UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
TEMECULA VALLEY BANCORP INC.
(Name of Registrant in its Charter)
California 46-047619
(State or other jurisdiction of (I.R.S. Employer
incorporate or organization) Identification No.)
27710 Jefferson Avenue - Suite A100 92590
Temecula, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number (909) 694-9940
Securities registered under Section 12(b) of Exchange Act: None
Securities registered under Section 12(g) of Exchange Act:
Common Stock, No Par Value
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days: YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) YES [ ] NO [ X ]
The issuer's net revenues for its most recent fiscal year were $48,371,852.
The aggregate market value of the voting stock held by non-affiliates of the
issuer as of June 30, 2003 was approximately $55,593,410.
Number of registrant's shares of Common Stock outstanding at March 22, 2004 was
8,308,896.
Documents incorporated by reference: The information required by Part III of
this Annual Report is incorporated by reference from the Registrant's definitive
proxy statement to be filed with the Securities and Exchange Commission
1 of 38
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this Annual Report.
Explanatory Note
On March 31, 2004, Temecula Valley Bancorp Inc. (the "Company") filed with the
Securities and Exchange Commission its Annual Report on Form 10-K for the year
ended December 31, 2003 (the "Initial Form 10-K"). The Initial Form 10-K
contained the following omissions/errors:
1. On the cover page of the Form 10-K the box should have been checked as
follows: Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K. [X]
2. The audited financial statements should have been attached and they were not.
Such audited financial statements are attached hereto.
3. References to small business issuer and Regulation S-B on the cover page were
corrected as Registrant is no longer a small business issuer.
4. Each director and executive officer designated as signing the Initial Form
10-K actually signed the Initial Form 10-K and the signatures are on file at the
Company.
No other changes are included in this Amendment.
PART II
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in "Consolidated
Financial Statements", "Notes to Consolidated Financial Statements", the
"Independent Auditors Report", and the "Report of Management" in our 2003 Annual
Report to shareholders and such information is attached hereto.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
(1) The following financial statements are incorporated by reference from Item 8
hereto and are attached hereto:
Independent Auditors Report Page F-1
Consolidated Statements of Financial Condition as of
December 31, 2003 and 2002 Page F-2
2 of 38
Consolidated Statements of Income for Each of the Years
Ended December 31, 2003, 2002 and 2001 Page F-4
Consolidated Statement of Changes in Shareholders' Equity
for the Years ended December 31, 2003, 2002 and 2001 Page F-5
Notes to Consolidated Financial Statements 2003, 2002
and 2001 Page F-7
Financial Statement Schedules
Not applicable.
(b) Exhibits
Exhibit No. Description of Exhibit
2(i) Bank and Company Amended and Restated Plan of Reorganization dated as of
April 2, 2002 filed on June 3, 2002 as an Exhibit to Form 8-A12G.
2(ii) Agreement and Plan of Merger of Temecula Merger Corporation and Temecula
Valley Bancorp is an Exhibit to the Company's Definitive 14A filed November 20,
2003.
3(i) Articles of Incorporation of Temecula Valley Bancorp Inc., a California
Corporation, is an Exhibit to the Company's Definitive 14A filed November 20,
2003.
3(ii) Bylaws of Temecula Valley Bancorp Inc. is an Exhibit to the Company's
Definitive 14A filed November 20, 2003.
4.1 Common Stock Certificate of Temecula Valley Bancorp Inc. filed on June 3,
2002 as an Exhibit to Temecula Valley Bancorp's Form 8-A12G.
4.2 Warrant Certificate of Temecula Valley Bank, N.A. as adopted by Temecula
Valley Bancorp Inc. filed on June 3, 2002 as an Exhibit to Temecula Valley
Bancorp's Form 8-A12G.
10.1 Temecula Valley Bank, N.A. Lease Agreement for Main Office filed on
March 11, 2003 as an Exhibit to Temecula Valley Bancorp's Form 10KSB.
10.2 Stephen H. Wacknitz Employment Agreement dated October 1, 2003.
10.3 Brian D. Carlson Employment Agreement dated December 1, 2003.
10.4 Luther J. Mohr Employment Agreement dated January 1, 2003.
10.5 Thomas P. Ivory Employment Agreement dated January 25, 2001 filed on March
11, 2003 as an Exhibit to Temecula Valley Bancorp's Form 10KSB.
10.6 1996 Incentive and Non Qualified Stock Option Plan (Employees), as amended
by that certain First Amendment effective May 15, 2001 and that certain Second
Amendment effective May 15, 2002 filed on March 11, 2003 as an Exhibit to
Temecula Valley Bancorp's Form 10KSB.
3 of 38
10.7 1997 Non Qualified Stock Option Plan (Directors), as amended by that
certain First Amendment effective May 15, 2001 and that certain Second Amendment
effective May 15, 2002 filed on March 11, 2003 as an Exhibit to Temecula Valley
Bancorp's Form 10KSB.
10.8 Amended and Restated Salary Continuing Agreement entered into on behalf of
Stephen H. Wacknitz, as amended by that certain First Amendment effective as of
December 31, 2002 filed on March 11, 2003 as an Exhibit to Temecula Valley
Bancorp's Form 10KSB.
10.9 Amended and Restated Salary Continuing Agreement entered into on behalf of
Luther J. Mohr, as amended by that certain First Amendment effective as of
December 31, 2002 filed on March 11, 2003 as an Exhibit to Temecula Valley
Bancorp's Form 10KSB.
10.10 Salary Continuing Plan entered into on behalf of Thomas M. Shepherd filed
on March 11, 2003 as an Exhibit to Temecula Valley Bancorp's Form 10KSB.
10.11Salary Continuing Plan entered into on behalf of Brian Carlson filed on
March 11, 2003 as an Exhibit to Temecula Valley Bancorp's Form 10KSB.
31.1 Certification of the Chief Executive Officer of Registrant submitted to the
Securities and Exchange Commission pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of the Chief Financial Officer of Registrant submitted to the
Securities and Exchange Commission pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification of the Chief Executive Officer of Registrant submitted to the
Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. This Certification shall not be deemed to be "filed" with the
Commission subject to the liability of Section 18 of the Exchange Act, except to
the extent that the Registrant requests that such certifications incorporated by
reference into a filing under the Securities Act or Exchange Act. This
certification is being furnished to the Commission and accompanies this Report
pursuant to SEC Release No. 33-8212.
32.2 Certification of the Chief Financial Officer of Registrant submitted to the
Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. This Certification shall not be deemed to be "filed" with the
Commission subject to the liability of Section 18 of the Exchange Act, except to
the extent that the Registrant requests that such certifications incorporated by
reference into a filing under the Securities Act or Exchange Act. This
certification is being furnished to the Commission and accompanies this Report
pursuant to SEC Release No. 33-8212.
4 of 38
(c) Reports on Form 8-K
The following reports on Form 8-K were filed with the Securities and
Exchange Commission by the Company during the last quarter of the period covered
by this Report.
(1) A current report on Form 8-K dated December 18, 2003 that reported the
effectiveness of a change in the Company's state of incorporation from Delaware
to California.
(2) A current report on Form 8-K dated December 10, 2003 that reported a press
release concerning the addition of a loan production office in the Rancho
Bernardo area of San Diego, California and the employment of Carl R. Kruse as
Senior Vice President.
(3) A current report on Form 8-K dated December 8, 2003 that reported a press
release concerning the employment of Ronald R. Bradley as Senior Vice President.
(4) A current report on Form 8-K dated November 19, 2003 that reported a press
release concerning the naming of Temecula Valley Bank as the nation's eighth
largest SBA lender.
(5) A current report on Form 8-K dated November 3, 2003 that reported a press
release concerning the seeking of shareholder approval of a two-for-one stock
split and a reincorporation into California.
(6) A current report on Form 8-K dated October 20, 2003 that reported a press
release concerning earnings for the third quarter of 2003.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TEMECULA VALLEY BANCORP INC.
DATE: March 31, 2004 BY: /s/ Stephen H. Wacknitz
----------------------------------------
Stephen H. Wacknitz, President/CEO,
Chairman of the Board
BY: /s/ Donald A. Pitcher
----------------------------------------
Donald A. Pitcher, Executive Vice President
Chief Financial Officer
5 of 38
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Director March 31, 2004
/s/- Dr. Steven W. Aichle
- -------------------------
Dr. Steven W. Aichle
Director March 31, 2004
/s/- Dr. Robert P. Beck
- -----------------------
Dr. Robert P. Beck
Director March 31, 2004
/s/- Neil M. Cleveland
- ----------------------
Neil M. Cleveland
Director and March 31, 2004
/s/- Luther J. Mohr Chief Operating Officer
- -------------------
Luther J. Mohr
President/CEO/ March 31, 2004
/s/ Stephen H. Wacknitz Chairman of the Board
- -----------------------
Stephen H. Wacknitz
Director March 31, 2004
/s/- Richard W. Wright
- ----------------------
Richard W. Wright
6 of 38
Vavrinek, Trine, Day & Co., LLP
Certified Public Accountants & Consultants
Board of Directors and Shareholders of
Temecula Valley Bancorp Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of Temecula Valley Bancorp Inc. and Subsidiary as of December 31, 2003 and 2002
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for the three years ended December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Temecula Valley
Bancorp Inc. and Subsidiary as of December 31, 2003 and 2002, and the results of
its operations and its cash flows for the three years ended December 31, 2003,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Vavrinek, Trime, Day + Co., LLP
Laguna Hills, California
January 28, 2004
25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833
Fax: 949.768.8408 www.vtdcpa.com
FRESNO o LAGUNA HILLS o PLEASANTON o RANCHO CUCAMONGA o SAN JOSE
F-1
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
2003 2002
-------------- --------------
ASSETS
Cash and Due from Banks $ 9,348,013 $ 12,180,415
Federal Funds Sold 21,400,000 -
-------------- --------------
TOTAL CASH AND CASH EQUIVALENTS 30,748,013 12,180,415
Loans Held for Sale 17,005,198 22,916,776
Loans:
Commercial 33,008,385 44,975,966
Real Estate - Construction 113,846,726 61,568,251
Real Estate - Other 195,991,515 138,849,220
Consumer 3,194,582 4,455,377
-------------- --------------
TOTAL LOANS 346,041,208 249,848,814
Net Deferred Loan Fees ( 2,297,015) ( 1,339,764)
Allowance for Loan Losses ( 3,607,833) ( 3,017,395)
-------------- --------------
NET LOANS 340,136,360 245,491,655
Federal Reserve and Federal Home Loan Bank Stock, at
Cost 1,145,000 1,460,050
Premises and Equipment 2,185,543 2,335,139
Other Real Estate Owned 485,036 -
Cash Surrender Value of Life Insurance 5,740,729 3,983,183
Deferred Tax Assets 2,393,000 1,728,000
Servicing Assets 6,116,679 3,763,779
Interest-Only Strips Receivable 20,495,511 13,120,093
Accrued Interest and Other Assets 4,761,049 3,527,007
-------------- --------------
$431,212,118 $310,506,097
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
2003 2002
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-Bearing Demand $112,367,018 $ 85,324,384
Money Market and NOW 61,340,428 62,160,520
Savings 35,180,027 29,958,463
Time Deposits, Under $100,000 88,771,099 40,489,348
Time Deposits, $100,000 and Over 85,828,794 51,388,505
------------- -------------
TOTAL DEPOSITS 383,487,366 269,321,220
Federal Home Loan Bank Advances - 10,000,000
Junior Subordinated Debt Securities 12,372,000 7,217,000
Accrued Interest and Other Liabilities 5,669,687 4,351,674
------------- -------------
TOTAL LIABILITIES 401,529,053 290,889,894
Commitments and Contingencies - Notes C and M - -
Shareholders' Equity:
Common Stock No Par Value; 40,000,000 Shares
Authorized; 8,151,914 and 7,446,646 Shares
Issued
and Outstanding at December 31, 2003 and 2002 14,082,278 11,869,755
Retained Earnings 15,600,787 7,746,448
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 29,683,065 19,616,203
------------- -------------
$431,212,118 $310,506,097
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
2003 2002 2001
------------ ------------ ------------
INTEREST INCOME
Interest and Fees on Loans $23,738,166 $16,369,293 $11,298,931
Interest on Investment Securities 336 3,651 10,247
Interest on Federal Funds 151,998 136,497 693,700
Other Interest Income 63,791 46,477 19,332
------------ ------------ ------------
TOTAL INTEREST INCOME 23,954,291 16,555,918 12,022,210
INTEREST EXPENSE
Interest on Money Market and NOW 555,883 645,911 593,591
Interest on Savings Deposits 192,313 228,373 621,491
Interest on Time Deposits 3,727,584 1,910,417 1,519,325
Interest on Junior Subordinated Debt Securities and
Other Borrowings 470,773 339,981 -
------------ ------------ ------------
TOTAL INTEREST EXPENSE 4,946,553 3,124,682 2,734,407
------------ ------------ ------------
NET INTEREST INCOME 19,007,738 13,431,236 9,287,803
Provision for Loan Losses 1,022,000 2,460,000 400,000
------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,985,738 10,971,236 8,887,803
NONINTEREST INCOME
Service Charges and Fees 792,292 965,067 786,142
Gain on Sale of Loans 15,798,959 11,389,023 4,739,335
Mortgage Fees 3,882,234 2,943,730 2,004,254
Servicing Income 1,693,836 1,129,328 339,060
Construction Fund Control Fees 840,003 395,581 213,396
Other Income 1,410,237 1,072,436 870,122
------------ ------------ ------------
24,417,561 17,895,165 8,952,309
------------ ------------ ------------
42,403,299 28,866,401 17,840,112
NONINTEREST EXPENSE
Salaries and Employee Benefits 20,484,132 14,866,458 10,051,392
Occupancy Expenses 1,183,460 1,044,391 840,008
Furniture and Equipment 892,154 807,779 738,461
Data Processing 988,280 891,906 613,043
Marketing and Business Promotion 723,429 455,253 376,981
Legal and Professional 411,537 419,011 217,236
Regulatory Assessments 137,506 128,279 85,760
Loan Funding Expense 1,821,320 1,253,018 499,068
Office Expenses 1,589,448 1,404,963 1,026,397
Other Expenses 889,805 529,779 383,167
------------ ------------ ------------
29,121,071 21,800,837 14,831,513
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 13,282,228 7,065,564 3,008,599
Income Taxes 5,427,889 2,874,510 1,205,018
------------ ------------ ------------
NET INCOME $ 7,854,339 $ 4,191,054 $ 1,803,581
============ ============ ============
Per Share Data :
Net Income - Basic $1.00 $0.57 $0.28
Net Income - Diluted $0.89 $0.50 $0.25
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
Common Retained
Shares Stock Earnings Total
------------- ------------- ------------- -------------
Balance at
January 1, 2001 5,505,322 $ 7,185,369 $ 1,751,813 $ 8,937,182
Exercise of Stock Options,
Including the Realization
of Tax Benefits of
$19,908 215,944 391,826 391,826
Exercise of Warrants 5,058 12,645 12,645
Stock Offering, net of
Expenses of $41,290 1,600,000 3,958,710 3,958,710
Net Income 1,803,581 1,803,581
------------- ------------- ------------- -------------
Balance at
December 31, 2001 7,326,324 11,548,550 3,555,394 15,103,944
Exercise of Stock Options,
Including the Realization
of Tax Benefits of
$32,123 53,694 154,635 154,635
Exercise of Warrants 66,628 166,570 166,570
Net Income 4,191,054 4,191,054
------------- ------------- ------------- -------------
Balance at
December 31, 2002 7,446,646 11,869,755 7,746,448 19,616,203
Exercise of Stock Options,
Including the Realization
of Tax Benefits of
$424,910 380,670 1,401,026 1,401,026
Exercise of Warrants 324,598 811,497 811,497
Net Income 7,854,339 7,854,339
------------- ------------- ------------- -------------
Balance at
December 31, 2003 8,151,914 $14,082,278 $15,600,787 $29,683,065
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
OPERATING ACTIVITIES 2003 2002 2001
-------------- -------------- --------------
Net Income $ 7,854,339 $ 4,191,054 $ 1,803,581
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 4,946,316 2,132,475 1,047,884
Provision for Loan Losses 1,022,000 2,460,000 400,000
Deferred Taxes ( 665,000) ( 909,000) ( 299,000)
Gain on Sale of Loans ( 15,798,959) ( 11,389,023) ( 4,739,335)
Loans Originated for Sale ( 246,036,807) ( 202,264,842) ( 115,408,177)
Proceeds from Loan Sales 257,672,323 196,781,986 106,595,716
Loss (Gain) on Sale of Other Real Estate Owned ( 19,880) - -
Net Increase in Cash Surrender Value of Life
Insurance ( 205,546) ( 150,929) ( 124,925)
Net Change in Accrued Interest, Other Assets
and Other Liabilities 399,990 50,241 ( 1,047,445)
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 9,168,776 ( 9,098,038) ( 11,771,701)
INVESTING ACTIVITIES
Purchases of Held-to-Maturity Investments ( 299,664) ( 955,939) ( 251,758)
Purchases of Federal Reserve and Federal Home Loan
Bank Stock ( 224,950) ( 924,500) ( 302,550)
Proceeds from Maturities of Held-to-Maturity
Securities 300,000 950,000 450,000
Proceeds from Sale of Federal Home Loan Bank Stock 571,900 - -
Net Increase in Loans ( 100,889,635) ( 116,172,110) ( 48,382,205)
Purchase of Cash Surrender Value Life Insurance ( 1,552,000) ( 1,000,000) ( 548,000)
Proceeds from Sale of Premises and Equipment 29,000 57,477 16,175
Proceeds from Sale of Other Real Estate Owned 870,880 - -
Purchases of Premises and Equipment ( 515,468) ( 701,446) ( 1,110,919)
-------------- -------------- --------------
NET CASH USED BY INVESTING ACTIVITIES ( 101,709,937) ( 118,746,518) ( 50,129,257)
FINANCING ACTIVITIES
Net Increase in Demand Deposits and Savings Accounts 31,444,106 41,796,778 45,927,480
Net Increase in Time Deposits 82,722,040 54,596,217 19,694,009
Net Change in Federal Home Loan Bank Advances ( 10,000,000) 10,000,000 -
Proceeds from Issuance of Junior Subordinated Debt
Securities 5,155,000 7,217,000 -
Proceeds from Issuance of Common Stock - - 3,958,710
Proceeds from Exercise of Warrants 976,116 166,570 12,645
Proceeds from Exercise of Stock Options 811,497 122,512 371,918
-------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 111,108,759 113,899,077 69,964,762
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,567,598 ( 13,945,479) 8,063,804
Cash and Cash Equivalents at Beginning of Year 12,180,415 26,125,894 18,062,090
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 30,748,013 $ 12,180,415 $ 26,125,894
============== ============== ==============
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 4,895,119 $ 3,029,930 $ 2,729,574
Income Taxes Paid $ 7,117,636 $ 3,155,090 $ 1,877,948
Transfer of Loans to Other Real Estate Owned $ 1,336,036 $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Temecula Valley
Bancorp Inc. and its wholly-owned subsidiary, Temecula Valley Bank (the "Bank"),
collectively referred to herein as the "Company". All significant intercompany
transactions have been eliminated.
Nature of Operations
- --------------------
The Company has been organized as a single operating segment and operates five
branches in Temecula, Murrieta, Fallbrook, El Cajon and Escondido, California.
In addition, the Company operates business loan centers in California, North
Carolina, Florida, Tennessee, Georgia, Illinois and Washington. The Bank's
primary sources of revenue are providing loans to customers, who are
predominately small and middle-market businesses and individuals and originating
mortgage and government guaranteed loans for sale to institutional investors in
the secondary market. The Company also generates fee income by servicing the
government guaranteed loans.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Cash and Cash Equivalents
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash,
due from banks and federal funds sold. Generally, federal funds are sold for one
day periods.
Cash and Due From Banks
- -----------------------
Banking regulations require that all banks maintain a percentage of their
deposits as reserves in cash or on deposit with the Federal Reserve Bank. The
Bank complied with the reserve requirements as of December 31, 2003.
The Company maintains amounts due from banks which exceed federally insured
limits. The Company has not experienced any losses in such accounts.
Investment Securities
- ---------------------
Bonds, notes, and debentures for which the Company has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity.
F-7
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investment Securities - Continued
- ---------------------------------
Investments not classified as trading securities nor as held to maturity
securities are classified as available-for-sale securities and recorded at fair
value. Unrealized gains or losses on available-for-sale securities are excluded
from net income and reported as an amount net of taxes as a separate component
of other comprehensive income included in shareholders' equity. Premiums or
discounts on held-to-maturity and available-for-sale securities are amortized or
accreted into income using the interest method. Realized gains or losses on
sales of held-to-maturity or available-for-sale securities are recorded using
the specific identification method.
Loans
- -----
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
For impairment recognized in accordance with Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118,
the entire change in the present value of expected cash flows is reported as
either provision for loan losses in the same manner in which impairment
initially was recognized, or as a reduction in the amount of provision for loan
losses that otherwise would be reported.
The Bank has adopted SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". The Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. Under this Statement, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished.
To calculate the gain (loss) on sale of loans, the Bank's investment in the loan
is allocated among the retained portion of the loan, the servicing retained, the
interest-only strip and the sold portion of the loan, based on the relative fair
market value of each portion. The gain (loss) on the sold portion of the loan is
recognized at the time of sale based on the difference between the sale proceeds
and the allocated investment. As a result of the relative fair value allocation,
the carrying value of the retained portion is discounted, with the discount
accreted to interest income over the life of the loan.
F-8
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Loans - Continued
- -----------------
Servicing assets are amortized over an estimated life using a method that is in
proportion to the estimated future servicing income; in the event future
prepayments exceed Management's estimates and future expected cash flows are
inadequate to cover the unamortized servicing asset, additional amortization
would be recognized. The portion of servicing fees in excess of the contractual
servicing fees is reflected as interest-only (I/O) strips receivable, which are
classified as available for sale and are carried at fair value.
Loans Held for Sale
- -------------------
Mortgage loans and SBA loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized through a valuation allowance by
charges to income.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Quarterly detailed reviews are performed to
identify the risks inherent in the loan portfolio, assess the overall quality of
the loan portfolio and to determine the adequacy of the allowance for loan
losses and the related provision for loan losses to be charged to expense. Loans
identified as less than "acceptable" are reviewed individually to estimate the
amount of probable losses that need to be included in the allowance. These
reviews include analysis of financial information as well as evaluation of
collateral securing the credit. Additionally, the Company considers the inherent
risk present in the "acceptable" portion of the loan portfolio taking into
consideration historical losses on pools of similar loans, adjusted for trends,
conditions and other relevant factors that may affect repayment of the loans in
these pools.
Premises and Equipment
- ----------------------
Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives, which ranges from three to
ten years for furniture and fixtures and ten to thirty years for buildings.
Leasehold improvements are amortized using the straight-line method over the
estimated useful lives of the improvements or the remaining lease term,
whichever is shorter. Expenditures for betterments or major repairs are
capitalized and those for ordinary repairs and maintenance are charged to
operations as incurred.
Advertising
- -----------
The Bank expenses the costs of advertising in the period incurred.
F-9
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes
- ------------
Deferred income taxes are computed using the asset and liability method, which
recognizes a liability or asset representing the tax effects, based on current
tax law, of future deductible or taxable amounts attributable to events that
have been recognized in the consolidated financial statements. A valuation
allowance is established to reduce the deferred tax asset to the level at which
it is "more likely than not" that the tax asset or benefits will be realized.
Realization of tax benefits of deductible temporary differences and operating
loss carryforwards depend on having sufficient taxable income of an appropriate
character within the carryforward periods.
Comprehensive Income
- --------------------
Beginning in 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which requires the disclosure of comprehensive income and its
components. For the years ending December 31, 2003, 2002 and 2001, the Company
had no accumulated other comprehensive income and there were no significant
components of comprehensive income with the exceptions of net income for 2003,
2002 and 2001.
Financial Instruments
- ---------------------
In the ordinary course of business, the Company has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit, and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received, as described in Note M.
Disclosure About Fair Value of Financial Instruments
- ----------------------------------------------------
SFAS No. 107 specifies the disclosure of the estimated fair value of financial
instruments. The Company's estimated fair value amounts have been determined by
the Company using available market information and appropriate valuation
methodologies.
However, considerable judgment is required to develop the estimates of fair
value. Accordingly, the estimates are not necessarily indicative of the amounts
the Company could have realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the balance sheet date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented in the accompanying notes.
F-10
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Earnings Per Share (EPS)
- ------------------------
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company.
Stock-Based Compensation
- ------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Bank accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. Accordingly, compensation cost for stock options will be
measured as the excess, if any, of the quoted market price of the Bank's stock
at the date of the grant over the amount an employee must pay to acquire the
stock.
Had compensation cost for the Bank's stock option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of SFAS No. 123, the Bank's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
2003 2002 2001
----------- ----------- -----------
Net Income:
As reported $7,854,339 $4,191,054 $1,803,581
Stock-Based Compensation
Using the Intrinsic Value Method 10,677 10,677 10,677
Stock-Based Compensation
That Would Have Been Reported
Using the Fair Value Method of SFAS
123 ( 505,457) ( 314,714) ( 547,283)
------------ ------------------------
Pro Forma Net Income $7,359,559 $3,887,017 $ 708,401
=========== =========== ===========
Per Share Data:
Net Income - Basic
As Reported $ 1.00 $ 0.57 $ 0.28
Pro Forma $ 0.94 $ 0.53 $ 0.20
Net Income - Diluted
As Reported $ 0.89 $ 0.50 $ 0.25
Pro Forma $ 0.82 $ 0.46 $ 0.17
F-11
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Current Accounting Pronouncements
- ---------------------------------
In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires an issuer to classify a financial instrument that is within its
scope as a liability. Many of those instruments were previously classified as
equity. SFAS No. 150 is generally effective for financial instruments entered
into or modified after May 31, 2003, and otherwise effective at the beginning of
the first interim period beginning after June 15, 2003; however, management does
not believe adoption will have a material impact on the Bank's financial
statements.
In December 2003, FASB issued FASB Interpretation (FIN) No. 46, "Consolidation
of Variable Interest Entities, an interpretations of ARB No.51." This
interpretation addresses the consolidation of variable interest entities as
defined in the Interpretations. This Interpretation will require companies that
have issued trust preferred securities to deconsolidate the related entities.
The Company has deconsolidated its trust preferred securities as of December 31,
2003, which did not have a material impact on the Company's financial
statements.
Reclassifications
- -----------------
Certain reclassifications were made to prior year's presentation to conform to
the current year. These classifications are of a normal recurring nature.
F-12
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE B - LOANS
The Bank's loan portfolio consists primarily of loans to borrowers within
Temecula, California, its surrounding communities, and the surrounding
communities of the other business loan centers. Although the Bank seeks to avoid
concentrations of loans to a single industry or based upon a single class of
collateral, real estate and real estate associated businesses are among the
principal industries in the Bank's market area and, as a result, the Bank's loan
and collateral portfolios are, to some degree, concentrated in those industries.
The Bank also originated mortgage and SBA loans for sale to institutional
investors. A substantial portion of the Bank's revenues are from origination of
loans guaranteed by the Small Business Administration under its Section 7a
program and sale of the guaranteed portions of those loans. Funding for the
Section 7a program depends on annual appropriations by the U.S. Congress.
At December 31, 2003 and 2002, the Bank was servicing approximately $306,252,000
and $177,075,000, respectively, in loans previously sold. A summary of the
changes in the related servicing assets and interest-only strips receivable are
as follows:
Servicing Assets
---------------------------------------
2003 2002 2001
------------ ------------- ------------
Balance at Beginning of Year $ 3,763,779 $ 1,538,437 $ 708,401
Increase from Loan Sales 3,251,793 2,708,148 929,465
Amortization Charged to Income ( 898,893) ( 425,806) ( 91,429)
Increase in Valuation Allowance - ( 57,000) ( 8,000)
------------ ------------- ------------
Balance at End of Year $ 6,116,679 $ 3,763,779 $1,538,437
============ ============= ============
Interest-Only Strips Receivable
---------------------------------------
2003 2002 2001
------------ ------------- ------------
Balance at Beginning of Year $13,120,093 $ 4,136,809 $1,381,098
Increase from Loan Sales 10,710,121 10,034,996 3,145,725
Amortization Charged to Income ( 3,334,703) ( 1,036,212) ( 311,014)
Writedown of Interest-Only Strips
Receivable - ( 15,500) ( 79,000)
------------ ------------- ------------
Balance at End of Year $20,495,511 $13,120,093 $4,136,809
============ ============= ============
F-13
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE B - LOANS - Continued
The estimated fair value of the servicing assets approximated the carrying
amount at December 31, 2003, 2002 and 2001. Fair value is estimated by
discounting estimated future cash flows from the servicing assets using discount
rates that approximate current market rates over the expected lives of the loans
being serviced. Management has estimated the expected life of these loans to be
approximately 25% to 30% of the remaining life at the time of sale. For purposes
of measuring impairment, the Bank has identified each servicing asset with the
underlying loan being serviced. A valuation allowance is recorded where the fair
value is below the carrying amount of the asset. At December 31, 2003 and 2002,
the Bank had a valuation allowance of $390,000.
The Bank may also receive a portion of subsequent interest collections on loans
sold that exceed the contractual servicing fee. In that case the Bank records an
interest-only strip based on the relative fair market value of it and the other
components of the loan. At December 31, 2003, 2002 and 2001, the Bank had
interest-only strips of $20,495,511, $13,120,093 and $4,136,809, respectively,
which approximates fair value. Fair value is estimated by discounting estimated
future cash flows from the interest-only strips using assumptions similar to
those used in valuing servicing assets.
At December 31, 2003, key economic assumptions used to fair value the servicing
assets and interest-only strips on SBA loans sold, along with the potential
decline in the fair value of these assets due to an immediate 10 percent and 20
percent adverse change in those assumptions are as follows:
SBA
Loans
Sold
-------------
Carrying Value of Servicing Assets and I/O Strips - Fair Value $26,612,000
Weighted-Average Life (in months) 60
Repayment Speed Assumption (annual rate) 15.67%
Decline in Fair Value from a 10% Adverse Change 1,774,000
Decline in Fair Value from a 20% Adverse Change 3,359,000
Discount Rate (annual rate) 9.50%
Decline in Fair Value from a 10% Adverse Change 903,000
Decline in Fair Value from a 20% Adverse Change 1,750,000
The declines in fair value due to changes in the assumptions are hypothetical
and should be used with caution. For purposes of this table, the effect of an
adverse change is calculated for each assumption without changing any other
assumptions; however, in reality changes in one factor may result in positive or
negative changes in another factor, which might magnify or counteract the
sensitivities.
F-14
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE B - LOANS - Continued
A summary of the changes in the allowance for loan losses as of December 31
follows:
2003 2002 2001
------------ ------------ ------------
Balance at Beginning of Year $3,017,395 $1,239,308 $927,509
Additions to the Allowance Charged to Expense 1,022,000 2,460,000 400,000
Recoveries on Loans Charged Off 74,024 25,542 -
------------ ------------ ------------
4,113,419 3,724,850 1,327,509
Less Loans Charged Off ( 505,586) ( 707,455) ( 88,201)
------------ ------------ ------------
$3,607,833 $3,017,395 $1,239,308
============ ============ ============
The following is a summary of the investment in impaired loans, the related
allowance for loan losses, and income recognized thereon as of December 31:
2003 2002 2001
----------- ----------- -----------
Recorded Investment in Impaired Loans $4,160,000 $1,908,000 $ 99,000
Related Allowance for Impaired Loans $ 368,000 $ 172,000 10,000
Average Recorded Investment in Impaired Loans $3,437,000 $1,443,000 $292,000
Interest Income Recognized for Cash Payments None None None
Total Nonaccrual Loans $4,160,000 $1,908,000 $ 99,000
Total Loans Past-Due Nintey Days
or More and Still Accruing $ - $ - $100,000
Guaranteed Portion of Nonaccrual Loans $3,378,000 $1,077,000 $100,000
F-15
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE C - PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31 follows:
2003 2002
------------ ------------
Land $ 500,000 $ 500,000
Buildings and Leasehold Improvements 542,567 532,967
Autos 1,032,446 849,800
Furniture, Fixtures, and Equipment 2,337,729 2,130,792
------------ ------------
4,412,742 4,013,559
Less Accumulated Depreciation ( 2,227,199) ( 1,678,420)
------------ ------------
$ 2,185,543 $ 2,335,139
============ ============
Depreciation and amortization expense for premises and equipment was $643,615 in
2003, $597,957 in 2002 and $558,441 in 2001.
The Bank has entered into several leases for its branches and loan production
offices, which expire at various dates through 2009. These leases include
provisions for periodic rent increases as well as payment by the lessee of
certain operating expenses. Rental expense relating to these leases was
approximately $811,000 in 2003, $701,000 in 2002 and $502,000 in 2001.
The approximate future minimum annual payments for these leases by year are as
follows:
Year Amount
- -------------- -----------
2004 $ 862,423
2005 591,055
2006 511,781
2007 493,203
2008 472,648
Thereafter 22,314
-----------
$2,953,424
===========
The minimum rental payment shown above are given for the existing lease
obligations and are not a forecast of future rental expense.
F-16
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE D - DEPOSITS
At December 31, 2003 the schedule maturities of time deposits are as follows:
Year Amount
- -------------- -------------
2004 $164,022,297
2005 9,827,061
Thereafter 750,535
-------------
$174,599,893
=============
The five largest depositors with the Bank had approximately $12,928,000 on
deposit at December 31, 2003.
NOTE E - FHLB ADVANCES AND OTHER BORROWINGS
As of December 31, 2002, Federal Home Loan Bank Advances consist of a
$10,000,000 advance with a maturity date of January 2, 2003 and a fixed rate of
1.05%. The Bank is required to pledge a certain amount of loans with the Federal
Home Loan Bank for collateralization purposes. As of December 31, 2003,
approximately $50,000,000 in loans was pledged for an aggregate borrowing line
of $25,554,000. The Bank had no Federal Home Loan Bank Advances as of December
31, 2003.
The Bank maintains unused federal lines of credit with three financial
institutions in the aggregate amount of $13,000,000 as of December 31, 2003. As
of December 31, 2003, no amounts were outstanding under these arrangements.
NOTE F - JUNIOR SUBORDINATED DEBT SECURITIES
On June 26, 2002, the Company issued $7,217,000 of junior subordinated debt
securities (the "debt securities") to Temecula Valley Statutory Trust I, a
statutory trust created under the laws of the State of Connecticut. These debt
securities are subordinated to effectively all borrowings of the Company and are
due and payable on June 26, 2032. Interest is payable quarterly on these debt
securities at 3-Month LIBOR plus 3.45% for an effective rate of 4.59% as of
December 31, 2003. The debt securities can be redeemed for 107.5% of the
principal balance through June 26, 2007 and at par thereafter. The debt
securities can also be redeemed at par if certain events occur that impact the
tax treatment or the capital treatment of the issuance.
F-17
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE F - JUNIOR SUBORDINATED DEBT SECURITIES - Continued
On September 17, 2003, the Company issued $5,155,000 of junior subordinated debt
securities (the "debt securities") to Temecula Valley Statutory Trust II, a
statutory trust created under the laws of the State of Delaware. These debt
securities are subordinated to effectively all borrowings of the Company and are
due and payable on September 17, 2033. Interest is payable quarterly on these
debt securities at 3-Month LIBOR plus 2.95% for an effective rate of 4.09% as of
December 31, 2003. The debt securities can be redeemed for 107.5% of the
principal balance through September 17, 2008 and at par thereafter. The debt
securities can also be redeemed at par if certain events occur that impact the
tax treatment or the capital treatment of the issuance.
The Company also purchased a 3% minority interest in Temecula Valley Statutory
Trusts I and II. The balance of the equity of Temecula Valley Statutory Trusts I
and II is comprised of mandatorily redeemable preferred securities. Under FASB
Interpretation (FIN) No. 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51," the Company is not allowed to consolidate
Temecula Valley Statutory Trusts I and II into the Company financial statements.
Prior to the issuance of FIN No. 46, Bank Holding companies typically
consolidated these entities. The Federal Reserve Board had ruled that certain
mandatorily redeemable preferred securities of a consolidated entity qualified
as Tier 1 Capital. The Federal Reserve Board is evaluating the capital impact
from FIN No. 46 but has not issued any final ruling. As of December 31, 2003,
the Company has included the net junior subordinated debt in its Tier1 Capital
for regulatory capital purposes.
NOTE G - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to certain
directors and the companies with which they are associated. In the Bank's
opinion, all loans and loan commitments to such parties are made on
substantially the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. The
following is a summary of the activity of these loans:
2003 2002
------------ ------------
Balance at the Beginning of
Year $790,000 $880,000
Advances 149,000 173,000
Payments ( 97,000) (263,000)
------------ ------------
$842,000 $790,000
============ ============
Deposits from related parties held by the Bank at December 31, 2003 amounted to
approximately $860,000.
F-18
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE H - INCOME TAXES
The provision for income taxes included in the statements of income as of the
years ended December 31 consist of the following:
2003 2002 2001
--------------- --------------- ----------------
Current:
Federal $4,504,304 $2,852,583 $1,119,830
State 1,588,585 930,927 384,188
--------------- --------------- ----------------
6,092,889 3,783,510 1,504,018
Deferred ( 665,000) ( 909,000) ( 299,000)
--------------- --------------- ----------------
$5,427,889 $2,874,510 $1,205,018
=============== =============== ================
Deferred taxes are a result of differences between income tax accounting and
generally accepted accounting principles with respect to income and expense
recognition. The Bank's principal timing differences are from loan loss
provision accounting, deferred compensation plans, and depreciation differences.
The provision for income taxes varies from the federal statutory rate as
follows:
2003 2002 2001
---------------------- ---------------------- ----------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
----------- ---------- ----------- ---------- ----------- ----------
Federal Tax Rate $4,516,000 34.0% $2,402,000 34.0% $1,023,000 34.0%
State Income Taxes, Net of
Federal Income Tax
Benefit 944,000 7.1 500,000 7.1 209,000 6.9
Tax Free Income ( 70,000) ( 0.5) ( 51,000) ( 0.7) ( 42,000) ( 1.4)
Other Items, Net 37,889 0.3 23,510 0.3 15,018 0.5
----------- ---------- ----------- ---------- ----------- ----------
$5,427,889 40.9% $2,874,510 40.7% $1,205,018 40.0%
=========== ========== =========== ========== =========== ==========
F-19
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE H - INCOME TAXES - Continued
The following is a summary of the components of the net deferred tax asset
accounts recognized in the accompanying statements of financial condition:
2003 2002
------------ ------------
Deferred Tax Assets:
Allowance for Loan Losses $1,260,000 $1,071,000
Depreciation Differences 51,000 41,000
Deferred Compensation Plans 571,000 332,000
State Taxes 507,000 296,000
Other Assets/Liabilities 4,000 -
------------ ------------
2,393,000 1,740,000
Deferred Tax Liabilities:
Cash Basis of Tax Reporting - ( 12,000)
------------ ------------
- ( 12,000)
------------ ------------
Net Deferred Tax Assets $2,393,000 $1,728,000
============ ============
NOTE I - EARNINGS PER SHARE (EPS)
The following is a reconciliation of net income and shares outstanding to the
income and number of shares used to compute EPS:
2003 2002 2001
---------------------- ---------------------- ----------------------
Income Shares Income Shares Income Shares
----------- ---------- ----------- ---------- ----------- ----------
Net Income as Reported $7,854,339 $4,191,054 $1,803,581
Weighted Average Shares
Outstanding During the
Year 7,823,951 7,372,504 6,484,108
----------- ---------- ----------- ---------- ----------- ----------
Used in Basic EPS 7,854,339 7,823,951 4,191,054 7,372,504 1,803,581 6,484,108
Dilutive Effect of Stock
Options and Warrants 1,037,755 997,536 658,182
----------- ---------- ----------- ---------- ----------- ----------
Used in Dilutive
EPS $7,854,339 8,861,706 $4,191,054 8,370,040 $1,803,581 7,142,290
=========== ========== =========== ========== =========== ==========
F-20
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE J - STOCK OPTION PLAN
At December 31, 2003, the Company has two fixed option plans under which
3,300,000 shares of the Company's common stock may be issued. The compensation
expense that has been charged against income for these stock-based compensation
plans totaled $18,097 in 2003, 2002 and 2001.
During 1996, the Company established an incentive stock option plan for officers
and employees. Under this plan the Company may grant options for 1,800,000
shares of common stock at not less than 100% of the fair market value at the
date the options are granted.
During 1997, the Company established a nonqualified stock option plan for
directors of the Company. Under this plan, the Company may grant options for
1,500,000 shares of common stock at not less than 85% of the fair market value
at the date the options are granted.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
rates of 3.00% in 2003, 3.75% in 2002 and 4.00% in 2001; expected lives of five
years in 2003 and three years in 2002 and 2001; and volatility of 22.9% for
2003, 40.3% for 2002 and 51.6% for 2001.
A summary of the status of the Bank's fixed stock option plan as of December 31,
2003 and 2002, and changes during the years ending on those dates is presented
below:
2003 2002 2001
-------------------- ------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- ---------- -------- ---------- ---------
Outstanding at Beginning
of Year 2,042,348 $ 2.79 2,028,042 $2.68 1,598,014 $ 2.48
Granted 273,000 9.26 78,000 5.35 645,972 2.86
Options Exercised ( 380,670) 2.56 ( 53,694) 2.28 ( 215,944) 1.72
Options Cancelled ( 22,004) 4.01 ( 10,000) 2.94 - -
---------- ---------- ---------- ---------
Outstanding at End of
Year 1,912,674 3.74 2,042,348 2.79 2,028,042 2.68
========== ========== ==========
Options Exercisible
at End of Year 1,617,008 3.24 1,598,146 2.60 731,679 2.54
Weighted-Average Fair
Fair Value of Options
Granted During the
Year 3.01 1.68 1.49
F-21
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE J - STOCK OPTION PLAN - Continued
The following table summarizes information about fixed options outstanding at
December 31, 2003:
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Price Exercisable Price
Life
- --------------- ----------- --------------- ------------ ----------- -------------
$1.00 to $1.99 200,686 3.15 $ 1.39 200,686 $ 1.39
$2.00 to $2.99 878,652 5.84 $ 2.61 817,788 $ 2.60
$3.00 to $3.99 480,336 5.83 $ 3.44 440,534 $ 3.44
$4.00 to $4.99 40,000 8.08 $ 4.72 18,000 $ 4.62
$5.00 to $5.99 92,000 8.75 $ 5.71 20,000 $ 5.69
$8.00 to $9.99 126,000 9.87 $ 9.29 120,000 $ 9.35
$11.00 to 11.99 95,000 9.90 $ 11.12 - $ -
----------- -----------
1,912,674 6.21 $ 3.74 1,617,008 $ 3.24
=========== ===========
NOTE K - EMPLOYEE RETIREMENT SAVINGS PLAN
During 2000, the Bank adopted a retirement savings plan for the benefit of its
employees. Contributions to the plan are determined annually by the Board of
Directors. The expense for this plan was approximately $263,000 in 2003,
$167,000 in 2002 and $68,000 in 2001.
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
F-22
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Fair value estimates are based on financial instruments both on and off the
balance sheet without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.
The following methods and assumptions were used to estimate the fair value of
significant financial instruments:
Financial Assets
- ----------------
The carrying amounts of cash, short term investments, due from customers on
acceptances, and Bank acceptances outstanding are considered to approximate fair
value. Short term investments include federal funds sold, securities purchased
under agreements to resell, and interest bearing deposits with Banks. The fair
values of investment securities, including available-for-sale, are generally
based on quoted market prices. The fair value of loans are estimated using a
combination of techniques, including discounting estimated future cash flows and
quoted market prices of similar instruments where available.
Financial Liabilities
- ---------------------
The carrying amounts of deposit liabilities payable on demand, commercial paper,
and other borrowed funds are considered to approximate fair value. For fixed
maturity deposits, fair value is estimated by discounting estimated future cash
flows using currently offered rates for deposits of similar remaining
maturities. The fair value of long term debt is based on rates currently
available to the Bank for debt with similar terms and remaining maturities.
Off-Balance Sheet Financial Instruments
- ---------------------------------------
The fair value of commitments to extend credit and standby letters of credit is
estimated using the fees currently charged to enter into similar agreements. The
fair value of these financial instruments is not material.
F-23
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
The estimated fair value of financial instruments at December 31, 2003 and 2002
is summarized as follows: (dollar amounts in thousands)
December 31,
-----------------------------------------------
2003 2002
--------------------- -------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ------------
Financial Assets:
Cash and Due From Banks $ 9,348 $ 9,348 $ 12,180 $ 12,180
Federal Funds Sold 21,400 21,400 - -
Loans Held for Sale and Loans, net 357,142 359,914 268,409 270,245
Federal Reserve and Federal Home
Loan Bank Stock 1,145 1,145 1,460 1,460
I/O Strips Receivable and Servicing
Assets 26,612 26,612 16,884 16,884
Cash Surrender Value - Life Insurance 5,741 5,741 3,983 3,983
Accrued Interest Receivable 1,396 1,396 1,153 1,153
Financial Liabilities:
Deposits 383,487 383,574 269,321 269,345
Federal Home Loan Bank Advances - - 10,000 10,000
Junior Subordinated Debt Securities 12,372 12,372 7,217 7,217
Accrued Interest and Other Liabilities 5,670 5,670 4,352 4,352
NOTE M - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into financial commitments
to meet the financing needs of its customers. These financial commitments
include commitments to extend credit and standby letters of credit. Those
instruments involve to varying degrees, elements of credit and interest rate
risk note recognized in the statement of financial position.
The Company's exposure to loan loss in the event of nonperformance on
commitments to extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments as it does for loans reflected in the financial
statements.
F-24
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE M - COMMITMENTS AND CONTINGENCIES - Continued
As of December 31, 2003 and 2002, the Company had the following outstanding
financial commitments whose contractual amount represents credit risk:
2003 2002
------------- -------------
Commitments to Extend Credit $171,159,000 $108,046,000
Letters of Credit 1,440,000 1,444,000
------------- -------------
$172,599,000 $109,490,000
============= =============
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. Standby
letters of credit are conditional commitments to guarantee the performance of a
Company customer to a third party. Since many of the commitments and standby
letters of credit are expected to expire without being drawn upon, the total
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained if deemed necessary by the Company is based on
management's credit evaluation of the customer.
The Company is involved in various litigation which has arisen in the ordinary
course of its business. In the opinion of management, the disposition of such
pending litigation will not have a material effect on the Company's financial
statements.
The Company has entered into retirement benefit agreements with certain officers
providing for future benefits aggregating approximately $6,900,000 payable in
equal annual installments ranging from ten years to a lifetime benefit from the
retirement dates of each participating officer. The estimated future benefits to
be paid are being accrued over the period from the effective date of the
agreements until the expected retirement dates of the participants. As of
December 31, 2003, approximately $1,262,000 has been accrued in conjunction with
these agreements. The expense incurred and accrued was $531,000, $267,000 and
$166,000, for the years ended December 31, 2003, 2002 and 2001, respectively.
The Company is the beneficiary of life insurance policies that have been
purchased as a method of financing the benefits under the agreements.
NOTE N - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly 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.
F-25
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE N - REGULATORY MATTERS - Continued
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 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2003, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 2003, the most recent notification from the Comptroller of
the Currency categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action (there are no conditions or events since
that notification that management believes have changed the Bank's category). To
be categorized as well-capitalized, the Bank must maintain minimum ratios as set
forth in the table below. The following table also sets forth the Bank's actual
capital amounts and ratios (dollar amounts in thousands):
To Be Well-
Capitalized
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Provisions
----------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- --------- -------- --------- --------
As of December 31, 2003:
Total Capital (to Risk-Weighted $ 43,584 11.3% $ 30,964 8.0% $ 38,705 10.0%
Assets)
Tier 1 Capital (to Risk-Weighted $ 39,977 10.3% $ 15,482 4.0% $ 23,223 6.0%
Assets)
Tier 1 Capital (to Average Assets) $ 39,977 9.4% $ 17,070 4.0% $ 21,338 5.0%
As of December 31, 2002: $ 29,073 10.5% $ 22,078 8.0% $ 27,598 10.0%
Total Capital (to Risk-Weighted
Assets)
Tier 1 Capital (to Risk-Weighted $ 26,056 9.4% $ 11,039 4.0% $ 16,559 6.0%
Assets)
Tier 1 Capital (to Average Assets) $ 26,056 8.7% $ 12,020 4.0% $ 15,025 5.0%
The Company is subject to similar requirements administered by its primary
regulator, the Federal Reserve Board. For capital adequacy purposes, the Company
must maintain total capital to risk-weighted assets and Tier 1 capital to
risk-weighted assets of 8.0% and 4.0%, respectively. Its total capital to
risk-weighted assets and Tier 1 capital to risk-weighted assets was 11.5% and
10.0%, respectively at December 31, 2003. Its total capital to risk-weighted
assets and Tier 1 capital to risk-weighted assets was 10.6% and 9.30%,
respectively at December 31, 2002.
The Bank is restricted as to the amount of dividends that can be paid to the
holding company. Dividends declared by national banks that exceed the net income
(as defined) for the current year plus retained net income for the preceding two
years must be approved by the OCC. The Bank may not pay dividends that would
result in its capital levels being reduced below the minimum requirements shown
above.
F-26
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE O - WARRANTS
In connection with a stock offering that was completed in June 2001, the Bank
issued 400,000 units, with each unit containing four shares of common stock and
one warrant to purchase one share of common stock at an exercise price of $2.50
per share. The warrants expired June 23, 2003.
NOTE P - FORMATION OF TEMECULA VALLEY BANCORP INC.
On June 3, 2002, Temecula Valley Bancorp Inc. acquired all the outstanding
shares of Temecula Valley Bank N.A. by issuing 3,673,203 shares of common stock
in exchange for the surrender of all outstanding shares of Temecula Valley Bank
N.A.'s common stock. There was no cash involved in this transaction. The
acquisition was accounted for as a reverse merger. The consolidated financial
statements contained herein have been restated to give full effect to this
transaction.
NOTE Q - STOCK SPLIT
On December 22, 2003, the Bancorp's Board of Directors approved a 2-for-1 stock
split of the Company's outstanding common stock. All per share data in the
financial statements and related footnotes have been retroactively adjusted to
reflect this split.
NOTE R - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
Temecula Valley Bancorp Inc. operates Temecula Valley Bank N.A.,. Temecula
Valley Bancorp Inc. commenced operations during 2002. The earnings of the
subsidiary are recognized on the equity method of accounting. Condensed
financial statements of the parent company only are presented below:
F-27
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE R - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY - Continued
CONDENSED BALANCE SHEETS
December 31, December 31,
2003 2002
------------- -------------
ASSETS:
Cash $ 825,456 $ -
Investment in Temecula Valley Statutory Trust I 217,000 217,000
Investment in Temecula Valley Statutory Trust II 155,000 -
Investment in Temecula Valley Bank N.A. 40,588,549 26,431,883
Other Assets 283,033 189,900
------------- -------------
$42,069,038 $26,838,783
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Other Liabilities $ 13,973 $ 5,580
Junior Subordinated Debt Securities 12,372,000 7,217,000
Shareholders' Equity 29,683,065 19,616,203
------------- -------------
$42,069,038 $26,838,783
============= =============
F-28
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE R - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY - Continued
CONDENSED STATEMENTS OF INCOME Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2002 2001
------------- ------------- -------------
INCOME:
Cash Dividends from Statutory Trusts $ - $ 6,012 $ 6,012
------------- ------------- -------------
TOTAL INCOME 6,012 6,012
EXPENSES:
Interest on Junior Subordinated Debt Securities 437,601 220,960 220,960
Other 155,018 23,489 23,489
Allocated Tax Benefit ( 243,889) ( 98,128) ( 98,128)
------------- ------------- -------------
TOTAL EXPENSES 348,730 146,321 146,321
------------- ------------- -------------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY ( 348,730) ( 140,309) ( 140,309)
EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY 8,203,069 4,331,363 4,331,363
------------- ------------- -------------
NET INCOME $ 7,854,339 $ 4,191,054 $ 4,191,054
============= ============= =============
F-29
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE R - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY - Continued
CONDENSED STATEMENTS OF CASH FLOWS Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2003 2002 2001
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,854,339 $ 4,191,054 $ 4,191,054
Noncash items included in net income:
Equity in income of Subsidiary ( 8,203,069) ( 4,331,363) ( 4,331,363)
Other ( 84,740) ( 184,320) ( 184,320)
------------- ------------- --------------
NET CASH USED IN
OPERATING ACTIVITIES ( 433,470) ( 324,629) ( 324,629)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Subsidiaries ( 5,683,687) ( 7,187,465) ( 7,187,465)
Dividends received from Subsidiaries - 6,012 6,012
------------- ------------- --------------
NET CASH USED BY
INVESTING ACTIVITIES ( 5,683,687) ( 7,181,453) ( 7,181,453)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Junior Subordinated Debt
Securities 5,155,000 7,217,000 7,217,000
Proceeds from exercise of stock options 976,116 122,512 122,512
Proceeds from exercise of warrants 811,497 166,570 166,570
------------- ------------- --------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 6,942,613 7,506,082 7,506,082
------------- ------------- --------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 825,456 - -
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR - - -
------------- ------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 825,456 $ - $ -
============= ============= ==============
F-30
TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE S - QUARTERLY DATA (UNAUDITED)
The following table sets forth the Company's unaudited results of operations for
the four quarters ended in 2003 and 2002:
For the Quarter Ended in 2003 For the year
-------------------------------------------------------- Ended
March 31, June 30, September 30, December 31, December 31, 2003
------------- -------------- ------------- ------------- ------------------
Interest Income $ 5,279,705 $ 5,844,313 $ 6,367,114 $ 6,463,159 $ 23,954,291
Interest Expense ( 1,197,749) ( 1,262,567) ( 1,219,119) ( 1,267,118) ( 4,946,553)
------------- -------------- ------------- ------------- ------------------
Net Interest Income 4,081,956 4,581,746 5,147,995 5,196,041 19,007,738
Provision for Loan Losses ( 150,000) ( 350,000) ( 150,000) ( 372,000) ( 1,022,000)
Noninterest Income 5,182,918 6,318,554 6,424,132 6,491,957 24,417,561
Noninterest Expense ( 6,577,879) ( 7,428,364) ( 7,399,214) ( 7,715,614) ( 29,121,071)
------------- -------------- ------------- ------------- ------------------
Income before Income Taxes 2,536,995 3,121,936 4,022,913 3,600,384 13,282,228
Income Taxes ( 1,041,716) ( 1,273,256) ( 1,643,420) ( 1,469,497) ( 5,427,889)
------------- -------------- ------------- ------------- ------------------
Net Income $ 1,495,279 $ 1,848,680 $ 2,379,493 $ 2,130,887 $ 7,854,339
============= ============== ============= ============= ==================
Per Share Data:
Net Income - Basic $ .20 $ .24 $ .30 $ .26 $ 1.00
Net Income - Diluted $ .18 $ .21 $ .27 $ .23 $ .89
For the Quarter Ended in 2002 For the year
-------------------------------------------------------- Ended
March 31, June 30, September 30, December 31, December 31, 2002
------------- -------------- ------------- ------------- ------------------
Interest Income $ 3,318,861 $ 3,861,979 $ 4,407,173 $ 4,967,905 $ 16,555,918
Interest Expense ( 498,284) ( 646,735) ( 946,317) ( 1,033,346) ( 3,124,682)
------------- -------------- ------------- ------------- ------------------
Net Interest Income 2,820,577 3,215,244 3,460,856 3,934,559 13,431,236
Provision for Loan Losses ( 220,000) ( 340,000) ( 375,000) ( 1,525,000) ( 2,460,000)
Noninterest Income 3,022,885 3,967,224 3,842,881 7,062,175 17,895,165
Noninterest Expense ( 4,570,228) ( 5,102,259) ( 5,657,088) ( 6,471,262) ( 21,800,837)
------------- -------------- ------------- ------------- ------------------
Income before Income Taxes 1,053,234 1,740,209 1,271,649 3,000,472 7,065,564
Income Taxes ( 423,685) ( 706,730) ( 514,152) ( 1,229,943) ( 2,874,510)
------------- -------------- ------------- ------------- ------------------
Net Income $ 629,549 $ 1,033,479 $ 757,497 $ 1,770,529 $ 4,191,054
============= ============== ============= ============= ==================
Per Share Data:
Net Income - Basic $ .09 $ .14 $ .10 $ .24 $ $.57
Net Income - Diluted $ .08 $ .12 $ .09 $ .21 $ $.50
F-31