UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2005
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ___________________
TEMECULA VALLEY BANCORP INC.
(Exact name of registrant as specified in its charter)
California 46-0476193
(State or other jurisdiction of (I.R.S. Employer
incorporate or organization) Identification No.)
27710 Jefferson Avenue, Suite A100
Temecula, California 92590
(Address of principal executive offices)
Registrant's telephone number, including area code: (951) 694-9940
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes ___X__ No_____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ___X___ No_____
As of May 5, 2005, there were 8,823,283 shares of the Registrant's common stock,
no par value per share, outstanding.
This Form 10-Q/A contains 25 pages.
Exhibit Index: Page 19
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
TEMECULA VALLEY BANCORP INC.
STATEMENT OF FINANCIAL CONDITION
March 31, 2005 and December 31, 2004
(UNAUDITED)
2005 2004
-------------------------------------
ASSETS
Cash and Due from Banks $ 9,841,055 $ 6,317,261
Federal Funds Sold 5,700,000 16,800,000
-------------------------------------
Total Cash and Cash Equivilents 15,541,055 23,117,261
Loans Held for Sale 12,137,761 15,142,720
Loans:
Commercial 31,258,556 23,560,360
Real Estate - Construction 254,012,863 203,885,627
Real Estate - Other 291,031,126 288,514,699
Consumer and Other 2,860,119 2,796,327
-------------------------------------
TOTAL LOANS 579,162,664 518,757,013
Net Deferred Loan Fees (4,147,918) (3,703,481)
Allowance for Loan Losses (7,046,382) (6,362,534)
-------------------------------------
NET LOANS 567,968,364 508,690,998
Federal Reserve & Home Loan Bank Stock, at Cost 2,680,000 2,377,800
Other Real Estate Owned 275,000 302,698
Premises and Equipment 4,742,609 4,379,809
Cash Surrender Value of Life Insurance 9,680,824 9,593,824
Deferred Tax Assets 4,720,990 4,370,990
SBA Servicing Assets 7,871,752 7,585,712
SBA Interest-Only Strips Receivable 24,020,948 24,679,520
Accrued Interest and Other Assets 7,221,042 6,586,197
-------------------------------------
$ 656,860,345 $ 606,827,529
=====================================
1
TEMECULA VALLEY BANCORP INC.
STATEMENT OF FINANCIAL CONDITION
March 31, 2005 and December 31, 2004
(UNAUDITED)
2005 2004
-------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-Bearing Demand $144,502,854 $138,041,385
Money Market and NOW 73,624,791 73,880,005
Savings 38,694,242 41,838,703
Time Deposits Under $100,000 153,834,647 135,915,448
Time Deposits $100,000 and Over 172,210,351 145,091,164
-------------------------------------
TOTAL DEPOSITS 582,866,885 534,766,705
Junior Subordinated Debt Securities 20,620,000 20,620,000
Accrued Interest and Other Liabilities 7,319,372 8,538,286
-------------------------------------
TOTAL LIABILITIES 610,806,257 563,924,991
Shareholders' Equity:
Common Stock - No Par Value Authorized 40,000,000
Shares; Issued and Outstanding 8,812,283 Shares at
3/31/2005 and 8,752,603 Shares at 12/31/2004 16,873,998 16,724,128
Retained Earnings 29,180,090 26,178,410
-------------------------------------
TOTAL SHAREHOLDERS' EQUITY 46,054,088 42,902,538
-------------------------------------
$656,860,345 $606,827,529
=====================================
2
TEMECULA VALLEY BANCORP INC.
STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
March 31, March 31,
2005 2004
----------------------------------
INTEREST INCOME
Interest and Fees on Loans $11,389,774 $ 6,798,167
Interest on HTM Securities - U.S. Treasuries 677 68
Interest on Federal Funds Sold 20,093 18,393
----------------------------------
TOTAL INTEREST INCOME 11,410,544 6,816,628
INTEREST EXPENSE
Interest on Money Market and NOW 127,649 102,263
Interest on Savings Deposits 43,125 41,424
Interest on Time Deposits 1,837,432 921,208
Interest on FHLB Advances 89,934 21,701
Interest on Junior Subordinated Debt Securities 280,168 155,967
----------------------------------
TOTAL INTEREST EXPENSE 2,378,308 1,242,563
----------------------------------
NET INTEREST INCOME 9,032,236 5,574,065
Provision for Loan Losses 838,800 500,000
----------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,193,436 5,074,065
NON-INTEREST INCOME
Service Charges and Fees 158,225 189,764
Gain on Sale of Loans/Assets 3,751,066 4,133,344
Fees, and Other Income 1,874,205 2,404,681
----------------------------------
TOTAL NON-INTEREST INCOME 5,783,496 6,727,789
----------------------------------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 5,851,506 5,164,482
Occupancy Expenses 562,265 307,899
Furniture and Equipment 337,681 232,184
Other Expenses 2,085,240 1,740,043
----------------------------------
TOTAL NON-INTEREST EXPENSE 8,836,692 7,444,608
----------------------------------
INCOME BEFORE INCOME TAXES 5,140,240 4,357,246
Income Taxes 2,138,560 1,785,096
----------------------------------
NET INCOME $ 3,001,680 $ 2,572,150
==================================
Per Share Data:
Net Income - Basic $ 0.34 $ 0.31
==================================
Net Income - Diluted $ 0.32 $ 0.28
==================================
Average Number of Shares Outstanding 8,787,593 8,237,774
==================================
Average Number of Shares and Equivalents 9,511,505 9,219,285
==================================
3
TEMECULA VALLEY BANCORP INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2005 2004
---------------------------------------
OPERATING ACTIVITIES
Net Income $ 3,001,680 $ 2,572,150
Adjustments to Reconcile Net Income to Net
Cash (Used) Provided by Operating Activities:
Depreciation and Amortization 2,296,508 1,564,369
Provision for Loan Losses 838,800 500,000
Decrease (Increase) of Deferred Tax Asset (350,000) (35,615)
Gain on Loan Sales (3,759,990) (4,212,380)
Loans Originated for Sale (48,386,276) (49,151,709)
Proceeds from Loan Sales 55,225,117 53,348,852
Loss (Gain) on Sale of Other Real Estate Owned 6,924 80,036
Increase in Cash Surrender Value of Life Insurance (87,000) (60,600)
Net Change in Other Assets and Liabilities (1,870,727) (3,193,947)
---------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,915,036 1,411,156
---------------------------------------
INVESTING ACTIVITIES
Purchases of Investments (299,322) (199,868)
Purchases of FRB/FHLB Stock (302,200) (793,900)
Maturity of Investments 300,000 200,000
Net Increases in Loans (61,832,425) (32,232,148)
Purchase of Life Insurance 0 (1,800,000)
Purchases of Premises and Equipment (682,118) (140,013)
Proceeds from Sale of Other Real Estate Owned 20,773 0
Proceeds from Sale of Premises and Equipment 54,000 37,000
---------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (62,741,292) (34,928,929)
---------------------------------------
FINANCING ACTIVITIES
Net Increases in Demand, NOW,Money Market and Savings Accounts 3,061,794 12,093,989
Net Increases in Time Deposits 45,038,386 21,246,872
Proceeds from the Exercise of Stock Options 149,870 930,408
---------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 48,250,050 34,271,269
---------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (7,576,206) 753,496
Cash and Cash Equivilents at Beginning of Period 23,117,261 30,748,013
---------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,541,055 $ 31,501,509
=======================================
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 3,126,709 $ 1,263,981
Income Taxes Paid $ 413,734 $ 50,178
Loans Transferred out of Other Real Estate Owned $ 27,698 $ 80,036
4
TEMECULA VALLEY BANCORP INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Period beginning December 31, 2003 and ending March 31, 2005
(UNAUDITED)
Common Retained
Shares Stock Earnings Total
---------- ------------ ------------ -----------
Balance at December 31, 2003 8,151,914 14,082,278 15,600,787 29,683,065
Exercise of Options 156,982 930,408 930,408
Including the Realization
of Tax Benefits of $588,840
Net Income 2,572,150 2,572,150
----------- ------------------------------------------
Balance at March 31, 2004 8,308,896 15,012,686 18,172,937 33,185,623
Exercise of Options 299,642 1,078,144 1,078,144
Including the Realization
of Tax Benefits of $221,141
Net Income 2,646,626 2,646,626
----------- ------------------------------------------
Balance at June 30, 2004 8,608,538 16,090,830 20,819,563 36,910,393
Exercise of Options 81,965 505,921 505,921
Including the Realization
of Tax Benefits of $208,871
Net Income 2,374,362 2,374,362
----------- ------------------------------------------
Balance at September 30, 2004 8,690,503 $16,596,751 $23,193,925 $39,790,676
Exercise of Options 62,100 127,377 127,377
Including the Realization
of Tax Benefits of ($51,192)
Net Income 2,984,485 2,984,485
----------- ------------------------------------------
Balance at December 31, 2004 8,752,603 $16,724,128 $26,178,410 $42,902,538
Exercise of Options 59,680 149,870 149,870
Net Income 3,001,680 3,001,680
----------- ------------------------------------------
Balance at March 31, 2005 8,812,283 $16,873,998 $29,180,090 $46,054,088
=========== ==========================================
5
TEMECULA VALLEY BANCORP INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
1) In the opinion of management of Temecula Valley Bancorp Inc. ("Company"),
the enclosed unaudited financial statements contain all adjustments
(consisting only of normal, recurring accruals) necessary to fairly present
the financial position of the Bancorp as of March 31, 2005. These financial
statements do not include all disclosures associated with the Bancorp's
annual financial statements and, accordingly, should be read in conjunction
with such statements.
2) The results of operations for the three month period ending March 31, 2005
are not necessarily indicative of the results to be expected for the full
year.
3) There were no significant accounting policy changes since the last report.
4) Temecula Valley Bancorp Inc., a one bank holding company for Temecula
Valley Bank, N.A., was formed on June 3, 2002. The stock symbol for the
common shares changed from TMUL.OB to TMCV.OB and the par value changed
from $1.25 to $.001. The stock exchange was one share for one share. In
December 2003 the Bancorp reincorporated from Delaware to California and
the par value changed from $.001 to zero. All financial statements were
adjusted to reflect the par value change.
6
EXPLANATORY NOTE:
This Amendment No. 1 on Form 10-Q/A amends and restates: Part I, Item 1 to
place the correct year references in the captions on the Statement of Cash
Flows; Part I, Item 2 under "Financial Condition-Allowance for Loan Losses" to
correct a reference from 2004 to 2005; and in Exhibits 31.1 and 31.2, to add
paragraph (b) which was inadvertently deleted.
Except as set forth above, this Form 10-Q/A continues to speak as of May 9,
2004, the date of the filing of the original filing of our first quarter Form
10-Q for 2005, and we have not updated the disclosures contained herein to
reflect any events that have occurred thereafter. Any reference to facts and
circumstances at or as of a "current" date refer to such facts and circumstances
as of such original filing date. We are not required to update and have not
updated any forward-looking statements previously included in our original
filing.
Item 2- Management's Discussion and Analyses of Financial Condition and Results
of Operations
--------------------------------------------------------------------------
Statements made in this Report that state the intentions, beliefs, expectations
or predictions by Temecula Valley Bancorp Inc. (the "Company" or "us") or its
management of the future are forward-looking statements. The Company's actual
results could differ materially from those projected in such forward-looking
statements. Additional information concerning factors that could cause actual
results to differ materially from those in the forward-looking statements is
contained in the Company's Form 10K and other filings made by the Company with
the SEC. Copies of such filings may be obtained by contacting the Company or
accessing the Company's filings at www.sec.gov.
OVERVIEW
This management discussion is intended to provide additional information
regarding the significant changes and trends in the Company's Financial
Condition, Statement of Operations, Funds Management and Capital Planning.
Commencement of operations of Temecula Valley Bank, N.A. ("Bank") was December
16, 1996. The Company became a one-bank holding company for the Bank effective
June 3, 2002. On June 26, 2002, the Company participated in a Trust Preferred
Securities pool in the net amount of $7,000,000. The $6,789,000 of borrowing
proceeds was transferred to the Bank as capital. On September 17, 2003, the
Company participated in a second Trust Preferred Securities pool in the net
amount of $5,000,000. Borrowing proceeds of $5,000,000 were transferred to the
Bank as capital. On September 20, 2004, the Company participated in a third
Trust Preferred Securities pool in the net amount of $8,000,000. Borrowing
proceeds of $8,000,000 were transferred to the Bank as capital. Since the Bank
opened, it has consistently, from year to year, experienced substantial growth.
All per share data has been adjusted for three two-for-one common stock splits
effective April 29, 1998, April 28, 1999 and December 23, 2003. On December 18,
2003, the Company reincorporated into California from Delaware. The Bank, and
now collectively with the Company, has grown to 242 employees (238 full time
equivalent), of which 228 are full time. The staffing has remained at 238
full-time equivalent since the end of 2004. Approximately one third of the
employees are directly involved in the origination, underwriting and processing
of SBA loans. Additional support staff is required to service the SBA loans
after they are funded. All employees are employed at the Bank. It is anticipated
that growth will remain strong for 2005 with full service branches anticipated
for Carlsbad and Coachella Valley. The SBA department expanded considerably
since 2001, with loan production offices, some of which are home offices,
located in Chico, CA; Fresno, CA; Sherman Oaks, CA; Anaheim Hills, CA;
Sacramento, CA; St. Petersburg, FL; Coral Springs, FL; Jacksonville, FL; Panama
City Beach, FL; Atlanta (Jessup), GA; Gurnee, IL, Bellevue, WA, Westlake
(Dublin), OH; Kirtland, OH; Clemmons, NC; Lee, NH; Basking Ridge, NJ; Ocean
City, NJ; and Randolf, NJ. The Company also operates non-SBA loan production
offices in Fallbrook, CA and Encinitas, CA; single-family tract lending offices
in Corona, CA and San Rafael, CA; and mortgage lending offices in Fallbrook, CA
and Temecula, CA. Our growth has been augmented by the opening of full service
offices in Fallbrook, CA in 1998; Escondido, CA in 1999; Murrieta, CA in 2000;
El Cajon, CA in 2001; Corona, CA in 2004; and Rancho Bernardo, CA in 2004.
The Bank was formed as a locally owned and managed financial institution that
assumes an active community role. The Bank focuses primarily upon local banking
services and community needs, as well as nationwide SBA loan origination. The
Bank's marketing strategy stresses its local ownership and commitment to serve
the banking needs of the people and businesses in Temecula Valley, the
Interstate 15 corridor and surrounding areas, as well as originating loans
through the SBA network nationwide.
The Bank plans to continue to expand through new full service and/or loan
production office locations if they make good business sense and are located
within the Bank's geographic service area.
7
FINANCIAL CONDITION
Assets
Total assets increased from $467,015,799 at March 31, 2004 to $606,827,529 at
December 31, 2004 and to $656,860,345 at March 31, 2005. The increase in the
first three months of 2005 consisted of a $7,576,206 decrease in cash and cash
equivalents offset by an increase in loans outstanding. Total loans, excluding
loans held for sale, increased from $518,757,013 at year-end 2004 to
$579,162,664 at March 31, 2005, a $60,405,651 or 11.6% increase due to increased
SBA, construction, and tract lending. The loan portfolio composition is
primarily construction, commercial and real estate secured loans. The rate of
loan growth should continue to be strong for 2005, due to the planned increase
in SBA loan production offices, the opening of the Carlsbad office, the opening
of the Indian Wells office, and the general increase in lending at existing
offices.
Investments
Investments, which were comprised only of Federal Funds Sold, decreased from
$16,800,000 at December 31, 2004 to $5,700,000 at March 31, 2005. The decrease
in the first three months of 2005 is largely attributable to a $45,038,386
increase in certificates of deposit offset by the $60,405,651 increase in total
loans.
Allowance for Loan Losses
The allowance for loan losses increased from $6,362,534 at December 31,
2004 to $7,046,382 at March 31, 2005. The allowance was 1.20% at December 31,
2004 and 1.20% at March 31, 2005. The large increase in the provision in 2004
and the first quarter of 2005 was due to the increase in SBA and tract lending
and the general overall growth of the loan portfolio. The provision was $838,800
in the first three months of 2005, with net chargeoffs of $154,952. Management
considers, through quarterly analysis, the allowance to be adequate and expects
it will continue to add to this reserve for the remainder of the year as the
loan portfolio balance increases. The analysis considers general factors such as
changes in lending policies and procedures, economic trends, loan volume trends,
changes in lending management and staff, trends in delinquencies, nonaccruals
and charge-offs, changes in loan review and Board oversight, the effects of
competition, legal and regulatory requirements and factors inherent to each loan
pool.
Summary of Allowance for Loan Loss
3 Months
2003 2004 2005
---- ---- ----
Beginning Balance $3,017,395 $3,607,833 $6,362,534
Chargeoffs 505,586 1,096,698 259,688
Recoveries 74,024 30,098 104,736
Provision 1,022,000 3,821,300 838,800
--------- --------- -------
Ending Balance $3,607,833 $6,362,534 $7,046,382
========= ========= =========
At March 31, 2005, there was $10,655,283 of non-accrual loans, of which
$7,350,019 is guaranteed by the SBA. The Bank had $7,918,753 of non-accrual
loans as of March 31, 2004, of which $6,404,927 was guaranteed by the SBA. The
Bank also had other real estate owned (REO) of $275,000, a commercial property
in Georgia.
8
NON-CURRENT LOANS, NON-ACCRUAL LOANS & OTHER REAL ESTATE OWNED
March 31, 2004
- --------------
Government
Gross Balance Guaranteed Net Balance
30 - 89 Days Past Due $ 0 ($ 0) $ 0
============ ============ ============
90+ Days Past Due & Accruing 0 (0) 0
Non-Accrual 7,918,753 (6,404,927) 1,513,826
------------ ------------ ------------
Sub- Total 7,918,753 (6,404,927) 1,513,826
Other Real Estate Owned (REO) 405,000 (0) 405,000
------------ ------------ ------------
Total $ 8,323,753 ($ 6,404,927) $ 1,918,826
============ ============ ============
December 31, 2004
- ------------------
30 - 89 Days Past Due $ 11,203 ($ 0) $ 11,203
============ ============ ============
90+ Days Past Due & Accruing 0 (0) 0
Non-Accrual 11,799,346 (8,140,267) 3,659,079
------------ ------------ ------------
Sub- Total 11,799,346 (8,140,267) 3,659,079
Other Real Estate Owned (REO) 302,698 (227,023) 75,675
------------ ------------ ------------
Total $ 12,102,044 ($ 8,367,290) $ 3,734,754
============ ============ ===========
March 31, 2005
- --------------
30 - 89 Days Past Due $ 438,642 ($ 0) $ 438,642
============ ============ ===========
90+ Days Past Due & Accruing 0 (0) 0
Non-Accrual 10,655,283 (7,350,019) 3,305,264
------------ ------------ ------------
Sub- Total 10,655,283 (7,350,019) 3,305,264
Other Real Estate Owned (REO) 275,000 (206,250) 68,750
------------ ------------ ------------
Total $ 10,930,283 ($ 7,556,269) $ 3,374,014
============ ============ ============
Other Assets
The ratio of interest earning assets to total assets was 87.61% for the first
quarter of 2005 compared to 85.70% for the first quarter of 2004. The target is
to keep this ratio above 90%, but has remained below that level due to the SBA
servicing asset, the related SBA interest only strip receivable, and the cash
surrender value of life insurance. The SBA servicing asset was $7,871,752, the
SBA I/O strip receivable was $24,020,948 and the cash surrender value of life
insurance was $9,680,824 at March 31, 2005. At March 31, 2004, the SBA servicing
asset was $6,241,789, the SBA I/O strip receivable was $20,866,935 and the cash
surrender value of life insurance was $7,601,329. At December 31, 2004, the SBA
servicing asset was $7,585,712, the SBA I/O strip receivable was $24,679,520 and
the cash surrender value of life insurance was $9,593,824. Even though these
assets are not considered interest bearing for net interest margin purposes,
they do produce, or are related to, income that is part of non-interest income.
9
Liabilities
Deposits increased from $534,766,705 at December 31, 2004 to $582,866,885 at
March 31, 2005. Money market and NOW accounts decreased $255,214, savings
decreased $3,144,461, demand deposits increased $6,461,469, and certificate of
deposits (CD's) increased $45,038,386. Demand deposits comprised 29% of deposits
at March 31, 2004, compared to 26% at December 31, 2004 and 25% at March 31,
2005. The increase in the ratio of certificates of deposits to total deposits is
due to CD promotions in 2003, 2004 and 2005 to fund the rapid loan growth. At
March 31, 2005, more than 57% of deposits have balances of $100,000 or more. No
one customer has balances that exceed 5% of the deposits of the Bank. The Bank
prefers core deposits as a source of funds for the loan portfolio. Consequently,
the Bank tries to attract solid core accounts yet maintain a reasonable funding
cost. The core deposit base was helped by the addition of the Rancho Bernardo
and Corona branches in 2004, the continued deposit increases at the other five
branches, and will be helped in the second half of 2005 by the opening of the
full service branches in Carlsbad and Indian Wells. The Bank will continue to
solicit core deposits to diminish reliance on volatile funds.
At December 31, 2004 and March 31, 2005, there were no short-term advances from
the Federal Home Loan Bank. The borrowing capacity at the Federal Home Loan Bank
as of December 31, 2004 was $36,354,213 and at March 31, 2005 was $35,319,889.
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 6.63% as of
March 31, 2004. 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.
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 6.06% as of
March 31, 2004. 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.
On September 20, 2004, the Company issued $8,248,000 of junior subordinated debt
securities (the "debt securities") to Temecula Valley Statutory Trust III, 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 20, 2034. Interest is payable quarterly on these
debt securities at 3-Month LIBOR plus 2.20% for an effective rate of 5.32% as of
March 31, 2005. The debt securities can be redeemed for 107.5% of the principal
balance through September 20, 2009 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, II, and III. The balance of the equity of Temecula Valley Statutory
Trusts I, II, and III is comprised of mandatory 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, II, and III 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 these mandatorily redeemable preferred securities qualifies as Tier 1
and Tier 2 Capital. At the Company, up to 25% of the Tier 1 Capital can be these
debt securities with the remainder of the debt securities qualifying as Tier 2
Capital. The Company has included the net junior subordinated debt securities in
its Tier 1 and Tier 2 Capital for regulatory capital purposes.
10
Capital
Total capital was $33,185,623 at March 31, 2004, $42,902,538 at December 31,
2004, and $46,054,088 at March 31, 2005. For the first three months of 2005, the
$3,151,550 increase consisted of $3,001,680 of net income and $149,870 on the
exercise of stock options. For the first three months of 2004, the $3,502,558
increase was due to $2,572,150 in net income and $930,408 on the exercise of
stock options.
Total risk based capital was 11.14%, the tier one risk based ratio was 9.99%,
and the tier one leverage ratio was 9.73% at March 31, 2004, compared to a total
risk based capital of 11.15%, tier one risk based capital of 9.22%, and tier one
leverage ratio of 9.47% at March 31, 2005. At March 31, 2004, December 31, 2004,
and March 31, 2005 the Bank and the Company were in the regulatory "well
capitalized" category.
RESULTS OF OPERATIONS
Net Income
For the first quarter of 2005, the Company earned $3,001,680, compared to
$2,572,150 in 2004. Net income per basic share for the first quarter was $0.34
in 2005 compared to $0.31 in 2004. Net income per diluted share was $0.32 per
share in the first quarter of 2005 compared to $0.28 in 2004. The return on
average assets was 1.91% for the first quarter of 2005, compared to 2.31% for
the first quarter of 2004. The return on average equity was 27.37% for the first
quarter of 2005, compared to 33.15% for the first quarter of 2004. The 2005 and
2004 earnings were significantly enhanced by the sale of loans in the secondary
market, most of which are SBA and mortgage loans. The sales of the SBA loans are
expected to continue at this level or higher for the remainder of the year.
Mortgage loan sales are significantly slower than the 2003 and 2004 pace. The
net interest margin is rising as the Federal Reserve Bank continues to raise the
Fed Funds rate. Net income in the first three months of 2005 and 2004 was
augmented by the sale of the unguaranteed portion of SBA loans. These sales
increased net income before taxes by $1,119,201 or $648,622 after taxes in the
first quarter of 2005 compared to $2,295,286 and $1,330,210 respectively in the
first quarter of 2004. These sales are expected to continue for the remainder of
the year. The opening of the Carlsbad and Indian Wells full service offices in
2005 will have negative effect on earnings in the first quarter as well as the
full year of 2005.
Stock-Based Compensation
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, we measure
the compensation cost for stock options 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. 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.
FASB Statement No. 123R, Accounting for Stock-Based Compensation , requires all
public companies beginning with the next fiscal year beginning after June 15,
2005 to measure the compensation expense for stock options at the fair value of
the options when granted, and the cost is then to be expensed over the employee
service period, which is the vesting period of the options. This will apply to
awards granted or modified after the effectiveness of the new requirements. In
addition, a compensation expense will be recorded for prior option grants that
vest after the effectiveness of the requirements. The effect on results of
operations will depend on the level of future option grants and the calculation
of the fair value of the options granted at such future date, as well as the
vesting periods provided, and so cannot currently be predicted. Existing options
that were granted in 2004 and before and will vest after the adoption date are
expected to result in additional compensation expense of approximately $408,151
in 2006 and $299,978 in 2007.
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 Nos. 123 and 123R, the Bank's net income and earnings per
share would have reduced as in the following pro forma schedule.
11
Period Ending March 31
2005 2004
----------- -----------
Net Income as reported $3,001,680 $ 2,572,150
Stock based compensation using the Intrinsic Value Method
7,697 2,669
Stock based compensation that would have been reported ( 129,981) ( 42,030)
---------- ----------
Pro Forma Net Income $2,879,396 $ 2,532,789
========== ===========
Basic per share as reported $ .34 $ .31
Basic per share pro forma $ .33 $ .31
Diluted per share as reported $ .32 $ .28
Diluted per share pro forma $ .30 $ .27
Net Interest Earnings
Net interest income was $9,032,236 in the first quarter of 2005, compared to
$5,574,065 in 2004. For the first quarter of 2005 the net interest margin was
6.55%, compared to 5.84% in 2004. The net interest margin increased from 2004 to
2005 due to the Federal Reserve Bank rate increases in 2004 and 2005. The loan
to deposit ratio increased from 94.22% at March 31, 2004 to 100.74% at March 31,
2005. The net interest margin was also helped by a healthy ratio of 25.61% of
demand deposit accounts to total deposits for the first three months of 2005 and
29.97% for the first quarter of 2004. The yield on loans increased from 7.27%
for the first quarter of 2004 to 8.28% for the first quarter of 2005. Rate
floors on $202 million of variable rate loans at March 31, 2004 and $283 million
at March 31, 2005 helped to mitigate the effects of low Federal Reserve rate
environment. The yield on investments, which are all in Federal Funds Sold and
US Treasuries, for the first quarter of 2005 was 2.41%, compared to 0.93% in
2004. The cost of interest bearing deposits was 1.98% in the first quarter of
2005 and 1.56% in the first quarter of 2004. The increase in 2005 is due to a
higher CD balances and rates. The cost of other borrowings, which consisted of
Federal Home Loan Bank advances and junior subordinated debt securities
borrowings was 4.42% for the first quarter of 2005 and 3.53% in 2004. The
increase in the cost of other borrowings in 2005 is due to a higher percentage
of the borrowings in 2005 attributable to the junior subordinated debt
securities.
The Bank tries to maximize the percentage of assets it maintains as interest
earning assets, with the goal of maintaining at least 90% in that category.
Effectively, all of the increase in non-interest earning assets in 2003 and 2004
was in the cash surrender value of life insurance (BOLI), the SBA servicing and
SBA I/O strip receivable assets, but not for 2005. The servicing assets are
tested for impairment by computing the net present value of the amount of
servicing income over the expected average life of the loan. Normal servicing
(adequate compensation), in accordance with industry standards, is 40 basis
points of the principal balance sold. The expected life assumes either 25 or 30
percent of the note life, depending on the term of the note. Our average life of
loans sold has been higher than the 25% or 30% assumption, giving the
calculation a conservative bias. For the first three months of 2004, $2,025,801
was collected for servicing, the asset amortization was $1,386,232 and the SBA
related servicing assets increased $496,534. The increase in the SBA loan
servicing assets was due to the sale of $23,750,241 in 7A loans during the first
three months of 2004. For the same period in 2005, $2,539,876 was collected for
servicing, the asset amortization was $2,014,900 and the SBA related servicing
assets decreased $372,532. There was $34,444,470 in 7A loan sales during the
first three months of 2005. The servicing assets decreased in the first three
months in 2005 due to more loans sold with a premium bid than with a par bid and
additional amortization taken due to the rising rate environment. The servicing
calculations contain certain assumptions such as the expected life of the loan
and the discount rate used to compute the present value of future cash flows.
The exposure of the loan life assumption is if loans prepay faster than
expected. The exposure to the discount rate assumption is if prime rate adjusts
severely and permanently. Such exposure can cause adjustments to the income
statement. The Bank, on a quarterly basis, has outside analysis of the servicing
assets and I/O strip receivable performed to insure the fair value approximates
the book value. Asset quality is a continual primary focus of the Bank, and even
though risk is an integral part of the banking industry, it is the policy of the
Bank's management to actively manage the risk, without sacrificing long-term
stability with short-term profits.
12
The table below summarizes the repayment rates for national SBA pools based on
their maturities:
SBA Pools - Constant Prepayment Rates
Variable Rate Pools
<
8 Yr 8 - 11 Yr 11 - 16 Yr 16 - 21 Yr > 21 Yr
Issue Date Life CPR Life CPR Life CPR Life CPR Life CPR
---------- -------- -------- ----- -------- --------
2001 15.6 13.5 11.6 12.7 12.5
2000 16.4 13.8 14.5 16.4 14.8
1999 16.2 14.8 15.1 14.4 15.6
1998 14.3 15.0 17.3 13.8 16.5
1997 13.7 14.0 15.4 16.7 17.8
The following schedule displays the WAL (weighted average life) for each
SBA pool at year-end after applying the CPRs identified above:
Original Maturity WAL (Yrs.)
----------------- ----------
< 8 Years 1.7
8 - 11 Years 2.3
11 - 16 Years 3.5
26 - 21 Years 4.3
> 21 Years 5.2
Based on assessing each component, our estimated discount rates for each
Bank SBA pool at year-end is as follows:
Original Maturity Disc Rate Excess Disc Rate I/O
----------------- ---------------- -------------
< 8 Years 9.97% 9.97%
8 - 11 Years 10.13% 10.13%
11 - 16 Years 10.34% 10.34%
26 - 21 Years 10.50% 10.50%
> 21 Years 10.66% 10.66%
Provision for Loan Loss
As discussed under "Allowance for Loan Losses", the allowance for loan losses
represents management's best estimate of losses inherent in the existing loan
portfolio. The Bank has established a monitoring system for loans to identify
impaired loans and potential problem loans and to permit periodic evaluation of
impairment and adequacy of the allowance for loan losses in a timely manner. The
monitoring system and allowance for loan losses methodology has evolved over a
period of years, and loan classifications have been incorporated into the
determination of the allowance for loan losses. This monitoring system and
allowance methodology includes a loan-by-loan analysis for all classified loans
as well as loss factors for the balance of the unclassified portfolio.
Classified loans are reviewed individually to estimate the amount of probable
loan losses that needs to be included in the allowance. These reviews include
analysis of financial information as well as evaluation of collateral securing
the credit. Loss factors on the unclassified portion of the portfolio are based
on such factors as historical loss experience, current portfolio delinquency and
trends, and other inherent risk factors such as economic conditions,
concentrations in the portfolio, risk levels of particular loan categories,
internal loan review and management oversight.
The provision was $1,022,000 in 2003, $3,821,300 in 2004, and $838,800 for the
three months of 2005. The large increase in the provision in 2004 and 2005 was
due to the large increase in loans outstanding, especially construction and SBA
loans. For 2005 and 2004 the provisions were at a level to keep the allowance
for loan loss well reserved. The Bank plans to continue to sell the unguaranteed
portion of SBA 7A loans to mitigate the risk associated with SBA 7A loans.
13
Non-Interest Income
- -------------------
Non-interest income contributed significantly to the earnings of the Bank in the
first three months of 2005, as it did in 2004. Service charges decreased from
$189,764 in 2004 to $158,225 in 2005 due to an increased number of accounts
offset by a decrease in non-sufficient funds service charges. Other income
decreased from $2,404,681 for the first three months of 2004 to $1,874,205 in
2005, due mainly to lower SBA and mortgage broker income and lower net SBA
servicing income. Loan servicing income decreased from $610,595 in the first
three months of 2004 to $496,339 in 2005 due to higher servicing asset
amortization and a slightly lower average weighted servicing rate offset by a
higher servicing volume. The gain on sale of loans was $4,212,380 in the first
three months of 2004 compared to $3,759,990 in 2005. The 2005 decrease was due
to slightly lower SBA loan sales and lower mortgage loan sales. The SBA loan
sales are expected to increase during the remainder of the year and the mortgage
loan sales will continue at their very subdued pace due to the expected Federal
Reserve Bank rate increases in 2005.
Gain on Sale of Loans/Assets
Three Months Ended
March 31,
2005 2004
--------------------------------------
SBA 7A Unguaranteed Sales $1,119,201 $2,295,286
SBA 7A Guaranteed Sales 1,959,040 1,388,549
SBA 504 Sales 193,724 0
Mortgage Sales 193,457 392,748
Other Loan Related 294,568 135,797
REO Gain (Loss) (6,924) (80,036)
Fixed Assets (2,000) 1,000
--------------------------------------
Total $3,751,066 $4,133,344
======================================
Other Income
Three Months Ended
March 31,
2005 2004
----------------------------------------
Customer Fees $ 62,182 $ 53,056
Loan Funding 526,020 572,532
SBA Broker Income 486,561 743,367
Mortgage Broker Income 117,188 250,503
Loan Late Charges 48,379 84,506
Other Loan Charges 3,889 1,573
SBA Servicing, Net 496,339 610,595
CSV Life Insurance 105,000 73,500
FRB/FHLB Dividend 28,647 14,951
Other 0 98
----------------------------------------
Total $1,874,205 $2,404,681
========================================
14
Non-Interest Expense
Non-interest expense was $7,444,608 in the first quarter of 2004 compared to
$8,836,692 in 2005. Salaries and benefits increased from $5,164,482 in the first
three months of 2004 to $5,851,506 for the same period in 2005 due to salary
increases and the increase in employees to support the general growth of the
company. Other expenses increased from $1,740,043 in the first three months of
2004 to $2,085,240 in 2005 due to higher loan volume, processing expenses and
office expenses to support the growth and internal controls of the Company.
Professional fees paid in the first quarter of 2005 compared to the same period
in 2004 were significantly reduced due to various operational and corporate
legal fees that were $102,998 higher in 2004 than 2005.
Other Expenses
Three Months Ended
March 31,
2005 2004
-----------------------------------------
Processing $ 272,889 $ 249,008
Professional 57,279 170,296
Travel & Entertainment 175,648 112,477
Director Related 41,282 18,000
Shareholder 11,668 29,705
Loan Funding 480,403 428,779
Office Related 592,330 453,099
Marketing 297,406 173,830
OCC/FDIC Assessments 54,245 40,943
Other 102,090 63,906
-----------------------------------------
Total $2,085,240 $ 1,740,043
=========================================
Income Taxes
Income tax expense totaled $2,138,560 for the first three months of 2005 and
$1,785,096 for the first three months of 2004. For the full year of 2004 the
effective rate was 41.6%, for the first three months of 2004 the effective rate
was 41.0% and for the first three months of 2005 it was 41.6%. Deferred tax
assets totaled $2,428,615 at March 31, 2004, $4,370,990 at December 31, 2004 and
$4,720,990 at March 31, 2005. Over half of the deferred tax asset is due to the
tax deductibility timing difference of the provision for loan loss and the
reserve for undisbursed loans.
LIQUIDITY
Funds management is essential to the ongoing profitability of a bank. A bank
must attract funds at a reasonable rate and deploy the funds at an appropriate
rate of return, while taking into account risk factors, interest rates, short
and long term liquidity positions and profitability needs.
15
The Bank's cash position is determined on a daily basis. On a monthly basis, a
liquidity analysis and asset/liability management analysis are performed. The
Bank maintains Federal Funds lines of credit of $18,000,000 at correspondent
banks for short-term liquidity. In addition, the Bank is a member of the Federal
Home Loan Bank ("FHLB"). The Bank has borrowing capacity at the FHLB that will
fluctuate with loan balances that are pledged as collateral. At December 31,
2004, the borrowing capacity was $36,354,213, and $35,319,889 at March 31, 2005.
The Bank presents to the Board of Directors monthly a liquidity analysis. The
analysis measures the liquidity gap on a monthly basis and should always be in
at least a 2% positive liquidity gap position. Throughout 2004 and 2005, a
positive liquidity position was maintained, but not at a level where profits
would have been diminished.
CAPITAL PLANNING
It is the goal of the Company and the Bank to always be in the regulatory "well
capitalized" category.
The Company updates its multiple-year capital plan annually in conjunction with
the preparation of the annual budget. Capital levels are always a primary
concern of the federal regulatory authorities, and the Bank submits capital
plans to them when requested.
It is the Company's strategy always to have an adequate level of capital, which
by definition includes not having excessive or inadequate capital.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are integral to understanding the results reported. In
preparing its consolidated financial statements, the Company is required to make
judgments and estimates that may have a significant impact upon its financial
results. Certain accounting policies require the Company to make significant
estimates and assumptions, which have a material impact on the carrying value of
certain assets and liabilities, and are considered critical accounting policies.
The estimates and assumptions used are based on the historical experiences and
other factors, which are believed to be reasonable under the circumstances.
Actual results could differ significantly from these estimates and assumptions,
which could have a material impact on the carrying value of assets and
liabilities at the balance sheet dates and results of operations for the
reporting periods.
The Company has identified two critical accounting policies. They concern the
allowance for loan loss and the SBA servicing assets. They are considered
critical due to the assumptions that are contained in their calculation, as well
as external factors that can affect their value. Through quarterly review and
analysis, valuations and calculations are tested for reasonableness.
OFF BALANCE SHEET COMMITMENTS
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 not 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.
As of March 31, 2005 and December 31, 2004, the Company had the following
outstanding financial commitments whose contractual amount represents credit
risk:
2005 2004
---- ----
Commitments to Extend Credit $279,374,000 $242,499,000
Letters of Credit 1,121,000 1,113,000
---------------- -----------------
$280,495,000 $243,612,000
16
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 represents 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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Market risk is the possible chance of loss from unfavorable changes in market
prices and rates. These changes may result in a reduction of current and future
period net interest income, which is the favorable spread earned from the excess
of interest income on interest-earning assets over interest expense on
interest-bearing liabilities.
The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk, even though such activities may be
permitted with the approval of the Company's Board of Directors.
Interest rate risk as discussed above is the most significant market risk
affecting the Company. Other types of market risk, such as foreign currency
exchange risk, equity price risk and commodity price risk, are not significant
in the normal course of the Company's business activities.
The ongoing monitoring and management of both interest rate risk and liquidity,
in the short and log term time horizon, is an important component of the
Company's asset/liability management process, which is governed by limits
established in the policies reviewed and approved annually by the Board of
Directors.
As the Company does not believe it is possible to reliably predict future
interest rate movements, it has maintained an appropriate process and set of
measurement tools which enable it to identify and quantify sources of interest
rate risk in varying rate environments. The primary tool used by the Company in
managing interest rate risk is the effect of interest rate shocks on the net
interest income.
The following reflects the Company's one year net interest income sensitivity
based on:
- - Asset and liability levels using March 31, 2005 as a starting point.
- - There are assumed to be conservative levels of balance sheet growth - less
than 20% growth in loans, investments and deposits, augmented by necessary
changes in borrowing and retained earnings, with no major growth in other
components of the balance sheet.
- - The prime rate and Federal Funds rates are assumed to move up 200 basis
points and down 100 basis points over a twelve-month period.
- - Cash flows are based on contractual maturity.
Net Interest Income Sensitivity
Calculated annualized Increase
(Decrease) in projected net
Change in Interest Rates Interest income for one year
+ 200 basis points 13.12%
-100 basis points (6.41%)
17
In the model, both the rising and falling rate environment reflect an increase
in net interest income (NII) from a flat rate environment. The analysis does not
represent a Company forecast and should not be relied upon as being indicative
of expected operating results. These hypothetical estimates are based upon
various assumptions. While the assumptions are developed upon current economic
and market conditions, the Company cannot make ant assurances as to the
predictive nature of these assumptions. Furthermore, the sensitivity analysis
does not reflect actions the Board might take in responding to or anticipating
changes I interest rates.
Item 4 - Controls and Procedures
As of the end of the period covered by this report, management of the Company
carried out an evaluation, under the supervision and with the participation of
the Company's principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-1-15(e)). Based on that
evaluation, the Company's principal executive officer and principal financial
officer concluded that the Company's disclosure controls and procedures are
effective in ensuring that information required to be disclosed by the Company
in reports that it files or submits under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
It should be noted that the design of the Company's disclosure controls and
procedures is based in part upon certain reasonable assumptions about the
likelihood of future events, and there can be no reasonable assurance that any
design of disclosure controls and procedures will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote,
but the Company's principal executive and financial officers have concluded that
the Company's disclosure controls and procedures are, in fact, effective at a
reasonable assurance level.
In addition, there have been no changes in the Company's internal control over
financial reporting identified in connection with the evaluation described in
the above paragraph that occurred during the Company's last fiscal quarter, that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As of March 31, 2005 the Company is not party to any litigation that is
considered likely to have a material adverse effect on the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to Security Holders
None
Item 5. Other Information
(a) Below is a listing of information and the related exhibits that were filed
with the Company's Form 10K on March 31, 2005 but with respect to which Form 8Ks
were not filed during the period covered by this Report:
10.25 Robert Flores Employment Agreement dated January 27, 2005. This agreement
provides for an annual base salary of $180,000 and an annual incentive bonus
equal to 20 basis points of the total original principal amount originated on 7a
and 504 SBA loans as well as construction, conventional and business & industry
loans related to and made in conjunction with the SBA loans, if such loans are
generated by and processed through the SBA Department. Mr. Flores is also
entitled to participate in a salary deferment program with at least 10% interest
paid and other terms to be determined and a salary continuation plan to be
entered into at a later date. He is entitled to an option to purchase 20,000
shares of the Company's common stock, the use of a bank owned vehicle and the
ability to participate in the Bank's group medical and other benefits programs,
if any. Upon a change of control or termination without cause, Mr. Flores is
entitled to receive the greater of $90,000 or six months of base salary, as in
effect at the time of termination, and an accelerated vesting of his options.
10.31 William H. McGaughey Employment Agreement dated January 4, 2005. This
agreement provides for an annual base salary of $200,000 and an annual incentive
bonus, based upon certain performance standards, equal to greater of $100,000 or
1.5% of pre-tax profits of the Bank. At commencement of employment, Mr.
McGaughey is entitled to receive a bonus of $75,000 payable over time. He is
entitled to participate in a salary continuation plan to be entered into at a
later date and to an option to purchase 20,000 shares of the Company's common
stock, the use of a bank owned vehicle and the ability to participate in the
Bank's group medical and other benefits programs, if any. Upon a change of
control or termination without cause, Mr. McGaughey is entitled to receive
twelve months of base salary, as in effect at the time of termination, and an
accelerated vesting of his options.
(b) None.
Item 6.: Exhibits
(a) Exhibits
Exhibit No. Description of Exhibit
- -------------- ----------------------
2.(i) Temecula Valley Bank and Temecula Valley Bancorp Amended
and Restated Plan of Reorganization dated as of April 2,
2002, filed on June 3, 2002 as an Exhibit to Form 8-A12G.
19
Item 6.: Exhibits (continued)
(a) Exhibits
Exhibit No. Description of Exhibit
- -------------- ----------------------
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 Temecula
Valley Bancorp's Definitive 14A, filed November 20, 2003.
3.(ii) Bylaws of the Company, as amended, filed on May 17, 2004
as an Exhibit to Temecula Valley Bancorp's Form 10-Q.
4.1 Common Stock Certificate of Temecula Valley Bancorp,
filed on May 17, 2004 as an Exhibit to Temecula Valley
Bancorp's Form 10-Q.
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 the Temecula Valley Bancorp's Form 10KSB.
10.2 Stephen H. Wacknitz Employment Agreement effective
October 1, 2003, filed on March 31,
2004 as an Exhibit to Temecula Valley Bancorp's Form 10K.
10.4 Luther J. Mohr Employment Agreement effective
October 1, 2003, filed on March 31, 2004 as an
Exhibit to Temecula Valley Bancorp's Form 10K.
10.6 401(k) filed April 16, 2004 as an Exhibit to
Temecula Valley Bancorp's 10-K/A.
10.8 Thomas P. Ivory Employment Agreement effective
January 25, 2001, filed on March 11, 2003 as an
Exhibit to Temecula Valley Bancorp's Form 10KSB.
10.9 James W. Andrews Employment Agreement dated
June 1, 2002 filed on April 11, 2003 as an Exhibit to
the Temecula Valley Bancorp's Form 10KSB.
10.10 First Amendment to James W. Andrews Employment Agreement
dated November 24, 2004 filed on March 31, 2005 as an
Exhibit to Temecula Valley Bancorp's Form 10-K.
10.11 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 April 11, 2003 as an
Exhibit to Temecula Valley Bancorp's Form 10KSB ("Employee
Plan")
10.11(a) Form of ISO Stock Option Agreement for Employee
Plan filed on March 31, 2005 as an Exhibit
to Temecula Valley Bancorp's Form 10-K.
10.12 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
April 11, 2003 as an Exhibit to the Company's Form
10KSB ("Director Plan").
10.12(a) Form of NSO Stock Option Agreement for Director
Plan filed on March 31, 2005 as an Exhibit
to Temecula Valley Bancorp's Form 10-K.
10.13 Amended and Restated Salary Continuation Agreement
between Temecula Valley Bank and Stephen H. Wacknitz
dated September 30, 2004, filed on November 18, 2004 as
an Exhibit to the Temecula Valley Bancorp's Form 10-Q/A
20
10.14 Amended and Restated Salary Continuation Agreement
between Temecula Valley Bank and Luther J. Mohr dated
January 28, 2004, filed on November 18, 2004 as an
Exhibit to Temecula Valley Bancorp's Form 10-Q/A.
10.17 Executive Deferred Compensation Agreement between
Temecula Valley Bank and Thomas P. Ivory dated April 1,
2001, filed on November 18, 2004 as an Exhibit to
Temecula Valley Bancorp's Form 10-Q/A.
10.17(a) Temecula Valley Bancorp Inc. 2004 Stock Incentive Plan,
as amended, filed on August 20, 2004 as an Exhibit to
Temecula Valley Bancorp's Form 10-Q ("Stock Incentive
Plan").
10.17(b) Form of NSO Stock Option Agreement for Stock Incentive
Plan filed on March 31, 2005 as an
Exhibit to Temecula Valley Bancorp's Form 10-K.
10.17(c) Form of ISO Stock Option Agreement for Stock
Incentive Plan filed on March 31, 2005 as an
Exhibit to Temecula Valley Bancorp's Form 10-K.
10.18 Executive Deferred Compensation Agreement between
Temecula Valley Bank and Stephen H. Wacknitz dated
September 30, 2004, filed on November 18, 2004 as an
Exhibit to Temecula Valley Bancorp's Form 10-Q/A.
10.19 Salary Continuation Agreement between Temecula Valley
Bank and Stephen H. Wacknitz dated January 28, 2004
filed on November 18, 2004 as an Exhibit to the
Temecula Valley Bancorp's Form 10-Q/A.
10.20 Amended and Restated Salary Continuation Agreement
between Temecula Valley Bank and Scott J. Word dated
September 30, 2004, filed on November 18, 2004 as an
Exhibit to Temecula Valley Bancorp's Form 10-Q/A
10.21 Split Dollar Agreement between Temecula Valley Bank and
Thomas P. Ivory dated September 30, 2004, filed on
November 18, 2004 as an Exhibit to Temecula Valley
Bancorp's Form 10-Q/A
..
10.22 Split Dollar Agreement between Temecula Valley Bank
and Luther J. Mohr dated September 30,
2004, filed on November 18, 2004 as an Exhibit to
Temecula Valley Bancorp's Form 10-Q/A
10.23 Split Dollar Agreement between Temecula Valley Bank
and Stephen H. Wacknitz dated
September 30, 2004, filed on November 18, 2004 as
an Exhibit to Temecula Valley Bancorp's Form 10-Q/A
10.24 Split Dollar Agreement between Temecula Valley Bank
and Scott J. Word dated September 30, 2004, filed on
November 18, 2004 as an Exhibit to Temecula
Valley Bancorp's Form 10-Q/A
10.25 Robert Flores Employment Agreement dated
January 27, 2005 filed March 31, 2005 as an Exhibit to
Temecula Valley Bancorp's Form 10-K.
10.27 Amended and Restated Salary Continuation Agreement
between Thomas M. Shepherd and Temecula Valley Bank dated
September 30, 2004 filed on March 31, 2005 as an Exhibit
to Temecula Valley Bancorp's Form 10-K.
10.28 Split Dollar Agreement between Thomas M. Shepherd
dated September 30, 2004 filed on March
31, 2005 as an Exhibit to Temecula Valley
Bancorp's Form 10-K.
10.29 Amended and Restated Salary Continuation Agreement
between Donald A. Pitcher and Temecula Valley Bank dated
September 30, 2004 filed on March 31, 2005 as an Exhibit
to Temecula Valley Bancorp's Form 10-K.
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10.30 Split Dollar Agreement between Temecula Valley Bank and
Donald A. Pitcher dated September 30, 2004 filed on March
31, 2005 as an Exhibit to Temecula Valley Bancorp's Form
10-K.
10.31 William H. McGaughey Employment Agreement dated
January 4, 2005 filed on March 31, 2005 as
an Exhibit to Temecula Valley Bancorp's Form 10-K.
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certifications
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEMECULA VALLEY BANCORP INC.
DATE: May 10, 2005 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
22