've invested in a solid
platform for profitability, building a complete network of branches serving the
major business and residential centers in our market area with the technology
our customers demand. Our task in 2005 and beyond is to leverage that platform
into sustainable earnings growth.
3
Through the hard work and dedication of our team members, we are now positioned
to improve our return on equity and increase earnings per share at a higher
rate. Through year 2006, we believe we can continue to increase both lending and
deposit activities without additional investments in new branches. Growing
revenues while holding costs stable is our highest priority. Consolidating The
Vintage Bank and Solano Bank charters and combining the three boards into a
single entity represent just two of the steps we are taking to improve processes
and better manage expenses. While significant additional costs will be required
in 2005 to insure compliance with new securities regulations, we remain
extremely optimistic about our future.
Your company was started as, and remains, a true community bank. As we have
grown our franchise and added more sophisticated services, we have been able to
take on larger and more sophisticated business clients while remaining true to
our original values and mission.
Our goal in 2005 is to produce returns on equity in line with peer institution
averages, and rank in the top quartile of that group in 2006 and beyond. Your
Board of Directors and management team look to the next decade with confidence.
We appreciate your support, and we remain committed to maximizing the value of
your stake in North Bay Bancorp.
Kindest Regards,
Terry Robinson
President and CEO
March 31, 2005
4
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SELECTED FINANCIAL DATA
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The following table presents a summary of selected consolidated data for North
Bay Bancorp and subsidiaries (the Company) for the five years ended December 31,
2004. This information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements and notes thereto appearing elsewhere in the annual report:
(In 000's except share and per share data)
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
STATEMENTS OF OPERATIONS DATA:
Interest income $ 26,585 $ 22,251 $ 21,179 $ 20,307 $ 16,700
Interest expense 3,543 2,995 3,691 5,887 5,612
---------- ---------- ---------- ---------- ----------
Net interest income 23,042 19,256 17,488 14,420 11,088
Provision for loan losses 620 238 576 447 385
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 22,422 19,018 16,912 13,973 10,703
Noninterest income 4,198 3,847 3,111 2,691 2,140
Noninterest expense 18,536 16,315 14,316 11,955 8,583
Provision for income taxes 3,020 2,179 1,999 1,687 1,647
---------- ---------- ---------- ---------- ----------
Net income $ 5,064 $ 4,371 $ 3,708 $ 3,022 $ 2,613
========== ========== ========== ========== ==========
BASIC PER SHARE DATA: (1)
Earnings per share $ 1.33 $ 1.16 $ 1.02 $ .85 $ .78
Average shares outstanding 3,820,386 3,751,796 3,643,701 3,566,067 3,345,032
DILUTED PER SHARE DATA: (1)
Earnings per share $ 1.29 $ 1.14 $ .99 $ .84 $ .77
Average shares outstanding 3,920,160 3,842,376 3,734,662 3,605,092 3,401,426
BALANCE SHEET DATA:
Total assets $ 562,063 $ 459,482 $ 416,458 $ 326,806 $ 247,469
Net loans 373,629 303,139 234,337 183,548 150,008
Total deposits 484,493 406,445 367,803 292,441 216,638
Shareholders' equity 44,134 39,441 35,343 29,980 26,636
<FN>
(1) All per share amounts have been adjusted to reflect the 5% stock dividends
declared January 8, 2000, January 29, 2001, January 28, 2002, January 27, 2003,
January 26, 2004 and January 24, 2005, as well as a 3-for-2 stock split declared
November 22, 2004.
</FN>
5
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MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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FORWARD LOOKING STATEMENT
This Annual Report contains statements relating to future results of the Company
that are considered to be "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to,
among other things, loan loss reserve adequacy, accounting for
available-for-sale securities and deferred assets, simulation of changes in
interest rates and litigation results. Actual results may differ materially from
those expressed or implied as a result of certain risks and uncertainties
including, but not limited to, changes in political and economic conditions,
interest rate fluctuations, competitive product and pricing pressures within the
Company's markets, equity and fixed income market fluctuations, personal and
corporate customers' bankruptcies, inflation, acquisitions and integrations of
acquired businesses, technological change, changes in law, changes in fiscal,
monetary, regulatory and tax policies, monetary fluctuations, success in gaining
regulatory approvals when required as well as other risks and uncertainties.
These forward-looking statements speak only as of the date on which these
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which these statements are made or to reflect the occurrence of unanticipated
events.
Moreover, wherever phrases such as or similar to "in Managements opinion", or
"Management considers" are used, these statements are as of and based upon
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 risk and uncertainties noted above with respect to
forward-looking statements.
This discussion should be read in conjunction with the financial statements and
the notes included herein.
OVERVIEW
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North Bay Bancorp, organized November 1, 1999, is the holding company for The
Vintage Bank and Solano Bank (Banks), which are wholly owned subsidiaries.
Effective January 15, 2005 the Company merged Solano Bank into The Vintage Bank.
The consolidated entity (the Company) reported net income of $5,064,000 or $1.29
per diluted share, in 2004 compared with $4,371,000 or $1.14 per diluted share,
in 2003 and $3,708,000 or $.99 per diluted share, in 2002, equating to a return
on average assets of .97%, 1.00% and .99% for years 2004, 2003 and 2002,
respectively. The return on average equity was 12.34% in 2004 compared with
11.70% and 11.36% in 2003 and 2002, respectively.
As of December 31, 2004, total assets were $562,063,000 compared with total
assets of $459,482,000 and $416,458,000 at year end 2003 and 2002, respectively,
representing a 22% increase in 2004 and a 10% increase in 2003. Deposits
increased 19% in 2004 compared with an 11% increase in 2003. Loans, net of the
allowance for loan losses, increased 23% in 2004 compared with a 29% increase in
2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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The Company's accounting policies are integral to understanding the results
reported. The most complex accounting policies require management's judgment to
ascertain the valuation of assets, liabilities, commitments and contingencies.
The Company has established detailed policies and control procedures that are
intended to ensure valuation methods are well controlled and applied
consistently from period to period. In addition, the policies and procedures are
intended to ensure that the process for changing methodologies occurs in an
appropriate manner. The following is a brief description of our current
accounting policies involving significant management valuation judgments.
6
Allowance for Loan Losses.
The allowance for loan losses represents management's best estimate of losses
inherent in the existing loan portfolio. The allowance for loan losses is
increased by the provision for loan losses charged to expense and reduced by
loans charged-off, net of recoveries.
We evaluate our allowance for loan loss on a quarterly basis. We believe that
the allowance for loan loss is a "critical accounting estimate" because it is
based upon management's assessment of various factors affecting the
collectibility of the loans, including current and projected economic
conditions, past credit experience, delinquency status, the value of the
underlying collateral, if any, and a continuing review of the portfolio of loans
and commitments.
We determine the appropriate level of the allowance for loan losses, primarily
on an analysis of the various components of the loan portfolio, including all
significant credits on an individual basis. We segment the loan portfolios into
as many components as practical. Each component would normally have similar
characteristics, such as risk classification, past due status, type of loan,
industry or collateral.
Management has an established methodology for calculating the level of the
allowance for loan losses. We analyze the following components of the portfolio
and provide for them in the allowance for loan losses:
Specific allowances defined as:
o Management assessment of all loans classified as substandard or worse,
with an outstanding balance of $100,000
o A specific allowance is provided for any amount by which the loan's
collateral fair value is insufficient to cover the loan; or
discounting estimated future cash flows, or by observing the loan's
market price if it is of a kind for which there is a secondary market
General allowance defined as:
o An allowance for all loans outstanding within the portfolio and not
contained in the specific allowance
Judgmental allowance defined as:
o National and local economic trends and conditions
o Trends in volume of loans
o Changes in underwriting standards and/or lending personnel
o Concentrations of credit within the portfolio
No assurance can be given that the Company will not sustain loan losses that are
sizable in relation to the amount reserved, or that subsequent evaluations of
the loan portfolio will not require an increase in the allowance. Prevailing
factors in association with the methodology may include improvement or
deterioration of individual commitments or pools of similar loans, or loan
concentrations.
Available for Sale Securities.
SFAS 115 requires that Available for Sale Securities be carried at fair value.
We believe this is a "critical accounting estimate" in that the fair value of a
security is based on quoted market prices or if quoted market prices are not
available, fair values are extrapolated from the quoted prices of similar
instruments. Adjustments to the Available for Sale Securities fair value impact
the consolidated financial statements by increasing or decreasing assets and
shareholders' equity.
Deferred Tax Assets.
Deferred income taxes reflect the estimated future tax effects of temporary
differences between the reported amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations. We
use an estimate of future earnings to support our position that the benefit of
our deferred tax assets will be realized. If future income should prove
non-existent or less than the amount of the deferred tax assets within the tax
years to which they may be applied, the asset may not be realized and our net
income will be reduced.
7
SUMMARY OF EARNINGS
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Net Interest Income
Net interest income before provision for loan losses was $23,042,000,
$19,256,000 and $17,488,000 in 2004, 2003 and 2002, respectively, representing
increases of 20% in 2004 and 10% in 2003.
The following table sets forth average daily balances of assets, liabilities,
and shareholders' equity during 2004, 2003 and 2002, along with total interest
income earned and expense paid, and the average yields earned or rates paid
thereon and the net interest margin for the years ended December 31, 2004, 2003
and 2002.
($ in 000's)
December 31, 2004 December 31, 2003 December 31, 2002
----------------------------- --------------------------- -------------------------------
Average Income/ Rate/ Average Income/ Rate/ Average Income/ Rate/
Balance Expense Yield Balance Expense Yield Balance Expense Yield
-------- ------- ---- -------- ------- ---- -------- ------- -----
ASSETS
Loans (1) $352,863 $22,828 6.47% $277,220 $18,782 6.78% $212,735 $16,602 7.80%
-------- ------- -------- ------- -------- -------
Investment securities:
Taxable 78,007 2,945 3.77% 78,457 2,535 3.23% 78,186 3,490 4.46%
Non-taxable (2) 13,719 691 5.04% 16,948 958 5.65% 14,002 868 6.20%
-------- ------- -------- ------- -------- -------
Total loans and investment 444,589 26,464 5.95% 372,625 22,275 5.98% 304,923 20,960 6.87%
securities
Due from banks, time 100 3 3.00% 100 2 2.00% 100 5 5.59%
Federal funds sold 19,710 287 1.46% 18,104 207 1.14% 28,138 418 1.49%
-------- ------- -------- ------- -------- -------
Total earning assets 464,399 26,754 5.76% 390,829 22,484 5.75% 333,161 21,383 6.42%
-------- ------- -------- ------- -------- -------
Cash and due from banks 38,602 28,216 20,376
Allowance for loan losses (3,814) (3,403) (3,031)
Premises and equipment, net 10,724 11,125 10,484
Accrued interest receivable
and other assets 13,417 12,157 11,951
-------- -------- --------
Total assets $523,328 $438,924 $372,941
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Interest bearing demand $215,854 1,201 0.56% $176,724 916 0.52% $136,134 1,118 0.82%
Savings 41,858 97 0.23% 32,678 107 0.33% 25,798 228 0.88%
Time 76,114 1,290 1.69% 77,198 1,430 1.85% 77,112 2,006 2.60%
-------- ------- -------- ------- -------- -------
Total deposits 333,826 2,588 0.78% 286,600 2,453 0.86% 239,044 3,352 1.40%
Borrowings 23,325 955 4.09% 10,750 542 5.04% 6,468 339 5.25%
Total interest bearing
liabilities 357,151 3,543 .99% 297,350 2,995 1.01% 245,512 3,691 1.50%
-------- ------- -------- ------- -------- -------
Noninterest bearing demand 120,777 100,342 91,763
Accrued interest payable
and other liabilities 4,347 3,876 3,039
Shareholders' equity 41,053 37,356 32,627
-------- -------- --------
Total liabilities and
shareholders' equity $523,328 $438,924 $372,941
======== ======== ========
Net interest income $23,211 $19,489 $17,692
Net interest income to
average earning assets
(Net interest margin (3)) 5.00% 4.99% 5.31%
<FN>
(1) Loan interest income includes loan fee income of $1,054 in 2004, $1,119 in
2003 and $1,167 in 2002.
(2) Average yields shown are taxable-equivalent. On a non-taxable basis, 2004
interest income was $522 with an average yield of 3.80%, 2003 interest
income was $725 with an average yield of 4.28%; and in 2002 interest income
was $664 and the average yield was 4.74%.
(3) Net interest margin is calculated by dividing net interest income by the
average balance of total earning assets for the applicable year.
</FN>
8
The following table sets forth a summary of the changes in interest earned and
interest paid in December 31, 2004 over 2003, December 31, 2003 over 2002 and
December 31, 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)
2004 over 2003 2003 over 2002 2002 over 2001
----------------------------- ----------------------------- -----------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in
Interest and fee income
Loans $ 5,141 ($1,095) $ 4,046 $ 5,032 ($2,852) $ 2,180 $ 3,402 ($2,119) $ 1,283
Time deposits with other
Financial institutions 0 1 1 0 (3) (3) 0 (2) (2)
Investment securities:
Taxable (15) 425 410 12 (967) (955) 1,218 (1,123) 95
Non-taxable (1) (183) (84) (267) 183 (93) 90 11 118 129
Federal funds sold 18 62 80 (149) (62) (211) 60 (654) (594)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest and fee 4,961 (691) 4,270 5,078 (3,977) 1,101 4,691 (3,780) 911
income
Increase (decrease) in
Interest expense
Deposits:
Interest bearing
Transaction accounts 205 80 285 333 (535) (202) 627 (1,673) (1,046)
Savings 31 (41) (10) 61 (182) (121) 79 (85) (6)
Time deposits (22) (118) (140) 2 (578) (576) 220 (1,532) (1,312)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total deposits 214 (79) 135 396 (1,295) (899) 926 (3,290) (2,364)
Borrowings 698 (285) 413 224 (21) 203 328 (160) 168
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest expense 912 (364) 548 620 (1,316) (696) 1,254 (3,450) (2,196)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Interest income $ 4,049 ($ 327) $ 3,722 $ 4,458 ($2,661) $ 1,797 $ 3,437 ($ 330) $ 3,107
======= ======= ======= ======= ======= ======= ======= ======= =======
<FN>
(1) The interest earned is taxable-equivalent. On a non-taxable basis 2004
interest income was $203 less than 2003; 2003 interest income was $62 more
than in 2002; and 2002 interest income was $88 more than in 2001.
</FN>
Net interest income is impacted by changes in the volume and mix of earning
assets and interest-bearing liabilities and changes in interest rates. The
increase in net interest income in 2004 compared with 2003 was primarily the
result of volume increases in loans. The net interest margin (defined as net
interest income divided by average earning assets) remained stable in 2004
compared with 2003, equating to 5.00% in 2004 compared with 4.99% in 2003. The
Company continues to enjoy a net interest margin higher than peer institutions
of comparable size due to its low cost of funds.
Taxable-equivalent interest income (defined as interest income adjusted for the
tax benefit of holding tax exempt securities and loans) increased $4,270,000 or
19%, in 2004 compared with 2003. Increases in the volume of earning assets
accounted for increasing interest income by $4,961,000, offset by a decrease of
$691,000 attributable to lower rates. An increase in taxable-equivalent interest
income of $1,101,000 or 5% in 2003 compared with 2002 consisted of a $5,078,000
increase due to growth of earning assets offset by a decrease of $3,977,000
attributable to lower rates on earning assets.
Interest paid on interest-bearing liabilities increased $548,000 in 2004
compared with 2003. Increases in the volume of deposits and other borrowings
increased interest paid by $912,000 offset by a $364,000 decrease attributable
to a decline in rates. Interest paid on interest-bearing liabilities decreased
$696,000 in 2003 compared with 2002; the effect of volume increases accounted
for $620,000 offset by a decrease of $1,316,000 attributable to lower rates.
Provision and Allowance for Loan Losses
Credit risk is inherent in the business of lending. As a result, the Company
maintains an Allowance for Loan Losses to absorb probable losses inherent in the
Company's loan portfolio. This is maintained through periodic charges to
earnings. These charges are shown in the Consolidated Income Statement as
9
provision for loan losses. All specifically identifiable and quantifiable losses
are immediately charged off against the allowance. However, for a variety of
reasons, not all losses are immediately known to the Company and, of those that
are known, the full extent of the loss may not be quantifiable at that point in
time. The balance of the Company's Allowance for Loan Losses is meant to be an
estimate of the probable losses inherent in the portfolio.
The Company's written lending policies, along with applicable laws and
regulations governing the extension of credit, require risk analysis as well as
ongoing portfolio and credit management through loan product diversification,
lending limits, ongoing credit reviews both internal and external along with
approval policies prior to funding of any loan. The Company manages and controls
credit risk through diversification, close monitoring of any portfolio
concentrations, loan limits to individuals and reviewing historical losses
incurred by the Company. Loans that are performing but have shown some signs of
weakness are subjected to more stringent reporting and oversight. Management has
established a monitoring system for any concentration within the portfolio.
The existing portfolio consists of commercial loans to businesses, both
commercial and residential real estate loans and consumer products. The
portfolio contains variable rate loans as well as loans with rates fixed for up
to ten years. Fixed rate loans primarily are associated with real estate
lending.
As of December 31, 2004, net loans increased $70.5 million, from year-end 2003,
a 23% increase. On an average balance basis the Company's loan portfolio
increased $75 million, or 27% over the average balance in 2003. In 2003, average
balances increased from the prior year by $64 million, or 30%. The increases in
2004 and 2003 were due to strong loan demand for commercial real estate loans
along with an aggressive calling program.
Management recognizes that the estimation of probable losses in the portfolio is
not a science and therefore the current Allowance for Loan Losses is not
expected to be equal to the result of the assessment. It is expected, however,
that the assessment will demonstrate that the actual reserve is adequate for
coverage of probable loan losses in the existing portfolio. To the extent that
the current allowance is deemed insufficient to cover the estimate of
unidentified losses, Management will record an additional provision for loan
loss. If the allowance is greater than appears to be required at that point in
time, the provision expense may be adjusted accordingly.
Assessment of the Adequacy of the Allowance for Loan Losses and the
Allocation Process
The Company formally assesses the adequacy of the allowance on a quarterly
basis. Determination of the adequacy is based on ongoing assessments of the
probable risk in the outstanding loan portfolio. These assessments include
periodic re-grading of credits based on changes in their individual credit
characteristics including delinquency, seasoning, recent financial performance
of the borrower, economic factors, changes in the interest rate environment,
growth of the portfolio as a whole or by segment and other factors as warranted.
Loans are initially graded when originated. They are re-graded as they are
renewed, when there is a new loan to the same borrower, when identified facts
demonstrate heightened risk of nonpayment or if they become delinquent on a
frequent basis. Re-grading of classified loans will occur at least monthly.
Confirmation of the quality of the grading process is obtained by independent
credit reviews conducted by consultants specifically hired for this purpose and
by regulatory examiners.
The Company evaluates individual loans that meet its criteria (loans over
$100,000 and graded substandard or lower) to determine if impaired and to
establish a specific allowance as necessary. The Company establishes percentage
for the general allowance requirements for all other loans, according to their
classification as determined by the Company's internal grading system. These
loans are identified through the following categories:
Pass - These loans consist of the portfolio graded as excellent, good
and satisfactory.
Watch - These loans are not classified, but they contain potentially
unsatisfactory characteristics.
Special Mention - These assets constitute an undue and unwarranted credit risk,
but not to the point of justifying a classification to
substandard.
Substandard - These are loans inadequately protected by current sound worth,
paying capacity of the borrower or pledged collateral.
Substandard loans normally have one or more well-defined
weaknesses that could jeopardize the repayment of the debt.
10
Doubtful - The possibility of loss is extremely high, but because of
certain important and reasonably specific pending factors
which may work to the advantage and strengthening of the
asset, writing down the loan and recognizing the loss is
deferred until its more exact status may be determined.
Loss - Loans classified loss are considered uncollectible and of such
little value that their continuance as bankable assets is not
warranted.
The above, along with specific allocations for concentrations in real estate,
SBA 7A program and leases are taken into consideration when evaluating the
Company's allowance for loan losses.
As of December 31, 2004 the allowance for loan losses of $4,136,000 representing
1.09% of loans outstanding, as compared with an allowance balance of $3,524,000
at December 31, 2003, representing 1.15% of loans outstanding. During 2004, 2003
and 2002, $620,000, $238,000 and $576,000, respectively, was charged to expense
for the provision of loan losses.
Non-performing Loans
The Company's policy is to place loans on nonaccrual status when, for any
reason, principal or interest is past due for ninety days or more unless they
are both well secured and in the process of collection. Any interest accrued,
but unpaid, is reversed against current income. Thereafter, interest is
recognized as income only as it is collected in cash. As of December 31, 2004
and 2003 there were no nonaccrual loans, loans that were past due ninety days or
more, or troubled debt restructurings.
Historical Loan Loss & Recovery Experience
The following table provides a summary of the Banks' loan loss experience for
the years ended December 31, 2004, 2003, 2002, 2001 and 2000.
($ in 000's)
December 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
Average loans for the period $ 352,863 $ 277,220 $ 212,735 $ 174,050 $ 141,076
Loans outstanding at end
of period 377,765 306,663 237,627 186,265 152,276
Allowance for Loan Losses
Balance, beginning of period $ 3,524 $ 3,290 $ 2,717 $ 2,268 $ 1,987
Less loans charged off:
Real estate loans 74 0 0 0 0
Commercial loans 15 0 0 0 99
Installment loans 11 12 10 4 6
--------- --------- --------- --------- ---------
Total loans charged off 100 12 10 4 105
Recoveries:
Real estate loans 78 0 0 0 0
Commercial loans 3 0 0 0 1
Installment loans 11 8 7 6 0
--------- --------- --------- --------- ---------
Total recoveries 92 8 7 6 1
Net loans charged off 8 4 3 (2) 104
(recovered)
Provision for loan losses 620 238 576 447 385
--------- --------- --------- --------- ---------
Balance, end of period $ 4,136 $ 3,524 $ 3,290 $ 2,717 $ 2,268
========= ========= ========= ========= =========
11
Net loans charged off (recovered)
to average loans by types:
Real estate loans (0.001%) 0.000% 0.000% 0.000% 0.000%
Commercial loans 0.003% 0.000% 0.000% 0.000% 0.069%
Installment loans 0.000% 0.001% 0.001% (0.001%) 0.004%
Net losses (recoveries) to
average loans outstanding 0.002% 0.001% 0.001% (0.001%) 0.074%
The following tables, in thousands, summarize the allocation of the allowance
for loan losses among loan types at December 31, 2004, 2003, 2002, 2001 and
2000.
($ in 000's)
December 31, 2004
------------------------------------------------------------------
Percentage of Loans
Amount Allocated for in Each Category to
Composition of Loans Loan Losses Total Loans
-------------------- ----------- -----------
Commercial loans $ 67,068 $ 926 17.8%
Commercial loans secured by
real estate 26,447 278 7.0%
Installment loans 36,339 221 9.6%
Real estate loans 220,316 2,397 58.3%
Construction loans 27,595 314 7.3%
-------- ------ ------
Total loans outstanding 377,765 100.0%
Less allowance for loan losses 4,136 $4,136
--------
Total loans, net $373,629
========
December 31, 2003
------------------------------------------------------------------
Percentage of Loans
Amount Allocated for in Each Category to
Composition of Loans Loan Losses Total Loans
-------------------- ----------- -----------
Commercial loans $45,991 $ 801 15.0%
Commercial loans secured by
real estate 33,519 186 10.9%
Installment loans 28,860 158 9.4%
Real estate loans 163,088 2,018 53.2%
Construction loans 35,205 361 11.5%
-------- ------ ------
Total loans outstanding 306,663 100.0%
Less allowance for loan losses 3,524 $3,524
--------
Total loans, net $303,139
========
December 31, 2002
------------------------------------------------------------------
Percentage of Loans
Amount Allocated for in Each Category to
Composition of Loans Loan Losses Total Loans
-------------------- ----------- -----------
Commercial loans $ 46,061 $ 587 19.4%
Commercial loans secured by
real estate 16,991 294 7.2%
Installment loans 24,102 272 10.1%
Real estate loans 131,167 1,688 55.2%
Construction loans 19,306 449 8.1%
-------- ------ ------
Total loans outstanding 237,627 100.0%
Less allowance for loan losses 3,290 $3,290
--------
Total loans, net $234,337
========
12
December 31, 2001
------------------------------------------------------------------
Percentage of Loans
Amount Allocated for in Each Category to
Composition of Loans Loan Losses Total Loans
-------------------- ----------- -----------
Commercial loans $ 29,730 $ 632 16.0%
Commercial loans secured by
real estate 7,930 71 4.3%
Installment loans 20,301 259 10.9%
Real estate loans 106,851 1,588 57.3%
Construction loans 21,453 167 11.5%
-------- ------ ------
Total loans outstanding 186,265 100.0%
Less allowance for loan losses 2,717 $2,717
--------
Total loans, net $183,548
========
December 31, 2000
------------------------------------------------------------------
Percentage of Loans
Amount Allocated for in Each Category to
Composition of Loans Loan Losses Total Loans
-------------------- ----------- -----------
Commercial loans $ 28,600 $ 703 18.8%
Commercial loans secured by
real estate 5,115 61 3.4%
Installment loans 23,432 193 15.4%
Real estate loans 86,886 1,195 57.0%
Construction loans 8,243 116 5.4%
-------- ------ ------
Total loans outstanding 152,276 100.0%
Less allowance for loan losses 2,268 $2,268
--------
Total loans, net $150,008
========
The increase in the allowance for loan losses is due primarily to overall growth
in the loan portfolio and related inherent risk of loss. Net loans charged off
were a modest $8,000 within the portfolio for The Vintage Bank in 2004 compared
with net charge offs of $4,000 in 2003. Solano Bank sustained no losses since
opening for business July 2000.
Based on the current conditions of the loan portfolio, Management believes that
the $4,136,000 allowance for loan losses at December 31, 2004 is adequate to
absorb potential losses inherent in the Banks' loan portfolios. No assurance can
be given, however, that adverse economic conditions or other circumstances will
not result in increased losses in the portfolio.
In the course of examination, regulators may require the Company to increase its
amount in its allowance for loan losses based on information available to them
at the time of their evaluation .
13
Noninterest Income
Details of noninterest income are as follows:
(In 000's)
2004 2003 2002
------ ------ ------
Service charge on deposit
accounts $2,249 $1,645 $1,321
Gains on securities transactions 262 637 399
Other 1,687 1,565 1,391
------ ------ ------
Total $4,198 $3,847 $3,111
====== ====== ======
Noninterest income for year 2004 increased $351,000, or 9%, compared with 2003.
Increases during 2003 compared with 2002 were $736,000, or 24%. Most noninterest
income derives from service charges on deposit accounts. Service charge income
increased proportionately more than growth in deposits because of improved
collection efforts and implementation of an overdraft privilege program that
commenced on September 15, 2003.
Gains on securities transactions in all three years resulted primarily from
selling securities with less than one year to maturity to provide funding for
loans or to reinvest in securities with a longer duration and higher effective
yield to maturity. In an overall environment of falling general interest rates,
as has characterized the market for the past several years, net gain will
normally result.
Noninterest Expense
Details of noninterest expense are as follows:
(In 000's)
2004 2003 2002
------- ------- -------
Salaries & benefits $ 9,993 $ 8,795 $ 7,893
Occupancy 1,487 1,289 916
Equipment 2,018 1,703 1,875
Other 5,038 4,528 3,632
------- ------- -------
Total $18,536 $16,315 $14,316
======= ======= =======
Salaries and benefits expense increased 14% and 11% in 2004 and 2003,
respectively, from the previous year. The increases were primarily due to
increases in the number of full-time equivalent employees, which has increased
from approximately 131 at year-end 2001 to 157 at year-end 2004. The increase
was primarily the result of staffing for new branches throughout the Company.
The 15% increase in occupancy expense during 2004 compared with 2003 was
primarily in rent and depreciation associated with opening a new branch in
American Canyon. The 41% in occupancy expense in 2003 compared with 2002 was
primarily in rent and depreciation associated with opening a new branch, along
with new executive offices and an administration center during the first quarter
of 2003.
Equipment expense increased 18% in 2004 compared with 2003. The increases were
primarily due to the Company reversing approximately $168,000 in accrued
maintenance fees during 2003 as the result of settling litigation with a former
software supplier and additional cost associated with maintaining ATMs.
The key components of other expenses are as follows:
(In 000's)
2004 2003 2002
------ ------ ------
Professional services $1,240 $1,387 $ 830
Business promotion 658 554 525
Stationery & supplies 393 380 318
Insurance 320 224 188
Other 2,427 1,983 1,771
------ ------ ------
Total $5,038 $4,528 $3,632
====== ====== ======
14
Professional services decreased 11% in 2004 compared with the prior year; 2003
expenses were 67% higher than 2002. The decrease in 2004 was primarily due to
lower legal fees, offset by increased audit expense. The increase in 2003 was
primarily due to legal fees associated with litigation with our former host
system provider, outsourced information technology and tax consulting services.
Business promotion expense increased 19% in 2004 compared with 2003; the
increase was primarily the result of increased marketing expenditures.
Stationery and supplies expense increased 3% and 19% in 2004 and 2003
respectively, reflecting overall volume increases and costs associated with the
system conversion and opening new branches. Insurance expenses increased 43% and
19% in 2004 and 2003, respectively; these increases are consistent with
increases in volumes and number of locations, as well as increases in workers'
compensation costs. Other expenses increased 22% and 12% in 2004 and 2003
respectively, primarily due to increased expenses for loans, postage, courier
services, conferences and other miscellaneous expenses.
Provision for Income Taxes
The Company reported a provision for income taxes of $3,020,000, $2,179,000 and
$1,999,000 for years 2004, 2003 and 2002, respectively. These provisions reflect
accrual for taxes at the applicable rates for Federal and California State
income taxes based upon reported pre-tax income, and adjusted for the beneficial
effect of the Company's investment in qualified municipal securities and life
insurance products. The Company has not been subject to an alternative minimum
tax (AMT).
Return on Equity and Assets
The following sets forth key ratios for the periods ending December 31, 2004,
2003 and 2002.
2004 2003 2002
------- ------- -------
Net income as a percentage of
average assets .97% 1.00% .99%
Net income as a percentage of
average equity 12.34% 11.70% 11.36%
Average equity as a percentage
of average assets 7.84% 8.50% 8.75%
Dividends declared per share
as a percentage of net
Income per share 11.27% 11.17% 12.20%
BALANCE SHEET
- --------------------------------------------------------------------------------
Total assets as of December 31, 2004 were $562,063,000 compared with
$459,482,000 and $416,458,000, as of year-end 2003 and 2002, respectively,
representing a 22% increase in 2004 and a 10% increase in 2003. Total deposits
grew $78,048,000 to $484,493,000 in 2004, representing a 19% increase, compared
with an 11% increase in 2003. Total loans, net of allowance for loan losses,
grew $70,490,000 to $373,629,000 in 2004, representing a 23% increase compared
with a 29% increase in 2003. Investment securities increased $7,377,000 from
year-end 2003 to $99,383,000 in 2004, an 8% increase, compared with a decrease
of 14% during 2003.
Junior Subordinated Debentures
On June 26, 2002, the Company formed North Bay Statutory Trust I (Trust), a
Connecticut statutory business trust, for the purpose of issuing guaranteed
undivided beneficial interests in junior subordinated debentures (trust
preferred securities). During June 2002, the Trust issued $10 million in
floating rate Cumulative Trust Preferred Securities (Securities). The Securities
bear interest at a rate of Libor plus 3.45% and had an initial interest rate of
5.34%; as of December 31, 2004 the interest rate was 6.00%; the Securities will
mature on June 26, 2032, but earlier redemption is permitted under certain
circumstances, such as changes in tax or regulatory capital rules.
The Company de-consolidated the Trust as of March 31, 2004. As a result, the
junior subordinated debentures issued by the Company to the Trust, totaling
$10,310,000 are reflected on the Company's consolidated balance sheet, under the
caption Junior Subordinated Debentures. The Company also recognized its $310,000
investment in the Trust, which is recorded in Investment in Subsidiary. The
Trust has no independent assets or operations and exists for the sole purpose of
issuing trust preferred securities and investing the proceeds thereof in an
equivalent amount of junior subordinated debentures issued by the Company.
15
The Securities, the junior subordinated debenture issued by the Trust is
redeemable in whole or in part on or after June 26, 2007, or at any time in
whole, but not in part, upon the occurrence of certain events. The Securities
are included in Tier 1 capital for regulatory capital adequacy determination
purposes, subject to certain limitations. The Company fully and unconditionally
guarantees the obligations of the Trust with respect to the issuance of the
Securities.
Subject to certain exceptions and limitations, the Company may, from time to
time, defer the junior subordinated debenture interest payments, which would
result in a deferral of distribution payments on the Securities and, with
certain exceptions, prevent the Company from declaring or paying cash
distributions on the Company's common stock or debt securities that rank junior
to the junior subordinated debentures.
Off Balance Sheet Arrangement
The Company does not have off-balance sheet arrangements, as defined by
Regulation S-K. The Company does have loan commitments and letters of credit.
For additional information please see Note 8 to the Consolidated Financial
Statements.
Borrowings
Total long-term borrowings were $19 million at December 31, 2004. The following
table summarizes the borrowings:
Fixed Rate Borrowings
($ in 000's)
Amount Maturity Date Interest Rate
------ ------------- -------------
Federal Home Loan Bank Advance $ 5,000 4-17-2006 2.24%
Federal Home Loan Bank Advance 5,000 4-16-2007 2.83%
Federal Home Loan Bank Advance 9,000 4-14-2008 3.23%
-------
Total $19,000
Weighted average interest rate 2.86%
There were no short-term borrowings at December 31, 2004 or December 31, 2003.
Short-term borrowings consist primarily of federal funds purchased and
borrowings from the Federal Home Loan Bank of San Francisco (FHLB). The Banks
maintain collateralized lines of credit with the FHLB. Based on the FHLB stock
requirements at December 31, 2004, the lines provided for maximum borrowings of
approximately $123.3 million; the Company also has available unused lines of
credit totaling $17.5 million for Federal funds transactions at December 31,
2004.
Contractual Obligations
The Company has entered into non-cancelable contracts for leased premises, data
processing and other service agreements. The Company has no capital leases. The
following table summarizes our significant contractual obligation and
commitments as of December 31, 2004:
(In 000's)
Less than One to Three to
Total one year three years five years Thereafter
----- -------- ----------- ---------- ----------
Junior subordinated debentures $10,310 $ 0 $ 0 $ 0 $10,310
Operating leases 3,970 769 1,268 862 1,071
Other obligations 300 250 50 0 0
------- ------- ------- ------- -------
Total $14,580 $ 1,019 $ 1,318 $ 862 $11,381
======= ======= ======= ======= =======
16
Time Deposits
The following table sets forth the maturity of time certificates of deposit of
$100,000 or more at December 31, 2004, 2003 and 2002.
(In 000's)
2004 2003 2002
--------------- ---------------- ---------------
3 months or less $18,557 42.6% $17,584 49.8% $24,661 62.5%
Over 3 months through
6 months 8,624 19.8% 6,122 17.4% 6,182 15.7%
Over 6 months through
12 months 4,793 11.0% 3,822 10.8% 3,887 9.9%
Over 12 months 11,620 26.6% 7,762 22.00 % 4,695 11.9%
------- ----- ------- ------ ------- -----
$43,594 100% $35,290 100% $39,425 100%
======= ===== ======= ====== ======= =====
Liquidity and Capital Adequacy
The Company's liquidity is determined by the level of assets (such as cash,
federal funds sold and unpledged marketable securities together with other
funding sources) that are readily convertible to cash and cash equivalents and
other funding sources to meet customer withdrawal and borrowing needs. The
Company's liquidity position is reviewed by management on a regular basis to
verify 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 that it uses to determine adequate liquidity.
Securities classified as "Available-for-Sale" securities are reported at fair
value with unrealized gains and losses excluded from earnings and reported as a
separate component of accumulated other comprehensive income. As of December 31,
2004 "Available-for-Sale" securities had a fair value of $94,788,000 with an
unrealized gain, net of income taxes, of $161,000 reflected as a component of
accumulated other comprehensive income in the shareholders' equity section of
the Balance Sheet. The Company owns equity securities carried at a cost of
$4,595,000.
The Company also has available funding from other sources such as the Federal
Home Loan Bank and federal fund lines of credit. As of December 31, 2004, the
Company had approximately $140.8 million available from these sources for
borrowing. The Company relies on these funding sources to assist in funding
loans when loan demand outpaces deposit growth.
At year-end 2004, liquid assets (defined as cash, Federal funds sold, deposits
in other financial institutions and securities categorized as
available-for-sale) represented 28% of total assets, as compared with 28% as of
year-end 2003. The level of liquid assets at December 31, 2004 exceeds the
liquidity required by the Company's liquidity policy. Management expects to be
able to meet the liquidity needs of the Company during 2005 primarily through
balancing loan growth with corresponding increases in deposits. The Company did
occasionally rely on borrowings from FHLB and on the federal funds lines during
2004. For additional information please see Note 7 to the Consolidated Financial
Statements.
The Company's capital ratios remained relatively steady during 2004 compared
with 2003 levels. As of December 31, 2004, the Company's total risk-based
capital ratio, Tier I risk-based capital ratio and leverage ratio were 12.5%,
11.6% and 9.4%, respectively. These compare with ratios of 13.5%, 12.6% and
10.6% as of December 31, 2003.
In January, 2005, the Company declared a 5% stock dividend and a $.15 per share
cash dividend for shareholders of record as of March 18, 2004. The stock
dividend will affect the Company's capital and its capital ratios only to the
extent that cash is distributed in lieu of fractional shares. Accordingly, the
stock dividend will not materially impact the Company's overall capital. The
cash dividend will total approximately $550,000, equating to a reduction in the
Company's leverage ratio of approximately .1%.
QUANTITATIVE AND QUALITATIVE DISCLOSURE 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
principally a market risk. The Company relies on loan reviews, prudent
underwriting standards and an adequate allowance for loan losses to mitigate
17
credit 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 rates change.
The Company manages interest rate risk through its Audit Committee which serves
as the Asset Liability Committee (ALCO). The ALCO manages the balance sheet to
maintain the forecasted impact on net interest income and present value of
equity within acceptable ranges despite unforeseeable changes in interest rates.
The ALCO monitors these risks on a quarterly basis using both a traditional gap
analysis and simulation analysis.
The Company utilizes a simulation model as its primary tool for interest rate
risk. This model considers the effects of lags and different ranges of interest
rate changes among various classes of earning assets and interest-bearing
liabilities following a 1% or 2% change in the Fed Funds rate, and produces a
more accurate projection of the impact changing interest rates will have on the
Company. Readers are referred to management's "Forward Looking Statement" in
connection with this information.
Interest Rate Sensitivity
The following table sets forth the repricing opportunities for rate-sensitive
assets and rate-sensitive liabilities at December 31, 2004. Rate sensitivity
analysis usually excludes noninterest-bearing demand deposits, which totaled
$127,250,000.. Rate-sensitive assets and rate-sensitive liabilities are
classified by the earliest possible repricing date or maturity, whichever comes
first.
(In 000's)
3 Months Over 3 Mos. Over 1 Yr. Over 5
or Less To 1 Yr. To 5 Yrs. Years Total
--------- --------- --------- --------- ---------
Interest rate-sensitive assets:
Loans, gross $ 72,456 $ 40,247 $ 205,755 $ 59,307 $ 377,765
Interest-bearing deposits in
other banks 0 0 100 0 100
Investment securities 0 844 42,237 56,302 99,383
Federal funds sold 32,865 0 0 0 32,865
--------- --------- --------- --------- ---------
Total 105,321 41,091 248,092 115,609 510,113
Interest rate-sensitive liabilities:
Interest-bearing demand
Deposits 236,515 0 0 0 236,515
Time deposits >$100,000 18,557 13,417 11,620 0 43,594
Other time deposits 16,262 12,086 5,364 0 33,712
Savings deposits 43,422 0 0 0 43,422
Long-term borrowings 10,310 0 0 0 10,310
--------- --------- --------- --------- ---------
Total $ 325,066 $ 25,503 $ 16,984 $ 0 $ 367,553
Interest rate sensitivity gap ($219,745) $ 15,588 $ 231,108 $ 115,609 $ 142,560
========= ========= ========= ========= =========
Cumulative interest rate
sensitivity gap ($219,745) ($204,157) $ 26,951 $ 142,560
========= ========= ========= =========
Ratio of interest rate sensitivity
to earning assets (43.08%) 3.06% 45.31% 22.66%
This table indicates that the Company has a "negative" GAP for three months into
the future and a "positive" GAP beyond. The implication is that during the
negative GAP "horizon" Company earnings will increase in a falling interest rate
environment, as there are more rate sensitive liabilities subject to repricing
downward than rate sensitive assets; conversely, earnings would decline in a
rising rate environment. During a positive GAP "horizon" earnings would decrease
in a falling interest rate environment, as there would be more rate sensitive
assets subject to repricing downwards than rate sensitive liabilities. This
traditional analysis does not recognize or assume any "lag" in interest rate
changes on earning assets and interest-bearing liabilities, and it assumes that
18
all earning assets and interest-bearing liabilities reprice to the same absolute
degree regardless of the mix of earning assets and interest-bearing liabilities.
The following table, utilizing a simulation model to measure interest rate risk,
shows the approximate pre-tax dollar and percentage change in forecasted net
interest income over a 12-month period. The 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 default 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.
19
(In 000's)
December 31, 2004
------------------------------------------------------------------------------
Dollar change in net interest income Percent change in net interest income
------------------------------------ -------------------------------------
Change in interest rates:
100 basis points decline $60 .26%
200 basis points decline $120 .52%
100 basis points rise ($251) (1.09%)
200 basis points rise ($503) (2.18%)
(In 000's)
December 31, 2003
------------------------------------------------------------------------------
Dollar change in net interest income Percent change in net interest income
------------------------------------ -------------------------------------
Change in interest rates:
100 basis points decline $261 1.36%
100 basis points rise ($460) (2.39%)
200 basis points rise ($931) (4.83%)
As illustrated in the above tables, the Company is currently liability
sensitive. The implication of this is that the Company's earnings will increase
in a falling interest rate environment, as there are more rate sensitive
liabilities subject to reprice downward than rate sensitive assets; conversely,
earnings would decrease in a rising rate environment. Therefore, an increase in
market rates could adversely affect net interest income. In contrast, a decrease
in market rates may improve net interest income.
It should be noted that the tools used to manage interest rate risk do not take
into account future management actions that may be undertaken, should a change
occur in actual market interest rates during the year. Also, certain assumptions
are required to perform modeling simulations that may have significant impact on
the results. These include assumptions about composition or mix of the balance
sheet, level of interest rates, balance changes of deposit products that do not
have stated maturities and assumptions of industry standards and future expected
pricing behaviors. The results indicated by the model could vary significantly
due to external factor such as changes in the prepayment assumptions,
competition or early withdrawal of deposits.
DESCRIPTION OF OPERATIONS
- --------------------------------------------------------------------------------
North Bay Bancorp is a California corporation organized November 1, 1999 and is
registered with the Board of Governors of the Federal Reserve System as a Bank
Holding company under the Bank Holding Company Act of 1956, as amended. The
Vintage Bank is a wholly-owned subsidiary of the Bancorp, organized as a state
chartered Bank in 1984; Solano Bank is also a wholly-owned subsidiary of the
Bancorp, organized as a state chartered Bank in 2000. The Vintage Bank engages
in the commercial banking business in Napa County from its main banking office
located at 1500 Soscol Avenue, Napa, California. The Vintage Bank has five
additional business locations, one located in the Brown's Valley Shopping Center
at 3271 Brown's Valley Road, Napa, California, 3626 Bel Aire Plaza, Napa,
California, 1065 Main Street in St. Helena, California,1190 Airport Road, Napa,
California and 3417 Broadway Suite J-2, American Canyon, California. which
opened in August 2004. The Vintage Bank also has a remote ATM at 6498 Washington
Street, Yountville, California. Solano Bank also engages in the commercial
banking business in Solano County from its main banking office located at 403
Davis Street, Vacaville, California. Solano Bank has three other business
locations, one located at 1411 Oliver Road, Fairfield, California, one at 1395
E. Second Street, Benicia, California and one located at 976 Admiral Callahan
Lane, Vallejo, California. Solano Bank also has a remote ATM at 1100 Texas
Street, Fairfield, California. The Banks conduct commercial banking business,
offering a full range of commercial banking services to individuals, businesses
and agricultural communities of Napa and Solano Counties. The Banks emphasize
their retail commercial banking operations and accept checking and savings
deposits, issue drafts, sell traveler's checks and provide other customary
banking services. In January, 2005, Solano Bank was merged with and into The
Vintage Bank.
20
SECURITIES OF THE HOLDING COMPANY
- --------------------------------------------------------------------------------
The Company's outstanding securities consist of one class, Common Stock, of
which there were 3,698,925 shares outstanding at March 18, 2005, held by 967
shareholders of record. The stock was listed on the Nasdaq National Market
System under the symbol NBAN effective September 3, 2002. Prior to the Nasdaq
listing, the stock traded over-the-counter and was quoted on the OTC "Bulletin
Board".
The following table (adjusted for the 2005 and 2004 stock dividends and stock
splits) summarizes the common stock high and low prices based upon transactions
of which the Company is aware:
Quarter ended High Low
- ------------- ---- ---
March 31, 2003 $18.29 $15.42
June 30, 2003 17.54 15.36
September 30, 2003 16.88 15.12
December 31, 2003 18.67 15.48
March 31, 2004 21.43 18.98
June 30, 2004 22.36 19.68
September 30, 2004 20.79 17.80
December 31, 2004 28.81 18.92
There may be other transactions of which the Company is not aware and,
accordingly, they are not reflected in the range of actual sales prices stated.
Further, quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions. Additionally,
since trading in the Company's common stock is limited, the range of prices
stated are not necessarily representative of prices that would result from a
more active market.
The Company paid cash dividends of $0.13 per share in each of the years 2004,
2003 and 2002 and $.15 per share in 2005. The holders of common stock of the
Company are entitled to receive cash dividends when and as declared by the Board
of Directors out of funds legally available. Federal Reserve Board regulations
prohibit cash dividends, except under limited circumstances, if the distribution
would result in a withdrawal of capital or exceed the Company's net profits then
on hand after deducting its losses and bad debts. Furthermore, cash dividends
cannot be paid without the prior written approval of the Federal Reserve Board
if the total of all dividends declared in one year exceeds the total of net
profits for that year plus the preceding two calendar years, less any required
transfers to surplus under state or federal law. The shareholders' right to
receive dividends is also subject to the restrictions set forth in the
California General Corporation Law. The Corporation Law provides that a
corporation may make a distribution to its shareholders if the corporation's
retained earnings equal at least the amount of the proposed distribution. The
Corporation Law further provides that, in the event that sufficient retained
earnings are not available for the proposed distribution, a corporation may
nevertheless make a distribution to its shareholders if it meets two conditions,
which generally stated are as follows: (1) The corporation's assets equal at
least 1.25 times its liabilities; and (2) the corporation's current assets equal
at least its current liabilities or, if the average of the corporation's
earnings before taxes on income and before interest expense for the two
preceding fiscal years was less than the average of the corporation's interest
expense for such fiscal years, then the corporation's current assets must equal
at least 1.25 times its current liabilities. As of December 31, 2004, the
Company had retained earnings of $10,500,000 eligible for dividends.
On October 28, 2002, the Board of Directors of North Bay Bancorp declared a
dividend of one share purchase right (a "Right") for each outstanding share of
common stock, no par value of the Company, payable on December 6, 2002 to
shareholders of record as of November 15, 2002. Each Right entitles the
registered holder to purchase for the Company one one-hundredth of a share (a
"Unit") of Series A Preferred Stock (the "Preferred Stock") of the Company, at a
price of $90.00 per Unit, subject to adjustment. The description and terms of
the Rights are set forth in a Rights Agreement between the Company and Registrar
and Transfer Company as Rights Agent.
21
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 and 2003
(In 000's except share data)
2004 2003
-------- --------
ASSETS
CASH AND DUE FROM BANKS $ 27,342 $ 28,756
FEDERAL FUNDS SOLD 32,865 9,195
-------- --------
Cash and cash equivalents 60,207 37,951
TIME DEPOSITS WITH OTHER
FINANCIAL INSTITUTIONS 100 100
INVESTMENT SECURITIES:
Available-for-sale 94,788 90,655
Equity securities 4,595 1,351
-------- --------
Total investment securities 99,383 92,006
LOANS, net of allowance for loan losses of
$4,136 in 2004 and $3,524 in 2003 373,629 303,139
LOANS HELD FOR SALE 4,604 3,095
INVESTMENT IN SUBSIDIARY 310 0
BANK PREMISES AND EQUIPMENT, net 10,336 10,909
INTEREST RECEIVABLE AND OTHER ASSETS 13,494 12,282
-------- --------
Total assets $562,063 $459,482
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non-interest bearing $127,250 $103,401
Interest-bearing 357,243 303,044
-------- --------
Total deposits 484,493 406,445
JUNIOR SUBORDINATED DEBENTURES 10,310 10,000
LONG TERM BORROWINGS 19,000 0
INTEREST PAYABLE AND OTHER LIABILITIES 4,126 3,596
-------- --------
Total liabilities 517,929 420,041
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - Authorized 500,000 shares;
Issued and outstanding - None
Common stock, no par value - Authorized 15,000,000 shares;
Issued and outstanding - 3,641,289 shares in 2004
and 3,428,469 shares in 2003 33,473 29,210
Retained earnings 10,500 9,623
Accumulated other comprehensive income 161 608
-------- --------
Total shareholders' equity 44,134 39,441
Total liabilities and shareholders' equity $562,063 $459,482
======== ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
22
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 2004, 2003 and 2002
(In 000's except share data)
2004 2003 2002
------- ------- -------
INTEREST INCOME:
Interest and fees on loans $22,828 $18,782 $16,602
Interest on federal funds sold 287 207 418
Interest on investment securities - taxable 2,945 2,535 3,490
Interest on investment securities - tax exempt 522 725 664
Interest on time deposits with other
financial institutions 3 2 5
------- ------- -------
Total interest income 26,585 22,251 21,179
------- ------- -------
INTEREST EXPENSE:
Interest on interest-bearing
transaction deposits 1,201 916 1,118
Interest on time and savings deposits 1,387 1,537 2,234
Interest on long-term debt 955 531 339
Interest on short-term borrowings 0 11 0
------- ------- -------
Total interest expense 3,543 2,995 3,691
------- ------- -------
Net interest income 23,042 19,256 17,488
PROVISION FOR LOAN LOSSES 620 238 576
------- ------- -------
Net interest income after
provision for loan losses 22,422 19,018 16,912
NONINTEREST INCOME:
Service charges on deposit accounts 2,249 1,645 1,321
Gain on securities transactions, net 262 637 399
Other 1,687 1,565 1,391
------- ------- -------
Total noninterest income 4,198 3,847 3,111
------- ------- -------
NONINTEREST EXPENSE:
Salaries and related benefits 9,993 8,795 7,893
Occupancy 1,487 1,289 916
Equipment 2,018 1,703 1,875
Other 5,038 4,528 3,632
------- ------- -------
Total noninterest expense 18,536 16,315 14,316
------- ------- -------
Income before provision for income taxes 8,084 6,550 5,707
PROVISION FOR INCOME TAXES 3,020 2,179 1,999
------- ------- -------
NET INCOME $ 5,064 $ 4,371 $ 3,708
======= ======= =======
BASIC EARNINGS PER SHARE: $ 1.33 $ 1.16 $ 1.02
DILUTED EARNINGS PER SHARE: $ 1.29 $ 1.14 $ 0.99
<FN>
The accompanying notes are an integral part of these statements.
</FN>
23
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY & COMPREHENSIVE INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 2004, 2003 and 2002
(In 000's except share data)
Accumulated
Other Total
Common Shares Common Retained Comprehensive Shareholders' Comprehensive
Outstanding Stock Earnings Income (Loss) Equity Income
----------- ----- -------- ------------- ------ ------
BALANCE, DECEMBER 31, 2001 2,941,353 $21,973 $7,454 $553 $29,980
Stock dividend 146,112 2,143 (2,158) (15)
Cash dividend (392) (392)
Comprehensive income:
Net income 3,708 3,708 $3,708
Other comprehensive income, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax of $562 and
reclassification adjustment 791 791 791
-------------
Comprehensive income $4,499
=============
Stock options exercised,
including a tax benefit of $362 107,967 1,271 1,271
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 3,195,432 25,387 8,612 1,344 35,343
Stock dividend 159,442 2,918 (2,933) (15)
Cash dividend (427) (427)
Comprehensive income:
Net income 4,371 4,371 $4,371
Other comprehensive loss, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax of $523 and
reclassification adjustment (736) (736) (736)
-------------
Comprehensive income $3,635
=============
Stock options exercised,
including a tax benefit of $261 73,595 905 905
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 3,428,469 29,210 9,623 608 39,441
Stock dividend 170,753 3,706 (3,729) (23)
Cash dividend (458) (458)
Comprehensive income:
Net income 5,064 5,064 $5,064
Other comprehensive loss, net of tax:
Change in net unrealized gain on
available-for-sale securities,
net of tax of $318 and
reclassification adjustment (447) (447) (447)
-------------
Comprehensive income $4,617
=============
Stock options exercised,
including a tax benefit of $65 42,067 557 557
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004 3,641,289 $33,473 $10,500 $161 $44,134
===================================================================================================================
<FN>
The accompanying notes are an integral part of these statements.
</FN>
24
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 2004, 2003 and 2002 (In 000's)
2004 2003 2002
--------- --------- ---------
Cash Flows From Operating Activities:
Net income $ 5,064 $ 4,371 $ 3,708
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,628 1,569 1,441
Provision for loan losses 620 238 576
Proceeds from sale of loans-held-for sale 293,296 280,225 0
Purchase of loans-held-for sale (294,805) (283,320) 0
Amortization of deferred loan fees (631) (665) (514)
Amortization of investment securities
premiums, net 208 1,079 938
Provision for deferred income taxes (177) 56 (398)
Losses on sale or retirement of capital assets 0 0 1
Gain on securities transactions (262) (637) (399)
Changes in:
Interest receivable and other assets (716) 2 (1,582)
Interest payable and other liabilities 595 543 1,136
--------- --------- ---------
Net cash provided by operating activities 4,820 3,461 4,907
--------- --------- ---------
Cash Flows From Investing Activities:
Investment securities held to maturity:
Proceeds from maturities and principal payments 0 1,272 42
Investment securities available for sale:
Proceeds from maturities and principal payments 35,672 36,783 40,368
Proceeds from sales and recoveries 4,322 34,626 21,380
Purchases (44,839) (59,290) (81,842)
Equity securities:
Proceeds from sales 0 56 10
Purchases (3,244) (58) (120)
Net increase in loans (70,479) (68,375) (50,851)
Sale and disposition of capital assets 0 0 1
Capital expenditures (1,055) (1,678) (2,914)
--------- --------- ---------
Net cash used in investing activities (79,623) (56,664) (73,926)
--------- --------- ---------
Cash Flows From Financing Activities:
Net increase in deposits 78,048 38,642 75,362
Proceeds from issuance of junior subordinated debentures 0 0 10,000
Proceeds (payment) on long-term borrowings 19,000 0 (1,846)
Stock options exercised 492 644 909
Dividends (481) (442) (407)
--------- --------- ---------
Net cash provided by financing activities 97,059 38,844 84,018
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents 22,256 (14,359) 14,999
Cash and cash equivalents at beginning of year 37,951 52,310 37,311
--------- --------- ---------
Cash and cash equivalents at end of year $ 60,207 $ 37,951 $ 52,310
========= ========= =========
Supplemental Disclosures of non-cash investing and financing activities:
Unrealized (loss) gain on securities ($ 766) ($ 1,257) $ 1,352
Tax benefit on non-quailified options exercised $ 65 $ 261 $ 362
Stock dividends $ 3,706 $ 2,918 $ 2,143
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 3,376 $ 3,084 $ 3,755
Income taxes paid $ 3,777 $ 1,345 $ 2,290
<FN>
The accompanying notes are an integral part of these statements.
</FN>
25
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 2004, 2003 and 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
North Bay Bancorp (Bancorp) is a registered bank holding company headquartered
in Napa, California, established on November 1, 1999. Bancorp's principal line
of business is serving as a holding company for The Vintage Bank and Solano Bank
(the Banks), both California state chartered banks. Effective January 15, 2005
Solano Bank was merged into The Vintage Bank. The Banks operate six offices in
the California county of Napa and four offices in the California county of
Solano. The Banks offer a full range of commercial banking services to
individuals and the business and agricultural communities. Most of the Banks'
customers are retail customers and small to medium-sized businesses.
The consolidated financial statements of Bancorp and subsidiaries (collectively
the Company) are prepared in conformity with accounting principles generally
accepted in the United States of America. The more significant accounting and
reporting policies are discussed below.
Principles of consolidation The consolidated financial statements include the
accounts of Bancorp and the Banks. All material intercompany transactions and
accounts have been eliminated in consolidation.
Use of estimates in the preparation of financial statements The preparation of
financial statements in conformity with generally accepted accounting principles
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. For the Company, the most significant accounting estimate is
the allowance for loan losses. See "Allowance for loan losses" below. Actual
results could differ from those estimates.
Investment securities Investments in debt and equity securities are classified
as "held-to-maturity" or "available-for-sale". Investments classified as
held-to-maturity are those that the Company has the ability and intent to hold
until maturity and are reported at cost, adjusted for the amortization or
accretion of premiums or discounts. Investments classified as available-for-sale
are reported at fair value with unrealized gains and losses net of related tax,
if any, reported as other comprehensive income and are included in shareholders'
equity.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a charge to
earnings and the corresponding establishment of a new cost basis for the
security. Premiums and discounts are amortized or accreted over the life of the
related held-to-maturity or available-for-sale security as an adjustment to
yield using the effective interest method. Dividend and interest income are
recognized when earned. Realized gains and losses for securities classified as
available-for-sale and held-to-maturity are included in earnings and are derived
using the specific identification method for determining the cost of securities
sold.
Loans Loans are stated at the principal amount outstanding net of unearned
income. Nonrefundable loan origination fees and loan origination costs are
deferred and amortized into income over the contractual life of the loan. The
majority of the Company's interest income is accrued on a simple interest basis.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full and timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to interest or principal. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is reversed against
current period interest income. Interest accruals are resumed on such loans only
when they are brought fully current with respect to interest and principal and
when, in the judgment of management, the loans are estimated to be fully
collectible as to both principal and interest. Restructured loans are loans on
which concessions in terms have been granted because of the borrowers' financial
difficulties. Interest is generally accrued on such loans in accordance with the
26
new terms. The Banks define a loan as impaired when it is probable the Banks
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's original effective interest
rate or based on the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. When the measure of the impaired
loan is less than the recorded investment in the loan, the impairment is
recorded through a valuation allowance.
Loans held-for-sale Loans originated or purchased and considered held for sale
are carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
Allowance for loan losses The Banks maintain an allowance for loan losses at a
level considered adequate to provide for probable losses inherent in the
existing loan portfolio. The allowance is increased by provisions 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 Banks make
credit reviews of the loan portfolio and consider current economic conditions,
historical loan loss experience, and other factors in determining the adequacy
of the allowance.
Other real estate owned Other real estate owned represents real estate acquired
through foreclosure and is carried at the lower of cost or fair value less
estimated selling costs.
Bank premises and equipment Premises, leasehold improvements, furniture,
fixtures and equipment are carried at cost net of accumulated depreciation and
amortization, which are calculated on a straight-line basis over the estimated
useful life of the property or the term of the lease (if less). Premises are
depreciated over 40 years, furniture and fixtures are depreciated over five to
15 years, and equipment is generally depreciated over three to five years.
Income taxes Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Cash and cash equivalents The Company defines cash, due from banks, and federal
funds sold as cash and cash equivalents for the statements of cash flows.
Stock-based compensation The Company uses the intrinsic value method to account
for its stock option plans (in accordance with the provisions of Accounting
Principles Board Opinion No. 25 and related interpretations). Under this method,
compensation expense is recognized for awards of options to purchase shares of
common stock to employees under compensatory plans only if the fair market value
of the stock at the option grant date (or other measurement date, if later) is
greater than the amount the employee must pay to acquire the stock. Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation", permits companies to continue using the intrinsic-value method to
account for stock option plans or adopt a fair value based method. The fair
value based method results in recognizing as expense over the vesting period the
fair value of all stock-based awards on the date of grant. The Company has
elected to continue to use the intrinsic value method and the pro forma
disclosures required by SFAS 123 using the fair value method are:
27
(In 000's except share data)
2004 2003 2002
--------- --------- ---------
Net income as reported $ 5,064 $ 4,371 $ 3,708
Total stock-based employee
compensation expense
determined under the fair
value based method for all
awards, net of related
tax effects 380 268 235
--------- --------- ---------
Net income pro forma $ 4,684 $ 4,103 $ 3,473
========= ========= =========
Earnings per share:
As reported:
Basic $ 1.33 $ 1.16 $ 1.02
Diluted $ 1.29 $ 1.14 $ .99
Pro forma:
Basic $ 1.23 $ 1.09 $ .96
Diluted $ 1.19 $ 1.07 $ .93
Earnings per common share Basic Earnings per Share is computed by dividing net
income by the weighted average common shares outstanding. Diluted EPS is
computed by dividing net income by weighted average common shares outstanding
including the dilutive effects of potential common shares (e.g. stock options).
Comprehensive income For the Company, comprehensive income includes net income
reported on the income statement and changes in the fair value of its
available-for-sale investments reported as accumulated other comprehensive
income.
Derivative instruments Derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities are required
to be recognized as either assets or liabilities in the statements of financial
position and measures those instruments at fair value. The Company does not
currently utilize derivative instruments in its operations and does not engage
in hedging activities.
Accounting and reporting changes Financial Accounting Standards Board (FASB)
Interpretation No. 46-R, Consolidation of Variable Interest Entities. This
Interpretation addresses consolidation by business enterprises of variable
interest entities, which have one or both of the following characteristics: 1)
the equity investment at risk is not sufficient to permit the entity to finance
its activities without additional financial support from other parties, or 2)
the equity investors lack one or more of the following essential characteristics
of a controlling financial interest: a) the direct or indirect ability to make
decisions about the entity's activities through voting or similar rights, b) the
obligation to absorb the expected losses of the entity if they occur, or c) the
right to receive the expected residual returns of the entity if they occur. The
Interpretation requires existing variable interest entities to be consolidated
if those entities do not effectively disburse risks among parties involved. In
accordance with the FASB Interpretation No. 46-R, the Company deconsolidated
North Bay Statutory Trust I in the first quarter of 2004.
In December 2003, FASB standard No. 132, Employers' Disclosure about Pensions
and Other Postretirement Benefits, (SFAS 132 revised) was issued. SFAS 132-R
prescribes employers' disclosures about pension plans and other postretirement
benefit plans; it does not change the measurement or recognition of those plans.
SFAS 132-R retains and revises the disclosure requirements contained in the
original SFAS 132. It also requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other postretirement benefit plans. The Statement is generally
effective for fiscal years ended after December 15, 2003. Disclosures required
by this standard are included in the notes to these consolidated financial
statements.
FASB Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. The Statement requires issuers
to classify as liabilities (or assets in some circumstance) three classes of
freestanding financial instruments that embody obligations for the issuer.
28
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted the
provisions of the Statement on July 1, 2003.
The Company did not enter into any financial instruments within the scope of the
Statement during June 2003. However, as a result of adopting the Statement on
July 1, 2003 for existing financial instruments entered into on or before May
31, 2003, the trust preferred securities (floating rate subordinated debenture)
of $10 million were reclassified as liabilities on July 1, 2003.
In December 2004, the FASB revised FAS 123 through the issuance of FAS No. 123
Share Based Payment, revised ("FAS 123-R"). FAS 123-R is effective for the
Company commencing in the third quarter of 2005. FAS 123-R, among other things,
eliminates the alternative to use the intrinsic value method of accounting for
stock based compensation and requires entities to recognize the cost of employee
services received in exchange for awards of equity instruments based on the
grant-date fair value of those awards (with limited exceptions). The fair value
based method in FAS 123-R is similar to the fair-value-based method in FAS 123
in most respects, subject to certain key differences. The Company is in the
process of evaluating the impacts of adopting FAS-123-R.
In March 2004, the United States Securities and Exchange Commission (SEC) issued
SEC Staff Accounting Bulletin No. 105, Application of Accounting Principles to
Loan Commitments (SAB 105), which summarizes the views of the staff of the SEC
regarding the application of generally accepted accounting principles to loan
commitments accounted for as derivative instruments. SAB 105 provided that the
fair value of recorded loan commitments that are accounted for as derivatives
under SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
should not incorporate the expected future cash flows related to the associated
servicing of the future loan. In addition, SAB 105 requires registrants to
disclose their accounting policy for loan commitments. The provisions of SAB 105
must be applied to loan commitments accounted for as derivatives that are
entered into after March 31, 2004. The adoption of this accounting standard did
not have a material impact on the Company's consolidated financial statements.
In December 2003, the American Institutes of Certified Public Accountants
(AICPA) issued Statement of Position No. 03-3, Accounting for Certain Loans or
Debt Securities Acquired in a Transfer (SOP 03-3), which addresses accounting
for differences between the contractual cash flows of certain loans and debt
securities and the cash flows expected to be collected when loans or debt
securities are acquired in a transfer and those cash flow differences are
attributable, as least in part, to credit quality. As such, SOP 03-3 applies to
loans and debt securities acquired individually, in pools or part of a business
combination and does not apply to originated loans. The application of SOP 03-3
limits the interest income, including accretion of purchase price discounts,
that may be recognized for certain loans and debt securities. Additionally, SOP
03-3 does not allow the excess of contractual cash flows over cash flows
expected to be collected to be recognized as an adjustment of yield, loss
accrual or valuation allowance, such as the allowance for possible loan losses.
SOP 03-3 requires that increases in expected cash flows subsequent to the
initial investment be recognized prospectively through adjustment of the yield
on the loan or debt security over its remaining life. Decreases in expected cash
flows should be recognized as impairment. In the case of loans acquired in a
business combination where the loans show signs of credit deterioration, SOP
03-3 represents a significant change from current purchase accounting practice
whereby the acquiree's allowance for loan losses is typically added to the
acquirer's allowance for loan losses. SOP 03-3 is effective for loans and debt
securities acquired by the Company beginning January 1, 2005. The adoption of
this new standard is not expected to have a material impact on the Company's
consolidated financial statements.
29
(2) INVESTMENT SECURITIES
The amortized cost and estimated fair value of investments in debt and equity
securities at December 31, 2004 are summarized in the following tables.
(In 000's)
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------- ------- ------- -------
Available-for-sale:
Securities of the U.S. Treasury
and other government agencies $39,335 $ 61 $ 255 $39,141
Mortgage-backed securities 40,289 203 116 40,376
Municipal securities 14,890 435 54 15,271
------- ------- ------- -------
Total available-for-sale 94,514 699 425 94,788
Equity securities 4,595 0 0 4,595
------- ------- ------- -------
Total investments $99,109 $ 699 $ 425 $99,383
======= ======= ======= =======
The following table shows investments in equity securities carried at cost. The
equity securities do not have readily determinable fair values because ownership
is restricted and they lack a market.
December 31, 2004 December 31, 2003
----------------- -----------------
(In 000's)
Federal Home Loan Bank Stock $1,932 $743
Federal Reserve Bank Stock 663 608
CRA Mutual Fund 2,000 0
------ ------
Total equity securities $4,595 $1,351
====== ======
The following table shows fair value and unrealized losses of securities in the
available for sale portfolio at December 31, 2004, by length of time that
individual securities in each category have been in a continuous loss position.
The Company had a limited number of securities in a continuous loss position for
12 or more months at December 31, 2004. The unrealized losses were in the
portfolio categories of U.S. Government agencies, mortgage-backed securities,
and municipals. It is the belief of the Company that the U.S. Government agency,
Freddie Mac, Fannie Mae, Ginnie Mae and/or the municipality issuing the debt
will honor its interest and debt payments. The Company purchased the securities
for their economic value and has the ability to hold these investments until a
market price recovery, maturity, or a modification of the Company's investment
strategy. Because the declines in fair value were due to changes in market
interest rates and not other factors, it is the conclusion of the Company that
the securities are not considered other-than-temporarily impaired.
As of December 31, 2004
(In 000's)
Less than 12 months 12 months or more Total
----------------------- ----------------------- ----------------------
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
------- ------- ------- ------- ------- -------
Description of Securities:
U.S. Government and
agency obligations $12,389 $ 38 $17,060 $ 217 $29,449 $ 255
Municipal obligations 0 0 6,693 54 6,693 54
Mortgage-backed
securities and
collateralized mortgage 18,411 35 4,993 81 23,404 116
------- ------- ------- ------- ------- -------
$30,800 $ 73 $28,746 $ 352 $59,546 $ 425
======= ======= ======= ======= ======= =======
30
The amortized cost and estimated fair value of investment securities at December
31, 2003 are as follows:
(In 000's)
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
Available-for-sale:
Securities of the U.S. Treasury
and other government agencies $35,942 $91 $108 $35,925
Corporate debt securities 1,221 7 0 1,228
Mortgage-backed securities 32,977 380 149 33,208
Municipal securities 19,474 859 39 20,294
------- ------ ---- -------
Total available-for-sale 89,614 1,337 296 90,655
Equity securities 1,351 0 0 1,351
------- ------ ---- -------
Total investments $90,965 $1,337 $296 $92,006
======= ====== ==== =======
There were no unrealized losses greater than 12 months. The unrealized losses
were due to changes in market rates and not attributed to credit quality.
The following table shows the amortized cost and estimated fair value of debt
securities by contractual maturity at December 31, 2004:
(In 000's)
Available-for-Sale
Amortized Estimated
Cost Fair Value
------- -------
Within one year $ 835 $ 844
After one but within five years 39,686 39,775
After five but within ten years 3,896 3,960
Over ten years 9,808 9,833
Mortgage-backed securities 40,289 40,376
------- -------
Total $94,514 $94,788
======= =======
The following table provides a summary of the maturities and weighted average
yields of debt securities as of December 31, 2004.
(In 000's)
After One After Five
In One Year Through Through After
or Less Five Years Ten Years Ten Years Total
-------------- --------------- --------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Available-for-sale
securities:
Securities of the
U.S. Treasury
and other
government agencies $ 0 0.00% $29,308 3.25% $ 0 0.00% $ 9,833 5.13% $39,141 3.72%
Mortgage-backed
securities (1) 0 0.00% 0 0.00% 1,116 6.49% 39,260 4.38% 40,376 4.44%
Municipal securities (2) 844 5.20% 10,467 4.52% 3,960 4.75% 0 0.00% 15,271 4.62%
---- ---- ------- ---- ------ ---- ------- ---- ------- ----
Total $844 5.20% $39,775 3.58% $5,076 5.13% $49,093 4.53% $94,788 4.17%
==== ==== ======= ==== ====== ==== ======= ==== ======= ====
<FN>
(1) The maturity of mortgage-backed securities is based on contractual
maturity. The average expected life is approximately five years.
(2) Yields shown are taxable-equivalent.
</FN>
31
As of December 31, 2004 and 2003, securities carried at $5,763,000 and
$2,740,000, respectively, were pledged to secure public deposits as required by
law.
Total proceeds from the sale of securities available-for-sale during 2004, 2003
and 2002 were $4,322,000, $34,626,000 and $21,380,000, respectively. Gross gains
of $262,000, $637,000 and $399,000 were realized on those sales in 2004, 2003
and 2002, respectively.
32
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 2004 and 2003, the loan portfolio consisted of the following,
net of deferred loan fees of $1,485,000 and $1,248,000, respectively:
(In 000's)
2004 2003
-------- --------
Real estate loans $220,316 $163,088
Installment loans 36,339 28,860
Construction loans 27,595 35,205
Commercial loans secured by real estate 26,447 33,519
Commercial loans 67,068 45,991
-------- --------
377,765 306,663
Less allowance for loan losses 4,136 3,524
-------- --------
Total $373,629 $303,139
======== ========
There were no loans on nonaccrual status at December 31, 2004 or December 31,
2003. There was no interest foregone during 2004, 2003 or 2002. As of December
31, 2004 and 2003, there were no loans 90 days or more past due but still
accruing interest. There were no restructured loans during 2004 or 2003.
Changes in the allowance for loan losses are as follows:
(In 000's)
2004 2003 2002
------- ------- -------
Balance, beginning of year $ 3,524 $ 3,290 $ 2,717
Provision for loan losses 620 238 576
Loans charged off (100) (12) (10)
Recoveries of loans previously
charged off 92 8 7
------- ------- -------
Balance, end of year $ 4,136 $ 3,524 $ 3,290
======= ======= =======
As of December 31, 2004, 2003 and 2002 there were no impaired loans.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful, in which
case payments received are recorded as reductions of principal.
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 2004 and 2003 consisted of the following:
(In 000's)
Accumulated Net
Depreciation Book
Cost & Amortization Value
------- -------------- -------
2004
- ----
Land $ 2,800 $ 0 $ 2,800
Premises 5,223 1,119 4,104
Furniture, fixtures and equipment 8,537 6,102 2,435
Leasehold improvements 1,869 872 997
------- ------- -------
Total $18,429 $ 8,093 $10,336
======= ======= =======
2003
- ----
Land $ 2,800 $ 0 $ 2,800
Premises 5,080 944 4,136
Furniture, fixtures and equipment 7,803 4,888 2,915
Leasehold improvements 1,707 649 1,058
------- ------- -------
Total $17,390 $ 6,481 $10,909
======= ======= =======
33
Depreciation and amortization expense, included in occupancy expense and
equipment expense, was $1,628,000, $1,569,000 and $1,441,000 in 2004, 2003 and
2002, respectively.
(5) COMMITMENTS AND CONTINGENCIES
The Company leases premises for their various offices. Total rent on such leases
was $833,000, $662,000 and $374,000 in 2004, 2003 and 2002, respectively, and is
included in occupancy and equipment expenses. The total commitments under
non-cancelable operating leases are as follows:
(In 000's)
Year Total
---- -----
2005 $ 769
2006 687
2007 581
2008 479
2009 383
Thereafter 1,071
------
Future minimum lease payments $3,970
======
(6) DEPOSITS
Following is a summary of deposits at December 31, 2004 and 2003:
(In 000's)
2004 2003
-------- --------
Non-interest bearing demand $127,250 $103,401
NOW and savings 151,053 132,570
Money market 128,884 98,074
Time certificates of deposit:
Denominations of less than $100,000 33,712 37,110
Denominations of $100,000 or more 43,594 35,290
-------- --------
Total $484,493 $406,445
======== ========
Interest expense on time certificates of deposits greater than $100,000 was
$785,000, $757,000 and $893,000 for 2004, 2003 and 2002, respectively.
At December 31, 2004, the scheduled maturities of total time deposits are as
follows:
(In 000's)
Year Total
---- -----
2005 $60,323
2006 10,236
2007 3,202
2008 2,078
2009 1,467
-------
Total $77,306
=======
(7) BORROWINGS
Total borrowings were $19 million at December 31, 2004. The following table
summarizes the borrowings:
Fixed Rate Borrowings at December 31, 2004
($ in 000's)
Amount Maturity Date Interest Rate
------ ------------- -------------
Federal Home Loan Bank Advance $ 5,000 4-17-2006 2.24%
Federal Home Loan Bank Advance 5,000 4-16-2007 2.83%
Federal Home Loan Bank Advance 9,000 4-14-2008 3.23%
-------
Total $19,000
Weighted average interest rate 2.86%
34
There were no short-term borrowings at December 31, 2004 or December 31, 2003.
Short-term borrowings consist primarily of federal funds purchased and
borrowings from the Federal Home Loan Bank of San Francisco (FHLB). The Company
maintains collateralized lines of credit with the FHLB. The Company pledges both
loans and investment securities to FHLB as needed to secure borrowings. At
December 31, 2004 $19,833,000 in investment securities were pledged to the FHLB.
There were no loans pledged to secure borrowings at December 31, 2004 or 2003.
Based on the FHLB stock requirements at December 31, 2004, these lines provided
for maximum borrowings of approximately $123.3 million; the Company also has
available unused unsecured lines of credit totaling $17.5 million for federal
funds transactions at December 31, 2004.
On June 26, 2002, the Company formed North Bay Statutory Trust I (Trust), a
Connecticut statutory business trust, for the purpose of issuing guaranteed
undivided beneficial interests in junior subordinated debentures (trust
preferred securities). During June 2002, the Trust issued $10 million in
floating rate Cumulative Trust Preferred Securities (Securities). The Securities
bear interest at a rate of Libor plus 3.45% and had an initial interest rate of
5.34%; as of December 31, 2004 the interest rate was 6.00%; the Securities will
mature on June 26, 2032, but earlier redemption is permitted under certain
circumstances, such as changes in tax or regulatory capital rules.
The junior subordinated debenture issued by the Trust is redeemable in whole or
in part on or after June 26, 2007, or at any time in whole, but not in part,
upon the occurrence of certain events. The Securities are included in Tier 1
capital for regulatory capital adequacy determination purposes, subject to
certain limitations. The Company fully and unconditionally guarantees the
obligations of the Trust with respect to the issuance of the Securities.
Subject to certain exceptions and limitations, the Company may, from time to
time, defer the junior subordinated debenture interest payments, which would
result in a deferral of distribution payments on the Securities and, with
certain exceptions, prevent the Company from declaring or paying cash
distributions on the Company's common stock or debt securities that rank junior
to the junior subordinated debentures.
(8) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Banks make commitments to extend credit in the normal course of business to
meet the financing needs of their customers. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements.
The Banks are exposed to credit loss, in the event of non-performance by the
borrower, in the contract amount of the commitment. The Banks use the same
credit policies in making commitments as they do for on-balance-sheet
instruments and evaluate each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Banks, are
based on management's credit evaluation of the borrower. Collateral held varies,
but may include accounts receivable, inventory, plant and equipment and real
property.
The Banks also issue standby letters of credit, which are conditional
commitments to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support construction bonds, private borrowing
arrangements and similar transactions. Most of these guarantees are short-term
commitments expiring in decreasing amounts through 2009 and are not expected to
be drawn upon. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Banks hold collateral as deemed necessary, as described above.
The contract amounts of commitments not reflected on the Balance Sheet at
December 31, 2004 and 2003 were as follows:
(In 000's)
Contractual Amounts
-------------------
2004 2003
-------- -------
Loan commitments $106,883 $86,984
Standby letters of credit $ 2,391 $ 1,108
35
The Banks issue both financial and performance standby letters of credit. The
financial standby letters of credit are primarily to guarantee payment to third
parties. At December 31, 2004 there was $1,601,000 issued in financial standby
letters of credit and the Banks carried no liability. The performance standby
letters of credit are typically issued to municipalities as specific performance
bonds. At December 31, 2004 there was $790,000 issued in performance standby
letters of credit and the Banks carried no liability. The terms of the
guarantees will expire primarily in 2005 with 4% expiring in 2006, 4% expiring
in 2007, and 13% expiring in 2008. The Banks have experienced no draws on these
letters of credit, and do not expect to in the future; however, should a
triggering event occur, the Banks either have collateral in excess of the letter
of credit or imbedded agreements of recourse from the customer.
(9) CONCENTRATIONS OF CREDIT RISKS
The majority of the Banks' loan activity is with customers located in
California, primarily in the counties of Napa and Solano. Although the Banks'
have a diversified loan portfolio, a large portion of their loans are for
commercial property, and many of the Banks' loans are secured by real estate in
Napa and Solano County. Approximately 76% of the loans are secured by real
estate. This concentration is presented below:
(In 000's)
December 31, 2004
-----------------
Construction/land development:
Land development $ 5,274
Residential 4,458
Commercial 17,310
Real estate 220,315
Commercial loans secured by real estate 26,447
Installment loans secured by real estate 32,271
--------
Total $306,075
========
(10) INCOME TAXES
The provision (benefit) for federal and state income taxes for the years ended
December 31, 2004, 2003 and 2002 consisted of:
(In 000's)
2004 2003 2002
------- ------- -------
Current
Federal $ 2,186 $ 1,521 $ 1,712
State 1,011 602 685
------- ------- -------
3,197 2,123 2,397
Deferred
Federal (13) 70 (297)
State (164) (14) (101)
------- ------- -------
(177) 56 (398)
------- ------- -------
Total $ 3,020 $ 2,179 $ 1,999
======= ======= =======
36
Deferred tax assets and liabilities result from differences in the timing of the
recognition of certain income and expense items for tax and financial accounting
purposes. The sources of these differences and the amount of each are as follows
as of December 31, 2004 and 2003:
(In 000's)
2004 2003
------ ------
Deferred tax assets:
Allowance for loan losses $1,690 $1,398
Deferred compensation 658 512
State income tax 301 213
------ ------
$2,649 $2,123
------ ------
Deferred tax liabilities:
Unrealized gain on securities $ 113 $ 433
Accumulated accretion 189 162
Depreciation 147 139
Leases 287 0
Other 89 61
------ ------
$ 825 $ 795
------ ------
Net deferred tax asset $1,824 $1,328
====== ======
The Company believes that a valuation allowance is not needed to reduce the
deferred tax assets as it is more likely than not that the deferred tax assets
will be realized through recovery of taxes previously paid and/or future taxable
income.
The total tax differs from the federal statutory rate of 34% because of the
following:
(In 000's)
2004 2003 2002
------------------ ------------------- ------------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Tax provision at statutory rate $ 2,748 34.0% $ 2,227 34.0% $ 1,940 34.0%
Interest on obligations of
states and political
subdivisions exempt from
federal taxation (192) (2.4%) (233) (3.5%) (191) (3.3%)
State franchise taxes 559 6.9% 382 5.8% 385 6.7%
Life insurance policies (121) (1.5%) (115) (1.8%) (133) (2.3%)
Other, net 26 .4% (82) (1.2%) (2) (.1%)
------- ---- ------- ---- ------- ----
Total $ 3,020 37.4% $ 2,179 33.3% $ 1,999 35.0%
======= ==== ======= ==== ======= ====
(11) DIVIDEND RESTRICTIONS
The Company is regulated by the Board of Governors of the Federal Reserve
System. Federal Reserve Board regulations prohibit cash dividends, except under
limited circumstances, if the distribution would result in a withdrawal of
capital or exceed the Bancorp's net profits then on hand after deducting its
losses and bad debts. Furthermore, cash dividends cannot be paid without the
prior written approval of the Federal Reserve Board if the total of all
dividends declared in one year exceeds the total of net profits for that year,
plus the preceding two calendar years, and less any required transfers to
surplus under state or federal law.
The shareholders of North Bay Bancorp are entitled to receive dividends when and
as declared by its Board of Directors out of funds legally available, subject to
the restrictions set forth in the California General Corporation Law. The
Corporation Law provides that a corporation may make a distribution to its
shareholders if the corporation's retained earnings equal at least the amount of
the proposed distribution. The Corporation Law further provides that, in the
event that sufficient retained earnings are not available for the proposed
distribution, a corporation may nevertheless make a distribution to its
shareholders if it meets two conditions, which generally stated are as follows:
1) the corporation's assets equal at least 1.25 times its liabilities; and 2)
the corporation's current assets equal at least its current liabilities or, if
the average of the corporation's earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the corporation's interest expense for such fiscal years, then the corporation's
37
current assets must equal at least 1.25 times its current liabilities. The
Company could also be restricted from declaring or paying cash dividend if it
elected to defer interest payments on the subordinated debenture.
One of the primary sources of income for the Company, on a stand-alone basis, is
the management fees charged to Banks. The availability of dividends from the
Banks is limited by various statutes and regulations. California law restricts
the amount available for cash dividends by state-chartered banks to the lesser
of retained earning or the bank's net income for its last three fiscal years
(less any distributions to shareholders made during such period). In the event a
bank is unable to pay cash dividends due to insufficient retained earnings or
net income for its last three fiscal years, cash dividends may be paid under
certain circumstances with the prior approval of the California Department of
Financial Institutions (the "DFI").
(12) SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
The Company declared 5% stock dividends on January 28, 2002, January 27, 2003,
January 26, 2004 and January 24, 2005, as well as a 3-for-2 stock split November
22, 2004. As a result of the stock dividends, the number of common shares
outstanding and per share data was adjusted retroactively for all periods
presented in the following tables. In 2004 the effect of 1,158 outstanding
options have been excluded from the calculation of diluted earnings per share as
their inclusion would be anti-dilutive. There were no shares considered
anti-dilutive in 2002 or 2003.
The following table reconciles the numerator and denominator of the Basic and
Diluted earnings per share computations:
(In 000's except share data)
Weighted Average Per-Share
Net Income Shares Amount
---------- ------ ------
For the year ended 2004
-----------------------
Basic earnings per share $5,064 3,820,386 $1.33
Stock options 99,774
Diluted earnings per share 3,920,160 $1.29
For the year ended 2003
-----------------------
Basic earnings per share $4,371 3,751,796 $1.16
Stock options 90,580
Diluted earnings per share 3,842,376 $1.14
For the year ended 2002
-----------------------
Basic earnings per share $3,708 3,643,701 $1.02
Stock options 90,961
Diluted earnings per share 3,734,662 $.99
(13) OTHER NONINTEREST INCOME AND EXPENSE
The components of Other Noninterest Income for the years ended December 31,
2004, 2003 and 2002 were as follows:
(In 000's)
2004 2003 2002
------ ------ ------
ATM surcharge $ 371 $ 279 $ 294
Increase of cash value on
insurance policies 357 338 393
Merchant services income 433 293 280
Commission on sale of non-
deposit products 247 214 204
Commission on sale of
mortgage products 45 232 0
Other 234 209 220
------ ------ ------
Total $1,687 $1,565 $1,391
====== ====== ======
38
The components of Other Noninterest Expense for the years ended December 31,
2004, 2003 and 2002 were as follows:
(In 000's)
2004 2003 2002
------ ------ ------
Professional services $1,240 $1,387 $ 830
Business promotions 658 554 525
Stationary & supplies 393 380 318
Insurance 320 224 188
Other 2,427 1,983 1,771
------ ------ ------
Total $5,038 $4,528 $3,632
====== ====== ======
(14) STOCK OPTION PLAN
The Company has a stock option plan under which it may grant up to 1,373,070
options. The Company has granted 1,285,229 options through December 31, 2004.
The option exercise price equals the stock's market price on the date of grant.
The options become exercisable over four or five years and expire in five or
more years. The equity compensation plans have been approved by the security
holders.
A summary of the status of the Company's stock option plan at December 31, 2004,
2003 and 2002 and stock option activity during the years then ended is presented
in the table below:
2004 2003 2002
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- --------- ------- ---------
Outstanding at
beginning of year 501,596 $ 13.21 475,554 $ 11.11 557,768 $ 9.97
Granted 139,624 $ 22.16 136,616 $ 15.90 51,225 $ 14.72
Exercised (44,527) $ 6.97 (81,789) $ 7.46 (124,985) $ 6.93
Cancelled (8,685) $ 9.03 (28,785) $ 10.07 (28,453) $ 11.30
Outstanding at
end of year 588,008 $ 15.48 501,596 $ 13.21 475,554 $ 11.11
Exercisable at
end of year 270,388 $ 13.53 189,595 $ 11.70 169,111 $ 10.42
Weighted-average
fair value of
options granted
during the year -- $ 7.29 -- $ 6.16 -- $ 6.94
The following table summarizes information about stock options outstanding at
December 31, 2004:
Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------------------
Weighted-Average
Range Number Remaining Weighted-Average Number Exercisable Weighted-Average
of Outstanding Contractual Exercise at Exercise
Exercise Prices at 12/31/04 (Life in years) Price 12/31/04 Price
--------------- ----------- --------------- ----- -------- -----
$10.42 to $12.13 230,862 .58 $11.59 175,022 $11.65
$10.70 to $17.98 217,522 3.40 $15.32 61,897 $14.16
$19.99 to $25.97 139,624 4.91 $22.16 33,469 $22.22
------- -------
588,008 270,388
======= =======
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2004, 2003 and 2002, respectively: risk-free
interest rate of 2.98%, 3.36% and 3.72% for options issued in 2004; 2.48%,
39
2.66%, 2.82%, 3.27% 3.37%, 3.46% and 3.55% for options issued in 2003; and 4.07%
and 3.25% for options issued in 2002; expected dividend yields of .60%, .73% and
..80%; expected lives of 5 years and expected volatility of 18.16%, 16.08% and
21.67%.
(15) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Banks make loans to directors, officers
and principal shareholders on substantially the same terms, including interest
rates and collateral, as those for comparable transactions with unaffiliated
persons. An analysis of net loans to related parties for the year ended December
31, 2004 is as follows:
(In 000's)
Balance at beginning of year $10,157
Additions 8,721
Repayments 4,460
--------
Balance at end of year $14,418
=======
Total undisbursed commitments as of December 31, 2004 were $4,442,000.
A law firm in which one of the Company's directors and one of its officers are
principals serves as the Company's general counsel. During 2004, 2003 and 2002
fees of $195,000, $196,000 and $165,000, respectively, were paid to this firm.
(16) RESTRICTIONS
The Banks are required to maintain reserves with the Federal Reserve Bank of San
Francisco equal to a percentage of its reservable deposits. Reserve balances
that were required by the Federal Reserve Bank were $25,000 for December 31,
2004 and 2003, respectively, and are reported in cash and due from banks on the
balance sheet.
(17) RETIREMENT PLANS
The Company has a Profit Sharing and Salary Deferral 401(K) Plan to enable its
employees to share in the Company's profits and to defer receipt of a portion of
their salaries. Employees can defer up to 15% of their base pay, up to the
maximum amount allowed by the Internal Revenue Code. In addition, the Company
makes discretionary contributions to the profit sharing account and the 401(K)
account, which are determined by the Board of Directors each year. Amounts
charged to operating expenses under this plan representing the Company's
contribution were $301,000, $415,000 and $263,000 for the years ended December
31, 2004, 2003 and 2002, respectively.
The Company has a Director's Supplemental Retirement Program. The Program
contains a non-qualified defined benefit plan. Directors and select officers
designated by the Board of Directors of the Company are covered by this plan.
The plan is unfunded, however the Company has purchased bank owned life
insurance on the lives of the participants and expects to use the death benefit
of these policies to pay the obligation in event the participants death precedes
retirement. Management's intentions are to hold the policies as an investment
until the death of the insured. Cash values for these policies at December 31,
2004 were $3,353,000. At December 31, 2004 $473,000 was carried as a liability
to fund the benefit. The program provides a death benefit to beneficiaries of a
deceased participant.
The Company has an Executive Officer Supplemental Retirement Plan. The Executive
Supplemental Compensation Agreements entered into with select executive officers
of the Company pursuant to the Plan provide for a defined cash benefit payable
monthly upon retirement upon reaching age 65 (or upon or after age 62 with a
reduced benefit). Benefits under these agreements vest over five year periods at
the rate of 20% per year after five years' of service with credit for up to five
years of prior service. The plan is unfunded, however the Company has purchased
bank owned life insurance on the lives of the participants and expects to use
the death benefit of these policies to pay the obligation in event the
participants death precedes retirement. Management's intentions are to hold the
policies as an investment until the death of the insured. Cash values for these
policies at December 31, 2004 were $3,259,000. At December 31, 2004 $449,000 was
carried as a liability to fund the benefit. The Plan also provides a life
insurance benefit to the designated beneficiary of the participants upon their
death pursuant to the Executive Officer Endorsement Method Split Dollar Life
Insurance component of the Plan.
40
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 2004 and 2003:
(In 000's)
2004 2003
--------------------------- ----------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents $ 60,207 $ 60,207 $ 37,951 $ 37,951
Time deposits with other
financial institutions 100 100 100 100
Investment securities 99,383 99,383 92,006 92,006
Loans, net 373,629 373,264 303,139 305,874
Accrued interest receivable 2,244 2,244 2,051 2,051
Financial liabilities:
Deposits $484,493 $484,277 $406,445 $406,209
Borrowings 19,000 19,889 0 0
Junior subordinate debentures 10,310 10,310 10,000 10,000
Accrued interest payable 404 404 237 237
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and cash equivalents - Cash and cash equivalents are valued at their
carrying amounts because of the short-term nature of these instruments.
Investment securities - Investment securities are valued at quoted market
prices. See Note 2 for further analysis.
Loans - Loans with variable interest rates are valued at the current carrying
value, because these loans are regularly adjusted to market rates. The fair
value of fixed rate loans is estimated by discounting the future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings for the same remaining maturities. The fair value of
impaired loans is stated net of the related valuation allowance, if any.
Accrued interest receivable and payable - The balance approximates its fair
value as these instruments have short-term maturities
Deposits, time deposits with other banks - The fair value of demand deposits,
savings accounts and interest-bearing transaction accounts is the amount payable
on demand at the reporting date. The fair value of time deposits is estimated by
discounting the contractual cash flows at current rates offered for similar
instruments with the same remaining maturities.
Borrowings - The fair value of borrowings is estimated by discounting the
contractual cash flows at current rates offered for similar instruments with the
same remaining maturities.
Junior subordinated debentures - The balance approximates its fair value due to
the structure having frequent repricing interest rate.
Off balance sheet items - The estimated fair value of the Company's off balance
sheet items are not material to the fair value of financial instruments included
in the consolidated balance sheets.
41
(19) COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss) for the years
ended December 31, 2004, 2003 and 2002 are reported as follows:
(In 000's)
2004 2003 2002
----- ----- ----
Unrealized holding (loss) gain arising during the period,
net of tax benefit of
$318 and $523 for 2004 and 2003,
respectively, and tax expense of $562 for 2002. ($294) ($363) $1,024
Reclassification adjustment for net realized gains on securities
available-for-sale included in net income during the
year, net of tax expense of $109, $265 and $166 for
2004, 2003 and 2002, respectively. (153) (373) (233)
----- ----- ----
Other comprehensive (loss) income ($447) ($736) $791
====== ====== ====
(20) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements. Failure to
meet minimum capital requirements can initiate certain mandatory--and possible
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 2004, that
the Company meets all capital adequacy requirements to which it is subject.
As of December 31, 2004 the Company was well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since December 31, 2004 that management believes have changed the institution's
category.
42
The Company's actual capital amounts and ratios are also presented in thousands
in the following tables:
(In 000's)
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2004:
Total capital (to risk
weighted assets)
Consolidated $58,216 12.49% $37,280 >8.00% $46,600 >10.00%
- -
The Vintage Bank 41,169 11.57% 28,458 >8.00% 35,573 >10.00%
- -
Solano Bank 12,004 10.93% 8,785 >8.00% 10,981 >10.00%
- -
Tier I capital (to risk
weighted assets)
Consolidated 53,973 11.58% 18,640 >4.00% 27,960 >6.00%
- -
The Vintage Bank 37,949 10.67% 14,229 >4.00% 21,344 >6.00%
- -
Solano Bank 10,981 10.00% 4,392 >4.00% 6,589 >6.00%
- -
Tier I capital (to
average assets)
Consolidated 53,973 9.38% 23,010 >4.00% 28,763 >5.00%
- -
The Vintage Bank 37,949 8.43% 18,004 >4.00% 22,506 >5.00%
- -
Solano Bank 10,981 9.31% 4,716 >4.00% 5,895 >5.00%
- -
(In 000's)
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2003:
Total capital (to risk
weighted assets)
Consolidated $52,356 13.47% $31,089 >8.00% $38,861 >10.00%
- -
The Vintage Bank 34,321 11.07% 24,806 >8.00% 31,007 >10.00%
- -
Solano Bank 8,029 10.70% 6,001 >8.00% 7,501 >10.00%
- -
Tier I capital (to risk
weighted assets)
Consolidated 48,833 12.57% 15,544 >4.00% 23,316 >6.00%
- -
The Vintage Bank 31,442 10.14% 12,403 >4.00% 18,604 >6.00%
- -
Solano Bank 7,385 9.84% 3,001 >4.00% 4,501 >6.00%
- -
Tier I capital (to
average assets)
Consolidated 48,833 10.61% 18,408 >4.00% 23,010 >5.00%
- -
The Vintage Bank 31,442 8.66% 14,517 >4.00% 18,146 >5.00%
- -
Solano Bank 7,385 8.82% 3,350 >4.00% 4,187 >5.00%
- -
43
(21) FINANCIAL STATEMENTS OF NORTH BAY BANCORP (Parent Company Only)
For the Years Ended December 31, 2004, 2003 and 2002
CONDENSED BALANCE SHEETS
(In 000's except share data)
2004 2003
------- -------
Assets
Cash and due from banks $ 5,167 $ 2,949
Available-for-sale investment securities 0 6,503
Investment in The Vintage Bank 38,122 32,010
Investment in Solano Bank 10,969 7,407
Investment in North Bay Statutory Trust 1 310 310
Premises and equipment, net 0 1,761
Other assets 150 461
------- -------
Total assets $54,718 $51,401
======= =======
Liabilities and shareholders' equity
Floating rate subordinated
debenture (trust preferred securities) $10,310 $10,310
Other liabilities 274 1,650
------- -------
Total liabilities 10,584 11,960
Shareholders' equity
Preferred stock, no par value - Authorized 500,000 shares
Issued and outstanding - None
Common stock, no par value - Authorized 15,000,000 shares
Issued and outstanding - 3,641,289 shares in 2004 and
3,428,469 shares in 2003 33,473 29,210
Retained earnings 10,500 9,623
Accumulated other comprehensive income 161 608
------- -------
Total shareholders' equity 44,134 39,441
Total liabilities and shareholders' equity $54,718 $51,401
======= =======
CONDENSED INCOME STATEMENTS
(In 000's)
2004 2003 2002
-------- -------- --------
Income
Interest on investment securities $ 74 $ 123 $ 41
Dividends from subsidiaries 0 0 0
Service fees from subsidiaries 5,231 6,177 5,681
-------- -------- --------
Total income 5,305 6,300 5,722
Expenses
Interest on borrowings 559 531 339
Salaries and related benefits 4,441 4,104 3,836
Other expenses 3,760 3,342 2,910
-------- -------- --------
Total expenses 8,760 7,977 7,085
Net (loss) income before tax benefit and equity in
net income of subsidiaries (3,455) (1,677) (1,363)
Tax benefit 1,415 642 574
-------- -------- --------
Net (loss) income before equity in undistributed net income of subsidiaries (2,040) (1,035) (789)
Equity in undistributed net income of subsidiaries 7,104 5,406 4,497
-------- -------- --------
Net income $ 5,064 $ 4,371 $ 3,708
======== ======== ========
44
CONDENSED STATEMENTS OF CASH FLOWS
(In 000's)
2004 2003 2002
-------- -------- --------
Cash Flows From Operating Activities:
Net income $ 5,064 $ 4,371 $ 3,708
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 823 812 737
Amortization of investment securities
premiums, net 71 117 5
Equity in undistributed net income of subsidiaries (7,104) (5,406) (4,497)
Changes in:
Interest receivable and other assets 326 (35) (288)
Interest payable and other liabilities (1,311) 533 469
-------- -------- --------
Net cash provided by operating activities (2,131) 392 134
-------- -------- --------
Cash Flows From Investing Activities:
Investment in Solano Bank (3,000) 0 0
Investment securities available for sale:
Proceeds from maturities and principal payments 6,400 785 201
Purchases 0 (4,573) (3,006)
Sale and disposition of capital assets 1,335 0 0
Capital expenditures (397) (779) (1,340)
-------- -------- --------
Net cash used in investing activities 4,338 (4,567) (4,145)
-------- -------- --------
Cash Flows From Financing Activities:
Decrease in long-term borrowings, net 0 0 (1,846)
Proceeds from issuance of trust preferred securities 0 0 10,310
Stock options exercised 492 644 909
Dividends (481) (441) (407)
-------- -------- --------
Net cash provided by (used in) financing activities 11 203 8,966
-------- -------- --------
Net (decrease) increase in cash and cash equivalents 2,218 (3,972) 4,955
Cash and cash equivalents at beginning of year 2,949 6,921 1,966
-------- -------- --------
Cash and cash equivalents at end of year $ 5,167 $ 2,949 $ 6,921
======== ======== ========
45
(22) SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the results of operation for the four quarters
unaudited of 2004, 2003 and 2002. All per share amounts have been adjusted for
the 2002, 2003, 2004 and 2005 stock dividends, as well as the 3-for-2 stock
split in 2004.
(In 000's except share data)
2004 Quarters Ended
--------------------------------------------------------------------
December 31, September 30, June 30, March 31,
------------ ------------- -------- ---------
Interest income $7,405 $6,822 $6,294 $6,064
Interest expense 1,035 961 859 688
------ ------ ------ ------
Net interest income 6,370 5,861 5,435 5,376
Provision for loan losses 80 180 174 186
------ ------ ------ ------
Net interest income after 6,290 5,681 5,261 5,190
provision for loan losses
Noninterest income 969 986 1,257 986
Noninterest expense 4,701 4,667 4,571 4,597
------ ------ ------ ------
Income before provision for 2,558 2,000 1,947 1,579
income taxes
Provision for income taxes 986 750 740 544
------ ------ ------ ------
Net income $1,572 $1,250 $1,207 $1,035
====== ====== ====== ======
Basic earnings per share: $ .41 $ .33 $ .32 $ .27
Diluted earnings per share: $ .39 $ .32 $ .31 $ .27
2003 Quarters Ended
--------------------------------------------------------------------
December 31, September 30, June 30, March 31,
------------ ------------- -------- ---------
Interest income $5,842 $5,554 $5,494 $5,361
Interest expense 667 681 819 828
------ ------ ------ ------
Net interest income 5,175 4,873 4,675 4,533
Provision for loan losses 103 45 45 45
------ ------ ------ ------
Net Interest Income after 5,072 4,828 4,630 4,488
provision for loan losses
Noninterest income 925 1,055 1,059 808
Noninterest expense 3,722 4,267 4,311 4,015
------ ------ ------ ------
Income before provision for 2,275 1,616 1,378 1,281
income taxes
Provision for income taxes 975 452 366 386
------ ------ ------ ------
Net income $1,300 $1,164 $1,012 $ 895
====== ====== ====== ======
Basic earnings per share: $ .34 $ .30 $ .27 $ .24
Diluted earnings per share: $ .34 $ .30 $ .27 $ .23
46
2002 Quarters Ended
--------------------------------------------------------------------
December 31, September 30, June 30, March 31,
------------ ------------- -------- ---------
Interest income $5,638 $5,495 $5,173 $4,873
Interest expense 988 1,012 841 850
------ ------ ------ ------
Net interest income 4,650 4,483 4,332 4,023
Provision for loan losses 144 144 144 144
------ ------ ------ ------
Net Interest Income after 4,506 4,339 4,188 3,879
provision for loan losses
Noninterest income 1,036 731 645 699
Noninterest expense 3,797 3,697 3,455 3,367
------ ------ ------ ------
Income before provision for 1,745 1,373 1,378 1,211
income taxes
Provision for income taxes 619 446 501 433
------ ------ ------ ------
Net income $1,126 $ 927 $ 877 $ 778
====== ====== ====== ======
Basic earnings per share: $ .30 $ .25 $ .24 $ .22
Diluted earnings per share: $ .30 $ .25 $ .23 $ .22
47
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
North Bay Bancorp:
We have audited the accompanying consolidated balance sheets of North Bay
Bancorp and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of North Bay Bancorp
and subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2004 in conformity with U.S. generally accepted accounting.
/s/ KPMG LLP
San Francisco, California
March 22, 2005
48
- -------------------------------------------------------------------------------------------------------------
DIRECTORS
- -------------------------------------------------------------------------------------------------------------
NORTH BAY BANCORP
Lauren A. Ackerman Marketing Consultant
John B. Anthony, III CEO, Anthony Industries, Inc. DBA 7 Flags Car Washes
Thomas N. Gavin Partner, Gavin & Schreiner, New York Life Insurance Agency
David B. Gaw, Chairman Partner/Attorney with Gaw, Van Male, Smith, Myers & Miroglio
A Professional Law Corporation
Fred J. Hearn, Jr. Chief Executive Officer
Hearn Pacific Corporation dba Hearn Construction
Conrad W. Hewitt Retired, Commissioner of California State Department of Financial
Institutions
Connie L. Klimisch CEO, Klimisch's, Inc.
Richard S. Long, Vice Chairman Chief Executive Officer, Regulus Group, LLC
Thomas H. Lowenstein President, North Bay Plywood
Thomas F. Malloy Retired Partner, Malloy Imrie & Vasconi Insurance Services LLC
Andrew J. Nicks, M D Partner, Radiology Medical Group of Napa
Terry L. Robinson President & Chief Executive Officer, North Bay Bancorp
Thomas H. Shelton Pres/CEO, Joseph Phelps Vineyards
Stephen C. Spencer President, Solano Gateway Realty
Denise C. Suihkonen Partner, Suihkonen CPAs & Consultants, LLP
James E. Tidgewell Managing Partner/CPA, G & J Seiberlich & Co LLP
CORPORATE SECRETARY
Wyman G. Smith Partner/Attorney with Gaw, Van Male, Smith, Myers & Miroglio A
Professional Law Corporation
Directors Emeritus
Sandi Funseth
Houghton Gifford, M D
Harlan R. Kurtz
Joseph Vallerga
49
- --------------------------------------------------------------------------------
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Corporate Headquarters
1190 Airport Road, Suite 101
Napa, CA 94558
The Vintage Bank Office Locations:
Main Office
1500 Soscol Avenue
Napa, CA 94559-1314
3271 Browns Valley Road
Napa, CA 94558-5499
3626 Bel Aire Plaza
Napa, CA 94558-2831
1065 Main Street
St. Helena, CA 94574
1190 Airport Road, Suite 100
Napa, CA 94558
3417 Broadway, Suite J2
American Canyon, CA 94503
Solano Bank Office Locations:
403 Davis Street
Vacaville, CA 95688
1411 Oliver Road
Fairfield, CA 94534
1395 E. Second Street
Benicia, CA 94510
976 A Admiral Callaghan Lane
Vallejo, CA 94591
Shareholder Information:
Trading Nasdaq NMS - Symbol NBAN
Transfer Agent Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
1 (800) 368-5948
Notice of Annual Meeting COPIA 500
First Street Napa, CA 94559
May 12, 2005- 6:00 p.m.
Market Makers Hoefer & Arnett
353 Sacramento Street, 10th Floor
San Francisco, CA 94111
1 (800) 346-5544
Keefe, Bruyette & Woods, Inc.
235 Pine St., Suite 1818
San Francisco, CA +4104
Wedbush Morgan Securities
1300 S. W. Fifth Ave., Suite 2000
Portland, OR 97201
1 (800) 368-5948
50
General Counsel: Wyman G. Smith
Gaw, Van Male, Smith, Myers & Miroglio
1000 Main Street, Suite 300
Napa, CA 94559
Corporate Secretary: Wyman G. Smith
For additional copies of this report or Pansy F. Smith
copies of the 10-K Report contact: Assistant Corporate Secretary
North Bay Bancorp
1190 Airport Road, Suite 101
Napa, CA 94558
(707) 252-5026
Registered Public Accounting Firm: KPMG LLP
55 Second Street, Suite 1400
San Francisco, CA 94105
Web Site: www.northbaybancorp.com
51