File No. 333-
As Filed with the Securities and Exchange Commission on December , 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under the Securities Act of 1933
NORTH BAY BANCORP
(Name of small business issuer in its charter)
California 6021 68-0434802
- ---------------------------- --------------------------- -------------------
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
or Organization) Classification Code Number) Identification No.)
1500 Soscol Avenue, Napa California 94559 (707) 257-8585
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(Address and telephone number of principal executive offices)
1500 Soscol Avenue, Napa California 94559
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(Address of principal place of business)
TERRY L. ROBINSON, PRESIDENT & CHIEF EXECUTIVE OFFICER
1500 Soscol Avenue, Napa California 94559 (707) 257-8585
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(Name, address and telephone of agent for service)
Copy to:
R. Brent Faye, Esq., Lillick & Charles LLP
2 Embarcadero Center, 27th Floor, San Francisco, California 94111 (415) 984-8365
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum Amount of registration
securities to be registered registered offering price per unit aggregate offering price fee
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Common Stock, No Par
Value (1) (2) $(2) $5,000,000 $1,390.00(3)
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<FN>
(1) This Registration Statement relates to new shares of Common Stock of the Registrant issuable to the public.
(2) To be provided by amendment.
(3) Pursuant to Rule 457(o), the registration fee was computed on the basis of the maximum offering price of securities being
offered.
</FN>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY PROSPECTUS DATED DECEMBER __, 1999
PROSPECTUS
NORTH BAY BANCORP
1500 SOSCOL AVENUE
NAPA, CALIFORNIA 94559
(707) 257-8585
___________________ Shares
Common stock, No Par Value
North Bay Bancorp is offering up to _________________shares of Common stock for
sale to the public at a price of $________ per share. The offering will be
conducted on a best efforts basis by the officers and directors of North Bay,
Vintage Bank, and the proposed directors of Solano County Bank (Proposed). See
"THE OFFERING."
The purpose of the offering is to raise funds for North Bay to invest in Solano
Bank, a proposed wholly-owned subsidiary of North Bay which intends to conduct a
banking business in Solano County, California and for general corporate
purposes.
North Bay will pay the expenses of registering the securities offered .
North Bay's common stock is publicly traded in the over-the-counter market under
the symbol NBAN and is not listed on any stock exchange or quoted on the NASDAQ.
On _____________, 2000, the last reported sales price of the common stock was
$____________.
Directors and officers of North Bay, Vintage Bank and the proposed directors of
Solano Bank have committed to purchase an aggregate of _______ shares in the
offering.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SECURITIES COMMISSION OF ANY STATE, OR ANY FEDERAL OR
STATE BANK REGULATORY AGENCY NOR HAS THE COMMISSION, ANY STATE SECURITIES
COMMISSION, OR ANY FEDERAL OR STATE BANK REGULATORY AGENCY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
FOR A DISCUSSION OF CERTAIN FACTORS IMPORTANT TO THE INVESTMENT DECISION, SEE
"RISK FACTORS" COMMENCING AT PAGE ___ OF THIS PROSPECTUS.
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Underwriting discounts Proceeds to issuer
Price to Public and commissions or other persons (1)
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Per Share of Common stock $ N/A $
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Total $5,000,000 N/A $5,000,000.
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<FN>
(1) Before deducting expenses payable by North Bay estimated at an aggregate of $__________.
</FN>
The date of this Prospectus is January ___, 2000
OTHER AVAILABLE INFORMATION
This prospectus is a part of a Registration Statement on Form SB-2
filed by North Bay with the Securities and Exchange Commission under the
Securities Act of 1933, as amended. The registration statement registers the
shares being offered for sale in the offering. For information in addition to
that contained in this prospectus, reference is made to the Registration
Statement, including the exhibits contained in the registration statement.
North Bay is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended and in accordance with that Act
files reports and other information with the Securities and Exchange Commission.
These reports, North Bay's Proxy Statements filed pursuant to Section 14(a) of
the 1934 Act, and other information filed by North Bay, including the
Registration Statement, can be inspected and copied at the Public Reference Room
of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at certain of its Regional Offices, including the Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, N.Y. 10048, and the
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, IL 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, Washington, D.C. 20549.
Prior to becoming the wholly-owned subsidiary of North Bay, Vintage
Bank was also subject to the requirements of the Exchange Act. Vintage Bank
filed these reports and its proxy statements with the Board of Governors of the
Federal Reserve System. These reports can be obtained at prescribed rates from
the Public Reference Section of the Federal Reserve System, Washington, D.C.
20549.
NO DEALER, SALESPERSON, AGENT OR OFFICER OF NORTH BAY OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY NORTH BAY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES,
OR AN OFFER OF SUCH SECURITIES TO A PERSON IN ANY STATE OR OTHER JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE OF THE SECURITIES COVERED BY THIS PROSPECTUS SHALL UNDER
ANY CIRCUMSTANCES IMPLY THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
THESE SECURITIES MAY NOT BE USED AS COLLATERAL TO SECURE A LOAN FROM
VINTAGE BANK OR FROM THE SOLANO BANK (PROPOSED) .
Until ______________, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
ii
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY...............................................................................................1
NORTH BAY AND THE BANKS.................................................................................1
THE OFFERING............................................................................................1
SELECTED FINANCIAL AND OTHER DATA................................................................................2
RISK FACTORS.....................................................................................................4
MARKET INFORMATION...............................................................................................7
THE OFFERING.....................................................................................................8
PLAN OF DISTRIBUTION.............................................................................................8
HANDLING OF STOCK SUBSCRIPTION FUNDS.............................................................................9
FEDERAL INCOME TAX CONSEQUENCES.................................................................................11
USE OF PROCEEDS.................................................................................................13
DETERMINATION OF OFFERING PRICE.................................................................................14
CAPITALIZATION..................................................................................................15
Statistical Data................................................................................................16
Distribution of Average Assets, Liabilities, and Shareholders Equity; Interest Rates and Interest Differential..16
VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............19
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998...................................................................19
FORWARD LOOKING STATEMENTS......................................................................................19
OVERVIEW........................................................................................................19
NET INTEREST INCOME.............................................................................................19
PROVISION AND ALLOWANCE FOR LOAN LOSSES.........................................................................20
NON-INTEREST INCOME.............................................................................................20
GAIN ON SECURITIES..............................................................................................20
NON-INTEREST EXPENSE............................................................................................20
INCOME TAXES....................................................................................................21
BALANCE SHEET...................................................................................................21
LIQUIDITY AND CAPITAL ADEQUACY..................................................................................21
YEAR 2000 READINESS DISCLOSURE..................................................................................21
YEARS ENDED DECEMBER 31, 1998 ,1997 and 1996....................................................................24
OVERVIEW........................................................................................................24
SUMMARY OF EARNINGS.............................................................................................24
BUSINESS........................................................................................................29
TIME DEPOSITS...................................................................................................41
RETURN ON EQUITY AND ASSETS.....................................................................................41
COMPETITION.....................................................................................................43
SUPERVISION AND REGULATION......................................................................................44
MANAGEMENT......................................................................................................47
Directors.......................................................................................................47
Executive Officers..............................................................................................47
SECURITY OWNERSHIP OF MANAGEMENT................................................................................51
VINTAGE BANK....................................................................................................54
Summary Executive Compensation Table............................................................................54
OTHER INFORMATION REGARDING MANAGEMENT..........................................................................60
PRINCIPAL SHAREHOLDERS..........................................................................................63
LEGAL PROCEEDINGS...............................................................................................67
LEGAL MATTERS...................................................................................................67
EXPERTS.........................................................................................................67
INDEX TO FINANCIAL STATEMENTS...................................................................................68
iii
PROSPECTUS SUMMARY
The following provides a selective summary of the information contained in this
prospectus and is qualified in its entirety by the information and financial
statements appearing elsewhere in the prospectus. Potential purchasers are urged
to read the entire prospectus carefully, and to give particular attention to the
section entitled "RISK FACTORS" before making any decision to purchase any of
the shares being offered for sale.
NORTH BAY AND THE BANKS
North Bay Bancorp. North Bay, headquartered in Napa, California, became the bank
holding company of Vintage Bank on November 1, 1999 through a corporate
reorganization. In the reorganization, Vintage Bank became the wholly-owned
subsidiary of North Bay and the shareholders of Vintage Bank before the
reorganization became shareholders of North Bay. Currently all operations of
North Bay are conducted through Vintage Bank.
Vintage Bank. Vintage Bank is a California corporation organized as a state
chartered bank in 1984. It engages in commercial banking business in Napa
County, from its main banking office located at 1500 Soscol Avenue in Napa,
California and from its two branches located at 3271 Browns Valley Road and at
3626 Bel Aire Plaza, Napa, California. Vintage Bank is a member of the Federal
Reserve System and its deposits are insured by the FDIC to the maximum extent
permitted by law. As of September 30, 1999, Vintage Bank had total assets of
$197.7 million, total loans of $117.2 million, and total deposits of $173.9
million.
Solano Bank (Proposed). North Bay has filed an application with the California
Department of Financial Institutions for permission to organize a new state
chartered bank in Solano County, California. If approved, Solano Bank will be a
member of the Federal Reserve System and headquartered in Fairfield, California
with branches in Vacaville and Benicia, California. It will be a wholly-owned
subsidiary of North Bay.
THE OFFERING
Class of Securities ....................... Common stock, no par value
Common stock outstanding
prior to this Offering .................... __________________ shares
Number of Shares Available
in this Offering ......................... __________________ shares
Maximum Common stock to be outstanding
upon completion of this Offering .......... _________________ shares
Offering Price Per Share .................. $_______
Minimum Purchase .......................... ______ shares ($5,000)
Maximum Purchase .......................... ______ shares ($100,000)
Anticipated Use of Proceeds .............. The net proceeds of this offering
will be utilized by North Bay to
provide, in part, the initial
capitalization of Solano Bank.
Subscription Procedures ................... Delivery of an executed
subscription application, IRS Form
W-9 and the full subscription price
to Vintage Bank as subscription
agent prior to ________ __, 2000 or
such later date as the Board of
Directors may designate.
Plan of Distribution ...................... Preference will be given to
subscribers who are residents of
Solano County or who have the
potential to do business with, or
to direct customers to, Solano
Bank. See "Plan of Distribution."
1
SELECTED FINANCIAL AND OTHER DATA
The following tables provide selective financial information for Vintage Bank as
North Bay Bancorp did not commence operations until November 1, 1999. These
tables should be read in conjunction with "Vintage Bank's MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and
with the financial statements included elsewhere in this prospectus.
The following table presents selected financial data of Vintage Bank
for the nine month periods ended September 30, 1999 and 1998 and for the five
years ended December 31, 1998.
(In 000's), except share and per share data
Nine Months Ended
September 30, Year ended December 31
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENTS OF OPERATIONS DATA:
Interest income $ 10,043 $ 8,667 $ 11,907 $ 10,085 $ 9,154 $ 8,309 $ 6,894
Interest expense 3,171 2,919 3,992 3,141 2,982 2,641 1,795
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 6,872 5,748 7,915 6,944 6,172 5,668 5,099
Provision for loan losses 180 180 240 240 240 180 275
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 6,692 5,568 7,675 6,704 5,932 5,488 4,824
Noninterest income 1,286 990 1,397 1,443 776 320 485
Noninterest expense 4,688 4,022 5,660 5,050 3,989 3,648 3,365
Provision for income taxes 1,252 975 1,301 1,243 1,073 792 695
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 2,038 $ 1,561 $ 2,111 $ 1,854 $ 1,646 $$1,368 $ 1,249
========== ========== ========== ========== ========== ========== ==========
BASIC PER SHARE DATA: (1)
Earnings per share $ 1.34 $ 1.04 $ 1.41 $ 1.30 $ 1.17 $ 1.00 $ 1.18
Average shares 1,518,641 1,502,787 1,496,266 1,429,785 1,405,051 1,365,101 1,054,698
outstanding
DILUTED PER SHARE DATA: (1)
Earnings per share $ 1.31 $ 1.01 $ 1.37 $ 1.26 $ 1.15 $ .98 $ 1.10
Average shares outstanding 1,572,118 1,545,898 1,542,776 1,475,895 1,429,041 1,388,945 1,128,318
BALANCE SHEET DATA:
Net loans $ 115,285 $ 88,456 $ 94,775 $ 80,991 $ 70,780 $ 63,370 $ 50,094
Total assets 197,655 175,611 180,291 146,982 122,740 110,124 92,387
Total deposits 173,595 158,283 162,173 131,390 109,849 96,488 83,824
Shareholders' equity 17,786 16,265 16,910 14,486 12,116 10,458 8,045
<FN>
(1) All per share amounts have been adjusted to reflect the 5% stock dividends
declared February 22, 1994, February 27, 1995, January 22, 1996, January 27,
1997, January 26, 1998 and January 28, 1999 as well as a two-for-one stock split
effective October 1, 1997.
</FN>
2
Who Can Help Answer Your Questions
If you have questions about the Offering, you should contact:
North Bay Bancorp
1500 SOSCOL AVENUE
NAPA, CALIFORNIA 94559
Attention: Terry L. Robinson, President and Chief Executive Officer
(707) 258-3969
or
Solano Bank (Proposed)
1300 Oliver Road, Suite 180
Fairfield, California 94520
Attention: Glen C. Terry, Senior Vice President
(707) 423-2053
3
RISK FACTORS
Risks Related to the Offering
Limited Trading Market. There has been limited trading in North Bay's common
stock. Additionally, while North Bay's common stock is quoted on the OTC
Bulletin Board, it is not listed on any exchange or on NASDAQ. While North Bay's
common stock will not be subject to any specific restrictions on transfer, it is
not anticipated that an active trading market in North Bay's common stock will
develop as a result of this offering, and no assurance can be given that any
active trading market will develop in the future. See "MARKET INFORMATION."
Dividends. At the present time, the ability of North Bay to pay dividends is
solely reliant on the receipt of dividends and fees from Vintage Bank. Similar
to Vintage Bank's policy, the Board of Directors of North Bay adopted a policy
of paying cash and stock dividends subject to the regulatory restrictions on
payment of cash dividends, the earnings of North Bay, management's assessment of
future capital needs, and other factors. No assurance can be given that North
Bay will be able to pay cash dividends. See "DESCRIPTION OF CAPITAL STOCK -
Dividends."
Anti-Takeover Provisions. For a description of anti-takeover provisions of North
Bay's Articles of Incorporation, see ?DESCRIPTION OF CAPITAL STOCK - Provisions
of Articles of Incorporation.? These anti-takeover provisions may make North Bay
a less attractive target for a takeover bid or merger, potentially depriving
shareholders of an opportunity to sell their shares of common stock at a premium
over prevailing market prices as a result of any such takeover bid or merger.
Risk Related to Solano Bank
No Prior Operating History. Solano Bank has not yet commenced operations and
therefore has no prior operating history. It is anticipated that Solano Bank may
incur operating losses during its early years. No assurance can be given as to
the ultimate success of Solano Bank, or as to the return, if any, which North
Bay may receive on its investment in Solano Bank.
Risks Related to North Bay's and the Banks' Business and Operations
Deterioration of Local Economic Conditions Could Hurt Profitability of Banks.
The operations of Vintage Bank are primarily located in Napa County and
surrounding areas. The operations of Solano Bank will primarily be located in
Solano County. As a result of this geographic concentration, Vintage Bank's
results depend, and Solano Bank's results will depend, largely upon economic
conditions in these areas. Adverse local economic conditions in Napa and Solano
counties may have a material adverse effect on the financial condition and
results of operations of North Bay and the Banks.
Financial Services Business is Highly Competitive Which Could Adversely Affect
the Banks' Earnings and Profitability and the Stock Price of North Bay. The
banking and financial services business in California, and in Vintage Bank's
market area, and Solano Bank's proposed market area, is highly competitive.
These banks compete, or will compete, for loans, deposits and customers for
financial services with other commercial banks, savings and loan associations,
securities and brokerage companies, mortgage companies, insurance companies,
finance companies, money market funds, credit unions and other nonbank financial
service providers. Many of these competitors are much larger in total assets and
capitalization, have greater access to capital markets and offer a broader array
of financial services than Vintage Bank or Solano Bank. There can be no
assurance that Vintage Bank or Solano Bank will be able to compete effectively
in their markets, and the results of operations of North Bay and the Banks could
be materially and adversely affected if the nature or level of competition
changes. See "COMPETITION."
Loan and Lease Losses Could Hurt Banks' Operating Results. A significant source
of risk for financial institutions like North Bay and the Banks, arises from the
possibility that losses will be sustained because borrowers, guarantors and
related parties fail to perform in accordance with the terms of their loans.
North Bay and the Banks have adopted underwriting and credit monitoring
procedures and credit policies, including establishment and review of the
allowance for credit losses; tracking loan performance; and diversifying their
credit portfolios. These policies and procedures, however, may not prevent
unexpected losses which could materially adversely affect their results of
operations. For information about Vintage Bank's loan loss experience, see
"Description of Vintage Bank--Vintage Bank's Management's Discussion and
Analysis of Financial Condition and Results of Operations--Summary of Loan
Losses Experience."
Deterioration of Real Estate Market Could Hurt Banks' Performance. At September
30, 1999, approximately 50% of Vintage' Bank's loans were secured by real
estate. The ability of Vintage Bank to continue to originate real estate secured
loans may be impaired by adverse changes in local and regional economic
conditions in the real estate market,
4
increasinginterest rates, or by acts of nature, including earthquakes and
flooding. Due to the concentration of real estate collateral, these events could
have a material adverse impact on the value of the collateral resulting in
losses to Vintage Bank. For information about Vintage Bank's real estate loans,
see "VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--DISTRIBUTION OF LOANS" AND "--REAL ESTATE LOANS."
Interest Rate Fluctuations Could Hurt Operating Results. The income of North Bay
and Vintage Bank depends, and the income of Solano Bank will depend, to a great
extent on "interest rate differentials" and the resulting net interest margins;
that is, the difference between the interest rates earned on their
interest-earning assets such as loans and investment securities, and the
interest rates paid on their interest-bearing liabilities such as deposits and
borrowings. These rates are highly sensitive to many factors which are beyond
the Banks' control, including general economic conditions and the policies of
various governmental and regulatory agencies, in particular, the Federal
Reserve. In addition, changes in monetary policy, including changes in interest
rates, influence the origination of loans, the purchase of investments and the
generation of deposits and affect the rates received on loans and investment
securities and paid on deposits, which could have a material adverse effect on
business, financial condition and results of operations. For a discussion of
Vintage Bank's interest rate sensitivity, see "VINTAGE BANK'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--REGULATORY MATTERS--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK."
Government Regulation and Legislation Could Hurt Business and Prospects of North
Bay and the Banks. North Bay and Vintage Bank are, and Solano Bank will be,
subject to extensive state and federal regulation, supervision and legislation
which govern almost all aspects of their respective operations. Their businesses
are particularly susceptible to the enactment of federal and state legislation
which may have the effect of increasing or decreasing the cost of doing
business, modifying permissible activities or enhancing the competitive position
of other financial institutions. These laws are subject to change from time to
time and are primarily intended for the protection of consumers, depositors and
the deposit insurance funds and not for the protection of shareholders of bank
holding companies or banks. North Bay cannot predict what effect any presently
contemplated or future changes in the laws or regulations or their
interpretations would have on its business and prospects, but it could be
material and adverse. For information about supervision and regulation of banks,
bank holding companies and about recent legislation, see " SUPERVISION AND
REGULATION."
Environmental Liability Associated with Commercial Lending Could Result in
Losses. In the course of business, Vintage Bank has acquired, and Vintage Bank
and Solano Bank may in the future acquire, through foreclosure, properties
securing loans they have originated or purchased which are in default. In
commercial real estate lending, there is a risk that hazardous substances could
be discovered on these properties. In this event, an affected bank might be
required to remove these substances from the affected properties at its sole
cost and expense. The cost of this removal could substantially exceed the value
of affected properties. North Bay or the Banks, as the case may be, may not have
adequate remedies against the prior owner or other responsible parties or could
find it difficult or impossible to sell the affected properties. This could have
a material adverse effect on North Bay's and the Banks' business, financial
condition and operating results.
Banks Rely Heavily on Technology and Computer Systems and Computer Failure Could
Result in Loss of Business and Adversely Affect the Stock Price of North Bay.
Advances and changes in technology can significantly impact the business and
operations of North Bay and the Banks. They may face many challenges including
the increased demand for providing computer access to bank accounts and the
systems to perform banking transactions electronically. North Bay's and each of
the Bank's ability to compete depends on their ability to continue to adapt
technology on a timely and cost-effective basis to meet these demands. In
addition, the businesses and operations of North Bay and the Banks are
susceptible to negative impacts from computer system failures, communication and
energy disruption, and unethical individuals with the technological ability to
cause disruptions or failures of their respective data processing systems.
Many computer programs were designed and developed utilizing only two digits in
the date field, which means those computers are unable to recognize the year
2000 and the following years. This year 2000 issue creates risks for North Bay
and the Banks from unforeseen or unanticipated problems in their respective
internal computer systems as well as from computer systems of the Federal
Reserve Bank of San Francisco, correspondent banks, customers and vendors.
Failures of these systems or untimely corrections could have a material adverse
impact on North Bay's and each of the Bank's ability to conduct their businesses
and on their results of operations. For a discussion of Vintage Bank's Year 2000
readiness, see "VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--REGULATORY MATTERS--YEAR 2000 COMPLIANCE."
5
Forward-Looking Statements
We have made forward-looking statements in this prospectus, including statements
containing the words "believes," "anticipates," "intends," "expects,"
"considers" and words of similar import. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results of North Bay or the Banks to be materially different from the
future results expressed or implied by forward-looking statements. These factors
include, among others, the factors discussed in the section entitled "Risk
Factors" on page __ of this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Potential investors should not rely
heavily on the forward-looking statements.
------------------------
You should rely only on the information in this prospectus or other information
referred to in this document. North Bay has not authorized anyone to provide you
with other or different information. This prospectus is dated January __, 2000.
You should not assume that the information contained in this prospectus is
accurate as of any date other than that date, and neither the distribution of
this prospectus nor the issuance of shares of North Bay common stock in the
offering shall create any implication to the contrary.
6
MARKET INFORMATION
On November 1, 1999, North Bay's common stock began trading over-the-counter on
the OTC "Bulletin Board" under the symbol NBAN. Prior to November 1, 1999,
Vintage Bank's common stock was quoted on the OTC "Bulletin Board" under the
symbol VTGB. The firm of Hoefer & Arnett serves as primary market maker in North
Bay's stock.
The following table (adjusted for the 1998 and 1999 stock dividends) summarizes
the common stock high and low bid prices based upon transactions of which the
Bank is aware:
----------------------------------------------------------
Quarter ended (1) High Low
----------------------------------------------------------
----------------------------------------------------------
December 31, 1999 $ $
----------------------------------------------------------
September 30, 1999 27.00 23.00
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June 30, 1999 24.00 20.00
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March 31, 1999 24.00 21.00
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December 31, 1998 19.52 16.90
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September 30, 1998 20.71 17.14
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June 30, 1998 21.90 19.05
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March 31, 1998 25.71 21.90
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(1) Price information for 1998 and the first three quarters of 1999 reflect
trades in Vintage Bank common stock. Information for the quarter ended December
31, 1999 includes trades in North Bay common stock commencing on November 2,
1999.
The last sales price of North Bay common stock on or before January __, 2000,
the last practicable date before printing of this prospectus, was $____, which
reflects a sale that occurred on ________ __, 2000.
There may be other transactions of which North Bay 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 North Bay's common stock is limited, the range of prices stated are
not necessarily representative of prices which would result from a more active
market.
Over the counter market quotations reflect inter-dealer prices, without retail
mark-up, mark down or commission and may not represent actual transactions.
Vintage Bank paid cash dividends of $0.20 per share in 1998 and $0.20 in 1999.
The holders of common stock of North Bay are entitled to receive cash dividends
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends
North Bay is restricted in its ability to pay dividends to its shareholders as a
matter of law. For a discussion of restrictions imposed by law, see "Payment of
Dividends."
As of January __, 2000, there were ______ holders of record of North Bay's
common stock.
7
THE OFFERING
North Bay is offering up to ___________ shares of its common stock, no par value
at a cash purchase price of $_______ per share for an aggregate consideration of
$5,000,000. See ?CAPITALIZATION.?
Subscriptions will be accepted until 5:00 o'clock p.m., Pacific Time, _________
__, 2000 unless the expiration date is extended by the Board of Directors. North
Bay reserves the right to extend the expiration date for four periods of up to
thirty (30) days each without notice to subscribers.
It is not contemplated that any person would be permitted to purchase more than
_____ shares of the common stock being offered through this prospectus. However,
depending upon the availability of shares and the relative value of a particular
subscriber to Solano Bank, as determined by the Board of Directors of North Bay,
the maximum may be increased. The officers and directors of North Bay, Vintage
Bank and Solano Bank have indicated an intention to subscribe for ________
shares of the common stock offered in the offering or approximately ____% of the
__________ shares of common stock being offered for sale in this offering. If
all ________ shares are sold in this offering, the directors and officers of
North Bay and its subsidiaries will own _____% of the outstanding shares of
North Bay common stock. See "MANAGEMENT - Security Ownership of Management."
North Bay is not obligated to obtain or accept subscriptions for the maximum
number of shares being offered by this prospectus, and North Bay may, in its
sole discretion, terminate this offering by accepting all or a portion of the
subscriptions.
No discounts or commissions will be paid in connection with the sale of the
shares. The offering will be made by the officers and directors of North Bay,
Vintage Bank, and the proposed directors of Solano Bank who will solicit
subscriptions from prospective shareholders. No promotional stock (stock sold at
a discount or for services or other non-cash consideration) will be issued to
anyone, including officers and directors.
Method of Subscription
Applications for stock subscriptions can be made by completing and signing the
enclosed Application for Subscription for common stock and mailing both copies
of the Application, the enclosed IRS Form W-9, and the full subscription price
to North Bay c/o Vintage Bank, 1500 Soscol Avenue, Napa California 94559. North
Bay reserves the right to reject any Application in whole or in part.
IMPORTANT: THE FULL SUBSCRIPTION PRICE FOR SHARES MUST BE INCLUDED WITH THE
APPLICATION. THE PURCHASE PRICE MUST BE PAID IN UNITED STATES CURRENCY BY CHECK,
BANK DRAFT OR MONEY ORDER PAYABLE TO "NORTH BAY BANCORP -STOCK SUBSCRIPTION
ACCOUNT." FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE APPLICATION
SHALL GIVE NORTH BAY THE RIGHT TO DISREGARD THE APPLICATION.
In the event North Bay rejects all or a portion of a requested subscription,
North Bay will refund to the applicant all or the appropriate portion of the
amount remitted with the Application without interest or deduction. See
"HANDLING OF STOCK SUBSCRIPTION FUNDS." North Bay will decide which Applications
to accept and all appropriate refunds will be mailed no later than 30 days after
the expiration of the offering or the extension period during which the
application was received by North Bay, whichever is later.
PLAN OF DISTRIBUTION
North Bay is offering its common stock through its and Vintage Bank's officers
and directors and the proposed directors of Solano Bank on a best efforts basis
and will not seek the assistance of securities dealers in connection with this
offering. In soliciting subscriptions North Bay intends to emphasize prospective
shareholders who are residents of Solano County as well as a subscriber's
potential to do business with, or to direct customers to, Solano Bank in order
to establish a significant shareholder constituency in Solano County. Subject to
limitations on the minimum and maximum numbers of shares that may be purchased
in the offering and the right of North Bay to accept or reject subscriptions in
its sole and absolute discretion, preference will be given to subscribers who
are residents of Solano County or have the potential to do business with, or to
direct customers to, Solano Bank.
8
HANDLING OF STOCK SUBSCRIPTION FUNDS
All stock subscription funds are to be sent by the subscriber to North Bay. Upon
receipt of the funds by North Bay, they will be placed in the subscription
account, and the funds so deposited may be invested in short-term government
obligations, short-term certificates of deposit of Vintage Bank, and in the
Federal funds market.
All questions concerning the timeliness, validity, form and eligibility of any
subscription in the offering will be determined by North Bay, whose
determination will be final and binding. North Bay, in its sole discretion, may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any rights or of any submitted subscription application. Applications will
not be considered as received or accepted until all irregularities have been
waived or cured within the time that North Bay determines, in its sole
discretion. Neither North Bay nor the subscription agent will be under any duty
to give notification of any defect or irregularity in connection with the
submission of any subscription or incur any liability for failure to give such
notification. North Bay reserves the right to reject any subscription if a
subscription is not in accordance with the terms of the offering or not in
proper form or if the acceptance of an offer or the issuance of the common stock
to a subscriber could be deemed unlawful. See "Regulatory Limitation."
All questions or requests for assistance concerning the method of exercising
rights or subscribing for shares and requests for additional copies of this
prospectus should be directed to:
Terry L. Robinson, President and Chief Executive officer, North Bay Bancorp
(707) 258-3969; or to Glen C. Terry, Senior Vice President of Vintage Bank and
proposed president and chief executive officer of Solano Bank (707) 423-2053.
Subscription Agent
Subscription applications and payment of the subscription price must be
delivered, whether by mail, hand or overnight courier, to the subscription agent
at the following address:
Vintage Bank
North Bay Bancorp - Stock Subscription Account
1500 Soscol Avenue
Napa, California 94559
Attn. Pansy Smith, Assistant Corporate Secretary
The subscription agent's telephone number is (707) 258-3971
Delivery of Common Stock Certificates
Certificates representing shares of common stock subscribed for (to the extent
that North Bay has accepted such subscriptions) and issued pursuant to the
offering shall be mailed as soon as practicable after expiration of the
offering.
Other Offering Information
North Bay may, in its sole and absolute discretion, terminate this offering at
any time, without delivering notice to any person. Early termination of the
offering will not affect the status of subscriptions accepted by North Bay
before termination. Additionally, North Bay reserves the right to cancel all or
any portion of the offering at any time. In the event North Bay cancels the
offering, North Bay will refund the entire amount remitted by subscribers. In
the event this offering is terminated or canceled by North Bay, the expenses of
the offering will be borne by North Bay.
Regulatory Limitation
North Bay will not be required to issue shares of common stock in the offering
to any person who, in North Bay 's sole judgment and discretion, is required to
obtain prior clearance, approval or nondisapproval from any state or federal
bank regulatory authority to own or control shares of North Bay common stock
unless, prior to the expiration of the offering, evidence of such clearance,
approval or nondisapproval has been provided to North Bay.
The Federal Change in Bank Control Act of 1978 prohibits a person or group of
persons "acting in concert" from acquiring "control" of a bank holding company
unless the Federal Reserve has been given 60 days' prior written notice of such
proposed acquisition and within that time period the Federal Reserve has not
issued a notice disapproving the proposed acquisition or
9
extending for up to another 30 days the period during which such a disapproval
may be issued. An acquisition may be made prior to the expiration of the
disapproval period if the Federal Reserve issues written notice of its intent
not to disapprove the action. Under a rebuttable presumption established by the
Federal Reserve the acquisition of more than 10% of a class of voting stock of a
bank holding company with a class of securities registered under Section 12 of
the Exchange Act (such as the North Bay common stock) would constitute the
acquisition of control.
Under the California Financial Code, no person shall, directly or indirectly,
acquire control of a bank or a bank holding company unless the California
Commissioner of Financial Institutions has approved such acquisition of control.
A person would be considered to have acquired control of North Bay under this
state law if that person, directly or indirectly, has the power:
o to vote 25% or more of the voting power of North Bay; or
o to direct or cause the direction of the management and policies of North
Bay.
For purposes of this law, a person who directly or indirectly owns or controls
10% or more of North Bay's common stock would be presumed to control North Bay.
In addition, any "company" would be required to obtain the approval of the FRB
under the Bank Holding Company Act of 1956, as amended, before acquiring 25% (5%
in the case of an a company that is a bank holding company) or more of the
outstanding common stock of, or such lesser number of shares as constitute
control over North Bay.
10
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of federal income tax consequences which
may be realized by persons acquiring shares of common stock. This discussion is
only a summary and is not intended as a substitute for careful tax planning,
particularly because the income tax consequences are complex and may not be the
same for all holders of the shares of common stock. Shareholders should consult
their own tax advisers as to the tax consequences to them of a purchase of the
shares of common stock, including the applicability of state, local and other
tax laws.
Cash Distributions on the Shares
Cash distributions paid on the shares of common stock will be taxable as
ordinary dividend income to the extent of the company's current or accumulated
earnings and profits. To the extent distributions exceed the holder's allocable
share of North Bay's current or accumulated earnings and profits, the
distributions will be treated as a return of capital, reducing the adjusted
basis of the shares of common stock to the holder and increasing the amount of
gain (or reducing the amount of loss) which may be realized by the holder upon
sale or exchange of the shares. Any distribution which exceeds the sum of the
dividend amount and the adjusted basis of the shares to the holder will be
treated as capital gain, if the shares are held as a capital asset. In that
case, if the shares are held by an individual shareholder for more than one
year, the capital gain will be treated as a long-term capital gain eligible for
favorable federal income tax treatment.
Dividends deemed to have been paid out of earnings and profits will be eligible
for the 70% dividends received deduction allowable to corporations under Section
243, subject to the 45-day or 90-day holding period requirement and debt
financed portfolio stock limitations contained in Sections 246 and 246A.
Corporate holders also should consider the application of the "extraordinary
dividend" rules of Section 1059 as well as the possible reduction or elimination
of the benefit of the dividends received deduction by the corporate alternative
minimum tax.
Under current law, an individual is subject to a maximum 39.6% federal income
tax rate on ordinary income (including dividends), and a maximum 28% federal tax
rate on long-term capital gains (gain from the sale of a capital asset held for
more than one year). Generally, a corporation is subject to a maximum 35%
federal income tax rate on all taxable income.
Redemption
Generally, a redemption by North Bay of the shares of common stock for cash will
be taxable as a dividend to the extent of North Bay's current or accumulated
earnings and profits unless the redemption
o is "not essentially equivalent to a dividend" with respect to the
stockholder (that is, unless the redemption results in a meaningful
reduction of the stockholder's proportionate interest in North Bay),
o is "substantially disproportionate" with respect to the stockholder, or
o results in a "complete termination" of the stockholder's stock interest
in North Bay.
If a redemption is treated as a dividend, holders of the shares will recognize
ordinary income in the amount of cash or the fair market value of property
received, and any basis in the shares will be transferred to the holder's
remaining holdings in North Bay. If the redemption is not treated as a dividend,
the holder of the shares will recognize gain or loss based on the difference
between the amount realized and the holder's tax basis in the shares redeemed.
Provided that the shares are held as a capital asset, this gain or loss will be
capital gain or loss (and will be long-term capital gain or loss if held for
more than one year).
Sale of the Shares
If a holder sells its shares, the seller will realize a gain or loss equal to
the difference between the amount realized on the sale and the seller's tax
basis in the shares sold. If the shares are held as a capital asset, this gain
or loss will be capital gain or loss.
11
Backup Withholding
A holder of shares may be subject to federal backup withholding at the rate of
31% on dividends or the proceeds of a sale of the shares if
o the shareholder fails to furnish a taxpayer identification number
("TIN") to the payor;
o the IRS notifies North Bay that the TIN furnished by the shareholder is
incorrect;
o there has been a "notified shareholder under reporting;" or
o there has been a failure of the shareholder to certify under penalty of
perjury that the shareholder is not subject to withholding.
If any one of these events occurs, North Bay may be required to withhold a tax
equal to 31% from any dividend payment made with respect to the shares or, in
certain cases, from the proceeds of a sale of the shares.
Foreign Withholding
If a holder of the shares is a foreign individual or foreign corporation not
engaged in business in the U.S., such holder may be subject to a 30% withholding
tax on any dividend received with respect to those shares. The withholding tax
may be decreased if the holder qualifies for a reduced withholding rate on
dividends under an applicable U.S. tax treaty.
12
USE OF PROCEEDS
The net proceeds of the sale of this offering will be utilized by North Bay to
invest in Solano Bank. Any excess proceeds not required to capitalize Solano
Bank will be used for general corporate purposes and working capital. Such
purposes would include, but not be limited to, the payment of operating
expenses.
North Bay's expenses in connection with this offering are anticipated to
aggregate $________________, including legal fees, accounting fees, the fees of
financial consultants and advisors, printing costs and mailing costs.
13
DETERMINATION OF OFFERING PRICE
The subscription price for the shares of common stock was determined by
management and approved by North Bay Board of Directors based upon information
which they believed to be relevant, including an opinion from its financial
advisors that the $_____ subscription price is fair to the existing holders of
North Bay. Management and the Board also considered the recent trading history
of the common stock, North Bay's and Vintage Bank's financial condition and
earnings as well as the per share book value of the common stock.
The primary objectives in establishing the subscription price were to maximize
net proceeds obtainable from the offering and to enhance the success of the
offering. See "MARKET INFORMATION."
No assurance can be given that the market price of North Bay's common stock will
not decline during the offering to a level below the subscription price or that
a shareholder will be able to sell shares purchased in the offering at a price
equal to or greater than the subscription price.
Opinion of Financial Advisor [SUBJECT TO REVISION BY FINANCIAL ADVISOR AFTER
DETERMINATION OF PRICE]
North Bay's Board of Directors retained Hoefer & Arnett as its financial advisor
to assist it in establishing the subscription price. Hoefer delivered its
written opinion dated ________ __, ___ to North Bay that the subscription price
is fair, from a financial point of view, to the shareholders of North Bay. North
Bay did not impose any limitations on Hoefer with respect to its opinion.
Hoefer is engaged in financial institution analysis and regularly conducts
valuations of businesses, particularly financial institutions, and their
securities in connection with stock offerings, mergers, acquisitions, negotiated
underwritings and private placements, among other things. As part of its
financial services activities, Hoefer is called upon to advise clients in
mergers, acquisitions, valuations and various other business combinations and
activities. North Bay selected Hoefer as its financial advisor because of its
recognition as an expert in such matters.
On ______ ____, ___, Hoefer delivered its oral opinion to North Bay's Board of
Directors that the subscription price was fair, from a financial point of view,
to the shareholders of North Bay. At the ________ __, ____ meeting of North
Bay's Board of Directors, Hoefer delivered its written opinion, confirming its
previous oral opinion.
In rendering its opinion in connection with the offering, Hoefer relied upon
information and materials provided by North Bay. In addition, Hoefer met with
the directors and management of North Bay and reviewed other data relating to
the economics for the relevant area and conducted tests of the market value of
North Bay common stock. Hoefer also reviewed drafts of this prospectus, compared
North Bay from a financial point of view with other selected companies in the
financial services industry, and considered other information that it considered
appropriate. Hoefer has not independently verified the information and documents
provided by the directors and management of North Bay.
Hoefer was paid a fee in the amount of $4,000 in connection with its advisory
services to North Bay, including the preparation of its opinion and report.
14
CAPITALIZATION
The following tables set forth the consolidated capitalization of North Bay at
September 30, 1999 and the pro forma consolidated capitalization of North Bay at
that date, as adjusted to give effect to the offering, assuming the sale of
_____________ shares and net proceeds of $_________________ after deducting
estimated costs of the offering of $_______.
Pro Forma Consolidated Capitalization
-------------------------------------
September 30, 1999
(in 000's)
Actual As adjusted for this
------ Offering
--------
Contributed Capital -
Preferred Stock:
500,000 Shares of Preferred Stock authorized,
issued and outstanding - None
Common Stock:
20,000,000 Shares of Common Stock
authorized, no par value issued and outstanding: At
September 30, 1999 - 1,533,992; _______________
if maximum number of shares sold in offering $ 12,294 $_____________
Retained earnings 6,171 _____________
Accumulated other comprehensive (loss) (679) _____________
---------
Total Shareholders? Equity $ 17,786 $_____________
=========
Book value per share $ 11.59 $_____________
15
Statistical Data
The following statistical data 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 included in Vintage Bank's 1998
Annual Report to Shareholders, which have been incorporated herein by reference.
Distribution of Average Assets, Liabilities, and Shareholders Equity; Interest
Rates and Interest Differential
The following table sets forth average daily balances of assets, liabilities,
and shareholders' equity during 1998 and 1997, 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, 1998 and 1997. Also
shown is September 30, 1999, annualized.
16
Sept. 30, 1999, December 31, 1998
--------------- -----------------
Annualized
Average Income/ Average Average Income/ Average
ASSETS Balance Expense Yield/Rate Balance Expense Yield/Rate
-----------------------------------------------------------------------------
Loans (1) (2) $ 105,663,517 $ 8,806,156 8.33% $ 89,057,414 $ 8,465,003 9.51%
Investment securities:
Taxable 48,909,725 3,226,533 6.60% 38,917,590 2,472,704 6.35%
Non-taxable (3) 13,503,893 884,648 6.55% 10,056,956 655,165 6.51%
------------- ----------- ------------ -----------
TOTAL LOANS AND INVESTMENT SECURITIES 168,077,135 12,917,337 7.69% 138,031,960 11,592,872 8.40%
Due from banks, time 137,407 7,548 5.49% 200,000 11,018 5.51%
Federal funds sold 3,178,086 157,201 4.95% 12,355,606 461,039 3.73%
------------- ----------- ------------ -----------
TOTAL EARNING ASSETS 171,392,628 $13,082,086 7.63% 150,587,566 $12,064,929 8.01%
------------- ----------- ------------ -----------
Cash and due from banks 8,580,667 10,107,541
Allowance for loan losses (1,841,526) (1,639,488)
Premises and equipment, net 2,806,241 2,837,042
Accrued interest receivable
and other assets 5,697,478 5,280,858
------------- ------------
TOTAL ASSETS $ 186,635,488 $167,173,519
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing demand $ 58,740,273 $ 1,336,424 2.28% $ 48,570,740 $ 1,104,570 2.27%
Savings 15,842,553 294,887 1.86% 13,572,370 246,590 1.82%
Time 52,181,019 2,427,190 4.65% 50,422,099 2,640,666 5.24%
------------- ----------- ------------ -----------
126,763,845 4,058,501 3.20% 112,565,209 3,991,826 3.55%
Short-term borrowings 2,971,653 169,395 0.00% 0 0 0.00%
TOTAL INTEREST BEARING
LIABILITIES 129,735,498 $ 4,227,896 3.26% 112,565,209 $ 3,991,826 3.55%
------------- ----------- ------------ -----------
Noninterest bearing DDA 38,272,970 37,870,860
Accrued interest payable
and other liabilities 989,746 1,100,279
Shareholders' equity 17,637,274 15,637,171
------------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 186,635,488 $167,173,519
============= ============
NET INTEREST INCOME $ 8,854,190 $ 8,073,103
=========== ===========
NET INTEREST INCOME TO
AVERAGE EARNING ASSETS
(Net Interest Margin (4)) 5.17% 5.36%
December 31, 1997
-----------------
Average Income/ Average
ASSETS Balance Expense Yield/Rate
---------------------------------------------
Loans (1)(2) $ 78,975,833 $ 7,537,434 9.54%
Investment securities:
Taxable 32,603,372 2,144,912 6.58%
Non-taxable (3) 4,153,167 327,404 7.88%
------------- -------------
TOTAL LOANS AND INVESTMENT SECURITIES 115,732,372 10,009,750 8.65%
Due from banks, time 200,000 11,443 5.72%
Federal funds sold 3,232,170 142,480 4.41%
------------- -------------
TOTAL EARNING ASSETS 119,164,542 $ 10,163,673 8.53%
------------- -------------
Cash and due from banks 9,615,681
Allowance for loan losses (1,617,445)
Premises and equipment, net 3,031,847
Accrued interest receivable
and other assets 3,111,061
-------------
TOTAL ASSETS $ 133,305,686
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing demand $ 32,836,482 $ 595,046 1.81%
Savings 12,577,868 254,568 2.02%
Time 43,766,802 2,265,651 5.18%
------------- -------------
89,181,152 3,115,265 3.49%
Short-term borrowings 942,133 26,240 2.79%
TOTAL INTEREST BEARING
LIABILITIES 90,123,285 $ 3,141,505 3.49%
------------- -------------
Noninterest bearing DDA 29,196,839
Accrued interest payable
and other liabilities 904,053
Shareholders' equity 13,081,509
-------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 133,305,686
=============
NET INTEREST INCOME $ 7,022,168
=============
NET INTEREST INCOME TO
AVERAGE EARNING ASSETS
(Net Interest Margin (4)) 5.89%
17
<FN>
(1) Average loans include nonaccrual loans.
(2) Loan interest income includes loan fee income of $699,540 in 1998 and
$452,288 in 1997 and $708,697 for September 30, 1999, annualized.
(3) Average yields shown are taxable-equivalent. On a non- taxable basis, 1998
interest income was $496,666 with an average yield of 4.94%; in 1997 non-taxable
income was $249,000 and the average yield was 6.00% and in 1996 non-taxable
income was $277,984 and the average yield was 6.00% and for the period of 1999,
annualized non-taxable income was $685,607 and the average yield was 5.08%
(4) Net interest margin is calculated by dividing net interest income by the
average balance of total earning assets for the applicable year.
</FN>
18
VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
FORWARD LOOKING STATEMENTS
In addition to the historical information, this prospectus contains
forward-looking statements. The reader of this prospectus should understand that
all forward-looking statements are subject to various uncertainties and risks
that could affect their outcome. Vintage Bank's actual results could differ
materially from those suggested by such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
variances in the actual versus projected growth in assets, return on assets,
loan losses, expenses, rates charged on loans and earned on securities
investments, rates paid on deposits, competition effects, fee and other
noninterest income earned as well as other factors. This entire prospectus
should be read to put such forward-looking statements in context and to gain a
more complete understanding of the uncertainties and risks involved in Vintage
Bank's business.
Moreover, wherever phrases such as or similar to "in management's opinion" or,
"management considers" are used, these statements are as of and based upon the
knowledge of management at the time made and are subject to change by the
passage of time and/or subsequent events, and accordingly these statements are
subject to the same risks and uncertainties noted above with respect to
forward-looking statements.
OVERVIEW
Net income was $2,038,000 or $1.31 per share for the nine months ended September
30, 1999, compared with $1,561,000 or $1.01 per share for the nine months ended
September 30, 1998. On an annualized basis, the 1999 results equated to a return
of 1.44% on average assets and 15.5 % on average shareholders' equity.
Total assets were $197,655,000 as of September 30, 1999; equating to a 13%
growth in assets during the twelve months ended September 30, 1999. Assets have
increased 10% since December 31, 1998.
SUMMARY OF EARNINGS
NET INTEREST INCOME
Net interest income represents the amount by which interest earned on earning
assets (primarily loans and investments) exceeds the amount of interest paid on
deposits and borrowings. Net interest income is a function of volume, interest
rates and level of non-accrual loans. Non-refundable loan origination fees are
deferred and amortized into income over the life of the loan. Net interest
income before the provision for loan losses for the nine months ended September
30, 1999 and September 30, 1998 was $6,872,000 and $5,748,000, respectively.
These results equate to a 20% increase in net interest income before provision
for the first nine months of 1999 compared to the first nine months of 1998. The
increase in net interest income resulted primarily from increases in levels of
total earning assets; this increase in earning assets was funded primarily by
deposits that have lower effective rates than earning assets. Management does
not expect a material change in Vintage Bank's net interest margin during the
next twelve months as the result of a modest increase or decrease in general
interest rates. Loan fee income, which is included in interest income, was
$532,000 for the nine months ended September 30, 1999, compared with $499,000
for the nine months ended September 30, 1998.
Analysis of Net Interest Income
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities, and net yields on
interest-earning assets for the periods indicated:
19
Nine Months Ended
(Dollars in 000's) September 30, Increase
1999 1998 (Decrease) Change
------------------------------------------------------------
Interest and fee income .......... 10,043 $ 8,667 $ 1,376 15.88%
Interest expense................... 3,171 2,919 252 8.63%
-------- -------- ------- ---
Net interest income................ $ 6,872 $ 5,758 $ 1,124 19.55%
======== ======== =======
Average interest earning assets
assets........................ $173,205 $144,143 $29,062 20.16%
Average interest bearing abilities.
liabilities................... $128,164 $107,501 $20,663 19.22%
Average interest earning assets/
interest bearing liabilities.. 134.14% 134.09% 1.06%
Average yields earned (1).......... 7.73% 8.02% (0.29)%
Average rates paid (1)............. 3.30% 3.62% (0.32)%
Net interest spread (1)............ 4.43% 4.40% 0.04%
Net interest margin (1)............ 5.29% 5.32% (0.03)%
<FN>
(1) These ratios for the nine months ended September 30, 1999 and 1998 have
been annualized.
</FN>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Vintage Bank maintains an allowance for loan losses at a level considered
adequate to provide for losses that can be reasonably anticipated. The allowance
is increased by the provision for loan losses and reduced by net charge-offs.
The allowance for loan losses is based on estimates, and ultimate losses may
vary from current estimates. These estimates are reviewed periodically and as
adjustments become necessary they are reported in earnings in the periods in
which they become known. Vintage Bank makes credit reviews of the loan portfolio
and considers current economic conditions, historical loan loss experience and
other factors in determining the adequacy of the allowance balance. This
evaluation establishes a specific allowance for all classified loans over
$50,000 and establishes percentage allowance requirements for all other loans,
according to the classification as determined by Vintage Bank's internal grading
system. As of September 30, 1999 the allowance for loan losses of $1,940,000
represented 1.65% of loans outstanding. As of September 30, 1998, the allowance
represented 1.88% of loans outstanding. For the nine months ended September 30,
1999 and September 30, 1998 the loan loss provision expense was $180,000.
NON-INTEREST INCOME
Non-interest income was $1,276,000 for the nine months ended September 30, 1999
compared with $936,000 for the nine months ended September 30, 1998, a 36%
increase. The increase in non-interest income resulted primarily from an
increase in the number of deposit accounts, transaction volumes and directly
related service charges.
GAIN ON SECURITIES
Gains of $10,000 and $54,000 for the nine months ended September 30, 1999 and
September 30, 1998, respectively, resulted from the sale of several
available-for-sale securities.
NON-INTEREST EXPENSE
Non-interest expense was $4,688,000 for the nine months ended September 30, 1999
compared with $4,022,000 for the nine months ended September 30, 1998. The 17%
increase in 1999 was primarily in salaries and employee benefit expense.
Salaries and employee benefits expense for the nine months ended September 30,
1999 and 1998 was $2,558,000 and $2,188,000, respectively, a 17% increase. The
increase in 1999 resulted from increased salary rates paid to Bank officers and
employees, and an increase of approximately six full-time equivalent employees
during the twelve months ended September 30, 1999 to a total of 79 full-time
equivalent employees. Other expenses for the nine months ended September 30,
1999 and September 30, 1998 were $1,492,000 and $1,196,000, respectively, a 25%
increase. The increase from last year is primarily due to costs associated with
hiring consultants for bankwide sales training, costs associated with an
20
increased advertising campaign and additional legal costs associated with
formation of a bank holding company.
INCOME TAXES
The provision for income taxes for the nine months ended September 30, 1999 was
$1,252,000, compared with $975,000 for the nine months ended September 30, 1998.
Both the 1999 and 1998 provisions reflect tax accruals at maximum rates for both
federal and state income taxes, adjusted for the effect of Vintage Bank's
investments in tax-exempt municipal securities.
BALANCE SHEET
Total assets as of September 30, 1999 were $197,655,000 compared with
$175,611,000 as of September 30, 1998 and $180,291,000 at December 31, 1998
equating to a 13% increase during the twelve months ended September 30, 1999 and
an increase of 10% for the nine months ended September 30, 1999. Total deposits
as of September 30, 1999 were $173,595,000 compared with $158,283,000 as of
September 30, 1998 and $163,381,000 at December 31, 1998, representing a 10%
increase during the twelve months ended September 30, 1999 and an increase of 6%
for the nine months ended September 30, 1999. Loans outstanding as of September
30, 1999 were $117,225,000 compared with $90,147,000 as of September 30, 1998
and $96,527,000, equating to a 30% increase during the twelve months ended
September 30, 1999 and a 21% increase for the nine month ended September 30,
1999.
LIQUIDITY AND CAPITAL ADEQUACY
Vintage Bank's liquidity is determined by the level of assets (such as cash,
Federal funds, and investments in marketable securities not pledged as security
for public deposits) that are readily convertible to cash to meet customer
withdrawals and borrowings. Management reviews Vintage Bank's liquidity position
on a regular basis to ensure that it is adequate to meet projected loan funding
and potential withdrawal of deposits. Vintage Bank has a comprehensive
Asset/Liability Management and Liquidity Policy, which it uses to determine
adequate liquidity. As of September 30, 1999 liquid assets were 36% of total
assets, compared with 37% as of September 30, 1998.
The Federal Deposit Insurance Corporation Improvement Act established ratios
used to determine whether a bank is "Well Capitalized," "Adequately
Capitalized," "Undercapitalized," "Significantly Undercapitalized," or
"Critically Undercapitalized." A Well Capitalized bank has total risk-based
capital of at least 10%, tier 1 risked-based capital of at least 6%, and a
leverage ratio of at least 5%.
As the following table indicates, Vintage Bank currently exceeds the regulatory
capital minimum requirements and is also considered "Well Capitalized" according
to regulatory guidelines.
(Dollars in 000's) September 30, 1999
-----------------------------
Amount Ratio
-----------------------------
Tier 1 capital................................ $ 18,465 12.57%
Tier 1 capital minimum requirement............ 5,874 4.00%
----------- -----
Excess over minimum Tier 1 capital............ $ 12,591 8.57%
=========== =====
Total capital................................. $ 20,302 13.82%
Total capital minimum requirement 11,749 8.00%
----------- -----
Excess over minimum total capital............. $ 8,553 5.82%
=========== =====
Risk-adjusted assets.......................... $ 146,861
===========
Leverage ratio................................ 9.52%
Minimum leverage requirement.................. 4.00%
-----
Excess over minimum leverage ratio............ 6.52%
=====
Adjusted total assets......................... $ 197,655
===========
YEAR 2000 READINESS DISCLOSURE
The "Year 2000 issue" relates to the fact that many computer programs use only
two digits to represent a year, such as "98" to
21
represent "1998," which means that in the Year 2000 such programs could
incorrectly treat the year 2000 as the year 1900. This issue has grown in
importance as the use of computers and microchips has become more pervasive
throughout the economy, and interdependencies between systems have multiplied.
The issue must be recognized as a business problem, rather than simply a
computer problem, because of the way its effects could ripple through the
economy. Vintage Bank could be materially and adversely affected either directly
or indirectly by the year 2000 issue. This could happen if any of its critical
computer systems or equipment containing embedded logic fail, if the local
infrastructure (electric power, phone system, or water system) fails, if its
significant vendors are adversely impacted, or it its borrowers or depositors
are adversely impacted by their internal systems or those of their customers or
suppliers. Failure of Vintage Bank to complete testing and renovation of its
critical systems on a timely basis could have a material adverse effect on
Vintage Bank's financial condition and results of operations, as could Year 2000
problems faced by others with whom Vintage Bank does business.
Federal banking regulators have responsibility for supervision and examination
of banks to determine whether each institution has an effective plan for
identifying, renovating, testing, and implementing solutions for Year 2000
processing and coordinating year 2000 processing capabilities with its
customers, vendors and payment system partners. Bank examiners are also required
to assess the soundness of a bank's internal controls and to identify whether
further corrective action may be necessary to assure an appropriate level of
attention to Year 2000 processing capabilities.
Vintage Bank has a written plan to address its risks associated with the impact
of the Year 2000. The plan directs Vintage Bank's Year 2000 compliance efforts
under the framework of a five-step program mandated by the Federal Financial
Institution Examinations Council. The FFIEC's five-step program consists of five
phases: awareness, assessment, renovation, validation, and implementation. In
the awareness phase, which Vintage Bank has completed, the Year 2000 problem is
defined and executive level support for the necessary resources to prepare
Vintage Bank for Year 2000 compliance is obtained. In the assessment phase,
which Vintage Bank has also completed, the size and complexity of the problem
and details of the effort necessary to address the Year 2000 issues are
assessed. Although the awareness and assessment phases are completed, Vintage
Bank continues to evaluate new issues as they arise. In the implementation phase
changes to hardware and components are brought on line. The implementation phase
is 100% completed. In the renovation phase, which Vintage Bank has substantially
completed, the required incremental changes to hardware and software components
are tested. In the validation phase, which Vintage Bank has also substantially
completed, the hardware and software components are tested. Vintage Bank is
utilizing both internal and external resources to identify, correct or reprogram
and test its systems for Year 2000 compliance. Vintage Bank has identified 100
vendors and 68 software applications which management believes are material to
Vintage Bank's operations. Based on information received from its vendors and
testing results, in Management's opinion approximately 95% of such vendors are
Year 2000 compliant as of September 30, 1999. Testing of the critical system
applications for the core banking product provided by Vintage Bank's primary
vendor was completed and the results verified during the first quarter of 1999.
Testing of Vintage Bank's non-critical systems was substantially completed
during the second quarter of 1999, and concluded in the third quarter of 1999.
The core banking product includes software solutions for general ledger,
accounts payable, automated clearing houses, certificates of deposit and
individual retirement accounts, commercial, mortgage and installment loans,
checking and savings accounts, proof of deposit applications and ancillary
support products.
Vintage Bank is also making efforts to ensure that its customers, particularly
its significant customers, are aware of the Year 2000 problem. Vintage Bank has
sent Year 2000 correspondence to its significant deposit and loan customers. A
customer of Vintage Bank is deemed significant if the customer possesses any of
the following characteristics:
o Total indebtedness to Vintage Bank of $250,000 or more
o The customer's business is dependent on the use of high technology
and/or the electronic exchange of information
o The customer's business is dependent on third party providers of data
processing service or products
o An average ledger deposit balance greater than $250,000
Vintage Bank has amended its credit authorization documentation to include
consideration of the Year 2000 problem. Vintage Bank assesses its significant
customer's Year 2000 readiness and assigns the customer an assessment of "low",
"medium" or "high" risk. Risk evaluation of Vintage Bank's significant customers
was substantially completed by December 31, 1998. Any depositor determined to
have a high risk is scheduled for an evaluation by Vintage Bank every 90 days
until the customer can be assigned a low risk assessment. The few depositors
determined by Vintage Bank to have "medium" or " high" risk continue to be
monitored.
Because of the range of possible issues and large number of variables involved,
it is impossible to quantify the total potential cost of Year 2000 problems or
to determine Vintage Bank's worst-case scenario in the event Vintage Bank's Year
2000 remediation efforts or the efforts of those with whom it does business are
not successful. In order to deal with the
22
uncertainty associated with the Year 2000 problem, Vintage Bank has developed a
contingency plan to address the possibility that efforts to mitigate the Year
2000 risk are not successful either in whole or part. These plans include manual
processing of information for critical information technology systems,
utilities, and increased cash on hand. The contingency plans were completed
during the second quarter of 1999 and substantially tested prior to September
30, 1999.
As of September 30, 1999, Vintage Bank has incurred $45,771 in Year 2000 costs,
which have been expensed as incurred. Year 2000-related costs have been funded
from the continuing operations of Vintage Bank. Management expects that the
outside cost from beginning to end to complete Year 2000 compliance will be
approximately $50,000. This estimate includes the costs of consultants, customer
awareness programs, contingency plans, and renovation of select software and
hardware.
The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Vintage Bank expects to substantially complete programming changes, remediation
and testing of systems and the impact of redeployment of existing staff, are
based on management's best current estimates, which were derived utilizing
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to identify and convert all relevant computer systems,
results of Year 2000 testing, adequate resolution of Year 2000 issues by
governmental agencies, business or other third parties who are service
providers, suppliers, borrowers or customers of Vintage Bank, unanticipated
systems costs, the need to replace hardware, the adequacy of and ability to
implement contingency plans and similar uncertainties. The forward-looking
statements made in the foregoing Year 2000 discussion speak only as of the date
on which such statements are made, and Vintage Bank undertakes no obligation to
update any forward-looking statements to reflect the occurrence on unanticipated
events.
Vintage Bank's disclosure and announcements herein concerning its Y2K planning
and programs are intended to constitute Year 2000 Readiness Disclosures as
defined in the Year 2000 Information and Readiness Disclosure Act (the "Act").
The Act provides certain protection from liability for certain public and
private statements concerning an entity's Year 2000 readiness and the Year 2000
readiness product and services.
23
YEARS ENDED DECEMBER 31, 1998 ,1997 and 1996
OVERVIEW
Vintage Bank reported net income of $2,110,736, or $1.37 per share, in 1998
compared with $1,854,076, or $1.26 per share, in 1997 and $1,646,443, or $1.15
per share, in 1996, equating to a return on average assets of 1.29%, 1.39% and
1.38% for 1998, 1997 and 1996, respectively. The return on average equity was
13.45% in 1998 compared with 14.17% and 14.65% in 1997 and 1996, respectively.
The increase in net income during 1998 compared with 1997 resulted primarily
from growth in net interest income.
As of December 31, 1998, total assets were $180,290,550 compared with total
assets of $146,982,232 and $122,739,505 at year end 1997 and 1996, respectively,
representing a 23% increase in 1998 and a 20% increase in 1997. Deposits
increased 23% in 1998 compared with a 20% increase in 1997. Loans, net of the
allowance for loan losses, increased 17% in 1998 compared with a 14% increase in
1997.
SUMMARY OF EARNINGS
Net Interest Income
Net interest income, (total interest income less total interest expense), was
$7,914,604, $6,943,764 and $6,172,017, in 1998, 1997 and 1996, respectively,
representing increases of 14% and 13% in 1998 and 1997, respectively.
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 1998 compared with 1997 was primarily the
result of volume increases in loans and investments. The net interest margin
(defined as net interest income divided by average earning assets) decreased
slightly in 1998 as average yields on loans declined while rates paid on
deposits remained relatively stable throughout 1998.
Taxable-equivalent interest income increased $1,901,256 in 1998 compared with
1997. Increases in the volume of earning assets accounted for $2,241,994 of this
increase, with a decrease of $340,738 attributable to lower rates. An increase
of $923,454 in 1997 compared with 1996 consisted of a $1,266,823 increase due to
volume growth and a decrease of $343,369 attributable to lower rates.
Interest paid on interest-bearing liabilities increased $850,321 in 1998
compared with 1997. Increases in the volume of deposits and other borrowings
accounted for $623,652 of this increase, with a $226,669 increase attributable
to an increase in rates. Interest paid on interest-bearing liabilities increased
$159,888 in 1997 compared with 1996; the effect of volume increases accounted
for $197,756 offset by $37,868 attributable to a decrease in rates.
The net interest margin, using taxable equivalent interest income, was 5.36% in
1998 compared with 5.89% in 1997. Interest rates were relatively stable
throughout both years; the decrease in the net interest margin is the result of
lower loan rates due to competitive pressures, along with deposit mix changes
and a lower average loan-to-deposit ratio in 1998 compared to 1997.
The net interest margin is expected to remain consistent during 1999 unless
general rates increase or decrease significantly during the year. Since interest
rates have been relatively stable for over two years, the Bank's interest margin
should not be significantly impacted by the effects of any "lags" in adjusting
rates during 1999 to reflect previous changes in general interest rates as loans
and time deposits mature and renew. Assuming there are no dramatic changes in
general interest rates or deposit mix, total net interest income is expected to
increase during 1999 consistent with volumes of earning assets.
Provision and Allowance for Loan Losses
Vintage Bank maintains 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. Vintage Bank makes credit reviews of
the loan portfolio and considers current economic conditions,
24
historical loan loss experience and other factors in determining the adequacy of
the allowance balance. This evaluation establishes a specific allowance for all
impaired loans over $50,000, and establishes percentage allowance requirements
for all other loans, according to their classification as determined by Vintage
Bank's internal grading system. As of December 31, 1998, the allowance for loan
losses of $1,751,693 represented 1.81% of loans outstanding. This compares with
an allowance balance of 1.86% and 2.04% of loans outstanding at year end 1997
and 1996, respectively. During 1998, 1997 and 1996, $240,000 was charged to
expense each year for the provision for loan losses.
Noninterest Income
Noninterest income was $1,397,158 in 1998 compared with $1,443,473 in 1997 and
$775,883 in 1996. Noninterest income for 1997 includes gains and losses on
securities transactions of $414,629 and $19,377, respectively, including
recoveries on securities previously charged off. Fee income from service charges
on deposit accounts increased from the previous year 10% and 16% in years 1998
and 1997, respectively.
Noninterest Expense
Details of noninterest expense are as follows:
(In 000's)
1998 1997 1996
------ ------ ------
Salaries & Benefits $3,069 $2,636 $2,148
Occupancy 392 361 182
Equipment/Data Processing 450 474 391
Other 1,749 1,579 1,268
------ ------ ------
Total $5,660 $5,050 $3,989
====== ====== ======
Salaries and benefits expense increased 16% and 23% in 1998 and 1997,
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 58 at year-end 1996 to 73 at year-end 1998. The
proportionately large increase in personnel during 1997 reflects staffing
required for the new Bel Aire Office, as well as the effects of an internal
reorganization and relocation of functions intended to position Vintage Bank for
future growth. No net increases in personnel are anticipated during 1999.
The increase in occupancy expense during 1998 compared with 1997 was primarily
in rent and depreciation. Occupancy expense in 1997 nearly doubled 1996 expense
primarily due to the opening of the Bel Aire Office during the first quarter of
1997.
Equipment and Data Processing expense decreased 5% in 1998 compared with 1997.
The decrease was primarily due to the core banking system being fully
depreciated by mid-year 1998. Equipment is depreciated over periods of 3 to 5
years. Purchases of all types of equipment during 1998 totaled approximately
$145,000.
Major anticipated equipment purchases during 1999 include equipment associated
with electronic internet banking services, a new voice response system and
miscellaneous equipment such as personal computers and software. Expenditures in
these areas are anticipated to total approximately $250,000. All other
anticipated expenditures for equipment during 1999, including routine purchases
of vehicles and miscellaneous equipment, are expected to total less than
$200,000. The financial impact of these capital expenditures, if all are made,
will be to increase monthly depreciation by approximately $10,000.
25
The key components of other expense are as follows:
(In 000's)
1998 1997 1996
------ ------ ------
Business Promotion $ 274 $ 236 $ 191
Professional Services 350 321 235
ATM Expenses 109 85 74
Stationery & Supplies 172 159 126
Insurance 54 49 45
Other 790 729 597
------ ------ ------
Total $1,749 $1,579 $1,268
====== ====== ======
Business promotion expense increased in both 1998 and 1997 compared to the prior
year primarily due to increases in advertising, customer relations expense and
donations. The increase in 1998 includes increased promotions associated with
the Bank's seeking deposits from customers of branches closed by competitors.
Professional services increased in 1998 compared with 1997 due to fees for
services provided by the firm hired to manage our investment portfolio beginning
in the second quarter of 1996. These fees totaled $79,000 in 1998 compared with
$72,000 and $35,000 in 1997 and 1996, respectively. Also, ATM expenses increased
by approximately 28% and 15% in 1998 and 1997, respectively, reflecting costs
associated with adding two additional ATM's in 1997 and additional expenses
associated with the Y2K issue and other maintenance. Stationery and supplies
expense increased 8% and 26% in 1998 and 1997, respectively, reflecting overall
volume increases; 1997 expense was also higher due to costs associated with
opening the Bel Aire Office and relocating functions to the new location.
Insurance expenses have remained relatively constant for three years, reflecting
the benefits of generally lower premiums resulting from an improving insurance
market, offsetting the effects on premiums of the Bank's increasing size and
volumes. Other expense increased approximately $61,000 in 1998 compared with
1997, primarily due to increased expenses in telephone, postage, courier
services, conferences and other miscellaneous expenses. These expense increases
were generally less than proportionate with our overall growth and volume
increases.
Management anticipates that total other expense will increase proportionately
less than Vintage Bank's overall growth rate during 1999. In order to avoid
risking any costly system failure as a result of hardware or software not being
operational or compatible after December 31, 1999, Vintage Bank has devoted
substantial resources to planning, converting, testing and documenting for Y2K
compliance in all systems. During 1997, Management devoted significant personnel
resources to addressing this issue, primarily in planning for Year 2000. Most of
the "hard dollar" expenditures required to solve this problem were expensed
during 1998. For 1999, Vintage Bank budgeted approximately $75,000 for
non-recurring expenditures, in addition to the costs of internal human resources
required to achieve Y2K compliance. Most of Vintage Bank's "mission critical"
systems have been successfully tested. However, unanticipated problems could
push actual costs substantially higher.
Vintage Bank reported a provision for income taxes of $1,301,000, $1,243,000 and
$1,073,000 for years 1998, 1997 and 1996, respectively. These provisions reflect
accrual for taxes at the applicable rates for Federal and California State
income taxes based upon reported pre-tax income, adjusted for the beneficial
effect of Vintage Bank's investment in qualified municipal securities. Vintage
Bank has not been subject to an alternative minimum tax.
BALANCE SHEET
Total assets as of December 31, 1998 were $180,290,550 compared with
$146,982,232, and $122,739,505 as of year end 1997 and 1996, respectively,
representing a 23% increase in 1998 and a 20% increase in 1997. Total deposits
grew $30,783,007 to $162,173,206 in 1998, representing a 23% increase, compared
with a 20% increase in 1997. Total loans, net of allowance for loan losses, grew
$13,784,415 to $94,775,177 in 1998, representing a 17% increase; compared with a
14% increase in 1997. Investment securities increased from $39,566,991 at
year-end 1997 to $62,018,042 in 1998, a 57% increase, compared with an increase
of only 5% during 1997.
Liquidity and Capital Adequacy
Vintage Bank's liquidity is determined by the level of assets (such as cash,
federal funds sold, and marketable securities) that are readily convertible to
cash to meet customer withdrawal and borrowing needs. Vintage Bank'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.
Vintage Bank has a comprehensive Asset/Liability Management and Liquidity Policy
which it
26
uses to determine adequate liquidity.
Securities classified as "Held-to-Maturity" are reported at amortized cost, and
"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, 1998,
"Held-to-Maturity" securities had an amortized cost of $13,512,384 and
"Available-for-Sale" securities had a fair value of $48,505,658, with an
unrealized gain, net of income taxes, of $385,106 reflected as a component of
accumulated other comprehensive income in the shareholders' equity section of
the Balance Sheet.
At year end 1998 liquid assets represented 42% of total assets, as compared with
39% and 37% in liquid assets as of year end 1997 and 1996, respectively. The
level of liquid assets at December 31, 1998 exceeds the liquidity required by
Vintage Bank's liquidity policy. However, securities could be sold from the
"Held-to-Maturity" category only in specific circumstances without requiring the
entire portfolio to be reclassified as "Available-for-Sale" and recorded at fair
value. Management expects to be able to meet the liquidity needs of the Bank
during 1999 primarily through balancing loan growth with corresponding increases
in deposits.
Interest Rate Sensitivity
The following table sets forth the repricing opportunities for rate-sensitive
assets and rate-sensitive liabilities at December 31, 1998. Rate sensitivity
analysis usually excludes noninterest-bearing demand deposits. Including these
deposits, which totaled $39,469,756, would result in a significant shift in the
gap position. 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 $ 42,315 $ 6,125 $ 21,961 $ 26,126 $ 96,527
Interest-bearing deposits in
other banks 100 100 0 0 200
Investment securities 1,500 2,030 19,994 38,494 62,018
Federal funds sold 6,000 0 0 0 6,000
-------- -------- -------- -------- --------
Total 49,915 8,255 41,955 64,620 164,745
Interest rate-sensitive liabilities:
Interest-bearing demand
Deposits 54,501 0 0 0 54,501
Time deposits >$100,000 8,177 7,794 1,366 106 17,443
Other time deposits 15,717 16,001 4,500 0 36,218
Savings deposits 14,542 0 0 0 14,542
-------- -------- -------- -------- --------
Total 92,937 23,795 5,866 106 122,704
-------- -------- -------- -------- --------
Interest rate sensitivity gap ($43,022) ($15,540) $ 36,089 $ 64,514 $ 42,041
======== ======== ======== ======== ========
Ratio of interest rate sensitivity to
earning assets (26.11%) (9.43%) 21.91% 39.16%
This table indicates that Vintage Bank has a "negative" GAP for one year into
the future, and a "positive" GAP beyond one year. The implication is that during
the negative GAP "horizon" bank earnings will increase in a falling interest
rate environment, as interest rates on interest-bearing liabilities reprice
downward more rapidly than rates on earning assets; conversely, earnings would
decline in a rising rate environment. 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 all earning assets and
interest-bearing liabilities reprice to the same absolute degree, regardless of
the mix of earning assets and interest-bearing liabilities. Vintage Bank
utilizes a simulation model to assist with asset/liability management that
considers the effects of lags and different ranges of interest rate changes
among various classes of earning assets and interest-bearing liabilities. Based
on the model, Vintage Bank is free of material interest rate risk for the
one-year horizon (i.e., the earnings will not change significantly with an
increase or decrease in interest rates), as opposed to being liability-sensitive
as indicated by this
27
table using traditional GAP analysis.
Vintage Bank's capital ratios remained relatively steady during 1998 compared
with 1997 levels. As of December 31, 1998 Vintage Bank's total risk-based
capital ratio, tier I risk-based capital ratio and leverage ratio were 14.4%,
13.1% and 9.3%, respectively. These compare with ratios of 14.6%, 13.4% and
10.0% as of December 31, 1997. Vintage Bank projects average percentage
increases in assets during the next few years to be similar to the return on
average equity. Consequently, Vintage Bank is positioned to support projected
growth while paying modest cash dividends without negatively impacting capital
ratios.
In January, 1999, Vintage Bank declared a 5% stock dividend and a $.20 per share
cash dividend for shareholders of record as of March 1, 1999. The stock dividend
affected Vintage Bank's capital and its capital ratios only to the extent that
cash was distributed in lieu of fractional shares. Accordingly, the stock
dividend did not materially impact Vintage Bank's overall capital.
The cash dividend totaled approximately $290,000, equating to a reduction in
Vintage Bank's leverage ratio of approximately .02%.
DESCRIPTION OF OPERATIONS
Vintage Bank is a California corporation organized as a state chartered bank in
1984. The bank engages in the commercial banking business in Napa County from
its main banking office located at 1500 Soscol Avenue, Napa, California. Vintage
Bank has two other business locations, one located in the Brown's Valley
Shopping Center at 3271 Brown's Valley Road, Napa, California and one at 3626
Bel Aire Plaza, Napa, California. The bank has a remote ATM and night drop
services at 629 Factory Stores Drive, Suite B, Napa California and at 6498
Washington Street, Yountville, California. Vintage Bank conducts a commercial
banking business, offering a full range of commercial banking services to
individuals, businesses and agricultural communities in Napa County. Vintage
Bank emphasizes its retail commercial banking operations and accepts checking
and savings deposits, issues drafts, sells traveler's checks and provides other
customary banking services.
28
BUSINESS
North Bay Bancorp
North Bay Bancorp, headquartered in Napa, California, became the bank holding
company of Vintage Bank on November 1, 1999 through a corporate reorganization.
In the reorganization, Vintage Bank became the wholly-owned subsidiary of North
Bay and the shareholders of Vintage became shareholders of North Bay. North Bay
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended, and is subject to the regulations of, and examination by, the Board
of Governors of the Federal Reserve System. Currently all operations of North
Bay are conducted through Vintage Bank. Subject to receipt of regulatory
approval and the completion of this offering, North Bay intends to acquire 100%
of the outstanding shares of Solano Bank, a proposed California chartered
banking corporation to be headquartered in Fairfield, California.
Solano Bank (Proposed)
North Bay has filed an application with the California Department of Financial
Institutions for permission to organize a new state chartered bank in Solano
County, California. If approved, Solano Bank will be a member of the Federal
Reserve System headquartered in Fairfield, California with branches in Vacaville
and Benicia, California. It will be a wholly-owned subsidiary of North Bay.
Bank Organization
On December __, 1999 an Application for Permission to Organize Solano Bank was
filed with the California Commissioner of Financial Institutions. The
Commissioner approved the Application on _____________, after completing an
investigation to ascertain the matters required by law, including that (a) the
proposed bank would promote the public convenience and advantage; (b) the
proposed capital structure is adequate; and (c) the conditions in Solano County
, along with the experience, ability and standing of the proposed directors and
officers, afford a reasonable promise of successful operations. This
determination by the Commissioner does not constitute a representation or
guarantee by the Commissioner that Solano Bank will be successful. On
__________, Solano Bank was incorporated under the laws of the State of
California. Since that time, the directors of Solano Bank have been in the
process of completing the various steps required to organize Solano Bank and to
prepare for it to commence operations during the second quarter of 2000, or as
soon thereafter as is practicable.
Final licensing of Solano Bank to commence operations is dependent upon
compliance with certain conditions and procedures under California law,
including completion of the sale of at least _________ shares of the common
stock offered for sale in this offering, Solano Bank being granted membership in
the Federal Reserve System and obtaining federal deposit insurance. An
application for membership in the Federal Reserve System was filed with the
Federal Reserve Bank of San Francisco on ____________. An Application for
Federal Deposit Insurance was filed with the Federal Deposit Insurance
Corporation on _____________.
Business of Solano Bank
General
As of the date of this prospectus, Solano Bank has not conducted or been
authorized to conduct a banking business. Upon issuance of a license to conduct
a banking business by the Commissioner, Solano Bank will engage in the general
commercial banking business, and will accept checking and savings deposits, make
commercial, real estate, auto and other installment and term loans, issue
drafts, sell travelers' checks and provide other customary banking services,
including note collection and safe deposit box rental. Solano Bank anticipates
attracting the majority of its loan and deposit business from the residents and
numerous small to medium sized businesses and professional firms located in
Fairfield, Vacaville, and Benicia, California and nearby communities within
Solano County. Solano Bank does not intend to offer international banking or
trust services initially or for the foreseeable future, but it will attempt to
make such services available to Solano Bank's customers through correspondent
institutions. The deposits of Solano Bank will be insured by the FDIC up to
applicable limits. Solano Bank will be a member of the Federal Reserve System.
Management intends that Solano Bank will provide the highest possible level of
personalized service to residents and a full range of banking services for
businesses and professional firms located in Fairfield, Vacaville, and Benicia
and nearby communities within Solano County. Solano Bank will offer a wide range
of deposit accounts including "Money Market Deposit" accounts which require
minimum balances and frequency of withdrawal limitations. Other accounts offered
by Solano Bank will include certificates of deposit of up to 60 months duration,
Individual Retirement Accounts and
29
401(k) an SERP Plans. It is anticipated that Solano Bank will engage in a full
range of lending activities, including commercial, consumer/installment and real
estate construction loans. It is intended that Solano Bank will direct its
commercial lending principally toward businesses whose demands for credit will
fall within Solano Bank's lending limit. In the event there are customers whose
commercial loan demands exceed Solano Bank 's lending limits, Solano Bank will
seek to arrange for such loans on a participation basis with other financial
institutions, including Vintage Bank. Solano Bank will offer a variety of
consumer loans, including automobile and home equity loans. Solano Bank also
anticipates making commercial real estate loans and commercial lines of credit.
Solano Bank further intends to provide some specialized services to its
customers. These services will include automated teller machines, courier
deposit services to key locations or customers throughout Solano Bank's service
area, Small Business Administration loans and extended lobby hours. Solano Bank
reserves the right to change its business plan at any time and no assurance can
be given that, if Solano Bank's proposed business plan is followed, it will
prove successful.
Premises
Solano Bank will operate out of its headquarters office in Fairfield, California
and from branches located in Vacaville and Benicia, California.
The headquarters office will be located at __________ ________ Street,
Fairfield, California. The proposed lease for the building provides for about
________ square feet at a lease cost of $______ per month. The initial lease
will be for a period of ___ (_) years , with __ __ (_) year options to extend.
Leasehold improvements are not intended to exceed $_______.
The Vacaville branch will be located at 403 Davis Street, Vacaville, California.
The proposed lease for the building provides for about 5,000 square feet at a
lease cost of $5,210 per month. The initial lease will be for a period of five
(5) years , with three five (5) year options to extend. Leasehold improvements
are not intended to exceed $_______
The Benicia branch will be located at 1395 E. 2nd Street, Benicia, California.
The proposed lease for the building provides for about 2,000 square feet at a
lease cost of $2,980 per month. The initial lease will be for a period of five
(5) years , with three five (5) year options to extend. Leasehold improvements
are not intended to exceed $_______
Capital Accounts
The initial capitalization of Solano Bank will be $9,000,000 all of which will
be provided by North Bay. North Bay's investment will consist of $3,000,000 from
funds dividended to North Bay by Vintage Bank and the net proceeds of this
offering. The balance will come from financing to be arranged by North Bay from
outside sources.
After North Bay's investment, Solano Bank will establish accounts for
contributed capital and retained earnings. The following chart shows Solano
Bank's initial capitalization, assuming organizational expenses to be incurred
by Solano Bank do not exceed approximately $_______ and all organizational
expenses are charged against Solano Bank's retained earnings account:
30
Contributed Capital - 20,000,000 Shares of Common stock $9,000,000
authorized, no par value, ____________ issued
500,000 Shares of Preferred Stock authorized, no shares
issued or outstanding
(Accumulated deficit) $
Total Shareholders? Equity $
(1) Does not reflect gain or loss from investment of stock sale proceeds held
in the impound account.
Vintage Bank
Vintage Bank is a California corporation organized as a state chartered bank in
1984. Vintage Bank engages in commercial banking business in Napa County, from
its main banking office located at 1500 Soscol Avenue in Napa, California.
Vintage Bank has two branches, one located at 3271 Browns Valley Road, Napa,
California and the other at 3626 Bel Aire Plaza, Napa, California. Automated
teller machines are located at all offices, at the Napa Premium Outlets on
Freeway Drive in Napa, and at Ranch Market Too in Yountville, providing 24 hour
service. Vintage Bank is a member of the STAR, Interlink and PLUS ATM networks,
providing customers with access to Point of Sale and ATM service world-wide.
Vintage Bank is a member of the Federal Reserve System. The deposits of each
depositor of Vintage Bank are insured by the Federal Deposit Insurance
Corporation up to the maximum allowed by law.
Vintage Bank offers a full range of commercial banking services to individuals
and the business and agricultural communities in Napa County. Vintage Bank
emphasizes retail commercial banking operations. Vintage Bank accepts checking
and savings deposits, makes consumer, commercial, construction and real estate
loans, and provides other customary banking services. Vintage Bank does not
offer trust services and does not plan to do so in the near future. There have
been no material changes in services offered by Vintage Bank during the past
fiscal year. Commencing in early 1993, Vintage Bank made annuities and mutual
funds available to its customers through an unaffiliated corporation, Protective
Financial and Insurance Services, Inc. These products are currently being
offered through Protective Financial and one of its affiliates, ProEquities,
Inc. Under a contractual arrangement, a licensed bank employee appointed and
supervised by Protective Financial and ProEquities handles all annuity and
mutual fund sales.
At this time, Vintage Bank does not offer internet banking; however, it is
currently testing an internet banking product which it intends to offer to its
customers in early 2000. The system will support account inquiries, transfers
between accounts, and automatic reconciliation and bill payment services.
Lending Activities
Vintage Bank concentrates its lending activities in commercial, installment,
construction, and real estate loans made primarily to businesses and individuals
located in Napa County. At December 31, 1998, Vintage Bank had total loans
outstanding of $96,526,870 resulting in a loan-to-deposit ratio of 59.5%. At
September 30, 1999, total loans outstanding were $117,224,456 resulting in a
loan to deposit ratio of 67.5%.
As of September 30, 1999, Vintage Bank's loan limits to individual customers
were $2,876,281 for unsecured loans and $4,793,802 for unsecured and secured
loans combined. As of December 31, 1998, Vintage Bank's lending limits were
$2,799,259 for unsecured loans and $4,665,431 for unsecured and secured loans
combined. For customers desiring loans in excess of Vintage Bank's lending
limits, Vintage Bank may loan on a participation basis with another bank taking
the amount of the loan in excess of Vintage Bank's lending limits.
At September 30, 1999, Vintage Bank's commercial loans outstanding totaled
$19,132,280 (16.3% of total loans), real estate-secured commercial loans totaled
$11,250,476 (9.6% of total loans), construction loans totaled $8,318,628 (7.1%
of the total loans), real estate loans totaled $58,041,316 (49.5% of total
loans), and installment loans totaled $20,481,756 (17.5% of total loans). At
December 31, 1998, commercial loans outstanding totaled $14,410,117 (14.9%) of
total loans), real estate-secured commercial loans totaled $6,062,585 (6.3% of
total loans), construction loans totaled $5,950,207 (6.2% of total loans), real
estate loans totaled $51,643,406 (53.5% of total loans) and installment loans
totaled $18,460,555 (19.1% of total loans). At December 31, 1997, commercial
loans outstanding totaled $16,458,361 (19.9% of total loans), real
estate-secured commercial loans totaled $9,610,793 (11.7% of total loans),
construction loans totaled $6,446,381 (7.8% of the total loans), real estate
loans totaled $34,089,199 (41.3% of total loans), and installment loans totaled
$15,918,156 (19.3% of total loans).
31
As of September 30, 1999, the total of undisbursed loans and similar commitments
was $38,941,000 as contrasted with $29,548,000 as of December 31, 1998 and
$23,549,000 as of December 31, 1997. Within the current year Vintage Bank
expects all but approximately $1,629,000 of its undisbursed loans and similar
commitments to be exercised. Vintage Bank takes real estate, listed securities,
savings and time deposits, automobiles, machinery and equipment, inventory and
accounts receivable as collateral for loans.
The interest rates charged for the various loans made by Vintage Bank vary with
the degree of risk and the size and maturity of the loans involved and are
generally affected by competition and by current money market rates.
Commercial Loans
Vintage Bank makes commercial loans primarily to professionals, individuals and
businesses in the City of Napa. Vintage Bank offers a variety of commercial
lending products, including revolving lines of credit, working capital loans,
equipment financing and issuance of letters of credit. Typically, lines of
credit have a floating rate of interest based on Vintage Bank's Base Rate and
are for a term of one year or less. Working capital and equipment loans have a
floating or a fixed rate typically with a term of five years or less.
Approximately 63% of Vintage Bank's commercial loans are unsecured or secured by
personal property and, therefore, represent a higher risk of ultimate loss than
loans secured by real estate. However, as a result of the lending policies and
procedures implemented by Vintage Bank, management believes it has adequate
commercial loan underwriting and review procedures in place to manage the risks
inherent in commercial lending. In addition, commercial loans not secured by
real estate typically require higher quality credit characteristics to meet
underwriting requirements. The remaining 37% of Vintage Bank's commercial loans
are secured by real estate.
Real Estate Loans
Real estate loans consist of loans secured by deeds of trust on residential and
commercial properties. The purpose of these loans is to purchase real estate or
refinance an existing real estate loan, as compared with real estate secured
commercial loans, which have a commercial purpose unrelated to the purchase or
refinance of the real estate taken as collateral. Vintage Bank's real estate
loans bear interest at rates ranging from 6.00% to 12.00% and have maturities of
thirty years or less.
Vintage Bank established a Mortgage Loan Department in 1987 for the purpose of
originating and servicing residential mortgage loans. Most of the residential
mortgage loans originated by Vintage Bank's Mortgage Loan Department are sold to
institutional investors according to their guidelines. Servicing of these loans
is not retained by Vintage Bank, but Vintage Bank receives a loan fee. Prior to
1995, Vintage Bank sold the major portion of its residential real estate loans
to the Federal Home Loan Mortgage Corporation commonly referred to as Freddie
Mac with servicing retained by Vintage Bank. No loans were sold to Freddie Mac
in 1998 or 1997. As of September 30, 1999, Vintage Bank's residential mortgage
loan portfolio was $18,847,726 of which $7,060,141 constitutes loans sold to
Freddie Mac and serviced by Vintage Bank. As of December 31, 1998, Vintage
Bank's residential mortgage loan portfolio was $19,688,857 of which $8,204,694
constituted loans sold to Freddie Mac and serviced by Vintage Bank.
Real Estate Construction Loans
Vintage Bank makes loans to finance the construction of commercial, industrial
and residential projects and to finance land development. The majority of
Vintage Bank's construction loans were made to finance the construction of
residential projects. Vintage Bank's construction loans typically have
maturities of less than one year, have a floating rate of interest based on
Vintage Bank's base rate and are secured by first deeds of trust. Generally,
Vintage Bank does not extend credit in an amount greater than 50% of the
appraised value of the real estate securing land and land development loans, or
in an amount greater than 70% of the appraised value of the real estate securing
non-owner occupied residential construction loans and commercial construction
loans, or 75% of the appraised value in the case of owner occupied residential
construction loans. Commercial loans secured by real estate normally comply with
these same guidelines.
Historically, Vintage Bank has maintained a significant percentage of its loans
in real estate construction loans. As of September 30, 1999, 7.1% of the total
loan portfolio was represented by construction and land development loans,
compared with 6.3% as of December 31, 1998 and 7.8% as of December 31, 1997 and
higher concentrations in the previous three years. This decline in concentration
reflects relatively low residential construction activity in Vintage Bank's
market area. Should demand for new residences and residential construction
activity in Vintage Bank's market area increase, as many predict, management
expects the percentage of loans represented by construction and land development
loans to increase significantly.
32
Installment Loans
Installment loans are made to individuals for household, family and other
personal expenditures. These loans typically have fixed rates and have
maturities of five years or less.
Lending Policies and Procedures
Vintage Bank's lending policies and procedures are established by senior
management of Vintage Bank and are approved by Vintage Bank's Board of
Directors. Vintage Bank's Board of Directors has established internal procedures
which limit loan approval authority of its loan officers. The Board of Directors
has delegated some lending authority to executive and loan officers and an
internal loan committee consisting of two executive officers and selected loan
officers.
The Directors' Loan Committee must approve all new loans and loan renewals in
excess of specified amounts. This includes any loan in excess of $300,000 if
secured by a residential first deed of trust or $150,000 if secured by a
commercial first deed of trust, $200,000 if secured by a second deed of trust,
$100,000 if secured by readily marketable securities and $50,000 if unsecured or
secured by equipment, receivables, inventory, or other personal property.
Further, any loan not substantially conforming to Vintage Bank's written loan
policy must be approved by the Directors' Loan Committee. Loans to directors and
executive officers of Vintage Bank or their affiliates must be approved in all
instances by a majority of the Board of Directors. In accordance with law,
directors and officers are not permitted to participate in the discussion of or
to vote on loans made to them or their related interests. In addition, loans to
directors and officers must be made on substantially the same terms, including
interest rates and collateral requirements, as those prevailing for comparable
transactions with other nonaffiliated persons at the time each loan was made,
subject to the limitations and other provisions in California and Federal law.
These loans also must not involve more than the normal risk of collectibility or
present other unfavorable features.
Deposits
Napa County south of Oak Knoll Avenue constitutes Vintage Bank's primary service
area and most of Vintage Bank's deposits are attracted from the Napa area. No
material portion of Vintage Bank's deposits has been obtained from a single
person or a few persons, the loss of any one or more of which have a material
effect on the business of Vintage Bank. Total deposits as of September 30, 1999
were $173,595,824. Total deposits as of December 31, 1998 were $163,380,519.
Vintage Bank offers a courier service in the North Napa County area, including
Yountville and St. Helena and throughout the City of Napa and Southern Napa
County. Management anticipates that this courier service will increase deposits
from north of Vintage Bank's current primary market area.
Business Hours
In order to attract loan and deposit business, Vintage Bank maintains lobby
hours at its Main Office between 9:00 a.m. and 5:00 p.m. Monday through
Thursday, between 9:00 a.m. and 6:00 p.m. on Friday, and between 9:00 a.m. and
1:00 p.m. on Saturday. Drive-up hours are between 8:00 a.m. and 6:00 p.m. Monday
through Friday, and between 9:00 a.m. and 1:00 p.m. on Saturday. Both branch
offices are open between 9:00 a.m. and 5:00 p.m. Monday through Thursday,
between 9:00 a.m. and 6:00 p.m. on Friday, and between 9:00 a.m. and 1:00 p.m.
on Saturday.
Employees
At September 30, 1999, Vintage Bank employed ninety (90) persons, nineteen (19)
of whom are part-time employees, including six (6) executive officers and
eighteen (18) other officers. At December 31, 1998, Vintage Bank employed eighty
seven (87) persons, eighteen (18) of whom are part-time employees, including
five (5) executive officers and sixteen (16) other officers. None of Vintage
Bank's employees are presently represented by a union or covered under a
collective bargaining agreement. Management of Vintage Bank believes its
employee relations are excellent.
33
The following table sets forth a summary of the changes in interest earned and
interest paid in September 30, 1999 over 1998 and December 31, 1998 1998 over
1997 and December 31, 1997 over 1996 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.
September 30, 1999 Over 1998 (annualized) 1998 over 1997 1997 Over 1996
----------------------------------------- --------------- --------------
Volume Rate Total Volume Rate Total Volume Rate Total
--------------------------------------------------------------------------------------------------------
Increase (Decrease) In
Interest and Fee Income
Time Deposits With Other
Financial Institutions ($3,444) ($26) ($3,470) $0 $0 $0 ($425) ($271) ($696)
Investment Securities:
Taxable 633,064 120,765 753,829 378,506 415,865 (88,073) 327,792 81,119 408,911
Non-Taxable (1) 223,938 5,545 229,483 (37,715) 465,084 (137,323) 327,761 550 328,311
Federal Funds Sold (342,496) 38,658 (303,838) (427,477) 402,402 (83,843) 318,559 (33,027) 285,532
Loans 1,583,597 (1,242,444) 341,153 1,353,509 958,643 (31,074) 927,569 (391,740) 535,829
--------------------------------------------------------------------------------------------------------
Total Interest and Fee
Income 2,094,659 (1,077,502) 1,017,157 1,266,823 2,241,994 (340,738) 1,901,256 (343,369) 1,557,887
--------------------------------------------------------------------------------------------------------
Increase (Decrease) In
Interest Expense
Deposits:
Interest Bearing
Transaction Accounts 228,834 3,020 231,854 58,580 284,084 225,440 509,524 (15,713) 493,811
Savings 41,744 6,553 48,297 22,458 19,594 (27,572) (7,978) (10,825) (18,803)
Time Deposits 93,619 (307,095) (213,476) 181,737 346,214 28,801 375,015 16,037 391,052
--------------------------------------------------------------------------------------------------------
Total Deposits 364,197 (297,522) 66,675 262,775 649,892 226,669 876,561 (10,501) 866,060
Short-term Borrowings 0 169,395 169,395 (65,019) (26,240) 0 (26,240) (27,367) (53,607)
--------------------------------------------------------------------------------------------------------
Total Interest Expense 364,197 (128,127) 236,070 197,756 623,652 226,669 850,321 (37,868) 812,453
--------------------------------------------------------------------------------------------------------
Net Interest Income $1,730,462 ($949,375) $781,087 $1,069,067 $1,618,342 ($567,407) $1,050,935 ($305,501) $745,434
========================================================================================================
<FN>
(1) The interest earned is taxable-equivalent. On a non-taxable basis, 1998 interest income was $248,666 more than in 1997. In 1997,
on-taxable interest income was $28,984 less than in 1996. Through September 30, 1999, on an annualized basis, non-taxable interest
income was $188,94 more than for the same period in 1998..
</FN>
Investment Securities
The following tables show the book value of investment securities as of
September 30, 1999 and December 31, 1998 and 1997.
Book Value as of September 30, 1999
--------------------------------------
Held to Maturity Available-for-Sale
---------------- ------------------
Securities of the U. S. Treasury and
Government Agencies $ 0 $11,498,056
Mortgage Backed Securities 0 21,063,101
Equity Securities 0 857,000
Municipal Securities 13,389,964 12,546,014
Corporate Debt Securities 0 11,986,000
----------- -----------
$13,389,964 $57,950,171
=========== ===========
34
Book Value as of December 31, 1998
---------------------------------------
Held to Maturity Available-for-Sale
---------------- ------------------
Securities of the U. S. Treasury and
Government Agencies $ 0 $11,703,432
Mortgage Backed Securities 0 23,572,792
Equity Securities 0 777,200
Municipal Securities 13,512,384 0
Corporate Debt Securities 0 12,452,234
----------- -----------
$13,512,384 $48,505,658
=========== ===========
Book Value as of December 31, 1997
---------------------------------------
Held to Maturity Available-for-Sale
---------------- ------------------
Securities of the U. S. Treasury and
Government Agencies $ 0 $7,588,574
Mortgage Backed Securities 0 18,536,012
Equity Securities 0 688,400
Municipal Securities 4,017,714 0
Corporate Debt Securities 0 8,736,291
---------- -----------
$4,017,714 $35,549,277
========== ===========
35
The following table is a summary of the maturities and weighted average yields
of investment securities as of September 30, 1999 and December 31, 1998
MATURITY AND WEIGHTED AVERAGE YIELD
OF INVESTMENT SECURITIES AS OF
SEPTEMBER 30, 1999
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 US Treasury and
other US Government Agencies $4,019,770 6.29% $ 7,478,286 5.26% $0 0.00% $0 0.00% $11,498,056 5.62%
Mortgage-Backed Securities (2) 0 0.00% 1,031,750 6.70% 296,034 6.66% 19,735,317 6.56% 21,063,101 6.57%
Equity Securities 0 0.00% 0 0.00% 0 0.00% 857,000 5.65% 857,000 5.65%
Municipal Securities (1) 132,055 9.18% 1,501,273 7.73% 4,912,712 6.48% 5,999,974 6.64% 12,546,014 6.73%
Corporate Debt Securities 2,071,574 6.78% 5,061,583 5.98% 1,972,040 6.01% 2,880,803 6.56% 11,986,000 6.26%
---------- ----- ----------- ----- --------- ----- --------- ----- ----------- ------
TOTAL $6,223,399 6.51% $15,072,892 5.85% $7,180,786 6.36% $29,473,094 6.55% $57,950,171 6.33%
HELD TO MATURITY SECURITIES:
Municipal Securities (1) $0 0.00% $0 0.00% $0 6.56% $1,389,964 8.58% $1,389,964 8.58%
-- ----- -- ----- -- ----- ---------- ----- ----------- ------
TOTAL $0 0.00% $0 7.75% $0 8.74% $1,389,964 7.55% $1,389,964 8.58%
36
MATURITY AND WEIGHTED AVERAGE YIELD
OF INVESTMENT SECURITIES AS OF
DECEMBER 31, 1998
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 US Treasury and
otherUS Government Agencies $2,029,688 6.31% $ 9,673,744 5.79% $0 0.00% $0 0.00% $11,703,432 5.88%
Mortgage-Backed Securities (2) 0 0.00% 1,627,649 6.74% 666,154 6.41% 21,278,989 6.64% 23,572,792 6.64%
Equity Securities 0 0.00% 0 0.00% 0 0.00% 777,200 5.66% 777,200 5.66%
Corporate Debt Securities 1,499,700 5.29% 6,364,305 6.29% 1,034,590 6.19% 3,553,639 6.61% 12,452,234 6.25%
---------- ----- ----------- ----- --------- ----- --------- ----- ----------- ------
TOTAL $3,529,388 5.88% $17,665,698 6.06% $1,700,744 6.28% $25,609,828 6.61% $48,505,658 6.34%
HELD TO MATURITY SECURITIES:
Municipal Securities (1) $0 0.00% $ 1,513,655 8.13% $4,839,580 6.56% $7,159,149 6.67% $13,512,384 6.79%
-- ----- ----------- ----- ---------- ----- ---------- ----- ------------ -----
TOTAL $0 0.00% $ 1,513,655 7.75% $4,839,580 8.74% $7,159,149 7.55% $13,512,384 6.79%
<FN>
(1) Yields shown are taxable-equivalent.
(2) The maturity of mortgage-backed securities are based on contractual maturity. The average expected life is approximately
four and one half years.
</FN>
37
LOAN PORTFOLIO
Composition of Loans
The following table shows the composition of loans as of September 30, 1999 and
December 31, 1998 and 1997.
September 30, 1999 1998 1997
---------------------------------------------------
Commercial Loans $ 19,132,280 $ 14,410,117 $ 16,458,361
Commercial Loans Secured by
Real Estate 11,250,476 6,062,585 9,610,793
Installment Loans 20,481,756 18,460,555 15,918,156
Real Estate Loans 58,041,316 51,643,406 34,089,199
Construction Loans 8,318,628 5,950,207 6,446,381
---------------------------------------------------
117,224,456 96,526,870 82,522,890
Less - Allowance for
Loan Losses 1,939,818 1,751,693 1,532,128
---------------------------------------------------
$115,284,638 $ 94,775,177 $ 80,990,762
===================================================
Maturity, Distribution, and Interest Rate Sensitivity of Loans
The following table shows maturity distribution of loans and sensitivity to
changes in interest rates as of December 31, 1998.
AFTER ONE
IN ONE YEAR OR THROUGH AFTER
LESS FIVE YEARS FIVE YEARS TOTAL
----------------------------------------------------------------
Commercial (Including
Real Estate Secured) $ 7,858,123 $ 8,937,976 $ 3,676,603 $ 20,472,702
Installment 14,621,340 2,859,787 979,428 18,460,555
Real Estate 4,743,037 16,997,897 29,902,472 51,643,406
Construction 3,938,274 629,543 1,382,390 5,950,207
----------------------------------------------------------------
$ 31,160,774 $ 29,425,203 $ 35,940,893 $ 96,526,870
===============================================================
Sensitivity To Changes in Interest Rates:
Loans With Fixed Interest Rates $ 9,163,727 $ 21,961,090 $ 26,125,581 $ 57,250,398
Loans With Floating Interest Rates 21,997,048 7,464,113 9,815,311 39,276,472
----------------------------------------------------------------
$ 31,160,775 $ 29,425,203 $ 35,940,892 $ 96,526,870
===============================================================
The following table shows maturity sensitivity to changes in
interest rates as of September 30, 1999
Loans With Fixed Interest Rates $ 7,276,100 $ 25,717,400 $ 37,249,062 $ 70,242,562
Loans With Floating Interest Rates 43,928,813 3,053,081 0 46,981,894
----------------------------------------------------------------
$ 51,204,913 $ 28,770,481 $ 37,249,062 $117,224,456
===============================================================
38
Nonaccrual, Past Due and Restructured Loans
Nonaccrual loans were $12,648 as of September 30, 1999 and $88,694 and $466,051
as of year-end 1998 and 1997 respectively. Vintage Bank held no OREO at
September 30, 1999 or at year-end 1998 or 1997.
Loans are placed on a nonaccrual basis and any accrued but unpaid interest
income is reversed and charged against income when interest or principal is 90
days or more past due, except when loans are well secured and in the process of
collection. There were no loans accruing interest 90 days past due as of
September 30, 1999 or December 31, 1998 or 1997.
Vintage Bank believes its procedures for administering and reviewing its loan
portfolio are effective in identifying loans where significant repayment
problems exist. There are no loans upon which principal and interest payments
were current at September 30, 1999 and with respect to which serious doubt
existed as to the ability of the borrower to comply with the present loan
payment terms.
39
Summary of Loan Loss Experience
The following table provides a summary of Vintage Bank's loan loss experience as
of September 30, 1999 and December 31, 1998 and 1997.
December 31,
September 30, 1999 1998 1997
------------------ ---- ----
Average loans for the period $ 105,663,517 $ 89,057,414 $ 78,975,833
Loans outstanding at end
of period 117,224,456 96,526,870 82,522,890
Allowance for Loan Losses
Balance, beginning of period 1,751,693 1,532,128 1,474,437
Less loans charged off:
Real Estate loans -0- 7,300 155,079
Commercial loans -0- 38,030 35.806
Installment loans 11,194 13,880 5,018
------------- ------------- -------------
Total loans charged off 11,194 59,210 195,903
Recoveries:
Real Estate loans -0- 700 800
Commercial loans 6,617 36,592 12,365
Installment loans 12,702 1,483 429
------------- ------------- -------------
Total recoveries 19,319 38,775 13,594
Net loans charged off (8,125) 20,435 182,309
(recovered)
Provision for loan losses 180,000 240,000 240,000
------------- ------------- -------------
Balance, end of period $ 1,939,818 $ 1,751,693 $ 1,532,128
============= ============= =============
Net loans charged off to average loans by types:
Real Estate loans -0- .007% .195%
Commercial loans -0- .002% .030%
Installment loans .055% .014% .006%
Net losses to average loans outstanding .011% .023% .231%
In evaluating the allowance for loan losses, Vintage Bank considers such factors
as:
o historical loan loss experience,
o the projected size and composition of the loan portfolio,
o other economic conditions and their impact on specific industries and
individual borrowers, evaluation of the collateral for secured loans,
and
o levels of loans classified by bank regulators and Vintage Bank's
internal classification system.
Loans are charged to the allowance for loan losses when the loans are deemed
uncollectible within a reasonable time period. It is the policy of management to
make additions to the allowance for loan losses so that it remains adequate to
cover all anticipated loan charge-offs that exist in the portfolio at that time.
Vintage Bank does not make an allocation of the allowance for loan losses by
type of loan in the portfolio.
40
TIME DEPOSITS
The following table sets forth the maturity of time certificates of deposit of
$100,000 or more at September 30, 1999 and December 31, 1998 and 1997.
December 31,
------------
September 30, 1999 1998 1997
------------------ ---- ----
3 Months or Less $ 6,116,239 32% $ 8,177,036 46.9% $ 7,258,193 49.2%
Over 3 through
6 Months 9,613,138 50% 5,514,648 31.6% 4,330,679 29.3%
Over 6 Months through
12 Months 2,031,606 11% 2,279,043 13.1% 1,930,251 13.1%
Over 12 Months 1,382,683 7% 1.472,686 8.4% 1,246,253 8.4%
----------- ----- ----------- ----- ----------- -----
$19,143,666 100% $17,443,413 100% $14,765,376 100%
=========== ===== =========== ===== =========== =====
SHORT TERM BORROWINGS
As of September 30, 1999, Vintage Bank has borrowed funds from the Federal Home
Loan Bank of San Francisco on the following terms;:
Borrowings Rate Due
$2,900,000 5.46% January 18, 2000
2,100,000 5.50% January 18, 2000
RETURN ON EQUITY AND ASSETS
The following sets forth key ratios for the periods ending September 30, 1999
and December 31, 1998 and 1997.
September 30, December 31,
------------- ------------
1999 (1) 1998 1997
-------- ---- ----
Net Income as a Percentage of
Average Assets 1.44% 1.29% 1.39%
Net Income as a Percentage of
Average Equity 15.50% 13.45% 14.17%
Average Equity as a Percentage
of Average Assets 9.45% 9.59% 9.81%
Dividends Declared Per Share
as a Percentage of Net
Income Per share 0% 14.18% 14.71%
(1) Annualized
Properties
Vintage Bank's main office is located in a two-story building at 1500 Soscol
Avenue, Napa, California. The real property on which the building is located was
acquired by Vintage Bank in 1988, and construction of the building was completed
in 1989. In 1993 an additional 2,500 square feet of previously unoccupied space
in the Main Office was remodeled, thereby increasing usable space from
approximately 7,500 to 10,000 square feet. The real property
41
and all improvements at the Main Office are owned by Vintage Bank. In January,
1996 Vintage Bank purchased approximately 11,000 square feet of land adjacent to
the Main Office to facilitate expansion of Vintage Bank's motor banking
facility. The land was purchased at a cost of $87,375. The expanded autobanking
facility was completed in June, 1996 at a cost of $345,000 including related
equipment purchases.
Vintage Bank leases the premises for its Browns Valley Office, consisting of
approximately 2,000 square feet, located at 3271 Browns Valley Road, Napa,
California. The lease commenced on October 22, 1990 for a term of five years,
with three successive options to renew for five years each. To exercise an
option, the lease requires three months prior notice of the bank's intent to
renew. The lease was renewed for an additional five years in October, 1995. Rent
is subject to adjustment in accordance with increases in the Consumer Price
Index. Effective January 1, 1996, the lease rate was $3,207 per month. By the
terms of the lease Vintage Bank is required to (i) maintain and repair the
leased premises, (ii) maintain combined single limit, bodily injury and property
damage insurance, and (iii) pay its prorata share of real property taxes and
common area maintenance expenses.
Vintage Bank leases the premises for its Bel Aire Shopping Center Office,
consisting of approximately 5,850 square feet, located at 3626 Bel Aire Plaza,
Napa, California. The lease term commenced on January 1, 1997, for a term of ten
years, with two successive options to renew for five years each upon at least
180 days' notice. Monthly rental was fixed at $5,850 per month for the first
year of the term of the lease. Thereafter rent is subject to adjustment in
accordance with a schedule for the second through the sixth year on the terms
set forth in the lease and thereafter in accordance with increases in the
Consumer Price Index. By the terms of the lease Vintage Bank is required to:
o maintain and repair the leased premises;
o pay for all utilities used;
o maintain public liability insurance;
o pay its prorata share of common area maintenance; and
o pay its prorata share of all real property taxes assessed against the
shopping center.
Effective April 1, 1995, Vintage Bank entered into a five year license agreement
with Chelsea GCA Realty Partnership, L.P., a Delaware limited partnership, for
the installation and operation of an automatic teller machine (ATM) and a
vaulted deposit drop box at the Napa Factory Outlet Stores. Vintage Bank pays a
monthly license fee equal to the greater of $200 per month or one hundred
dollars ($100) for each set of one thousand (1,000) ATM transactions.
Vintage also maintains a loan production office at 1300 Oliver Road, Suite 180,
Fairfield, California.
Vintage Bank owns certain leasehold improvements and furniture, fixtures and
equipment located at its offices, all of which are used in the banking business.
Legal Proceedings
Vintage Bank is not a party to, nor is any of its property the subject of, any
material pending legal proceedings other than ordinary, routine litigation
incidental to Vintage Bank's business, nor are any of such proceedings known to
be contemplated by government authority. No director, officer, affiliate, more
than 5% shareholder of Vintage Bank or any associate of these persons is a party
adverse to Vintage Bank or has a material interest adverse to Vintage Bank in
any material legal proceeding.
42
COMPETITION
As of December 31, 1998, the Napa area contained twenty six (26) competitive
banking offices (including Vintage Bank), four (4) offices of savings banks and
savings and loan associations and five (5) offices of credit unions.
As of December 31, 1998, Fairfield contained _______ (__) competitive banking,
_____(_) offices of savings banks and savings and loan associations and ____ (_)
offices of credit unions; Vacaville contained _______ (__) competitive banking,
_____(_) offices of savings banks and savings and loan associations and ____ (_)
offices of credit unions; and Benicia contained _______ (__) competitive
banking, _____(_) offices of savings banks and savings and loan associations and
____ (_) offices of credit unions;.
Vintage Bank relies, and Solano Bank will rely, substantially on local
promotional activity, personal contacts by its officers, directors and
employees, referrals by its customers and shareholders, personalized service and
its reputation in the communities it serves to compete effectively.
The banking business in California, including Vintage Bank's primary service
area, and Solano Bank's proposed primary service area, is highly competitive
with respect to both loans and deposits and is dominated by major banks with
billions of dollars in deposits and extensive branch systems over a wide
geographic area within California. These major banks offer certain services
(such as trust, investment, interstate and international bank services) which
Vintage Bank does not, and Solano Bank will not, offer directly. By virtue of
their higher total capitalization, the major banks have substantially higher
lending limits than Vintage Bank has and Solano Bank will have.
Further, Vintage Bank competes directly with one other community bank, Napa
National Bank. On November 19. 1999, Napa National announced its acquisition, by
Wells Fargo Bank to be completed during the first quarter of 2000, subject to
satisfaction of conditions. A sale of Napa Valley Bank to WestAmerica Bancorp,
consummated in 1993, contributed to Vintage Bank's growth in 1993 and 1994.
Vintage Bank's broad community ownership, low employee turnover and emphasis on
personalized and prompt service contributed to Vintage Bank's deposit growth in
1998 and these attributes are expected to support continued growth of Vintage
Bank.
Vintage Bank competes, and Solano Bank will compete, directly with respect to
loan business with other commercial banks, savings and loan associations and
other financial institutions, including finance companies, insurance companies,
mortgage companies, pension funds, credit unions and other consumer and
commercial lenders doing business in Napa County. As of December 31, 1998,
Vintage Bank held an estimated ___% of the total bank deposits in its primary
market.
From time to time, legislation is proposed or enacted which has the effect of
increasing the cost of doing business, limiting permissible activities or
affecting the competitive balance between banks and other financial
institutions. The recent enactment of interstate banking in California and the
more recent elimination of statutory barriers separating the banking, insurance
and securities industries provide further competition for North Bay, Vintage
Bank and Solano Bank. It is difficult to predict the competitive impact these
and other changes in legislation will have on commercial banking in general or
on the businesses of North Bay and the Banks in particular. See "Supervision and
Regulation."
43
SUPERVISION AND REGULATION
North Bay
North Bay, as a bank holding company, is subject to regulation under the Bank
Holding Company Act of 1956, as amended, and is registered with and subject to
the supervision of the Board of Governors of the Federal Reserve System. It is
the policy of the Federal Reserve that each bank holding company serve as a
source of financial and managerial strength to its subsidiary banks.
The Federal Reserve has the authority to examine North Bay and the Banks.
The Bank Holding Company Act requires North Bay to obtain the prior approval of
the Federal Reserve before acquisition of all or substantially all of the assets
of any bank or ownership or control of the voting shares of any bank if, after
giving effect to such acquisition, North Bay would own or control, directly or
indirectly, more than 5% of the voting shares of such bank. However, recent
amendments to the Bank Holding Company Act expand the circumstances under which
a bank holding company may acquire control of or all or substantially all of the
assets of a bank located outside the State of California.
North Bay may not engage in any business other than managing or controlling
banks or furnishing services to its subsidiaries, with the exception of certain
activities which, in the opinion of the Federal Reserve, are so closely related
to banking or to managing or controlling banks as to be incidental to banking.
North Bay is also generally prohibited from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company unless
that company is engaged in such activities and unless the Federal Reserve
approves the acquisition.
North Bay and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or provision of services. For example, with certain exceptions, the
Banks may not condition an extension of credit on a customer obtaining other
services provided by it, North Bay or any other subsidiary, or on a promise by
the customer not to obtain other services from a competitor. In addition,
federal law imposes certain restrictions on transactions between the Banks and
their affiliates. As affiliates, the Banks and North Bay are subject, with
certain exceptions, to the provisions of federal law imposing limitations on and
requiring collateral for loans by the Bank to any affiliate.
The Banks
As a California state-licensed bank, Vintage Bank is subject, and Solano Bank
will be subject, to regulation, supervision and periodic examination by the
California Department of Financial Institutions. Vintage Bank also is, and
Solano bank will be, a member of the Federal Reserve System. Member banks are
subject to regulation, supervision and periodic examination by the Board of
Governors of the Federal Reserve System. Vintage Bank's deposits are, and Solano
Bank's deposits will be, insured by the Federal Deposit Insurance Corporation to
the maximum amount permitted by law, which is currently $100,000 per depositor
in most cases.
Insured banks are subject to FDIC regulations applicable to all insured
institutions.
The regulations of these state and federal bank regulatory agencies govern most
aspects of each of the Bank's businesses and operations, including but not
limited to, the scope of its business, its investments, its reserves against
deposits, the nature and amount of any collateral for loans, the timing of
availability of deposited funds, the issuance of securities, the payment of
dividends, bank expansion and bank activities, including real estate development
and insurance activities, and the maximum rates of interest allowed on certain
deposits. The Banks are also subject to the requirements and restrictions of
various consumer laws and regulations.
Payment of Dividends
North Bay
The shareholders of North Bay are entitled to receive dividends when and as
declared by its Board of Directors, out of funds legally available, subject to
the dividends preference, if any, on preferred shares that may be outstanding
and also subject to the restrictions of the California Corporations Code. At
September 30, 1999, North Bay had no outstanding shares of preferred stock.
44
The principal sources of cash revenue to North Bay will be dividends and
management fees received from Vintage Bank and Solano Bank. The Banks' ability
to make dividend payments to North Bay is subject to state and federal
regulatory restrictions.
The Banks
Under state law, the Board of Directors of a California state chartered bank may
declare a cash dividend, subject to the restriction that the amount available
for the payment of cash dividends is limited to the lesser of the bank's
retained earnings, or the bank's net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of
the Commissioner of Financial Institutions, to the greater of the retained
earnings of the bank, the net income of the bank for its last fiscal year or the
net income of the bank for its current fiscal year.
Federal Reserve regulations also govern the payment of dividends by a state
member bank. Under Federal Reserve regulations, dividends may not be paid unless
both capital and earnings limitations have been met. First, no dividend may be
paid if it would result in a withdrawal of capital or exceed the member bank's
net profits then on hand, after deducting its losses and bad debts. Exceptions
to this limitation are available only upon the prior approval of the Federal
Reserve and the approval of two-thirds of the member bank's shareholders.
Second, a state member bank may not pay a dividend without the prior written
approval of the Federal Reserve 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 Federal Reserve has broad authority to prohibit a bank from engaging in
banking practices which it considers to be unsafe or unsound. It is possible,
depending upon the financial condition of the bank in question and other
factors, that the Federal Reserve may assert that the payment of dividends or
other payments by a member bank is considered an unsafe or unsound banking
practice and therefore, implement corrective action to address such a practice.
Accordingly, the future payment of cash dividends by Vintage Bank or Solano Bank
to North Bay will generally depend not only on the Banks' earnings during any
fiscal period but also on the Banks' meeting certain capital requirements and
the maintenance of adequate allowances for loan and lease losses.
Impact of Monetary Policies
The earnings and growth of Vintage Bank and Solano Bank are subject to the
influence of domestic and foreign economic conditions, including inflation,
recession and unemployment. The earnings of the Banks are affected not only by
general economic conditions but also by the monetary and fiscal policies of the
United States and federal agencies, particularly the Federal Reserve. The
Federal Reserve can and does implement national monetary policy, such as seeking
to curb inflation and combat recession, by its open market operations in United
States Government securities and by its control of the discount rates applicable
to borrowings by banks from the Federal Reserve System. The actions of the
Federal Reserve in these areas influence the growth of bank loans, investments
and deposits and affect the interest rates charged on loans and paid on
deposits. As demonstrated recently by the Federal Reserve's actions regarding
interest rates, its policies have had a significant effect on the operating
results of commercial banks and are expected to continue to do so in the future.
The nature and timing of any future changes in monetary policies are not
predictable.
Recent and Proposed Legislation
The operations of North Bay and the Banks are subject to extensive regulation by
federal, state, and local governmental authorities and are subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of their respective operations. North Bay believes
that it is in substantial compliance in all material respects with applicable
federal, state, and local laws, rules and regulations. Because the business of
North Bay and the Banks is highly regulated, the laws, rules and regulations
applicable to each of them are subject to regular modification and change.
45
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks and other financial institutions are frequently
made in Congress, in the California legislature and before various bank
regulatory agencies. Most recently, President Clinton signed into law the
Gramm-Leach-Bliley Act. This legislation eliminates many of the barriers that
have separated the insurance, securities and banking industries since the Great
Depression. As a result, these three industries may more freely compete with
each other. The likelihood of any major change and the impact such change may
have on North Bay and the Banks is impossible to predict.
46
MANAGEMENT
Directors
The Bylaws of North Bay authorize not less than six (6) nor more than
eleven (11) directors with the exact number within that range to be fixed by
resolution of the Board of Directors. The number of directors of North Bay has
been fixed at eight (8) and the following persons currently serve as directors:
David B. Gaw Conrad W. Hewitt
Harlan R. Kurtz Richard S. Long
Thomas H. Lowenstein Thomas F. Malloy
Terry L. Robinson James E. Tidgewell
Each director was elected to serve as a director of North Bay until the
year 2000 annual meeting of shareholders of North Bay and until his successor is
elected and qualified.
Executive Officers
The following officers of Vintage Bank have been appointed as the
initial officers of North Bay:
Position Held Position Held
Name With Vintage Bank with North Bay
- ---- ----------------- --------------
Thomas F. Malloy....................... Chairman of the Board Chairman of the Board
Terry L. Robinson...................... President, Chief Executive President and Chief Executive
Officer Officer
Kathi Metro........................ Executive Vice President and Executive Vice President and Credit
Senior Loan Officer Administrator
Lee-Ann Almeida.................. Vice President and Chief Vice President and Chief Financial
Financial Officer Officer
Wyman G. Smith III..................... Corporate Secretary Corporate Secretary
Information is provided below regarding the individual directors and executive
officers of North Bay and Vintage Bank, each of whom serves on an annual basis.
Executive officers must be selected by the Board of Directors annually as
required by the bylaws of North Bay. As used throughout the prospectus, the term
"Executive Officer" means the President, Executive Vice President/Senior Loan
Officer, Executive Vice President/Credit Administrator, Vice President/Loan
Officer, Vice President/Operations, Vice President/Chief Financial Officer and
Vice President/Marketing. The ages stated are as of December 31,
1999.
Lee-Ann Almeida, age 35, is Vice President and Chief Financial Officer of North
Bay and Vintage Bank and has been employed by the Bank since 1987. Prior to
becoming employed by the Bank, Ms. Almeida served as Operations Manager for
Lamorinda National Bank. Ms. Almeida is past treasurer of the Napa Valley
D.A.R.E. Foundation and a member of the board of directors of the Banker
Executive Council of Northern California and of the Napa Valley Safe School
Foundation.
Sandra H. Funseth, age 58, has served as a Director of Vintage Bank and has
devoted a substantial amount of her time serving on the Bank's Marketing
Committee. Mrs. Funseth has served as Chairwoman of Pro Hospitality for
47
the Transamerica Seniors Tournament, held at Silverado Country Club & Resort,
since October of 1990. Mrs. Funseth is Treasurer for the Napa Yacht Club Women's
Alliance and Port Captain of the Napa Valley Yacht Club.
David B. Gaw, age 54, has served as a Director of Vintage Bank since 1984 and
served as Chairman of the Board of Directors from 1992 to 1994. He is also
Chairman of the Board of Directors and Director of North Bay. Mr. Gaw has been
engaged in the practice of law in Napa and Solano Counties for more than
twenty-seven years and is one of the founding members of Gaw, Van Male, Smith,
Myers & Miroglio, a professional law corporation with offices in Napa,
Fairfield, Vacaville and Redlands. Mr. Gaw is certified by the California State
Board of Legal Specialization in Probate, Estate Planning, and Trust Law, and a
Certified Elder Law Attorney by the National Elder Law Foundation. Mr. Gaw has
served as President of the Napa County Bar Association. He is a member of The
Queen of the Valley Hospital Foundation Board of Trustees, and is a member of
both North Bay Hospital Foundation and the Solano Community Foundation's Board
of Directors. Vintage Bank has retained the legal services of Mr. Gaw's law firm
since the Bank's organization and expects to retain the firm's service in 2000.
Houghton Gifford, M.D., age 79, has served as a Director of Vintage Bank since
1984 and served as Chairman of the Board of Directors from 1995 to 1997. He
presently is retired after practicing medicine in Napa for more than forty years
and law for approximately twenty years. Dr. Gifford is Past President of the
Napa County Democratic Caucus and is a Past Treasurer of the Napa Chamber of
Commerce and Napa County Bar Association. He formerly served as a director of
the Community Foundation of the Napa Valley. Dr. Gifford will retire as a
Vintage Bank director at the 2000 annual meeting of shareholders.
Conrad W. Hewitt, age 63, is a consultant and joined the Board of North Bay in
November, 1999. He is a member of the Board of Directors of Global Intermodal
Systems, Inc., Chairman of the Audit Committee; and member of the Compensation
Committee, ADPC, Inc., Renaissance Inc., Chairman of the Audit Committee; Crazy
Shirts, Inc., Chairman of the Audit Committee and member of the Compensation
Committee; Golden Gate University, Chairman of the Finance and Operations
Committee and a member of the Executive Committee and the San Francisco Council,
Boy Scouts of America, Chairman of the Audit Committee and a member of the
Executive Committee. Also, he is an advisory director for Compensation Resource
Group, Inc. and Private Capital Corporation. Mr. Hewitt served as Superintendent
of Banks and Commissioner, Department of Financial Institutions, State of
California from 1995 to 1998. Prior to 1995, Mr. Hewitt was the Managing
Partner, North Bay Area, Ernst & Young and was employed by Ernst & Young for
thirty-three years until his retirement. Mr. Hewitt is a Certified Public
Accountant. Mr. Hewitt received a B.S. in Finance and Economics from the
University of Illinois and did post-graduate work at the University of Southern
California.
William L. Kastner, age 58, has served as a Director of Vintage Bank since 1984
and served as Chairman of the Board of Directors from 1989 to 1991. He is the
owner of Kastner Pontiac-Olds-GMC-Honda, an automobile dealership in Napa,
serves as the secretary-treasurer of the North State G.M.C. Truck Dealers
Association and is a member and secretary of the Board of Trustees of Tulocay
Cemetery Association.
Harlan Kurtz, age 68, is a Director of North Bay and has served as a Director of
Vintage Bank since 1988 and has devoted a substantial amount of his time serving
as Chairperson of the Bank's Site Committee. He is a general contractor and
President of K-H Development Corporation.
Richard S. Long, is President and Chief Executive Officer of Regulus. Mr. Long
has over twenty five years of entrepreneurial and executive management
experience. Regulus is a remittance processor for major banks and corporations
with over twenty locations in the United States and Canada. In 1998 Mr. Long
sold his company, Quantum Information Corporation, to Regulus. Quantum, which
has now been merged into Regulus, is an information distribution management
company that outsources the processing, printing and distribution, of time
critical financial documents. Prior to Quantum, Mr. Long spent seventeen years
in the industrial gas and equipment business. Starting in sales and moving
through management to CEO and owner of Bayox, Inc., he sold this business to
Union Carbide Corporation in 1983. Mr. Long then bought out the investment group
that started Boboli and subsequently sold the United States and Canadian
segments of this business to General Foods in 1998. The international segment of
this business was sold in 1995.
48
Thomas H. Lowenstein, age 56, is Vice-Chairman of the Board of Directors of
North Bay and Vintage Bank and has served as a Director of the Bank since 1988.
He is President of North Bay Plywood, a company engaged in the manufacture and
sale of building materials. Mr. Lowenstein has been active in the affairs of St.
Apollinaris School, Product Services Incorporated (PSI) and the Justin High
Foundation, having served on the boards of St. Apollinaris School and PSI and as
a Past President of St. Apollinaris School Board.
Joen M. McDaniel, age 40, is Vice President of Retail Operations of Vintage Bank
and has been employed by Vintage Bank since 1988. She is currently Board
President of the Boys and Girls Club and a member of the Santa Rosa Diocesan
Education Board. Prior to her employment by Vintage Bank, Ms. McDaniel was
Assistant Vice President and Branch Manager of Independent Savings and Loan.
Thomas F. Malloy, age 56, is Chairman of the Board of Directors of North Bay and
Vintage Bank and has served as a Director of the Bank since 1984. He is an
insurance broker and a Member in Malloy Imrie & Vasconi Insurance Services LLC
with offices in Napa and St. Helena. Mr. Malloy is a member and Past President
of the Napa County Independent Insurance Agents Association and Past President
of the Napa Active 20-30 Club.
Kathi Metro, age 44, is the Executive Vice President and Credit Administrator of
North Bay and Executive Vice President and Senior Loan Officer of Vintage Bank
and has been employed by the Bank since 1985. Prior to becoming employed by the
Bank, Ms. Metro was an Assistant Vice President and Branch Manager of Napa
Valley Bank. She is an alumnus of Leadership Napa Valley and is a former member
of the Leadership Napa Valley Foundation Committee. In addition, Ms. Metro is a
former Director of C.O.P.E. and former member of the Napa County Commission on
the status of Women and the Professional Business Services Committee of the Napa
Chamber of Commerce. She is currently a member of the North Napa Rotary Club and
the Board of Directors of the Napa Valley College Foundation and former member
of the Board of Directors of Napa Valley Economic Development Corporation.
Andrew Nicks, M.D., age 56, was appointed a Director of Vintage Bank effective
December 1, 1999. He is currently Chief of Diagnostic Radiology at Queen of the
Valley Hospital in Napa, California and has been in practice there since 1976.
Prior to 1976, he was employed at Letterman Army Hospital, Presidio, San
Francisco, California as Chief of Diagnostic Radiology. Dr. Nicks is President
and CEO of the Northern California Imaging and Oncology and President of the
Radiology Group of Napa. He is a member of the American College of Radiology,
Radiological Society of North America and the Society of Cardiovascular and
Interventional Radiology. He has been an active volunteer for various fund
raiser events for the past twenty-three years, including Queen of the Valley
Hospital Foundation, Justin-Sienna High School, and PGA Seniors Gold Tournament.
Mark C. Richmond, age 36, is Vice President of Marketing for Vintage Bank and
has been employed by the Bank since January 17, 1995. From December of 1992
until becoming employed by the Bank, Mr. Richmond served as a managing partner
for Protective Financial Insurance Services, Inc. His experience in the banking
industry comes from sales and management responsibilities with both community
banks and statewide financial institutions. Mr. Richmond has worked with Union
Federal Savings, Santa Barbara Savings, American Savings Bank and WestAmerica
Bank.
Terry L. Robinson, age 52, is President and Chief Executive Officer of North Bay
and Vintage Bank, as well as a Director, and has been employed by the Bank since
1988. Mr. Robinson recently concluded his term as president of the Western
Independent Bankers. Prior to joining the Bank, Mr. Robinson served as Executive
Vice President and a member of the Board of Directors of American Bank of
Commerce in Boise, Idaho. Mr. Robinson is a Past President of the Napa Valley
Symphony Association, a Trustee of the Queen of the Valley Hospital Foundation,
a member of the board of directors of the Community Foundation of the Napa
Valley, is a member of the Napa Rotary Club and currently serves as co-chair of
the Napa Boys and Girls Club capital campaign. Mr. Robinson holds a B.S. of
Business in Accounting from the University of Idaho and a M.B.A. in finance from
U.C. Berkeley.
Carolyn D. Sherwood, age 55, has served as a Director of Vintage Bank since
1988. She is a real estate broker and part owner of Coldwell Banker - Brokers of
the Valley, a Napa real estate brokerage company. Mrs. Sherwood is a member of
the Napa County Board of Realtors, the California Association of Realtors and
National Association of Realtors.
49
Glen C. Terry, age 48, is the Senior Vice President and Solano Region Manager of
Vintage Bank and has been employed by the Bank since 1999. Prior to being
employed by the Bank, Mr. Terry was President of the Solano Region of Sierra
West Bank, President & CEO of Napa Valley Bank, and previously held other
positions at WestAmerica Bank. Mr. Terry has also worked with First Interstate
Bank and Zions First National Bank. Mr. Terry is an alumnus of Leadership Santa
Rosa, has served on the Santa Rosa Design Review Board, the Santa Rosa Chamber
of Commerce, the Napa Chamber of Commerce, Clinic Ole, and is a member of the
Vacaville Noon Rotary Club. Mr. Terry received a B.S. in Political Science from
Utah State University and an M.B.A. from the University of Utah.
James E. Tidgewell, age 53, a Director of North Bay and Vintage Bank, has served
as a Director of the Bank since 1988. He is a certified public accountant and
partner in the accounting firm of G & J Seiberlich & Co LLP, with which he has
been associated since 1975. Mr. Tidgewell received a B.S. degree in accounting
from the University of Notre Dame in 1968 and thereafter spent approximately
five years as an accountant with Price Waterhouse & Co. Mr. Tidgewell is a
member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants. He is a Past President of
the Napa Active 20-30 Club, a member of the Napa Rotary Club and a member and
president of The Queen of the Valley Hospital Foundation Board of Trustees.
50
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of December 31, 1999,
pertaining to beneficial ownership of North Bay's common stock by directors and
the executive officers listed in the Summary Executive Compensation Table set
forth hereinafter, as well as with respect to all directors and executive
officers as a group. The information contained in this table has been obtained
from North Bay's records or from information furnished directly by the
individuals to North Bay. The numbers in the column entitled "Amount Held"
reflect stock dividends paid through March 22, 1999.1 The table should be read
with the understanding that more than one person may be the beneficial owner of,
or possess certain attributes of beneficial ownership with respect to, the same
shares.
Number of Shares
Name Nature of Position Beneficially Owned Ownership Percent2
- ------------------------------------------------------------------------------------------------------------------
Sandra H. Funseth Director of Vintage Bank 57,470 3 3.74%
David B. Gaw Director of North Bay 15,652 4 1.02%
and Vintage Bank
Houghton Gifford, M.D. Director of Vintage Bank 109,127 5 7.10%
Conrad W. Hewitt Director of North Bay 200 6, 9 0.01%
William L. Kastner Director of Vintage Bank 62,878 6, 7 4.09%
<FN>
- ----------------------
1 Upon the payment of a stock dividend, all unexercised stock options are
automatically adjusted so that the aggregate purchase price and the fractional
proportion of outstanding stock represented by the options remain unchanged.
2 In computing the percentage of outstanding Common Stock owned beneficially by
each director, the number of shares beneficially owned has been divided by the
number of outstanding shares on the Record Date after (i) giving effect to stock
dividends paid through March 22, 1999, and (ii) assuming options exercisable by
the director within 60 days have been exercised.
3 Included in the total for Mrs. Funseth are 30,122 shares held in the name of
the Funseth Family Trust dated September 8, 1992, of which Mrs. Funseth is
trustee; 1,491 shares held as custodian for minors under the California Uniform
Transfer to Minors Act; and 1,323 shares as to which Mrs. Funseth holds an
option exercisable on May 1, 1999.
4 Included in the total for Mr. Gaw are 144 shares as custodian for minors under
the California Uniform Transfers to Minors Act.
5 Included in the total for Dr. Gifford are 614 shares held as custodian for a
minor under the California Uniform Transfers to Minors Act; 107,190 shares held
in the name of the Gifford Family Trust dated April 8, 1985, of which Dr.
Gifford is trustee; and 1,323 shares as to which Dr. Gifford holds an option
exercisable on May 1, 1999.
6 Pursuant to California law, personal property held in the name of a married
person may be community property as to which either spouse has the power and
ability to manage and control in its entirety.
7 Included in the total for Mr. Kastner are 39,321 shares held in the name of
the Kastner Family Trust dated September 21, 1988, of which he is a trustee and
as to which he has shared voting power; 19,141 shares held in the name of the
Kastner Pontiac Olds GMC Retirement Plan Trust, of which Mr. Kastner is a
trustee and as to which he has shared voting power; and 1,323 shares as to which
Mr. Kastner holds an option exercisable on May 1, 1999.
</FN>
51
Number of Shares
Name Nature of Position Beneficially Owned Ownership Percent2
- ------------------------------------------------------------------------------------------------------------------
Sandra H. Funseth
Harlan R. Kurtz Director of North Bay 32,203 6, 8 2.09%
and Vintage Bank
Richard S. Long Director of North Bay 9
Thomas H. Lowenstein Director of North Bay 22,877 6, 10 1.49%
and Vintage Bank
Thomas F. Malloy Chairman of the Board of 46,695 6, 11 3.04%
North Bay and Vintage
Bank
Kathi Metro Executive V.P. of North 12,280 6, 12 .80%
Bay and Vintage Bank
Andrew Nicks, M.D. Director of Vintage Bank 9
Terry L. Robinson Director, CEO of North 84,398 6, 13 5.49%
Bay and Vintage Bank
Carolyn D. Sherwood Director of Vintage Bank 17,314 6, 14 1.13%
<FN>
- -----------------------------
8 Included in the total for Mr. Kurtz are 28,358 shares held in the name of the
Kurtz Family Trust dated February 25, 1992, of which Mr. Kurtz is trustee; 2,522
shares are held as custodian for minors under the California Uniform Transfers
to Minors Act; and 1,323 shares as to which Mr. Kurtz holds an option
exercisable on May 1, 1999.
9 Messrs. Hewitt, Long, and Nicks intend to purchase at least 2,000 shares each
in the offering.
10 Included in the total for Mr. Lowenstein are 18,463 shares held in the name
of the Lowenstein Family Trust dated October 8, 1992, of which he is a trustee
and as to which he has shared voting power; 3,091 shares held in the name of
North Bay Plywood Profit Sharing Trust, of which he is a trustee and as to which
he has shared voting power and 1,323 shares as to which Mr. Lowenstein holds an
option exercisable on May 1, 1999.
11 Included in the total for Mr. Malloy are 32,908 shares held in the name of
the Malloy Family Trust dated August 31, 1990 and 12,244 shares held in the name
of the Malloy Imbrie & Vasconi Insurances Services LLP 401(k) Profit Sharing
Plan of which he is not a trustee but as to which he may indirectly have shared
voting power.
12 Included in the total for Ms. Metro are 2,205 shares as to which Ms. Metro
holds an exercisable option.
13 Included in the total for Mr. Robinson are 46,335 shares held in the name of
the Robinson Family Trust dated January 24, 1994, of which he is a trustee and
as to which he has shared voting power and 31,019 shares held in the name of
Snake River Honey Co., Inc., of which he is the sole stockholder and director.
14 Included in the total for Mrs. Sherwood are 1,323 shares as to which Mrs.
Sherwood holds an option exercisable on May 1, 1999.
15 Included in the total for Mr. Tidgewell are 1,323 shares as to which Mr.
Tidgewell holds an option exercisable on May 1, 1999.
16 In computing the percentage of outstanding Common Stock owned beneficially by
all current Executive Officers and Directors as a group, it is assumed that
those options granted to any member of the group which are exercisable within 60
days have been exercised and that, therefore, the total number of outstanding
shares of the class has been increased by 14,112, the number of shares subject
to such exercisable options by all members of the group.
</FN>
52
Number of Shares
Name Nature of Position Beneficially Owned Ownership Percent2
- ------------------------------------------------------------------------------------------------------------------
James E. Tidgewell Director of North Bay 11,142 6, 15 0.72%
and Vintage Bank
All Current Executive
Officers and Directors as a
group (total of 14) 472,236 30.73%16
Executive Compensation
Summary Executive Compensation Table
The following table provides a summary of the compensation paid during each of
Vintage Bank's last three completed fiscal years for services rendered in all
capacities to Terry Robinson, the President and Chief Executive Officer of the
Bank and to Kathi Metro, the only other executive officer of Vintage Bank whose
annual compensation exceeded $100,000 during 1998.
53
VINTAGE BANK
Summary Executive Compensation Table
====================================================================================================================
Name and Annual Compensation Long Term
principal Compensation All Other
position Year Compensation
($)
=======================================================
Salary Bonus Other Awards:
($) ($) Annual Securities
Compensation Underlying
($) Options (#)
- --------------------------------------------------------------------------------------------------------------------
Terry Robinson, 1998 164,333 47,000 -0- 363,396
President and CEO 1997 156,292 39,569 -0- 346,644
1996 147,375 33,403 -0- 326,891
====================================================================================================================
Kathi Metro, 1998 86,989 24,760 -0- 6,307
Senior Vice 1997 83,500 19,622 -0- 5,250 6,054
President 1996 77,417 18,000 -0- 5,032
====================================================================================================================
The value of perquisites and other personal benefits are disclosed in other
annual compensation if they exceed, in the aggregate, the lesser of $50,000 or
10% of salary and bonus. No amounts are reported in this column for Mr. Robinson
or Ms. Metro since the value of perquisites and other personal benefits did not
exceed the reporting threshold.
All Other Compensation for each year includes contributions to Vintage Bank's
Profit Sharing and Salary Deferral 401(k) Plan. Contributions to the Bank's
401(k) Plan for Mr. Robinson were $11,914 in 1998, $11,332 in 1997, and $9,579
in 1996. Contributions to the Bank's 401(k) Plan for Ms. Metro were $6,307 in
1998, $6,054 in 1997, and $5,032 in 1996.
All Other Compensation for each year also includes the full amount of Vintage
Bank's share of life insurance premiums paid pursuant to a split dollar life
insurance plan and agreement with Mr. Robinson. By the terms of the Split Dollar
Agreement dated November 21, 1994, Vintage Bank has agreed to pay $23,312 of the
policy's total annual premium of $24,922 for a period of ten years. On the tenth
anniversary of the Split Dollar Agreement, or sooner on the occurrence of
certain other events, Mr. Robinson is required to repay the total amount of
premiums paid by the bank pursuant to the Agreement. In order to secure
repayment of the total amount of premiums paid by Vintage Bank, the policy has
been collaterally assigned to the bank.
All Other Compensation for each year also includes amounts that would be payable
on account of corporate changes specified in Mr. Robinson's employment agreement
as described in the section of this prospectus entitled "Termination of
Employment and Change of Control Arrangements." The amount payable to Mr.
Robinson ranges from
o one year's base salary or the remainder of his base salary under his
Employment Agreement if less than one year remains in the case of a
corporate change approved by a majority of those directors who are
unaffiliated with the person initiating the corporate change to
o two year's base salary in the case of a multistep corporate change not
approved by a majority of the those directors unaffiliated with the
person initiating the corporate change.
54
The maximum amount payable under Mr. Robinson's current employment agreement in
connection with any corporate change is two years' base salary which for the
years 1996, 1997 and 1998 was $294,000.00, $312,000.00 and $328,000
respectively. Director fees for 1996 and 1997 in the amount of $5,400 and for
1998 in the amount of $5,800 were deferred by Mr. Robinson pursuant to the
Deferred Fee Plan described in the section of this prospectus entitled
"Compensation of Directors" and are not included in All Other Compensation for
the years 1996, 1997 and 1998. All Other Compensation for 1998 includes $170
which is the taxable benefit of Mr. Robinson's benefits under the Director
Supplemental Retirement Program described in the section of this prospectus
entitled "Compensation of Directors."
55
Option Grants in Last Fiscal Year
There were no transactions in 1998 which require disclosure in a table for
option grants in the fiscal year ending December 31, 1998. Effective March 1,
1999, contemporaneous with Mr. Robinson's new five (5) year Employment Agreement
described below under "Termination of Employment and Change of Control
Arrangements," Mr. Robinson was granted an option to purchase 10,000 shares of
the Vintage Bank's common stock at an initial exercise price of $22.00 per
share. As a result of North Bay becoming the bank holding company for Vintage
Bank, these options were assumed by North Bay. This option vests and becomes
exercisable in five (5) equal annual installments at the first, second, third,
fourth, and fifth anniversaries of the date of grant. Accordingly, the first
installment will become exercisable March 1, 2000.
Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values
==============================================================================================================
Shares Value Number of Value of unexercised
Name acquired on realized Securities in-the-money
exercise (#) ($) underlying options at Fiscal
unexercised Year End
options at exercisable/
Fiscal Year-end (#) unexercisable
exercisable/
unexercisable
- --------------------------------------------------------------------------------------------------------------
Terry Robinson, None None Exercisable for 5,834 Exercisable $128,348
President and CEO Unexercisable for 1,459 Unexercisable $32,098
- --------------------------------------------------------------------------------------------------------------
Kathi Metro, None None Exercisable for 1,050 Exercisable $23,100
Senior Vice Unexercisable for 4,200 Unexercisable $92,400
President
==============================================================================================================
For purposes of calculating the value of unexercised stock options as of
December 31, 1998, it is assumed that the fair market value of the shares as of
December 31, 1998, was $22.00 per share. While the Board of Directors believes
this to be a fair value, it is not necessarily indicative of the price at which
shares may be bought or sold, since there is no established public trading
market for the shares.
Long Term Incentive Plans - Awards in Last Fiscal Year
There were no transactions in 1998 which require disclosure in a table for
long-term incentive plan awards.
Termination of Employment and Change of Control Arrangements
Effective March 1, 1999, Vintage Bank entered into a new five (5) year
Employment Agreement with Mr. Robinson as President and Chief Executive Officer
of the bank. The Agreement provides that in the event of a termination by the
bank without cause, Mr. Robinson must be paid severance pay equal to six months'
base salary. In the event of certain specified corporate changes, including a
merger, sale, transfer of Vintage Bank's assets or an effective change in
control of the bank, the bank may assign the Agreement to any successor entity,
continue the Agreement or terminate the Agreement, provided that if the bank
assigns or continues the Agreement, Mr. Robinson may either consent to such
assignment or continuance or may elect to terminate the Agreement. If the
Agreement is terminated by either party in connection with a corporate change
meeting certain requirements, including approval by a majority of those
directors who are unaffiliated with the person initiating the corporate change,
Mr. Robinson must be paid severance pay equal to one year's base salary or equal
to the remainder of his base salary under the Agreement if less than one year
remains. If the Agreement is terminated in connection with any other corporate
change, Mr. Robinson must be paid severance pay equal to two years' base salary.
Upon certain changes in control of Vintage Bank, any outstanding stock options
granted under North Bay's Stock Option Plan become immediately exercisable.
56
Upon certain changes in control of Vintage Bank, director's fees deferred
pursuant to the Deferred Fee Plan described in the section of this proxy
statement entitled "Compensation of Directors," including accrued interest, are
paid to the participating directors in a lump sum.
Compensation of Directors
Directors Fees
The Board of Directors of North Bay has adopted a plan for the payment of fees
to directors for attendance at meetings of the Board, meetings of the Board of
Directors of Vintage Bank or Solano Bank of which they are members, and
committees of which they are members. In accordance with that plan, directors of
North Bay are eligible to be paid a monthly fee of $800 for attendance at
regular Board meetings and meetings of the committees on which they sit;
provided, however, that Directors of North Bay also serving as directors of
Vintage Bank are eligible to be paid an aggregate monthly fee of $1,200 for
attendance at regular Board meetings and meetings of the committees on which
they sit. Directors serving only on the Board of Directors of Vintage Bank are
eligible to be paid a monthly fee of $1,100 for attendance at regular monthly
Board meetings and meetings of committees on which they sit. Persons who will be
serving only on the Board of Directors of Solano Bank will initially not be
eligible to paid a monthly fee for attendance at regular Board meetings or
meetings of committees on which they sit. In all instances, the payment of fees
to directors is subject to reduction for failure to attend the minimum number of
meetings of the board and committees as specified in the plan.
Director Stock Options
It is intended that each person serving on the Board of Directors of Solano
Bank, with the exception of persons also serving on North Bay Board of
Directors, will be granted options to purchase 6,000 shares of North Bay's
common stock pursuant to North Bay Stock Option Plan (formerly Vintage Bank
Amended and Restated 1993 Stock Option Plan). In December 1999, Messrs. Long and
Hewitt, newly elected non-employee directors of North Bay, and Dr. Nicks, a
newly elected non-employee director of Vintage Bank, were granted options to
purchase 6,000 shares of North Bay's common stock pursuant to North Bay Stock
Option Plan at a price of $_____ per share. These options become vested and
exercisable in five equal installments at the first, second, third, fourth and
fifth anniversaries of the date of the grant. The first installment will become
exercisable on November 15, 2000.
In 1997, each non-employee director of Vintage Bank (which includes all of the
directors except for Mr. Robinson) was granted an option to purchase an
additional 3,000 shares of the Bank's common stock, pursuant to the Amended and
Restated 1993 Stock Option Plan approved at the 1998 Annual Shareholders Meeting
on April 29, 1998. These options become vested and exercisable in five equal
installments at the second, third, fourth, fifth and sixth anniversaries of the
date of grant. Accordingly, the first installment became exercisable on May 1,
1999.
The number of shares subject to purchase pursuant to each non-employee
director's option is subject to adjustment upon the occurrence of any changes in
capitalization of North Bay including stock splits and stock dividends. After
giving effect to the stock split effective October 1, 1997, and stock dividends
paid through March 22, 1999, the aggregate number of shares subject to each such
director's option is 6,615, and the effective price per share is $14.059
Directors' Deferred Fee Plan
In August 1995, Vintage Bank established a Deferred Fee Plan for the directors
of Vintage Bank including Mr. Robinson. The deferral program, provides for
deferral, at the election of each director, of up to $10,000 of annual director
fees from Vintage Bank. The deferral program commences at the time the director
elects to participate and continues for a period which continues until the
director completes ten years of service and attains retirement age. At the end
of the deferral program or earlier in the event of disability, the deferred
compensation, including accrued interest, is paid to the director in a lump sum
or periodic payments over a specified period of time as selected by the director
upon enrollment in the plan. If the director terminates his or her relationship
with Vintage Bank during the plan period for reasons other than death or
disability, all amounts deferred, including accrued interest, will be paid in
the manner selected by the director but accrued interest on the deferred
compensation shall be calculated at an interest rate that is two-hundred basis
points lower than the rate established by Vintage Bank's Board of Directors in
accordance with the plan.
57
In the event of death while a member of the Board of Directors, the director's
beneficiary will receive an amount that would have been paid to the director had
he or she remained in the program and attained his or her specified retirement
age.
In 1995 Vintage Bank paid an aggregate single premium of $1,040,000 to purchase
life insurance policies on each director participating in the plan to fund the
death benefit. Vintage Banks owns and is the beneficiary of the policies and
earns a rate of return on the invested premiums which is reflected by an
increase to the cash value of the policies. The directors participating in the
deferred program have no rights in the policies.
Management of Vintage Bank believes that the premium investment, after
consideration of the non-taxable nature of earnings on certain insurance
investments, produces a higher return than other taxable investments made in the
normal course of business. Therefore, the net cost of this deferred compensation
program to Vintage Bank is believed to be nominal.
Director Supplemental Retirement Program
Effective January 1, 1999, Vintage Bank established a Director Supplemental
Retirement Program for the directors of Vintage Bank including Mr. Robinson and
Vintage Bank's corporate secretary, Wyman G. Smith. Under the program and a
retirement policy adopted by Vintage Bank's Board of Directors, non-employee
directors attaining age sixty-five are no longer eligible for re-election to the
Board of Directors. Upon attaining retirement age and provided the participant
has served on Vintage Bank's Board of Directors or as an officer of Vintage Bank
for not less than ten years, participants are entitled to receive the balance in
a pre-retirement liability reserve account established by Vintage Bank under the
program in annual installments commencing thirty days following their
retirement.
In order to fund its liability under the program and minimize the impact of the
program on Vintage Bank's earnings, in 1998 Vintage Bank paid an aggregate
single premium of $2,462,000 to purchase life insurance policies to fund the
retirement and death benefits. Vintage Bank owns and is the beneficiary of the
policies and earns a rate of return on the invested premiums which is reflected
by an increase to the cash value of the policies. The directors participating in
the program have no rights in the policies other than an endorsement for a
portion of the death benefit.
Amounts credited to and the balance in a participant's pre-retirement account
are based on the excess of the earnings on the life insurance policy over the
opportunity costs on the premiums paid by the bank. Opportunity cost consist of
the lost earnings, after tax, which would have been earned by Vintage Bank had
it invested the funds used to pay premiums for the life insurance policies. The
program returns this cost to Vintage Bank before any amount is credited to a
participant's pre-retirement account or post retirement benefit.
In addition, after retirement, participants are entitled, until the
participant's death, to receive the annual earnings on the life insurance policy
in excess of the opportunity costs.
In some instances life insurance policies have not been purchased on
participants. These participants are provided a defined retirement benefit of
$8,500 per year which is substantially equivalent to the expected benefit for
participants whose pre-retirement account balance is tied to a life insurance
policy. Amounts credited to a participant's pre-retirement account in these
cases is determined in accordance with generally accepted accounting principles.
Participants with less than five (5) years of service on the Board of Directors
or to Vintage Bank are not eligible to participate in the program. Participants
who served for more than five years, but less than ten years, are entitled to
receive a percentage of post retirement benefits determined by multiplying
twenty percent (20%) times years of service in excess of five years.
The program also provides that a deceased participant's named beneficiaries
shall receive a death benefit equal to the then unpaid balance of his or her
pre-retirement account, as well as that portion of the death benefit on his or
her the life insurance policy in excess of the cash value of the policy. On the
death of a participant Vintage Bank receives a tax-free death benefit sufficient
to fully recover all premiums paid on the deceased participant's specific life
insurance policy.
58
Management believes that the premium investment, after consideration of the
non-taxable nature of earnings on certain insurance investments, produces a
higher return than other taxable investments made in the normal course of
business. Therefore, the net cost of the program to Vintage Bank is believed to
be nominal.
Directors Houghton Gifford, M.D. and Harlan R. Kurtz are more than sixty-five
years of age. The retirement policy of Vintage Bank's Board of Directors
provides that Director Gifford will first become ineligible for re-election as
director in 2000, and Director Kurtz in 2001. The retirement policy of the Board
of Directors is subject to exceptions and amendment.
59
OTHER INFORMATION REGARDING MANAGEMENT
Management Indebtedness
Certain provisions of the California Financial Code and federal regulations
enable state chartered banks to make loans to officers, directors and employees
up to certain specified limits. From time to time Vintage Bank has made loans to
such persons in the ordinary course of business. These loans were made on
substantially the same terms, including interest rates and collateral
requirements, as those prevailing for comparable transactions with other
nonaffiliated persons at the time each loan was made, subject to the limitations
and other provisions in California and Federal law. These loans do not involve
more than the normal risk of collectibility or present other unfavorable
features.
Certain Business Relationships
Mr. Gaw, a Director of North Bay and Vintage Bank, is a member and shareholder
of the law firm of Gaw, Van Male, Smith, Myers & Miroglio, a professional law
corporation which Vintage Bank has retained since its organization in 1985 and
proposes to retain for specific matters during 2000.
60
Solano Bank
Officers and Directors
The following chart shows the proposed officers and directors of Solano
Bank, their ages, and their relationships to Solano Bank.
Relationship
Name to Solano Age
- ---- --------- ---
Thomas N. Gavin Proposed Director 47
David B. Gaw Proposed Director 54
Fred J. Hearn Proposed Director 46
Michael D. O'Brien Proposed Director 47
Terry L. Robinson Proposed Director 52
Kenneth B. Ross Proposed Director 40
Denise Suihkonen Proposed Director 42
Glen C. Terry Proposed President, CEO and Director 48
Kathi Metro Proposed Chief Credit Officer 44
Lee-Ann Almeida Proposed Chief Financial Officer 36
Thomas N. Gavin, Fred J. Hearn, Michael D. O'Brien, Kenneth Ross and Denise
Suihkonen have each agreed to invest $50,000 in the offering.
For information concerning the stock ownership of David B. Gaw, Terry L.
Robinson, Glen C. Terry, Kathi Metro and Lee-Ann Almeida see "SECURITY OWNERSHIP
OF MANAGEMENT."
- -------------------------------------------------------
Background and Business Experience of Officers and Directors
Thomas N. Gavin is the owner of Gavin and Associates, a benefit planning company
started in 1995. He is also an insurance agent for New York Life, where he has
been affiliated for over twenty five years. Mr. Gavin earned his Associate of
Arts degree from Solano Community College and a B.A. in sociology from the
University of California at Davis. He completed his insurance agent education
and was awarded his CLU from American College. Mr. Gavin has been active in
professional and local civic and social organizations, including the Benicia
Rotary Club (President 1994-1995), the Benicia Chamber of Commerce (President
1987); St. Patrick -St. Vincent High School Board of Regents (President 1996);
and the Benicia Mainstreet Program Board of Directors (President 1988). He is
also a member of the Sutter-Solano Hospital Foundation Board and the Board of
Directors for St. Dominic's Church in Benicia, where he has also coached
basketball and softball for PAL.
Fred J. Hearn is President of Hearn Pacific Construction, a real estate general
contracting company headquartered in Vacaville for more than twenty five years.
Mr. Hearn is an active member of both the Fairfield and Vacaville
61
Chambers of Commerce, the Solano Commercial Brokers, and the Solano Economic
Development Corporation. He has also served on the Notre Dame Parochial School
Board as secretary and vice president for two terms and as a member of the Green
Valley Country Club where he served on the Building and Grounds Committee. Mr.
Hearn helped organize the Vacaville Homeless Shelter and presently serves on the
Vacaville Chamber of Commerce Economic Development Committee.
Michael D. O'Brien is the President and operator of O'Brien Builders, a
full-service commercial construction company located in Vacaville since 1989.
Mr. O'Brien graduated from St. Mary's College in Moraga with a B.A. degree in
political science. He holds a general contractor license B classification and
also has completed a variety of construction management courses from both U.C.
Berkeley Extension and Diablo Valley College. Mr. O'Brien is a member of the
Fairfield-Suisun Chamber of Commerce, a member of the Solano Economic
Development Corporation, a member of the Vallejo Chamber of Commerce, and a
volunteer for Advocates for the Arts located in Fairfield. He has also been a
coach for the Fairfield-Suisun Youth Soccer League and the Cordelia Tri-Valley
Little League.
Kenneth B. Ross is the owner of Team Chevrolet-Oldsmobile-Hyundai, a automobile
dealership located in Vallejo. Mr. Ross has twenty-two years experience in the
automotive industry. Mr. Ross completed various business and law classes at
Consannes River College and Sacramento City College. He is a graduate of General
Motors College located in Warren, Michigan. Mr. Ross is a member of the Vallejo
Chamber of Commerce and the Chevrolet National Dealer Council. Previously he has
served as a Director of the Hyundai National Dealer Council and as a Mentor on
the Napa Academic Mentor Program.
Denise C. Suihkonen has been a partner in the firm of Suihkonen Certified Public
Accountants & Consultants, LLP, located in Vacaville, since 1997. Prior to 1997,
she worked as an accountant for Christensen/Suihkonen CPAs, also in Vacaville.
Ms. Suihkonen graduated from California State University of Sacramento with a
B.S. degree in business administration/accounting and earned her certified
public accountant's license in 1989. Currently, Ms. Suihkonen is a Housing and
Redevelopment Commissioner for the City of Vacaville; a member of the Board of
Directors of the Police Activities League of Vacaville; and Treasurer for
Vacaville Ballet Theatre and "On Stage Vacaville," a non-profit organization
supporting the Vacaville Performing Arts Theatre. In addition she is a member of
the American Institute of Certified Public Accountants; the California Society
of Certified Public Accountants; and the Soroptimist International of Vacaville,
where she served as President from 1991-1992. Ms. Suihkonen also served as the
Treasurer for the Alamo Elementary School P.T.A. from 1994 to 1996.
For biographical information about David B. Gaw, Terry L. Robinson, Glen C.
Terry, and Kathi Metro, and Lee-Ann Almeida, see "MANAGEMENT -Directors and
- -Executive Officers."
62
PRINCIPAL SHAREHOLDERS
As of December 31, 1999, the following persons were known by North Bay
to beneficially own more than five percent (5%) of North Bay's outstanding
common stock:
- -----------------------------------------------------------------------------------------------------------------
Relationship No. of Shares Percent of Class(1)
Name and Address with North Bay or Vintage Beneficially Owned Beneficially Owned
Bank
- -----------------------------------------------------------------------------------------------------------------
Houghton Gifford, M.D. Director, Vintage Bank 109,127(2) 7.10%
3219 Vichy Avenue
Napa, CA 94558
- -----------------------------------------------------------------------------------------------------------------
Terry L. Robinson Director and CEO, 84,398(3) 5.49%
1500 Soscol Avenue North Bay and Vintage Bank
Napa, CA 94559
- -----------------------------------------------------------------------------------------------------------------
<FN>
(1) In computing the percentage of outstanding Common Stock owned beneficially, the number of shares beneficially
owned has been divided by the number of outstanding shares on December 31, 1999, assuming options exercisable by
the named person within 60 days have been exercised.
(2) See the footnote references set forth below under Security Ownership of Management for information regarding
the nature of Dr. Gifford's beneficial ownership.
(3) See the footnote references set forth below under Security Ownership of Management for information regarding
the nature of Mr. Robinson's beneficial ownership.
</FN>
63
DESCRIPTION OF SECURITIES
General
North Bay currently has an authorized capitalization of 10,000,000 shares of
common stock and 500,000 shares of preferred stock. Of these authorized capital
shares, 1,536,568 shares of common stock and no shares of preferred stock are
currently issued and outstanding. An additional 337,211 shares of North Bay's
common stock is reserved for issuance pursuant to North Bay Bancorp's Stock
Option Plan.
Common Stock
The balance of North Bay 's authorized common stock will be available to be
issued when and as the Board of Directors of North Bay determines it advisable
to do so. Common shares could be issued for the purpose of raising additional
capital, in connection with acquisitions or formation of other businesses, or
for other appropriate purposes. The Board of Directors of North Bay has the
authority to issue common shares to the extent of the present number of
authorized unissued shares, without obtaining the approval of existing holders
of common shares. If additional shares of North Bay 's Common Stock were to be
issued, the existing holders of North Bay shares would own a proportionately
smaller portion of the total number of issued and outstanding common shares.
Dividend Rights
The shareholders of North Bay 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:
o the corporation's assets equal at least 1 1/4 times its liabilities,
and
o 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 1/4 times its current liabilities.
Vintage Bank has in the past paid cash and stock dividends on its common stock.
It is contemplated that North Bay will follow Vintage Bank's policy of paying
cash and stock dividends subject to the restrictions on payment of cash
dividends as described above, the earnings of North Bay, management's assessment
of the future capital needs, and other factors. Initially, the funds for payment
of dividends and expenses of North Bay are expected to be obtained from
dividends paid by Vintage Bank.
Voting Rights
All voting rights with respect to North Bay are vested in the holders of North
Bay 's common stock.
Holders of North Bay common stock are entitled to one vote for each share held
except that in the election of directors each shareholder has cumulative voting
rights and is entitled to as many votes as shall equal the number of shares held
by such shareholder multiplied by the number of directors to be elected and such
shareholder may cast all his or her votes for a single candidate or distribute
such votes among any or all of the candidates he or she chooses. However, no
shareholder shall be entitled to cumulate votes (in other words, cast for any
candidate a number of votes greater than the number of shares of stock held by
such shareholder) unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting prior to the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination.
64
Preemptive Rights
Shareholders of North Bay common stock have no preemptive rights. Also there no
applicable conversion rights, redemption rights or sinking fund provisions.
Liquidation Rights
Upon liquidation of North Bay the shareholders of North Bay 's common stock have
the right to receive their pro rata portion of the assets of the Bank
distributable to shareholders. This is subject, however, to the preferential
rights, if any, of the holders of any outstanding senior securities. Presently
there are no senior securities outstanding.
Preferred Stock
North Bay is authorized to issue 500,000 shares of preferred stock. The Board of
Directors has the authority to establish preferred stock in one or more series
and to fix the dividend rights (including sinking fund provisions), redemption
price or prices, and liquidation preferences, and the number of shares
constituting any series or the designation of such series. Holders of preferred
stock will not be held individually responsible, as such holders, for any debts,
contracts or engagements of North Bay, and will not be liable for assessments to
correct impairments of the contributed capital of North Bay. Holders of
preferred stock, when and if issued, may become senior to holders of common
stock as to dividend, voting, liquidation or other rights. The Board of
Directors has no present intention to issue shares of preferred stock.
Provisions of Articles of Incorporation
Certain provisions of the Articles and the Bylaws of North Bay may have the
effect of delaying, deferring or preventing a change in control of North Bay in
certain circumstances. Certain of these provisions, which do not contemplate a
specific or particular attempt to gain control of North Bay, are described
below. The Articles of Incorporation and the Bylaws are available upon request
of North Bay. The following discussion is qualified in its entirety by the
specific provisions of each.
Consideration of Factors Other Than Price
North Bay ?s Articles of Incorporation provide that, in connection with the
exercise of its judgment in determining what is in the best interest of North
Bay and of the shareholders, when evaluating a "Business Combination or a
proposal by another person or persons to make a business combination or a tender
or exchange offer, the Board of Directors of North Bay shall, in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it may deem relevant:
o The social and economic effects of the transaction on North Bay and
its subsidiaries, employees, depositors, loan and other customers,
creditors, and other elements of the communities in which North Bay
and its subsidiaries operate or are located;
o The business and financial condition and earning prospects of the
acquiring person or persons, including, but not limited to, debt
service and other existing financial obligations, financial
obligations to be incurred in connection with the acquisition and
other likely financial obligations of the acquiring person or
persons, and the possible effect of such condition upon North Bay
and its subsidiaries and the other elements of the communities in
which North Bay and its subsidiaries operate or are located;
o The competence, experience and integrity of the acquiring person or
persons and its or their management;
o Whether the proposed transaction might violate federal or state law;
and
o Not only the consideration being offered in a proposed transaction
and related to the current market price for the outstanding capital
stock of North Bay but also to the market price for the capital
stock of
65
North Bay over a period of years, the estimated price that might be
achieved in a negotiated sale of North Bay as a whole or in part,
and North Bay's future value as an independent entity.
This provision could, under certain circumstances, permit the Board of Directors
to disapprove a tender offer or other business combination transaction that
might otherwise be beneficial to the shareholders of North Bay, particularly if
such a transaction would have a strong adverse impact on the employees of North
Bay or the communities in which North Bay has operations.
Issuance of Additional Securities
The Articles of Incorporation permit the Board of Directors to issue shares of
preferred stock without the prior approval of the holders of North Bay common
stock. The issuance of preferred stock or such other securities as permitted by
the Articles of Incorporation at some future date may have the effect of
delaying, deferring or preventing a change in control of North Bay.
Approval of Certain Business Combinations
The Articles of Incorporation provide that certain business combinations must be
approved by holders of 66-2/3% of the outstanding shares of North Bay common
stock, unless approved by a majority of disinterested directors, certain minimum
price requirements are met, or state regulatory authorities having jurisdiction
over the matter have approved the fairness of the proposed transaction. This
provision can only be amended or repealed by the affirmative vote of the holders
of 66-2/3% of the outstanding shares of North Bay common stock.
Restrictions on Resales by Affiliates
North Bay's common stock issuable in this offering has been registered under the
Securities Act of 1933, as amended, but this registration does not cover resales
of shares acquired by any North Bay shareholder who is deemed to be an
"affiliate" of North Bay, that is one who directly or indirectly through one or
more intermediaries controls or is controlled by or is under common control with
North Bay. Affiliates may not sell the shares except pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption from
the registration requirements of the Securities Act.
66
LEGAL PROCEEDINGS
In the normal course of its banking business, either North Bay or Vintage Bank
occasionally could be made a party to actions seeking to recover damages from
North Bay or Vintage Bank. As of the date of this prospectus, neither North Bay
nor Vintage Bank is a defendant in any material litigation.
LEGAL MATTERS
The validity of the shares being offered has been reviewed for North Bay by
Lillick & Charles LLP, Two Embarcadero Center, Suite 2700, San Francisco,
California 94111. However, subscribers should not construe such review as
constituting an opinion as to the merits of the offering.
EXPERTS
The audited balance sheets of Vintage Bank as of December 31, 1998 and 1997 and
the related statements of income, changes in shareholders' equity and cash flows
for each of the three years ended December 31, 1998 included in this prospectus
and elsewhere in the Form SB-2 registration statement have been audited by
Arthur Anderson LLP, independent public accountants, as indicated in their
report (dated February 23, 1999) with respect thereto, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
67
INDEX TO FINANCIAL STATEMENTS
Financial Statements
Interim Financial Statements
(i) Balance Sheets, September 30, 1999 and 1998............................70
(ii) Income Statements for the nine months
ended September 30, 1999 and 1998......................................71
(iii) Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998....................................72
(iv) Notes to Interim Financial Statements..................................73
Audited Financial Statements
(i) Balance Sheets, December 31, 1998 and 1997.............................75
(ii) Income Statements for the years
ended December 31, 1998, 1997 and 1996................................76
(iii) Statements of Changes in Shareholders'
Equity for the years ended December 31,
1998 and 1997.........................................................77
(iv) Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996................................78
(v) Notes to Financial Statements..........................................79
(vi) Report of Independent Public
Accountants............................................................91
Schedules
Schedules have been omitted as inapplicable or because the information required
is included in the financial statements or notes thereto.
68
Interim Financial Statements
Vintage Bank - Balance Sheets
September 30, September 30,
Assets 1999 1998
(Unaudited) (Unaudited)
------------- -------------
Cash and due from banks $ 8,418,000 $ 7,936,000
Federal funds sold 5,000,000 13,000,000
Time deposits with other financial institutions 100,000 200,000
Held-to-maturity investment securities (market value of
$1,390,000 at September 30, 1999, and $13,071,000 at
September 30, 1998) 1,390,000 12,721,000
Available-for-sale investment securities 57,950,000 44,707,000
Loans, net of allowance for loan losses of $1,940,000
at September 30, 1999 and $1,691,000, at September 30, 1998 115,285,000 88,456,000
Bank premises and equipment, net 2,813,000 2,777,000
Accrued interest receivable and other assets 6,699,000 5,814,000
------------- -------------
Total assets $ 197,655,000 $ 175,611,000
============= =============
Liabilities and Shareholders' Equity
Deposits
Demand $ 39,971,000 $ 41,469,000
Interest bearing 59,324,000 64,190,000
Time and saving 74,300,000 52,624,000
------------- -------------
Total deposits 173,595,000 158,283,000
Short term borrowings 5,000,000 0
------------- -------------
Accrued interest payable and other liabilities 1,274,000 1,063,000
------------- -------------
Total liabilities 179,869,000 159,346,000
------------- -------------
Shareholders' equity Preferred stock - no par value: Authorized, 500,000 shares;
Issued and outstanding - none Common stock - no par value: Authorized, 2,000,000
shares; Issued and outstanding - 1,533,922 shares
at September 30, 1999, and 1,437,491 shares at September 30, 1998 12,294,000 10,523,000
Retained earnings 6,171,000 5,215,000
Accumulated other comprehensive (loss) income (679,000) 527,000
------------- -------------
Total shareholders' equity 17,786,000 16,265,000
Total liabilities and shareholders' equity $ 197,655,000 $ 175,611,000
============= =============
<FN>
The accompanying notes are an integral part of these statements
</FN>
69
Vintage Bank
Income Statements
------------------------------
September 30, September 30,
1999 1998
----------- -----------
(Unaudited) (Unaudited)
Interest Income
Loans (including fees) $ 7,136,000 $ 6,234,000
Federal funds sold 118,000 345,000
Investment securities 2,789,000 2,088,000
----------- -----------
Total Interest income 10,043,000 8,667,000
Interest Expense 3,171,000 2,919,000
----------- -----------
Net interest income 6,872,000 5,748,000
Provision for loan losses 180,000 180,000
----------- -----------
Net interest income after
provision for loan losses 6,692,000 5,568,000
Non interest income 1,276,000 936,000
Gains on securities transactions, net 10,000 54,000
Non interest expenses
Salaries and employee benefits 2,558,000 2,188,000
Occupancy 289,000 288,000
Equipment 349,000 350,000
Other 1,492,000 1,196,000
----------- -----------
Total non interest expense 4,688,000 4,022,000
----------- -----------
Income before provision for
income taxes 3,290,000 2,536,000
Provision for income taxes 1,252,000 975,000
----------- -----------
Net income $ 2,038,000 $ 1,561,000
=========== ===========
Basic earnings per common share: $ 1.34 $ 1.04
=========== ===========
Diluted earnings per common share: $ 1.31 $ 1.01
=========== ===========
The accompanying notes are an integral part of these statements
70
Vintage Bank
Statement of Cash Flows
For The Nine Months Ended September 30,
(In 000's)
(Unaudited) (Unaudited)
1999 1998
-------- --------
Cash Flows From Operating Activities:
Net income $ 2,038 $ 1,561
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 260 297
Provision for loan losses 180 180
Amortization of deferred loan fees (191) (119)
Premium (discount accretion), net (12) (53)
Net (gain) on investment securities (10) (54)
Gain on sale of assets (15) 0
Changes in:
Interest receivable and other assets 219 (347)
Interest payable and other liabilities 67 (43)
-------- --------
Total adjustments 498 (139)
-------- --------
Net cash provided by operating activities 2,536 1,422
-------- --------
Cash Flows From Investing Activities:
Investment securities held-to-maturity:
Proceeds from maturities and principal payments 10 385
Purchases (1,400) (9,093)
Investment securities available for sale:
Proceeds from maturities and principal payments 13,466 14,406
Proceeds from sales 1,005 2,826
Purchases (12,202) (25,899)
Net sale of time deposits with
other financial institutions 100 0
Net increase in loans (20,499) (7,526)
Sale of capital assets 21 7
Capital expenditures (345) (98)
-------- --------
Net cash used in investing activities (19,844) (24,992)
-------- --------
Cash Flows From Financing Activities:
Net increase in deposits 11,422 26,893
Issuance of notes payable 5,000 0
Stock options exercised 199 273
Dividends paid (297) (281)
-------- --------
Net cash provided by financing activities 16,324 26,885
-------- --------
Net increase (decrease) in cash and cash equivalents (984) 3,315
Cash and cash equivalents at beginning of year 14,402 17,621
-------- --------
Cash and cash equivalents at end of period $ 13,418 $ 20,936
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 3,168 $ 2,894
Income taxes paid $ 830 $ 838
<FN>
The accompanying notes are an integral part of these statements
</FN>
71
VINTAGE BANK
Notes to Interim Financial Statements
(Unaudited)
September 30, 1999 and 1998
NOTE 1 - Basis of Presentation
The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission and in management's
opinion, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of results for such interim
periods. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to SEC rules or regulations; however,
management believes that the disclosures made are adequate to make the
information presented not misleading. The interim results for the nine months
ended September 30, 1999 and 1998 are not necessarily indicative of results for
the full year. It is suggested that these interim financial statements be read
in conjunction with the financial statements for the years ended December 31,
1998, 1997 and 1996 and as of December 31, 1998 and 1997 included elsewhere in
this prospectus.
NOTE 2 - Commitments
The Bank has outstanding standby Letters of Credit of approximately $1,629,000,
undisbursed real estate and construction loans of approximately $19,829,000, and
undisbursed commercial and consumer lines of credit of approximately
$17,438,000, as of September 30, 1999.
NOTE 3 - Earnings Per Common Share
The Bank declared 5% stock dividends on January 26, 1998 and January 28, 1999.
As a result of the stock dividends the number of common shares outstanding and
earnings per share data was adjusted retroactively for all periods presented.
The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations:
Weighted Average Per-Share
Net Income Shares Amount
---------- ------ ------
For the nine months ended September 30, 1999
--------------------------------------------
Basic earnings per share $2,038,000 1,518,641 $1.34
Stock options 53,477
Diluted earnings per share 1,572,118 $1.31
For the nine months ended September 30, 1998
--------------------------------------------
Basic earnings per share $1,561,000 1,502,787 $1.04
Stock options 43,111
Diluted earnings per share 1,545,898 $1.01
NOTE 4 - Comprehensive Income
As of January 1, 1998, Vintage Bank adopted FASB Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS 130). This
Statement established standards for the reporting and display of comprehensive
income and its components in the financial statements. For the Bank,
comprehensive income includes net income reported on the statement of income and
changes in the fair value of its available-for-sale investments reported as a
component of shareholders' equity. The following table presents net income
adjusted by the change in unrealized gains or losses on the available-for-sale
investments as a component of comprehensive income (in thousands).
72
Nine months ended
September 30,
1999 1998
-------------------------------------
Net income $2,038 $1,561
Net change in unrealized gains
on available-for-sale investments
net of tax (1,064) 226
------- ------
Comprehensive income $974 $1,787
====== ======
NOTE 5 - Segment Reporting
Effective January 1, 1998, the Bank adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information, (SFAS 131). This Statement establishes standards for the reporting
and display of information about operating segments and related disclosures. The
Bank's only operating segment consists of its traditional community banking
activities provided through its branches. Community banking activities include
the Bank's commercial and retail lending, deposit gathering and investment and
liquidity management activities. As permitted under the Statement, the Bank has
aggregated the results of the branches into a single reportable segment. The
combined results are reflected in the financial statements.
ACCOUNTING AND REPORTING CHANGES
In 1998, the Financial Accounting Standards Board issued SFAS NO. 133,
Accounting for Derivative Instruments and Hedging Activities (*SFAS 133). The
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statements of financial
position and measure those instruments at fair value.
Effective July 1, 1999, the Bank adopted SFAS NO. 133, Accounting for Derivative
Instruments and Hedging Activities. The adoption of SFAS 133 did not materially
impact the financial position or results of operations. The Bank does not
currently utilize derivative instruments in its operations, and does not engage
in hedging activities. Under the provisions of SFAS NO. 133, and in connection
with the adoption of SFAS 133, the Bank reclassified investment securities
carried at $13,506,000 with a market value of $13,242,000 from the held to
maturity classification to the available for sale classification. As a result of
this transfer, an unrealized loss of $155,000, net of tax, was recognized in
accumulated other comprehensive income as a cumulative effect of change in
accounting principle.
73
Audited Financial Statements
========================================================================================================
BALANCE SHEETS
========================================================================================================
December 31, 1998 and 1997
1998 1997
------------ ------------
ASSETS
CASH AND DUE FROM BANKS $ 8,401,566 $ 12,621,181
FEDERAL FUNDS SOLD 6,000,000 5,000,000
------------ ------------
Cash and cash equivalents 14,401,566 17,621,181
TIME DEPOSITS WITH OTHER
FINANCIAL INSTITUTIONS 200,000 200,000
INVESTMENT SECURITIES:
Held-to-maturity (fair value of $13,756,772 in 1998
and $4,175,745 in 1997) 13,512,384 4,017,714
Available-for-sale 48,505,658 35,549,277
------------ ------------
TOTAL INVESTMENT SECURITIES 62,018,042 39,566,991
LOANS, net of allowance for loan losses of
$1,751,693 in 1998 and $1,532,128 in 1997 94,775,177 80,990,762
BANK PREMISES AND EQUIPMENT, net 2,733,834 2,976,018
INTEREST RECEIVABLE AND OTHER ASSETS 6,161,931 5,627,280
------------ ------------
Total assets $180,290,550 $146,982,232
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand $ 39,469,756 $ 33,203,445
Interest-bearing transaction 54,500,653 37,353,837
Time and savings 68,202,797 60,832,917
------------ ------------
Total deposits 162,173,206 131,390,199
INTEREST PAYABLE AND OTHER LIABILITIES 1,207,313 1,106,151
------------ ------------
Total liabilities 163,380,519 132,496,350
COMMITMENTS AND CONTINGENT LIABILITIES (Note 5)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value - Authorized 1,000,000 shares
Issued and outstanding - None
Common stock, no par value - Authorized 2,000,000 shares Issued and
outstanding - 1,437,491 shares in 1998
and 1,326,857 shares in 1997 11,003,574 8,824,139
Retained earnings 5,521,351 5,360,816
Accumulated other comprehensive income 385,106 300,927
------------ ------------
Total shareholders' equity 16,910,031 14,485,882
Total liabilities and shareholders' equity $180,290,550 $146,982,232
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
74
========================================================================================================
INCOME STATEMENTS
========================================================================================================
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
-------------- --------------- ---------------
INTEREST INCOME:
Interest and fees on loans $8,465,003 $7,537,434 $6,575,665
Interest on federal funds sold 461,039 142,480 602,984
Interest on investment securities 2,472,704 2,144,912 1,685,287
Interest on tax exempt investment securities 496,666 249,000 277,984
Interest on time deposits with other
financial institutions 11,018 11,443 11,714
-------------- --------------- ---------------
Total interest income 11,906,430 10,085,269 9,153,634
-------------- --------------- ---------------
INTEREST EXPENSE:
Interest on interest-bearing
transaction deposits 1,104,570 595,046 552,179
Interest on time and savings deposits 2,886,573 2,520,219 2,310,812
Interest on short term borrowings 683 26,240 118,626
-------------- --------------- ---------------
Total interest expense 3,991,826 3,141,505 2,981,617
-------------- --------------- ---------------
Net interest income 7,914,604 6,943,764 6,172,017
PROVISION FOR LOAN LOSSES 240,000 240,000 240,000
-------------- --------------- ---------------
Net interest income after
provision for loan
losses 7,674,604 6,703,764 5,932,017
NONINTEREST INCOME:
Service charges on deposit accounts 743,291 674,219 582,343
Gain (loss) on securities transactions, net 65,278 395,252 (63,348)
Gain (loss) on sale of other real estate owned (2,512) 24,180 0
Other 591,101 349,822 256,888
-------------- --------------- ---------------
Total noninterest income 1,397,158 1,443,473 775,883
-------------- --------------- ---------------
NONINTEREST EXPENSE:
Salaries and related benefits 3,068,958 2,636,617 2,147,691
Occupancy 392,357 360,744 181,568
Equipment 450,118 474,141 391,463
Other 1,748,593 1,578,659 1,267,735
-------------- --------------- ---------------
Total noninterest expense 5,660,026 5,050,161 3,988,457
-------------- --------------- ---------------
Income before provision for income taxes 3,411,736 3,097,076 2,719,443
PROVISION FOR INCOME TAXES 1,301,000 1,243,000 1,073,000
-------------- --------------- ---------------
NET INCOME $2,110,736 $1,854,076 $1,646,443
============== =============== ===============
BASIC EARNINGS PER SHARE: $1.41 $1.30 $1.17
DILUTED EARNINGS PER SHARE: $1.37 $1.26 $1.15
<FN>
The accompanying notes are an integral part of these statements.
</FN>
75
====================================================================================================================================
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
====================================================================================================================================
For the Years Ended December 31, 1998, 1997 and 1996
Accumulated
Other Total
Common Retained Comprehensive Shareholders' Comprehensive
Stock Earnings Income Equity Income
----- -------- ------ ------ ------
BALANCE, DECEMBER 31, 1995 $6,726,026 $3,698,372 $33,960 $10,458,358
Stock dividend 530,968 (537,373) (6,405)
Cash dividend (203,332) (203,332)
Comprehensive income:
Net income 1,646,443 1,646,443 1,646,443
Other comprehensive income, net of tax:
Change in net unrealized gains on
available-for-sale securities, net of
tax of $53,575 net of reclassification
adjustment (Note 17) 74,748
----------
Total other comprehensive income 74,748 74,748 74,748
----------
Comprehensive income 1,721,191
Stock options exercised 146,316 146,316
---------- --------- ------- ----------
BALANCE, DECEMBER 31, 1996 7,403,310 4,604,110 108,708 12,116,128
Stock dividend 872,871 (883,992) (11,121)
Cash dividend (213,378) (213,378)
Comprehensive income:
Net income 1,854,076 1,854,076 1,854,076
Other comprehensive income, net of tax:
Change in net unrealized gains on
available-for-sale securities, net of
tax of $137,771 net of reclassification
adjustment (Note 17) 192,219
----------
Total other comprehensive income 192,219 192,219 192,219
----------
Comprehensive income 2,046,295
Stock options exercised 547,958 547,958
---------- --------- ------- ----------
BALANCE, DECEMBER 31, 1997 8,824,139 5,360,816 300,927 14,485,882
Stock dividend 1,669,700 (1,681,208) (11,508)
Cash dividend (268,993) (268,993)
Comprehensive income:
Net income 2,110,736 2,110,736 2,110,736
Other comprehensive income, net of tax:
Change in net unrealized gains on
available-for-sale securities, net of
tax of $60,334 net of reclassification
adjustment (Note 17) 84,179
----------
Total other comprehensive income 84,179 84,179 84,179
----------
Comprehensive income 2,194,915
==========
Stock options exercised 509,735 509,735
---------- --------- ------- ----------
BALANCE, DECEMBER 31, 1998 $11,003,574 $5,521,351 $385,106 $16,910,031
76
=======================================================================================================
STATEMENTS OF CASH FLOWS
=======================================================================================================
For the Years Ended December 31, 1998, 1997 and (In 000's)
1996 (In 000's)
1998 1997 1996
-------- -------- --------
Cash Flows From Operating Activities:
Net income $ 2,111 $ 1,854 $ 1,646
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 388 404 308
Provision for loan losses 240 240 240
Amortization of deferred loan fees (161) (149) (187)
Amortization (accretion) of investment securities
premiums (discounts), net (60) (14) 57
Provision for deferred income taxes 0 47 (11)
Loss (gain) on sale of OREO 3 (24) 0
Loss (gain) on sale or retirement of capital assets 0 0 11
Net loss (gain) on securities transactions (65) (395) 63
Changes in:
Interest receivable and other assets (595) (2,875) (524)
Interest payable and other liabilities 102 332 96
-------- -------- --------
Total adjustments (148) (2,434) 53
-------- -------- --------
Net cash provided (used) by operating activities 1,963 (580) 1,699
-------- -------- --------
Cash Flows From Investing Activities:
Investment securities held to maturity:
Proceeds from maturities and principal payments 540 1,530 1,744
Purchases (10,043) (749) (700)
Investment securities available for sale:
Proceeds from maturities and principal payments 17,786 2,348 5,210
Proceeds from sales and recoveries 4,341 4,411 14,798
Purchases (34,809) (8,849) (29,904)
Net increase in loans (13,874) (10,302) (8,174)
Proceeds from sale of OREO 11 366 369
Capital expenditures (146) (702) (631)
-------- -------- --------
Net cash used in investing activities (36,194) (11,947) (17,288)
-------- -------- --------
Cash Flows From Financing Activities:
Net increase in deposits 30,783 21,541 13,361
Payments of notes payable 0 0 (2,500)
Stock options exercised 510 548 146
Dividends (281) (224) (210)
-------- -------- --------
Net cash provided by financing activities 31,012 21,865 10,797
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (3,219) 9,338 (4,792)
Cash and cash equivalents at beginning of year 17,621 8,283 13,075
-------- -------- --------
Cash and cash equivalents at end of year $ 14,402 $ 17,621 $ 8,283
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 3,984 $ 2,987 $ 2,967
Income taxes paid $ 1,254 $ 1,232 $ 1,217
Supplemental Disclosures of Noncash Investing
and Financing Activities:
Transfer of loan to other real estate owned $ 0 $ 0 $ 711
Retirements of fixed assets $ 0 $ 0 $ 34
77
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
December 31, 1998, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Vintage Bank (the "Bank") is a California state chartered bank. The Bank
operates three branches in the California County of Napa. The Bank offers a full
range of commercial banking services to individuals and the business and
agricultural communities of Napa County. Most of the Bank's customers are retail
customers and small to medium-sized businesses. The accounting and reporting
policies of the Bank conform with generally accepted accounting principles and
general practice within the banking industry. The more significant accounting
and reporting policies are discussed below.
Use of estimates in the preparation of financial statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and 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. 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 which the Bank has the ability and the 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 included in shareholders'
equity. Premiums and discounts are amortized or accreted over the life of the
related investment security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
Realized gains and losses are computed on the specific identification method.
Securities deemed permanently impaired are written down in the period such a
determination is made.
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.
Interest income is accrued on a simple interest basis. Loans on which the
accrual of interest has been discontinued are designated as nonaccrual loans.
The Bank's policy is to place loans on nonaccrual status when management
believes that the borrower's financial condition, after giving consideration to
economic and business conditions and collection efforts, is such that the
presumption of collectibility of interest no longer is prudent. In determining
income recognition on loans, generally no interest is recognized with respect to
loans on which a default of interest or principal has occurred for a period of
90 days or more.
Allowance for loan losses The Bank maintains 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 Bank makes credit
reviews of the loan portfolio and considers current economic conditions,
historical loan loss experience and other factors in determining the adequacy of
the allowance balance. The Bank defines a loan as impaired when it is probable
the Bank 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.
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 Bank 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
78
the estimated useful life of the property or the term of the lease (if less).
Bank premises are depreciated over forty years, furniture and fixtures are
depreciated over five to fifteen years, and equipment is generally depreciated
over three to five years.
Income taxes For financial reporting purposes, the Bank records a provision for
income taxes using the liability method of accounting. A deferred tax liability
or asset is recorded for all temporary differences between financial and tax
reporting. Deferred tax expense or benefit results from the net change during
the year of the deferred tax assets and liabilities. The measurement of tax
assets and liabilities is based on the provisions of enacted tax laws.
Statements of cash flows The Bank defines cash and due from banks and federal
funds sold as cash and cash equivalents for the statements of cash flows.
Stock-based compensation The Bank uses the intrinsic value method to account for
its stock option plans (in accordance with the provisions of Accounting
Principles Board Opinion No. 25). 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, Accounting for Stock-Based Compensation (SFAS 123)
permits companies to continue using the intrinsic value method to account for
stock option plans. 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 Bank has elected to continue to use the intrinsic value
method and the pro forma disclosures required by SFAS 123 using the fair value
method and are included in Note 12.
Earnings per common share In 1997, the Bank adopted SFAS No. 128, "Earnings Per
Share", which establishes standards for computing and presenting earnings per
share (EPS). It replaced the presentation of primary and fully diluted EPS with
a presentation of basic and diluted EPS. It also requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The implementation of this statement
had no effect on Vintage Bank's reported financial position or net income. As a
result of adopting SFAS No. 128, earnings per share data for all prior periods
has been restated.
Segment reporting Effective January 1, 1998, the Bank adopted Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information," (SFAS 131). This Statement establishes
standards for the reporting and display of information about operating segments
and related disclosures. The Bank's only operating segments consist of its
traditional community banking activities provided through its branches.
Community banking activities include the Bank's commercial and retail lending,
deposit gathering and investment and liquidity management activities. As
permitted under the Statement, the Bank has aggregated the results of the
branches into a single reportable segment. The combined results are reflected in
the financial statements.
Future financial accounting standards In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedged accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedge
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999 and
the Bank plans to adopt its provisions effective January 1, 2000. While the Bank
does not currently utilize any traditional derivative instruments (options,
swaps, forwards, etc.) in its business, certain of its loans and other financial
instruments may have embedded derivatives such as call or put features that
would be required to be accounted for differently under this Statement as
compared to current accounting principles. The Bank has not yet quantified the
impacts, if any, of adopting Statement 133 on its financial statements.
79
(2) INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities at
December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
Held-to-maturity:
Municipal securities $13,512,384 $ 289,032 $ 44,644 $13,756,772
=========== =========== =========== ===========
Available-for-sale:
Equity securities $ 777,200 $ 0 $ 0 $ 777,200
Securities of the US Treasury
and other government agencies 11,531,766 172,189 523 11,703,432
Corporate debt securities 12,272,305 179,936 7 12,452,234
Mortgage-backed securities 23,265,298 340,384 32,890 23,572,792
----------- ----------- ----------- -----------
$47,846,569 $ 692,509 $ 33,420 $48,505,658
=========== =========== =========== ===========
The amortized cost and approximate fair value of investment securities at
December 31, 1997 are as follows:
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
Held-to-maturity:
Municipal securities $ 4,017,714 $ 158,031 $ 0 $ 4,175,745
=========== =========== =========== ===========
Available-for-sale:
Equity securities $ 688,400 $ 0 $ 0 $ 688,400
Securities of the US Treasury
and other government agencies 7,508,676 79,898 0 7,588,574
Corporate debt securities 8,650,197 86,097 3 8,736,291
Mortgage-backed securities 18,186,983 361,497 12,468 18,536,012
----------- ----------- ----------- -----------
$35,034,256 $ 527,492 $ 12,471 $35,549,277
=========== =========== =========== ===========
The following table shows the amortized cost and estimated fair value of
investment securities by contractual maturity at December 31, 1998:
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
Within one year $ 0 $ 0 $ 3,509,873 $ 3,529,389
After one but within five years 1,513,655 1,578,949 15,762,676 16,038,049
After five but within ten years 4,839,580 4,911,695 1,022,083 1,034,590
Over ten years 7,159,149 7,266,128 3,509,439 3,553,639
Equity securities 0 0 777,200 777,200
Mortgage-backed securities 0 0 23,265,298 23,572,791
----------- ----------- ----------- -----------
Total $13,512,384 $13,756,772 $47,846,569 $48,505,658
=========== =========== =========== ===========
As of December 31, 1998 and 1997 securities carried at $2,067,813 and
$2,028,125, respectively, were pledged to secure public and other deposits as
required by law. Total proceeds from the sale of securities available for sale
during 1998 were $4,327,823. Gross gains of $52,600 were realized on those
sales. The Bank also recovered $12,678 on previously charged off securities.
Total proceeds from the sale of securities available for sale during 1997 were
$4,003,516. Gross gains of $7,699 and gross losses of $19,377 were realized on
those sales. The Bank also recovered $406,930 on previously charged off
securities.
80
(3) LOANS AND ALLOWANCE FOR LOAN LOSSES
At December 31, 1998 and 1997, the loan portfolio consisted of the following,
net of deferred loan fees of $439,302 and $289,570 respectively:
1998 1997
----------- -----------
Real estate loans $51,643,406 $34,089,199
Installment loans 18,460,555 15,918,156
Construction loans 5,950,207 6,446,381
Commercial loans secured by real estate 6,062,585 9,610,793
Commercial loans 14,410,117 16,458,361
----------- -----------
96,526,870 82,522,890
Less allowance for loan losses 1,751,693 1,532,128
----------- -----------
$94,775,177 $80,990,762
=========== ===========
Nonaccrual loans were $88,694 at December 31, 1998 and $466,051 at December 31,
1997. As a result of being placed on nonaccrual status, approximately $65,905
and $20,595 in interest income was foregone during 1997 and 1996, respectively.
There was no interest foregone during 1998. As of December 31, 1998 and 1997,
there were no loans 90 days or more past due but still accruing interest.
Changes in the allowance for loan losses are as follows:
1998 1997 1996
----------- ----------- -----------
Balance, beginning of year $ 1,532,128 $ 1,474,437 $ 1,326,186
Provision for loan losses 240,000 240,000 240,000
Loans charged off (59,210) (195,903) (127,519)
Recoveries of loans
previously charged off 38,775 13,594 35,770
----------- ----------- -----------
Balance, end of year $ 1,751,693 $ 1,532,128 $ 1,474,437
=========== =========== ===========
As of December 31, 1998 and 1997, the Bank's recorded investment in impaired
loans was $1,174,054 and $2,146,434, respectively, and the related valuation
allowance as of those dates was $120,000 and $140,000. This valuation allowance
is included in the allowance for loan losses on the balance sheet. The average
record investment in impaired loans was $1,660,000, $1,906,000 and $1,742,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
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. The Bank recognized
interest income on impaired loans of $106,379, $202,262 and $136,974 in 1998,
1997 and 1996, respectively.
81
(4) BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1998 and 1997 consisted of the
following:
Accumulated Net
Depreciation Book
Cost & Amortization Value
---------- -------------- ----------
1998
Land $ 706,277 $ 0 $ 706,277
Bank premises 1,611,508 337,419 1,274,089
Furniture, fixtures and equipment 2,368,523 1,838,755 529,768
Leasehold improvements 312,335 88,635 223,700
---------- ---------- ----------
$4,998,643 $2,264,809 $2,733,834
========== ========== ==========
1997
Land $ 706,277 $ 0 $ 706,277
Bank premises 1,598,570 290,336 1,308,234
Furniture, fixtures and equipment 2,243,332 1,531,282 712,050
Leasehold improvements 304,016 54,559 249,457
---------- ---------- ----------
$4,852,195 $1,876,177 $2,976,018
========== ========== ==========
Depreciation and amortization expense, included in occupancy expense and
equipment expense, was $388,632, $403,593 and $307,621 in 1998, 1997 and 1996,
respectively.
(5) COMMITMENTS AND CONTINGENCIES
The Bank leases the premises for its Brown's Valley and Bel Aire Offices. Total
rent was $128,043, $113,271 and $38,489 in 1998, 1997 and 1996, respectively,
and is included in occupancy and equipment expenses. The total commitments under
non-cancelable leases are as follows:
Year Total
---- -----
1999 $119,849
2000 119,568
2001 94,092
2002 100,716
2003 100,716
Thereafter 302,148
--------
Total $837,089
========
(6) TIME DEPOSITS AND INTEREST ON TIME DEPOSITS
Time certificates of deposit in denominations of $100,000 or more totaled
$17,443,413 and $14,765,376 at December 31, 1998 and 1997, respectively.
Interest expense on these deposits was $831,094, $717,442 and $624,560 for 1998,
1997 and 1996, respectively.
At December 31, 1998, the scheduled maturities of CD's are as follows:
Year Total
---- -----
1999 $47,689,225
2000 4,071,499
2001 870,824
2002 390,191
2003 639,864
-----------
$53,661,603
===========
82
(7) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank makes commitments to extend credit in the normal course of business to
meet the financing needs of its 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 Bank is exposed to credit loss, in the event of nonperformance
by the borrower, in the contract amount of the commitment. The Bank uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments and evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the Bank is
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 Bank also issues 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 1999 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 Bank holds collateral as deemed necessary, as described above. The contract
amounts of commitments not reflected on the Balance Sheet at December 31, 1998
were as follows:
Contract Amounts
----------------
Loan Commitments $27,964,000
Standby Letters of Credit $ 1,584,000
(8) CONCENTRATIONS OF CREDIT RISKS
The majority of the Bank's loan activity is with customers located in Napa
County, California. Although the Bank has a diversified loan portfolio, a large
portion of its loans is for construction of residences, and many of the Bank's
commercial loans are secured by real estate in Napa County. Approximately 82% of
the Bank's loans are secured by real estate. This concentration is presented
below:
(In 000's)
As of
December 31, 1998
-----------------
Construction/Land Development:
Land Development $ 1,640
Owner Occupied Residential 3,733
Non-owner Occupied Residential 440
Commercial 137
Real Estate 51,643
Commercial - Real Estate Secured 6,063
Installment - Real Estate Secured 15,244
-------
Total $78,900
=======
(9) INCOME TAXES
The provision for (benefits from) federal and state income taxes for the years
ended December 31, 1998, 1997 and 1996 consisted of:
1998 1997 1996
----------- ----------- -----------
Current
Federal $ 926,000 $ 873,000 $ 776,600
State 381,000 323,000 307,100
----------- ----------- -----------
1,307,000 1,196,000 1,083,700
Deferred
Federal (1,000) 31,500 (26,600)
State (5,000) 15,500 15,900
----------- ----------- -----------
$ (6,000) 47,000 $ (10,700)
----------- ----------- -----------
Total $ 1,301,000 $ 1,243,000 $ 1,073,000
=========== =========== ===========
83
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, 1998 and 1997:
1998 1997
-------- --------
Deferred Tax Assets:
Tax loan loss provision less than book $674,000 $642,200
Other 171,000 139,700
-------- --------
$845,000 $781,900
========
Deferred Tax Liabilities:
Tax benefit on unrealized securities gains $274,000 $214,100
Cumulative difference between cash and
accrual basis reporting 0
Accumulated accretion 36,000 24,800
Tax depreciation more than book 60,000 31,600
Federal tax benefits on state taxes due 65,000 45,800
Other 230,000 233,800
-------- --------
665,000 550,100
-------- --------
Net Deferred Tax Asset $180,000 $231,800
======== ========
The Bank had no valuation allowance as of December 31, 1998 or 1997. The total
tax differs from the federal statutory rate of 34% because of the following:
1998 1997 1996
---- ---- ----
Amount Rate Amount Rate Amount Rate
----------- ----- ----------- ----- ----------- -----
Tax provision at statutory rate $ 1,160,000 34% $ 1,053,000 34% $ 924,600 34%
Interest on obligations of
states and political
subdivisions exempt from
federal taxation (154,000) (3%) (77,000) (3%) (87,600) (3%)
State franchise taxes 245,000 7% 221,500 7% 194,400 7%
Other, net 50,000 2% 45,500 2% 41,600 2%
----------- ----- ----------- ----- ----------- -----
$ 1,301,000 40% $ 1,243,000 40% $ 1,073,000 40%
=========== ===== =========== ===== =========== =====
(10) DIVIDEND RESTRICTIONS
The Bank is regulated by the Board of Governors of the Federal Reserve System
and by the State of California Department of Financial Institutions. Federal
Reserve Board regulations prohibit cash dividends, except under limited
circumstances, if the distribution would result in a withdrawal of capital or
exceed the Bank'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. California banking laws limit cash dividends to the lesser of retained
earnings or net income for the last three years, net of the amount of any other
distribution made to shareholders during such period. As of December 31, 1998,
the Bank had retained earnings of $5,521,351 eligible for dividends.
84
(11) SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
The Bank declared 5% stock dividends on January 22, 1996, January 27, 1997,
January 26, 1998 and January 28, 1999. As a result of the stock dividends and
stock split, the number of common shares outstanding and earnings per share data
was adjusted retroactively for all periods presented.
The following table reconciles the numerator and denominator of the Basic and
Diluted earnings per share computations:
Weighted Average Per-Share
Net Income Shares Amount
---------- ------ ------
For the year ended 1998
-----------------------
Basic earnings per share $2,110,736 1,496,266 $1.41
Stock options 46,510
Diluted earnings per share 1,542,776 $1.37
For the year ended 1997
-----------------------
Basic earnings per share $1,854,076 1,429,785 $1.30
Stock options 46,110
Diluted earnings per share 1,475,895 $1.26
For the year ended 1996
-----------------------
Basic earnings per share $1,646,443 1,405,051 $1.17
Stock options 23,990
Diluted earnings per share 1,429,041 $1.15
(12) STOCK OPTION PLAN
The Bank has a stock option plan. The Bank may grant up to 337,211 options under
the plan. The Bank has granted 271,757 options through December 31, 1998. The
option exercise price equals the stock's market price on the date of grant. The
options become exercisable over five years and expire in five to ten years.
A summary of the status of the Company's stock option plan at December 31, 1998,
1997 and 1996 and stock option activity during the years then ended is presented
in the table below:
1998 1997 1996
---- ---- ----
Weighted Weighted Weighted
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at
beginning of year 210,111 $11.14 135,256 $ 6.26 163,787 $5.44
Granted 4,200 $19.88 132,300 $14.16 12,733 $7.99
Exercised (46,273) $ 6.24 (52,213) $ 5.82 (41,264) $3.54
Cancelled 0 $ 0 (5,232) $ 6.47 0 $0
Outstanding at
end of year 168,038 $12.96 210,111 $11.14 135,256 $6.26
Exercisable at
end of year 30,827 $ 9.56 44,136 $ 6.13 70,450 $6.07
Weighted-average
fair value of
options granted-
during the year -- $ 6.97 -- $ 5.81 -- $2.84
85
The following table summarizes information about stock options outstanding at
December 31, 1998:
Options Outstanding Options Exercisable
Range Number Weighted-Average Weighted-Average Number Exercisable Weighted.
of Outstanding Remaining Exercise at -Average
Exercise Prices at 12/31/98 Contractual Life Price 12/31/98 Exercise Price
--------------- ----------- ---------------- ----- -------- --------------
$ 6.46 to $7.90 31,958 1.00 $7.00 19,340 $6.74
$14.06 to $19.88 136,080 3.99 $14.36 11,487 $14.29
-------
168,038
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 1998, 1997 and 1996, respectively: risk-free
interest rate of 4.62% for options issued in 1998, 6.33% and 6.65% for options
issued in 1997 and 5.24% for options issued in 1996; expected dividend yields of
.94%, 1.01% and 1.81%; expected lives of 6 years and expected volatility of
30.85%.
The Bank accounts for stock options under APB Opinion No. 25. Had the Bank used
the fair value based method prescribed by SFAS No. 123, the Bank's net income
and earnings per share amounts would have been reduced to the pro forma amounts
indicated below:
1998 1997 1996
---- ---- ----
Net Income:
As Reported $2,110,736 $1,854,076 $1,646,443
Pro Forma $1,984,791 $1,733,004 $1,641,237
Earnings Per Share:
As Reported:
Basic $1.41 $1.30 $1.17
Diluted $1.37 $1.26 $1.15
Pro Forma:
Basic $1.33 $1.27 $1.23
Diluted $1.29 $1.23 $1.21
(13) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank makes 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, 1998 is as follows:
(In 000's)
Balance at beginning of year $4,032
Additions 1,610
Repayments (1,537)
-------
Balance at end of year $4,105
Total undisbursed commitments as of December 31, 1998 were $704,254.
A law firm in which one of the Bank's directors and one of its officers are
principals serves as the Bank's general counsel. During 1998, 1997 and 1996 fees
of $38,000, $31,000 and $26,000, respectively, were paid to this firm.
86
(14) RESTRICTIONS
The Bank is required to maintain reserves with the Federal Reserve Bank equal to
a percentage of its reservable deposits. Reserve balances that were required by
the Federal Reserve Bank were $1,506,000 and $1,072,000 for December 31, 1998
and 1997, respectively.
(15) RETIREMENT PLANS
The Bank has a Profit Sharing and Salary Deferral 401(K) Plan to enable its
employees to share in the Bank'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 Bank 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 were $120,000, $109,000 and
$88,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
During 1998, the Bank implemented a Director's Supplemental Retirement Program.
The Program contains a non-qualified defined benefit plan and a non-qualified
defined contribution plan. Directors and select officers designated by the Board
of Directors of the Bank are covered by one or the other of these plans. The
plans are unfunded, however the Bank has purchased insurance on the lives of the
participants and intends to use the cash values of these policies ($2,540,456 at
December 31, 1998) to pay the retirement obligations.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the Bank's
financial instruments at December 31, 1998 and 1997:
Carrying Fair Carrying Fair
Amounts Value Amounts Value
-------- -------- -------- --------
(In 000's)
1998 1997
-------------------------- ----------------------------
Financial Assets:
Cash and cash equivalents $ 14,402 $ 14,402 $ 17,621 $ 17,621
Time deposits with other
financial institutions 200 200 200 200
Investment securities 62,018 62,262 39,567 39,725
Loans, net 94,775 95,828 80,991 81,542
Accrued interest receivable 1,335 1,335 951 951
Financial Liabilities:
Deposits $162,173 $162,385 $131,390 $131,507
Accrued interest payable 509 509 501 501
SFAS No. 107, Disclosures about Fair Value of Financial Instruments - SFAS No.
107 defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
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.
87
Accrued interest receivable - The balance approximates its fair value.
Accrued interest payable - The balance approximates its fair value.
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.
(17) COMPREHENSIVE INCOME
As of January 1, 1998, the Bank adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, (SFAS 130). This Statement
established standards for the reporting and display of comprehensive income and
its components in the financial statements. For the Bank, comprehensive income
includes net income reported on the statement of income and changes in the fair
value of its available-for-sale investments reported as a component of
Stockholders' Equity.
The changes in the components of other comprehensive income for the years ended
December 31 1998, 1997 and 1996 are reported as follows:
1998 1997 1996
---- ---- ----
Holding gain arising during the period, net of tax $122,321 $421,412 $37,734
Reclassification adjustment for net realized gains on
securities available-for-sale included in net income
during the year, net of tax expenses of $27,136, $163,059
and tax benefits of $26,334, respectively (38,142) (229,193) 37,014
---------- ---------- ------
Net gain recognized in other comprehensive income $84,179 $192,219 $74,748
(18) REGULATORY MATTERS
The Bank 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 Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank'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 Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Federal
Reserve Bank categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table. There were no conditions or events
since that notification that management believes have changed the institution's
category.
88
The Bank's actual capital amounts and ratios are also presented in the table
below:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ------------------- ------------------
(In 000's)
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets) $18,100 14.39% $10,065 >8.0% $12,581 >10.0%
- -
Tier I Capital (to Risk
Weighted Assets) 16,525 13.14% 5,032 >4.0% 7,548 >6.0%
- -
Tier I Capital (to
Average Assets) 16,525 9.29% 7,114 >4.0% 8,892 >5.0%
- -
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets) $15,513 14.63% $8,485 >8.0% $10,607 >10.0%
- -
Tier I Capital (to Risk
Weighted Assets) 14,185 13.37% 4,243 >4.0% 6,364 >6.0%
- -
Tier I Capital (to
Average Assets) 14,185 10.01% 5,666 >4.0% 7,083 >5.0%
- -
89
================================================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
To the Shareholders and Board of Directors of Vintage Bank:
We have audited the accompanying balance sheets of Vintage Bank (a California
state-chartered Bank) as of December 31, 1998 and 1997 and the related
statements of income, changes in shareholders' equity and cash flows for each of
the three years ended December 31, 1998. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Vintage Bank as of December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the three years ended December 31, 1998 in conformity with generally accepted
accounting principles.
San Francisco, California
February 23, 1999
90
PART II
Item 24. Indemnification of Directors and Officers
Section 317 of the California Corporations Code authorizes a court to award, or
a corporation's board of Directors to grant, indemnity to directors, officers,
employees and other agents of the corporation in terms sufficiently broad to
permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933 as amended.
Article VI. of the Articles of Incorporation of North Bay Bancorp provides for
indemnification of agents including directors, officers and employees, through
bylaws, agreements with agents, vote of shareholders or disinterested directors
or otherwise, in excess of the indemnification otherwise permitted by Section
317 of the California Corporations Code, subject only to the applicable limits
set forth in Section 204 of the California Corporations Code. Article V. of
North Bay's Articles further provides for the elimination of director liability
for monetary damages to the maximum extent allowed by California law
Section 48 of North Bay's Bylaws provides that North Bay shall indemnify its
"agents", as defined in Section 317 of the California Corporations Code, to the
full extent permitted by said Section, as amended from time to time, or as
permitted by any successor statute to said Section.
North Bay maintains insurance covering its directors, officers and employees
against any liability asserted against any of them and incurred by any of them,
whether or not North Bay would have the power to indemnify them against such
liability under the provisions of applicable law or the provisions of North
Bay's Bylaws.
Item 25. Other Expenses of Issuance and Distribution (1).
All expenses of the Offering will be borne by North Bay. The following
table sets forth an itemized estimate of such expenses:
- --------------------------------------------------------------------------------
Registration Filing Fees $1,390
- --------------------------------------------------------------------------------
Financial Advisor 4,000
- --------------------------------------------------------------------------------
Transfer Agent Fees and Expenses 5,000
- --------------------------------------------------------------------------------
Blue Sky Filing Fees and Expenses 2,500
- --------------------------------------------------------------------------------
Printing and Engraving 25,000
- --------------------------------------------------------------------------------
Legal Fees and Expenses 75,000
- --------------------------------------------------------------------------------
Accounting Fees and Expenses 10,000
- --------------------------------------------------------------------------------
Miscellaneous 5,000
- --------------------------------------------------------------------------------
Total $112,890
- --------------------------------------------------------------------------------
(1) All expenses listed in the chart are estimates and subject to change prior
to effectiveness.
Item 26. Recent Sales of Unregistered Securities.
On November 1, 1999, Vintage Merger Co. (a wholly-owned subsidiary of
Registrant), merged with and into The Vintage Bank resulting in the shareholders
of the Bank becoming the shareholders of the Registrant, and further resulting
in the Bank becoming the wholly-owned subsidiary of the Registrant. The
reorganization took place in accordance with a Plan of Reorganization and Merger
Agreement entered into as of July 30, 1999 by and among Registrant, the Bank and
Merger Co. Pursuant to the Plan of Reorganization each share of the Bank's
outstanding Common Stock was converted into one share of Bancorp's Common Stock,
resulting in the issuance of 1,536,568 shares of the Registrant's common stock.
Shares of Registrant's common stock issued in consideration of the
reorganization were issued pursuant to exemption from registration provided by
Section 3(a)(12) of the Securities Act of 1933, as amended.
Item 27. Exhibits
2.1 Plan of Reorganization and Merger Agreement entered into as of July
30, 1999 by and among The Vintage Bank, Vintage Merger Co. and North
Bay Bancorp. (1)
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws as amended of Registrant.
5.1 Opinion re: legality.
10.1 North Bay Bancorp Stock Option Plan
10.2 Employment Agreement with Terry L. Robinson
11. Statement re: computation of per share earnings is included in Note 1
to the financial statements to the prospectus included in Part I of
this Registration Statement.
21. Subsidiaries of Registrant are: The Vintage Bank, a California banking
corporation.
23.1 Consent of Counsel is included with the opinion re: legality as
Exhibit 5.1 to the Registration Statement.
23.2 Consent of Arthur Andersen LLP as as independent public accountants
for North Bay Bancorp and The Vintage Bank.
23.3 Consent of the Hoefer & Arnett as financial advisor to North Bay
Bancorp.*
24. Power of Attorney
27. Financial Data Schedule
99.1 Opinion of Hoefer &Arnett dated __________ __, 2000 as financial
advisor to North Bay Bancorp is attached as Exhibit I to the
prospectus contained in Part I of this Registration Statement. *
99.2 Stock Subscription Application*
* To be filed by amendment
(1) Attached as Exhibit 7(c)(2) to North Bay Bancorp's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 29, 1999, and
incorporated herein by reference.
Item 28. Undertakings
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if the total dollar value ofsecurities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) (ss.230.424(b) if, in the
aggregate, the changes in the volume and represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering. The undersigned
Registrant hereby undertakes as follows: that prior to any public reoffering of
the securities registered hereunder through use of a prospectus with is part of
the registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Napa, State of California,
on December 20, 1999.
NORTH BAY BANCORP
/s/ Terry L. Robinson
----------------------------------
By: Terry L. Robinson, President
& Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
/s/ Terry L. Robinson , Director, December 20, 1999
- -------------------------------- Principal Executive Officer
Terry L. Robinson
/s/ David B. Gaw , Director December 20, 1999
- --------------------------------
David B. Gaw
/s/ Conrad W. Hewitt , Director December 20, 1999
- --------------------------------
Conrad W. Hewitt
/s/ Harlan R. Kurtz , Director December 20, 1999
- --------------------------------
Harlan R. Kurtz
/s/ Richard S. Long , Director December 20, 1999
- --------------------------------
December 20, 1999
Richard S. Long
/s/ Thomas H. Lowenstein , Director December 20, 1999
- --------------------------------
20, 1999
Thomas H. Lowenstein
/s/ Thomas F. Malloy , Director December 20, 1999
- --------------------------------
December 20, 1999
Thomas F. Malloy
/s/ James Tidgewell , Director December 20, 1999
- --------------------------------
December 20, 1999
James Tidgewell
/s/ Lee-Ann Almeida , Principal Financial Officer December 20, 1999
- --------------------------------
Lee-Ann Almeida
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Plan of Reorganization and Merger Agreement entered into as of July
30, 1999 by and among The Vintage Bank, Vintage Merger Co. and North
Bay Bancorp. (1)
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws as amended of Registrant.
5.1 Opinion re: legality.
10.1 North Bay Bancorp Stock Option Plan
10.2 Employment Agreement with Terry L. Robinson
11. Statement re: computation of per share earnings is included in Note 1
to the financial statements to the prospectus included in Part I of
this Registration Statement.
22. Subsidiaries of Registrant are: The Vintage Bank, a California banking
corporation.
23.1 Consent of Counsel is included with the opinion re: legality as
Exhibit 5.1 to the Registration Statement.
23.2 Consent of Arthur Andersen LLP as independent public accountants for
North Bay Bancorp and The Vintage Bank.
23.4 Consent of the Hoefer & Arnett as financial advisor to North Bay
Bancorp.*
25. Power of Attorney
27. Financial Data Schedule
99.1 Opinion of Hoefer & Arnett dated __________ __, 2000 as financial
advisor to North Bay Bancorp is attached as Exhibit I to the
prospectus contained in Part I of this Registration Statement.*
99.2.1 Stock Subscription Application*
*To be filed by amendment
(1) Attached as Exhibit 7(c)(2) to North Bay Bancorp's Current Report on
Form 8-K filed with the Securities and Exchange Commission on November
29, 1999, and incorporated herein by reference.