Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-139908
PROSPECTUS
TEMECULA VALLEY BANCORP INC.
1,400,569 Shares of Common Stock
This is a public offering of 1,400,569 shares of our common stock. All
shares are being offered by selling shareholders identified in this prospectus.
We will not receive any of the proceeds from the sale of shares by the selling
shareholders.
Temecula Valley Bancorp common stock is listed and trades on The NASDAQ
Global Select Market with the trading symbol: "TMCV." On February 9, 2007, the
closing sale price of one share of Temecula Valley Bancorp common stock on The
NASDAQ Global Select Market was $23.15.
Our principal executive offices are located at 27710 Jefferson Avenue,
Suite A100, Temecula, California, 92590, and our telephone number is (951)
694-9940.
An investment in these securities involves risks. See "Risk Factors"
beginning on page 9 for factors you should consider before buying shares of our
common stock.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is February 21, 2007.
TABLE OF CONTENTS
Prospectus Summary 1
Risk Factors 9
Use of Proceeds 16
Dividend Policy 16
Selling Shareholders 17
Plan of Distribution 21
Where You Can Find More Information 23
Legal Matters 23
Experts 23
Transfer Agent and Registrar 23
Incorporation of Certain Documents by Reference 23
Cautionary Statement Concerning Forward Looking Statements 24
Indemnification of Directors, Officers and Controlling Persons 25
i
PROSPECTUS SUMMARY
To fully understand this offering and its consequences to you, you
should read the following summary along with the more detailed information and
our consolidated financial statements and the notes to those statements
incorporated by reference into this prospectus. In this prospectus, the words
"we," "us," "our" and similar terms refer to Temecula Valley Bancorp Inc. and
its subsidiary Temecula Valley Bank, on a consolidated basis, unless the context
provides otherwise.
Temecula Valley Bancorp Inc.
We formed Temecula Valley Bancorp Inc. in 2002 to serve as a holding
company for Temecula Valley Bank. We reincorporated our holding company from
Delaware into California in December 2003 as a tax savings measure. Our holding
company is a bank holding company registered with the Board of Governors of the
Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act of
1956, as amended ("BHCA"). Our holding company's activities consist of owning
the outstanding shares of our bank, Temecula Valley Statutory Trust I, Temecula
Valley Statutory Trust II, Temecula Valley Statutory Trust III, Temecula Valley
Statutory Trust IV and Temecula Valley Statutory Trust V.
Temecula Valley Bank
Our bank was organized in 1996 and commenced operations on December 16,
1996 as a national banking association. Our bank converted from a national
charter to a state charter on June 29, 2005 to take advantage of higher legal
lending limits and reduced examination fees. The deposits of our bank are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to the
applicable limits. Our bank has no subsidiaries.
Corporate and Financial Information
We operate three core business lines: community banking, construction
lending and Small Business Administration ("SBA") lending. Our community banking
franchise operates through ten full-service banking offices in Southern
California. Our construction lending business conducts operations through our
branching network and from loan production offices ("LPOs") in Southern and
Northern California. Our third core business line, SBA lending, includes a
network of LPOs in various states.
As of September 30, 2006, we had total assets, loans (net of deferred
fees), deposits and shareholders' equity of $1.14 billion, $1.06 billion, $1.02
billion and $73.0 million, respectively. These balances reflect increases of
44%, 55%, 45% and 35% for assets, loans, deposits and shareholders' equity,
respectively, from September 30, 2005.
We have operated with the goal of achieving double-digit growth
annually in assets and earnings. Consistent with this goal, from December 31,
2001 to September 30, 2006, we achieved:
o 38% CAGR* in assets
o 41% CAGR in loans
o 40% CAGR in SBA loans
o 38% CAGR in deposits
o 39% CAGR in diluted earnings per share
* compounded annual growth rate
1
From December 31, 2001 to September 30, 2006, our ratio of
nonperforming assets (net of government guarantees) to assets never exceeded
0.62%. In addition, in the periods following December 31, 2001 to September 30,
2006, we maintained an annual return on average equity of at least 24.34% and an
annual net interest margin of at least 5.69%.
Our Market Area
Our Community Banking. Our ten full service banking offices in Southern
California are located in Carlsbad, Corona, El Cajon, Escondido, Fallbrook,
Murrieta, Ontario, the Rancho Bernardo area of San Diego, Solana Beach and
Temecula. These locations serve the counties of Riverside, San Bernardino and
San Diego.
Temecula and the surrounding areas in southwest Riverside County have
grown dramatically since 1990. From 1990 to 2004, Temecula's population nearly
tripled from 27,099 to 77,460. The population growth in the Inland Empire, which
includes Riverside, San Bernardino and portions of San Diego Counties, is
projected to increase in population by 1.8 million, from 3.2 million to 5
million, from 2000 to 2020. Migration from San Diego toward more affordable
housing and quality of life factors has contributed to this growth. We believe
that the market in which we operate provides the opportunity to generate a
stable core deposit base. Furthermore, the projected growth in population likely
will continue to support commercial and industrial lending, support continued
real estate development, construction, health care, transportation and education
and favors the expansion of community-based banking services. Source: John
Husing Report 2005 and U.S. Census 2000.
Our Construction Lending. Our Real Estate Industries Group ("REIG"),
responsible for our construction lending products, provides services in Southern
California and in the San Francisco Bay area of Northern California. Our REIG
has successfully taken advantage of the favorable market conditions in Southern
California as well as those in the counties surrounding the San Francisco Bay
area. The overall San Francisco Bay area population has grown from 2000 to 2005.
Population growth in this area has been and is projected to continue in part as
a result of significant international migration and desirable living standards.
Sources: East Bay Indicators 2006.
Our SBA Lending. Our SBA LPO's as of September 30, 2006 provide
services in the following states: Arizona, California, Colorado, Connecticut,
Florida, Georgia, Illinois, Nebraska, Nevada, New Jersey, New York, North
Carolina, Ohio, Oregon and Texas. In January 2007 or shortly thereafter, offices
in New York, Connecticut, New Jersey and all but one office in Florida will be
closed as the bank focuses its SBA lending efforts in the mid and western United
States. As of November 15, 2006, we were ranked the 17th largest SBA 7(a) lender
and the 11th largest SBA 504 third-party lender in the country, according to
data made available by the SBA. The market areas for LPO's are established
around personnel who are known SBA producers with knowledge and experience in
that particular market, and with significant ties to the community. The low cost
of establishing SBA LPOs allows us to move in and out of markets in a timely and
productive manner.
Recently Issued Accounting Standards
Several recently issued accounting standards and issuances may apply to
us. The standards and issuances address a multitude of issues including:
o the recognition of the funding status and changes in connection
with a benefit plan;
o fair value assumptions;
o the evaluation of prior-year misstatements;
o the recognition of a liability related to the postretirement
benefits covered by an endorsement split-dollar life insurance
arrangement;
o accounting for uncertainty in income taxes recognized in an
entity's financial statements;
2
o when a servicer should separately recognize servicing assets and
servicing liabilities and the choice of either the "Amortization
Method" or "Fair Value Measurement Method" for subsequent
measurement of each class of such assets and liabilities;
o accounting for financial instruments that have embedded
derivatives;
o interest-only strips;
o accounting for transactions in which an entity obtains employee
services in share-based payment transactions; retrospective
application to prior periods' financial statements of changes in
accounting principle and error correction; and
o a three step process in determining when an investment is
considered impaired, whether that impairment is other than
temporary, and the measurement of an impairment loss.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under state
and federal law. As a bank holding company, our holding company principally is
subject to Federal Reserve regulations. Our holding company is required to file
with the Federal Reserve quarterly and annual reports and such additional
information the Federal Reserve may require pursuant to the BHCA. The Federal
Reserve may conduct examinations of bank holding companies and their
subsidiaries. As a California state-chartered bank, our bank is subject to
supervision, periodic examination and regulation by the California Department of
Financial Institutions ("DFI") and the FDIC. Our bank's deposits are insured
(presently $100,000 per account) by the Bank Insurance Fund ("BIF"), which is
operated by the FDIC. If, as a result of an examination of our bank, the
regulators should determine that the financial condition, capital resources,
asset quality, earnings prospects, management, liquidity or other aspects of our
bank's operations are unsatisfactory or that our bank or its management is
violating or has violated any law or regulation, various remedies are available
to the regulators.
Various requirements and restrictions under the laws of the United
States affect the operations of our bank. Statutes and regulations relate to
many aspects of our bank's operations, including reserves against deposits,
ownership of deposit accounts, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital requirements. Further, our bank is required to
maintain certain levels of capital.
Recent and Proposed Legislation
From time to time, legislation is enacted that has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks and other financial institutions are
frequently made in Congress, in the California legislature and by various bank
regulatory agencies. Recent legislation includes the Sarbanes-Oxley Act of 2002
implementing legislative reforms intended to address corporate and accounting
fraud; the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (also known as the USA
PATRIOT Act), which subjects financial institutions to prohibitions against
specified financial transactions and account relationships as well as enhanced
due diligence and "know your customer" standards in their dealings with foreign
financial institutions and foreign customers; and many federal and state
consumer protection statutes and regulations, an area which has recently
received intense regulatory focus.
In October 2006, the federal banking agencies issued final guidance on
residential mortgage products that allow borrowers to defer repayment of
principal and sometimes interest, including "interest only" mortgage loans, and
"payment option" adjustable rate mortgages where a borrower has flexible payment
options, including payments that have the potential for negative amortization.
The federal banking agencies are concerned that these and other practices
described in the guidance can present unique risks institutions must
3
appropriately manage. In December 2006, the federal banking agencies issued
guidance on the allowance for loan losses which revises a publication on the
subject in 1992 to ensure consistency with generally accepted accounting
principles. In December 2006, banking regulators issued guidance regarding high
concentrations of real estate loans within bank lending portfolios. The guidance
requires institutions that exceed certain levels of real estate lending to
maintain higher capital ratios than institutions with lower concentrations, if
they do not have appropriate risk management policies and practices in place.
None of these three recent issuances is expected to have a materially adverse
effect on our company.
Changes to federal and state laws and regulations (including changes in
interpretation or enforcement) can affect the operating environment of bank
holding companies and their subsidiaries in substantial and unpredictable ways.
Capital Adequacy Requirements
The federal banking agencies have adopted regulations establishing
minimum requirements for capital adequacy. These agencies may establish higher
minimum requirements if, for example, a bank or company previously has received
special attention or has a high susceptibility to interest rate risk. In
addition, as a result of the bank regulatory guidance issued in December 2006
regarding high concentrations of real estate loans, our regulators may request
increased capital levels if we do not have in place the appropriate risk
management policies and practices.
Our bank was "well capitalized" according to the guidelines discussed
above, as of September 30, 2006.
Deposit Insurance Assessments
Our bank's deposits are insured (presently $100,000 per depositor) by
the BIF, which is operated by the FDIC. FDIC insured depository institutions pay
insurance premiums at rates based on their risk classification. In addition, the
FDIC can impose special assessments in certain instances. The current range of
BIF assessments are (not including FICO bond assessments) between 0.0% and 0.27%
per $100 of domestic deposits. The rate for our bank was 0.0% for 2004 and 2005.
Beginning in the third quarter of 2007, the new rates will vary between five and
forty two cents for every $100 of domestic deposits. Thus, for the third and
fourth quarters of 2007, our bank will pay BIF insurance premiums currently
estimated to be $295,000.
Change in Control
The BHCA prohibits our holding company from acquiring direct or
indirect control of more than 5% of the outstanding voting securities or
substantially all the assets of any bank or savings bank, or merging or
consolidating with another bank holding company or savings bank holding company,
without prior approval of the Federal Reserve. Similarly, Federal Reserve
approval (or in certain cases, nondisapproval) must be obtained prior to any
person acquiring control of a bank holding company.
Examinations
The Federal Reserve, through the BHCA, has the authority to examine and
evaluate our holding company and its subsidiaries. The DFI and the FDIC
periodically examine and evaluate state-chartered non-member banks, including
our bank. These examinations review areas such as capital adequacy, allowance
for loan losses, loan portfolio quality and management, consumer and other
compliance issues, investments and management practices. In addition to these
regular examinations, we are required to furnish certain reports to the Federal
Reserve, the FDIC and the DFI.
Federal Securities Law
Our holding company has registered its common stock with the Securities
and Exchange Commission ("SEC") pursuant to Section 12(b) of the Exchange Act.
As a result of such registration, the proxy and tender offer rules, insider
trading reporting requirements, corporate governance, annual and periodic
reporting and other requirements of the Exchange Act are applicable to our
holding company.
4
Transactions with Insiders and Affiliates
Depository institutions are subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act, which provides that loans to
directors, executive officers and stockholders who own more than 10% of a
depository institution and certain affiliated entities of any of the foregoing,
may not exceed, together with all other outstanding loans to such person and
affiliated entities, the institution's loans-to-one-borrower limit (as discussed
below). Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers and
stockholders who own more than 10% of an institution, and their respective
affiliates, unless such loans are approved in advance by a majority of the board
of directors of the institution.
Transactions between a bank and its "affiliates" are quantitatively and
qualitatively restricted under the Federal Reserve Act. The Federal Deposit
Insurance Act applies Sections 23A and 23B to insured nonmember banks in the
same manner and to the same extent as if they were members of the Federal
Reserve System.
Monetary Policy
The monetary policies of regulatory authorities, including the Federal
Reserve, have a significant effect on the operating results of banks.
Employees
As of September 30, 2006, our bank had 290 full-time employees and 20
part time employees. Our holding company has no employees. Our employees are not
represented by any collective bargaining group. We consider our relations with
our employees to be satisfactory.
The Offering
This prospectus covers the resale by the selling shareholders of the
shares of common stock described below:
Outstanding shares of common stock 1,400,569 shares
Use of proceeds All proceeds of this offering
will be received by selling
shareholders for their own
accounts. The proceeds we
received in the private
placement will be used to fund
our growth to the extent
growth in retained earnings is
insufficient and to pay down
up to $7 million in higher
cost trust preferred
securities. The proceeds also
satisfy regulatory
requirements for additional
capital in connection with
loan concentrations. See "Use
of Proceeds."
The NASDAQ Global Select Market trading symbol TMCV
Risk factors You should read the "Risk
Factors" beginning on page 9,
as well as other cautionary
statements throughout or
incorporated by reference in
this prospectus, before
investing in shares of our
common stock.
5
Private Placement through which the Selling Shareholders Obtained Beneficial
Ownership of the Offered Shares
All of the shares of common stock being offered under this prospectus
were acquired by the selling shareholders in a private placement transaction
that closed on November 21, 2006. The purchase price was $21.31 per share for
the 64,139 shares sold to 19 employees, officers and directors of our holding
company or our bank, and our employee stock ownership plan (ESOP). The purchase
price for the remaining 1,336,430 shares sold to other investors was $19.00 per
share with the price established through a bid process. Pursuant to NASDAQ Rule
4350(i)(1)(A) the issuance of common stock by us to our officers, directors,
employees, or consultants in a private placement at a price less than the market
value of the stock is considered a form of "equity compensation" and would have
required shareholder approval. For purposes of NASDAQ Rule 4350(i)(1)(A), market
value is the closing bid price immediately preceding the time we entered into a
binding agreement to issue the securities. In order to complete the private
placement within the desired timeframe, we chose to proceed without seeking to
obtain prior shareholder approval and instead sold the shares to employees,
officers and directors at market value or $21.31 per share.
The shares of common stock sold in the private placement were sold
pursuant to exemptions from registration provided by Rule 506 of Regulation D
under the Securities Act of 1933. The shares were offered only to persons who
were sophisticated or accredited investors and who satisfied the suitability
requirements in order to rely upon such exemptions. In connection therewith, the
investors made to us certain representations, warranties, covenants and
conditions customary for private placement investments.
The shares sold in the private placement represented in the aggregate
approximately 15% and 13% of the shares of our outstanding common stock before
and after, respectively, the private placement. Except as disclosed in the
footnotes to the selling shareholder table, there were no material relationships
between us and any of the selling shareholders during the past three years.
In connection with the private placement, we entered into a
registration rights agreement with the selling shareholders. The registration
rights agreement contains cross-indemnification provisions between us and the
selling shareholders. However, no selling shareholder is required to provide
indemnification in an amount in excess of the proceeds of the sales of
registrable shares by such selling holder.
Pursuant to the registration rights agreement, we agreed to prepare and
file with the SEC a registration form on Form S-3 as soon as reasonably
practical but in no event no later than 90 days after November 21, 2006 and
further agreed to use our reasonable best efforts to cause the registration
statement to become effective as soon as practicable after filing, but in no
event later than 180 days after November 21, 2006. We agreed to keep the
registration statement effective until the earlier of two years after November
21, 2006, or the date when all of the shares registered have been resold or are
no longer subject to legending under the Securities Act. If we fail to meet our
registration obligations, then as soon as practicable after receiving the
written request of a majority of the holders of registrable shares, we will be
required to use our reasonable best efforts to file one registration statement
covering all registrable shares that the majority of the holders desire to
register.
The description of the registration rights agreement is qualified by
reference to the complete text of that agreement, which is an exhibit to the
registration statement of which this prospectus is a part. However, the
representations, warranties, covenants and other provisions of that agreement
are not intended as means for investors and the public to obtain factual
information about the current state of affairs of our company. Rather, investors
and the public should look to other disclosures contained in our reports under
the Securities Exchange Act of 1934, as amended ("Exchange Act").
6
Summary Consolidated Historical Financial Data
The following table sets forth selected historical financial data of
Temecula Valley Bancorp Inc. The selected financial data as of and for each of
the last five fiscal years has been derived from the audited financial
statements of Temecula Valley Bancorp Inc. that are incorporated by reference
into this prospectus. The selected financial data as of and for the nine months
ended September 30, 2006 and 2005 has been derived from the unaudited financial
statements of Temecula Valley Bancorp, Inc. that are incorporated by reference
into this prospectus.
The data may not necessarily be indicative of our future results of
operations or financial position and should be read in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the related notes
included in our latest annual report on Form 10-K and quarterly report on Form
10-Q.
- ---------------------------------------------------------------------------------------------------------------------------
As of and for As of and for
the Nine Months Ended the Year Ended
September 30, December 31,
--------------------------- ---------------------------------------------------------------
2006 2005 2005 2004 2003 2002 2001
--------------------------------------------------------------------------------------------
Balance Sheet Data: (Dollars in Thousands except per share data)
Assets $ 1,143,971 $ 794,833 $ 868,988 $ 606,828 $ 431,212 $ 310,506 $ 190,024
Loans (including loans held
for sale) 1,061,515 686,378 753,247 530,196 360,749 271,426 150,275
Other Real Estate Owned 2,131 2,111 2,111 303 485 - -
Fed Funds Sold 4,350 32,240 33,200 16,800 21,400 - 16,400
FRB/FHLB stock 1,969 2,868 3,099 2,378 1,145 1,460 517
Deposits 1,017,455 703,881 742,432 534,768 383,487 269,321 172,928
FHLB advances - - 30,000 - - 10,000 -
Junior subordinated debt 41,240 28,868 28,868 20,620 12,372 7,217 -
Stockholders' equity 72,960 53,954 58,180 42,903 29,683 19,616 15,104
Income Statement:
Interest income $ 66,533 $ 40,217 $ 58,125 $ 33,615 $ 23,891 $ 16,509 $ 12,003
Interest expense 23,035 9,609 14,584 6,415 4,947 3,125 2,734
--------------------------------------------------------------------------------------------
Net interest income 43,498 30,608 43,541 27,200 18,944 13,384 9,269
Provision for loan losses 2,760 1,989 2,897 3,821 1,022 2,460 400
--------------------------------------------------------------------------------------------
Net interest income
after provision for loan losses 40,738 28,619 40,644 23,379 17,922 10,924 8,869
Non interest income 15,749 18,847 23,822 28,699 24,481 17,942 8,972
Non interest expense 34,735 29,967 40,627 33,964 29,121 21,801 14,832
--------------------------------------------------------------------------------------------
Income before income taxes 21,752 17,499 23,839 18,114 13,282 7,065 3,009
Provision for income taxes 9,224 7,269 9,886 7,536 5,428 2,875 1,205
--------------------------------------------------------------------------------------------
Net income $ 12,528 $ 10,230 $ 13,953 $ 10,578 $ 7,854 $ 4,190 $ 1,804
============================================================================================
Per Share Data:
Basic earnings per share $ 1.39 $ 1.16 $ 1.58 $ 1.24 $ 1.00 $ 0.57 $ 0.28
Diluted earnings per share $ 1.30 $ 1.07 $ 1.46 $ 1.13 $ 0.89 $ 0.50 $ 0.25
Book value per share $ 7.96 $ 6.08 $ 6.54 $ 4.90 $ 3.64 $ 2.63 $ 2.06
Average common shares
outstanding 9,044,249 8,829,197 8,845,736 8,503,179 7,823,951 7,372,504 6,484,108
Average common shares (diluted) 9,611,518 9,562,584 9,589,434 9,363,868 8,861,706 8,370,040 7,142,290
Performance Ratios:
Return on average assets 1.72% 1.96% 1.91% 2.00% 2.04% 1.69% 1.15%
Return on average equity 25.85% 28.28% 27.46% 28.89% 31.84% 24.34% 14.82%
Net interest margin 6.61% 6.68% 6.78% 5.98% 5.69% 6.23% 6.73%
Efficiency ratio 58.63% 60.59% 60.31% 60.76% 67.06% 69.59% 81.31%
7
- ---------------------------------------------------------------------------------------------------------------------------
As of and for As of and for
the Nine Months Ended the Year Ended
September 30, December 31,
--------------------------- ---------------------------------------------------------------
2006 2005 2005 2004 2003 2002 2001
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
Asset Quality:
Nonperforming loans $ 11,669 $ 7,029 $ 7,951 $ 11,799 $ 6,765 $ 1,908 $ 199
Government guaranteed portion (8,858) (5,247) (6,514) (8,140) (5,269) (1,078) (93)
--------------------------------------------------------------------------------------------
Net nonperforming loans 2,811 1,782 1,437 3,659 1,496 830 106
--------------------------------------------------------------------------------------------
OREO 2,131 2,111 2,111 303 485 - -
Government guaranteed portion (1,158) (604) (604) (227) - - -
--------------------------------------------------------------------------------------------
Net unguaranteed OREO 973 1,507 1,507 76 485 - -
--------------------------------------------------------------------------------------------
Net nonperforming assets $ 3,784 $ 3,289 $ 2,944 $ 3,735 $ 1,981 $ 830 $ 106
============================================================================================
Net nonperforming assets/loans 0.36% 0.48% 0.39% 0.70% 0.55% 0.31% 0.07%
Net nonperforming assets/total assets 0.33% 0.41% 0.34% 0.62% 0.46% 0.27% 0.06%
Net charge offs/average loans 0.02% 0.02% 0.03% 0.24% 0.13% 0.33% 0.07%
Allowance for loan loss /
net nonperforming loans 413.76% 462.53% 629.10% 173.88% 256.71% 363.06% 1180.00%
Allowance for loan losses/
net loans 1.10% 1.20% 1.20% 1.20% 1.00% 1.11% 0.82%
--------------------------------------------------------------------------------------------
Capital Ratios:
Average Equity / Average Assets 6.66% 6.93% 6.96% 6.93% 6.45% 6.95% 7.66%
Tier I leverage ratio 8.94% 9.34% 9.28% 9.20% 9.06% 8.53% 7.91%
Tier I risk based ratio 8.31% 9.04% 8.93% 9.68% 10.01% 9.30% 9.39%
Total risk based ratio 10.69% 11.45% 11.02% 11.81% 11.54% 10.61% 10.17%
SBA Loan Servicing:
SBA 7(a) participations
sold-period end $ 486,032 $ 477,693 $ 486,710 $ 421,529 $ 287,346 $ 168,164 $ 66,819
Other participations sold - 24,356 16,489 18,772 18,906 8,911 3,086
--------------------------------------------------------------------------------------------
Total participations sold -
period end $ 486,032 $ 502,049 $ 503,199 $ 440,301 $ 306,252 $ 177,075 $ 69,905
============================================================================================
SBA excess servicing asset $ 8,402 $ 8,060 $ 8,169 $ 7,586 $ 6,117 $ 3,764 $ 1,538
SBA I/O strip receivable asset 14,884 22,514 22,068 24,680 20,496 13,120 4,137
--------------------------------------------------------------------------------------------
Total SBA servicing asset $ 23,286 $ 30,574 $ 30,237 $ 32,266 $ 26,613 $ 16,884 $ 5,675
============================================================================================
SBA servicing-fee income $ 7,026 $ 7,751 $ 10,265 $ 8,738 $ 6,026 $ 2,675 $ 763
SBA servicing-asset amortization (8,379) (5,918) (7,492) (6,119) (4,234) (1,462) (402)
SBA servicing-guarantee
fee to SBA (167) (94) (135) (118) (99) (83) (22)
--------------------------------------------------------------------------------------------
SBA servicing-net servicing
income (loss) $ (1,520) $ 1,739 $ 2,638 $ 2,501 $ 1,693 $ 1,130 $ 339
============================================================================================
Loan Sales:
SBA 7(a) sales - guaranteed $ 90,190 $ 92,187 $ 108,912 $ 146,881 $ 129,813 $ 108,213 $ 42,873
SBA 7(a) guaranteed-sales gain 4,630 4,623 5,113 8,795 8,149 6,015 1,642
SBA 7(a) sales - unguaranteed 15,654 29,999 37,011 35,365 19,209 12,573 5,933
Unguaranteed SBA 7(a) sales gain 2,787 5,137 6,510 6,361 3,191 2,095 940
Mortgage loan sales - 13,522 13,522 45,243 100,800 83,014 55,225
Mortgage loan sales gain - 285 285 1,511 3,568 3,100 1,553
SBA broker referral income 2,065 2,102 2,470 2,506 2,845 1,972 1,071
Mortgage broker referral income 938 618 898 963 1,038 908 864
8
RISK FACTORS
The discussion below highlights some important risks we have identified
related to our business and operations and an investment in shares of our common
stock, but these should not be assumed to be the only factors that could affect
our future performance and condition, financial and otherwise. We do not have a
policy of updating or revising forward-looking statements except as otherwise
required by law, and silence by management over time should not be construed to
mean that actual events are occurring as estimated in such forward-looking
statements.
Prospective investors in our securities should carefully consider the
following risk factors as well as the other information contained or
incorporated by reference in this prospectus. If any of the following risks
actually occurs, our financial condition and results of operations could be
adversely affected. If this were to happen, the value of our securities could
decline, and if you invest in our securities, you could lose all or part of your
investment.
Risks Related to Our Business and Operations
Our success has been built upon significant and profitable growth, and we may
not be able to sustain our profitable growth or our rate of growth or be able to
support our growth, any of which events will adversely affect our profits and
results of operations.
We have experienced significant growth from $606.8 million in total
assets and $534.8 million in total deposits at December 31, 2004 to $1.14
billion in total assets and $1.02 billion in total deposits at September 30,
2006. We expect to continue to experience growth in assets, deposits and scale
of operations. However, we do expect our levels of construction lending to taper
off and intend to replace this business by increasing our commercial and
industrial ("C&I") loan portfolios. If the margins in C&I business are less than
with construction lending, if our growth declines or if we do not manage our
growth effectively, we will become less profitable, which will adversely affect
our business and prospects.
Our growth also subjects us to increased capital and operating needs.
We must continue to recruit experienced individuals who have the skills and
experience to manage our growing business lines but may have no prior history
with us. Our historical growth has caused us to update our policies and
procedures in response to this growth, and our plans for continued growth will
continue to place a significant strain on our personnel, systems and resources.
We cannot guarantee that our policies will be adequate or that we will be able
to recruit and train qualified individuals to implement our business strategy in
a timely, cost effective and efficient manner.
Our recent operating results may not be indicative of our future operating
results.
We may not be able to sustain our growth. Various factors, such as our
increased size, economic conditions, decreased construction and SBA loan demand,
governmental, regulatory and legislative considerations, competition and any
decrease in our ability to find and retain people that can make our
community-focused operating model successful, may impede our ability to expand
our market presence. If we experience a significant decrease in our growth rate,
our results of operations and financial condition may be adversely affected.
Our dependence on loans secured by real estate subjects us to risks relating to
fluctuations in the real estate market and related interest rates, environmental
risks and legislation that could result in significant additional costs and
capital requirements that could adversely affect our assets and results of
operations.
A significant portion of our loan portfolio is secured by real estate.
Real estate served as the principal source of collateral with respect to
approximately 95.4% and 93.6% of our loan portfolio at December 31, 2005 and
September 30, 2006, respectively. Our markets have experienced a sharp increase
in real estate values in recent years, in part as the result of historically low
interest rates. This year, real estate markets in California and elsewhere have
experienced a dramatic slowdown in appreciation, and in some cases a modest
depreciation. A decline in economic conditions or rising interest rates could
have an adverse effect on the demand for new loans, the ability of borrowers to
repay outstanding loans, the value of real estate and other collateral securing
9
loans and the value of real estate owned by us, as well as our financial
condition and results of operations in general and the market value of our
common stock. Acts of nature, including earthquakes and floods, which may cause
uninsured damage and other loss of value to real estate that secures these
loans, may also adversely affect our financial condition.
In the course of business, we may acquire, through foreclosure,
properties securing loans that are in default. In commercial real estate
lending, there is a risk that hazardous substances could be discovered on these
properties. In this event, we might be required to remove these substances from
the affected properties at our sole cost and expense. The cost of this removal
could substantially exceed the value of affected properties. We may not have
adequate remedies against the prior owner or other responsible parties or could
find it difficult or impossible to sell the affected properties, which could
adversely affect our business, financial condition and operating results.
In December 2006, banking regulators issued guidance regarding high
concentrations of real estate loans within bank lending portfolios. The guidance
requires institutions that exceed certain levels of real estate lending to
maintain higher capital ratios than institutions with lower concentrations, if
they do not have appropriate risk management policies and practices in place.
Although our management believes it has implemented appropriate risk management
policies and practices, there are no guarantees that our regulators will reach
the same conclusions at each examination. A contrary regulatory conclusion could
adversely affect our business and result in a requirement for increased capital
levels, and capital may not be available at that time.
Our bank's concentration in real estate construction loans subjects it to risks
such as inadequate security for repayment of those loans and fluctuations in the
demand for those loans based on changes in the housing market.
We have a high concentration in real estate construction loans.
Approximately 49% and 46% of our lending portfolio was classified as real estate
construction loans as of December 31, 2005 and September 30, 2006, respectively.
Our real estate construction loans are based upon estimates of costs and value
associated with the completed project. These estimates may be inaccurate.
Construction lending involves additional risks when compared to permanent
residential lending because funds are advanced upon the security of the project,
which is of uncertain value prior to its completion. Because of the
uncertainties inherent in estimating construction costs, the market value of the
completed project and the effects of governmental regulation of real property,
it is relatively difficult to accurately determine the total funds required to
complete a project and the related loan-to-value ratio.
Construction lending also typically involves higher loan principal
amounts and is often concentrated with a small number of builders. In addition,
generally during the term of a construction loan, no payment from the borrower
is required since the accumulated interest is added to the principal of the loan
through an interest reserve. Construction loans often involve the disbursement
of substantial funds with repayment substantially dependent on the success of
the ultimate project and the ability of the borrower to sell or lease the
property or obtain permanent take-out financing, rather than the ability of the
borrower or guarantor to repay principal and interest. If our appraisal of the
value of the completed project proves to be overstated, we may have inadequate
security for the repayment of the loan upon completion of construction and may
incur a loss.
Our ability to continue to originate a significant amount of
construction loans is dependent on the continued strength of the housing market
in the Riverside, San Bernardino and San Diego County regions of Southern
California and in the San Francisco Bay area. To the extent there is a decline
in the demand for new housing in these communities, it is expected that the
demand for construction loans would decline, our liquidity would substantially
increase and our net income would be adversely affected.
Our earnings are highly dependent on our continued ability to originate, sell
and service SBA loans.
Our earnings are highly dependent on our ability to generate new SBA
loans, as our net income generated from our SBA activities is significant.
Increases in interest rates and other economic conditions could result in
decreased SBA loan demand as well as lower gains on sale.
SBA lending is a federal government created and administered program.
As such, legislative and regulatory developments can affect the availability and
funding of the program. This dependence on legislative funding and regulatory
restrictions from time to time causes limitations and uncertainties with regard
10
to the continued funding of such loans, with a resulting potential adverse
financial impact on our business. Currently, the maximum limit on individual
7(a) loans which the SBA will permit is $2 million. Any reduction in this level
could adversely affect the volume of our business. Since our SBA business
constitutes a significant portion of our lending program, our dependence on this
government program and its periodic uncertainty relative to availability and
amounts of funding creates greater risk for our business than do more stable
aspects of our business.
Our new SBA purchase program is subject to governmental and management changes
that could affect its success and operations.
In April 2006, we began purchasing participations in unguaranteed
portions of SBA 7(a) loans. At September 30, 2006, we have $103.5 million in
outstanding loans. If the SBA program was discontinued or the SBA decided to
stop funding the program, the participation purchase program would be
substantially reduced and ultimately eliminated. Additionally, the participation
purchase program is highly dependent upon a management team experienced in the
program. If our management from this program were to terminate employment with
us, we could have a difficult time replacing them with qualified personnel, and
this may limit our growth and adversely affect the program and our results.
We may incur additional costs and experience impaired operating results if we
are unable to retain our key management or are unable to attract and retain
additional successful bankers in order to grow our business.
Stephen H. Wacknitz has been the president and chief executive officer
of our holding company and our bank since the inception of both entities. Mr.
Wacknitz and our executive management team developed numerous aspects of our
current business strategy, and the implementation of that strategy depends
heavily upon the active involvement of Mr. Wacknitz and our executive management
team. The loss of the services of Mr. Wacknitz or other senior officers who are
part of our succession planning could adversely affect our business strategy and
could cause us to incur additional costs and experience impaired operating
results while we seek suitable replacements. Additionally, because our business
model depends on hiring successful bankers that generally bring to us additional
customers, if we are unsuccessful in continuing to attract and retain producers,
our growth may be impaired and the results of our operations adversely affected.
If our bank is unable to pay our holding company cash dividends to meet its cash
obligations, then our business, financial condition, results of operations and
prospects will be adversely affected.
Dividends paid by our bank to our holding company provide cash flow
used to service the interest payments on our trust preferred securities. Various
statutory provisions restrict the amount of dividends our bank can pay to our
holding company without regulatory approval. It is possible, depending upon the
financial condition of our bank, and other factors, that the applicable
regulatory authorities could assert that payment of dividends or other payments,
including payments to our holding company, is an unsafe or unsound practice. If
our bank is unable to pay dividends to our holding company, our holding company
may not be able to service its debt or pay its obligations. Our holding
company's inability to receive dividends from our bank would adversely affect
our business, financial condition, results of operations and prospects.
Our allowance for loan losses may prove to be insufficient to absorb losses
inherent in our loan portfolio.
Like all financial institutions, every loan we make carries a risk that
it will not be repaid in accordance with its terms, or that securing collateral
will not be sufficient to assure repayment. This risk is affected by, among
other things:
o cash flow of the borrower and/or the project being financed;
o in the case of a secured loan, the changes and uncertainties as
to the value of the collateral;
o the credit history of a particular borrower;
o changes in economic and industry conditions; and
o the duration of the loan.
Our bank's allowance for loan losses as a percentage of net loans
outstanding and loans held-for-sale was 1.10% as of September 30, 2006. Our
bank's allowance for loan losses as a percentage of net loans outstanding,
11
excluding loans held-for-sale was 1.25% as of September 30, 2006. Regulatory
agencies, as an integral part of their examination process, review our bank's
loans and allowance for loan losses. Although management believes the level of
our loan loss allowance is adequate to absorb probable losses in our loan
portfolio, management cannot predict these losses or whether the allowance will
be adequate or whether regulators will require us to increase this allowance.
Any of these occurrences could adversely affect our business, financial
condition, prospects and profitability.
Our bank's business, financial condition and results of operations are sensitive
to and may be adversely affected by interest rate and prepayment speed changes.
Our earnings are substantially affected by changes in prevailing
interest rates. Changes in interest rates affect the demand for new loans, the
credit profile of existing loans, the rates received on loans and securities and
the rates we must pay on deposits and borrowings. The difference between the
rates we receive on loans and short-term investments and the rates we must pay
on deposits and borrowings is known as the interest rate spread. Given our
current volume and mix of interest-bearing assets and liabilities, our interest
rate spread can be expected to increase when market interest rates are rising,
and to decline when market interest rates are declining. Although we believe our
current level of interest rate sensitivity is reasonable, significant
fluctuations in interest rates may adversely affect our business, financial
condition and result of operations.
While the federal funds rate and other short-term market interest
rates, which we use to guide our deposit pricing, have increased, intermediate
and long-term market interest rates, which we use to guide our loan pricing,
have not increased proportionately. This has led to a flattening of the market
yield curve, which has even inverted recently as short-term rates have exceeded
long-term rates over an intermediate maturity horizon. If short-term interest
rates continue to rise so that the yield curve remains relatively flat or
inverts further, we would expect that our net interest spread and net interest
margin would compress, which would hurt our net interest income.
Our net interest margin has ranged from a low of 5.69% to a high of
6.78% for the years ended December 31, 2001 to 2005. The net interest margin for
the three and nine months ended September 30, 2006 was 6.29% and 6.61%,
respectively. We are asset sensitive, which means that our assets reprice faster
than our liabilities. Thus, in an increasing interest rate environment the net
interest margin will generally increase, and in a declining interest rate
environment the net interest margin will generally decline. Beginning in June
2006, when the short-term federal funds rates stopped increasing, our net
interest margin began to slightly compress due to the repricing at maturity of
longer term, lower rate time deposits.
In addition, the value of our SBA servicing asset and interest-only
strip receivable, which totaled $8.4 million and $14.9 million, respectively, at
September 30, 2006, are subject to fluctuations based on changes in interest
rates, which possibly can cause changes in prepayment speeds and the discount
rate used to value the asset. Generally, we would expect the value of our SBA
servicing asset to decrease when the prepayment speeds or the discount rate
increases.
Increasing levels of competition in banking and financial services businesses
may reduce our market share or cause the prices we charge for services to fall,
which may decrease our profits.
Competition may adversely affect our results of operations. The
financial services business in our market area is highly competitive and
becoming more so due to changes in regulation, technological advances and the
accelerating pace of consolidation among financial service providers. We face
competition both in attracting deposits and making loans. We compete for loans
principally through competitive interest rates and the efficiency and quality of
the services we provide. Increased competition in the banking and financial
services businesses may reduce our market share or cause the prices we charge
for services to fall. Many of the financial intermediaries operating in our
market area offer certain services, such as trust, investment and international
banking services, that we do not offer directly, and may have larger lending
limits than ours, which may prompt existing or potential customers to do
business with our competitors instead of us.
12
Our success depends, in part, upon our ability to effectively use rapid-changing
technology in providing and marketing products and services to our customers.
The financial services industry is undergoing rapid technological
changes, with frequent introductions of new technology-driven products and
services. The effective use of technology increases efficiency and enables
financial institutions to better serve customers and to reduce costs. Our future
success will depend, in part, upon our ability to use technology to provide
products and services that will satisfy customer demands for convenience, as
well as to create additional efficiencies in our operations and compliance with
regulatory expectations. Many of our competitors have substantially greater
resources to invest in technological improvements. We may not be able to
effectively implement new technology-driven products and services or be
successful in marketing those products and services to our customers.
Both our holding company and our bank are subject to government regulation that
limits and restricts their activities and operations.
The financial services industry is heavily regulated, and the
regulatory burden on banks is increasing. Federal and state regulation is
designed to protect the deposits of consumers, not to benefit shareholders. The
regulations impose significant limitations on operations, and may change at any
time, possibly causing results to vary significantly from past results.
Government policy and regulation, particularly as implemented through the
Federal Reserve System, significantly affect our credit conditions.
Our policies and procedures for minimizing loan losses may not fully protect us,
particularly when the economy is weak.
Some of our borrowers and guarantors may fail to perform their
obligations as required by the terms of their loans, which could result in
larger than expected losses. This risk increases when the economy and the real
estate markets are weak. As a result of our growth, we have periodically
modified our underwriting and credit policies and our loan monitoring
procedures, including the establishment and monitoring of our allowance for loan
losses. Management believes these policies and practices are reasonable and
should minimize loan losses by assessing the likelihood of nonperformance,
tracking loan performance and diversifying the credit portfolio. However, these
policies and procedures may not be adequate to prevent unexpected losses that
could adversely affect our results of operations.
Our business, financial condition and results of operations may be adversely
affected if we are unable to insure against or control our operations risks.
We are subject to various operations risks, including, but not limited
to, data processing system failures and errors, communications and information
systems failures, errors and breaches, customer or employee fraud and
catastrophic failures resulting from terrorist acts or natural disasters. Should
an event occur that is not prevented or detected by our internal controls, or is
uninsured or in excess of applicable insurance limits, it could damage our
reputation, result in a loss of customer business, cause additional regulatory
scrutiny and expose us to litigation risks and possible financial liability, any
of which could adversely affect our business, financial condition and results of
operations.
Our geographic concentration may adversely affect our results of operations if
business conditions in our market area decline.
If SBA lending is excluded, our operations are located almost entirely
in California, with close to 100% of our loan portfolio as of September 30, 2006
derived from California operations. Due to this geographic concentration, our
results depend largely upon California economic and business conditions and real
estate values. Deterioration in economic and business conditions and real estate
values in our market area could adversely affect the quality of our loan
portfolio and the demand for our products and services, which in turn may
adversely affect our results of operations to a greater extent than if our
operations were geographically diverse. Even if the economy remains healthy, a
sustained downturn in California real estate values would adversely affect our
results of operations.
13
Our growth may require us to raise additional capital in the future, but that
capital may not be available when needed.
We are required by regulatory authorities to maintain adequate levels
of capital to support our operations. We anticipate that our capital levels as
of December 29, 2006 will satisfy our regulatory requirements for at least the
next 12 months. We may at some point, however, need to raise additional capital
to support our continued growth, particularly if the regulatory authorities pass
legislation to increase our capital requirements. Our ability to raise
additional capital will depend in part on conditions in the capital markets at
that time, which are outside of our control. Accordingly, we cannot assure you
of our ability to raise additional capital, if needed, on terms acceptable to us
or at all. If we cannot raise additional capital when needed, our ability to
maintain operations and further expand our operations could be adversely
affected. In addition, if we decide to raise additional equity capital, our
shareholders' interests could be diluted.
Our business is subject to liquidity risk, and changes in our source of funds
may adversely affect our performance and financial condition by increasing our
cost of funds.
Our ability to make loans is directly related to our ability to secure
funding. Core deposits are our primary source of liquidity. Also, we use the
national certificate of deposit ("CD") markets, which are generally CDs
purchased by other financial institutions and brokered CDs. Both the national CD
market and brokered CDs are rate sensitive and generally have a higher rate than
deposits generated in our local markets. We use advances from the Federal Home
Loan Bank of San Francisco and Federal Fund lines of credit to satisfy temporary
borrowing needs. Payments of principal and interest on loans and sales and
participations of eligible loans are also a primary source for our liquidity
needs. Primary uses of funds include withdrawal of and interest payments on
deposits, originations and purchases of loans and payment of operating expenses.
Core deposits represent significant sources of low-cost funds. Alternative
funding sources such as large balance time deposits or borrowings are a
comparatively higher-cost source of funds. Liquidity risk arises from the
inability to meet obligations when they come due or to manage the unplanned
decreases or changes in funding sources. Although we believe we can continue to
successfully pursue our core deposit funding strategy, significant fluctuations
in core deposit balances may adversely affect our financial condition and
results of operations.
Risks Related to an Investment in Our Common Stock
We may issue additional shares of common stock or derivative securities that
will dilute the percentage ownership interest of existing shareholders and may
dilute the book value per share of our common stock and adversely affect the
terms on which we may obtain additional capital.
Our authorized capital includes 40,000,000 shares of common stock. At
December 29, 2006, we had 10,586,659 shares of common stock outstanding and had
reserved for issuance 1,413,398 shares underlying options that are or may become
exercisable at an average price of $9.36 per share. Subject to applicable NASDAQ
rules, our board generally has the authority, without action by or vote of the
shareholders, to issue all or part of any authorized but unissued shares of
common stock for any corporate purpose, including issuance of equity-based
incentives under or outside of our stock option plan. We may seek additional
equity capital in the future as we develop our business and expand our
operations. Any issuance of additional shares of common stock or derivative
securities will dilute the percentage ownership interest of our shareholders and
may dilute the book value per share of our common stock.
Our directors and executive officers own a substantial amount of our common
stock and may effectively control our holding company even after the sale of the
securities offered herein.
As of December 29, 2006, our executive officers and directors and their
family members together beneficially owned approximately 21.57% of the issued
and outstanding shares of our common stock. As a result, these persons have the
ability to exert significant influence over matters that could include the
election of directors, changes in the size and composition of the board of
directors, and mergers and other business combinations or strategic transactions
involving our company. In addition, through their voting power, they may be able
14
to significantly influence certain decisions, including decisions regarding the
qualification and appointment of officers, dividend policy, access to capital
(including borrowing from third-party lenders and the issuance of additional
equity securities), and the acquisition or disposition of our assets. In
addition, the concentration of voting power in the hands of those individuals
could have the effect of delaying or preventing a change of control of our
company, even if the change of control would benefit our shareholders. A
perception in the investment community of an anti-takeover environment at our
company could cause investors to value our stock lower than in the absence of
such a perception.
Future sales of our stock by our shareholders or the perception that those sales
could occur may cause our stock price to decline.
Although our common stock is listed for trading on The NASDAQ Global
Select Market, the trading volume in our common stock is lower than that of
other larger financial services companies. A public trading market having the
desired characteristics of depth, liquidity and orderliness depends on the
presence in the marketplace of willing buyers and sellers of our common stock at
any given time. This presence depends on the individual decisions of investors
and general economic and market conditions over which we have no control. Given
the relatively low trading volume of our common stock, significant sales of our
common stock in the public market, or the perception that those sales may occur,
could cause the trading price of our common stock to decline or to be lower than
it otherwise might be in the absence of those sales or perceptions.
Volatility of our stock price may result in losses to our investors and
litigation against us.
Stock price volatility may make it more difficult for you to resell
your common stock when you want and at prices you find attractive. Our stock
price can fluctuate significantly in response to a variety of factors discussed
in this section and in the periodic reports we file with the SEC, including
among other things:
o Actual or anticipated variations in quarterly results of
operations;
o Recommendations by securities analysts;
o Operating and stock price performance of other companies that
investors deem comparable to our company;
o News reports relating to trends, concerns and other issues in the
financial services industry; and
o Perceptions in the marketplace regarding us and/or our
competitors.
Moreover, in the past, securities class action lawsuits have been instituted
against a company following periods of volatility in the market price of its
securities. We could in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources from our normal business.
The existence of outstanding stock options issued to our directors, executive
officers and employees may result in dilution of your ownership and adversely
affect the terms on which we can obtain additional capital.
As of December 29, 2006, we had outstanding options to purchase
1,413,398 shares of our common stock at a weighted average exercise price of
$9.36 per share. All of these options are held by our directors, executive
officers and employees. The issuance of shares subject to options under the plan
may result in dilution of your ownership of our common stock.
The exercise of stock options could also adversely affect the terms on
which we can obtain additional capital. Option holders are most likely to
exercise their options when the exercise price is less than the market price for
our common stock. They profit from any increase in the stock price without
assuming the risks of ownership of the underlying shares of common stock by
exercising their options and selling the stock immediately.
15
Our ability to pay cash dividends is limited, and we may be unable to pay future
dividends even if we desire to do so.
Since our inception, our holding company has not paid any cash
dividends on shares of its common stock, and currently it does not intend to pay
cash dividends. Even if our holding company eventually decides to pay cash
dividends, its ability to do so may be limited by regulatory restrictions, by
our bank's ability to pay cash dividends to our holding company and by our need
to maintain sufficient capital to support our operations. The ability of our
bank to pay cash dividends to our holding company is limited by its obligations
to maintain sufficient capital and by other restrictions on its cash dividends
that are applicable to California state banks and banks that are regulated by
the FDIC. If our bank does not satisfy these regulatory requirements, it will be
unable to pay cash dividends to the holding company in order to allow the
holding company to pay cash dividends on its common stock.
Our common stock is not an insured deposit and therefore is subject to risk of
loss.
Our common stock is not a bank deposit and, therefore, is not insured
against loss by the FDIC, by any other deposit insurance fund or by any other
public or private entity. Investment in our common stock is inherently risky for
the reasons described in this "Risk Factors" section and is subject to the same
market forces that affect the price of common stock in any company as well as
other factors which affect the stock of financial services companies in general
and of our company in particular. If you acquire our common stock, your
investment is not insured and, therefore, you may lose some or all of the value
of your investment.
USE OF PROCEEDS
All net proceeds from the sale of the shares of our common stock being
offered under this prospectus will go to the selling shareholders. Accordingly,
we will not receive any proceeds from sales of these shares. We are paying the
expenses of registration of the shares being offered under this prospectus.
The proceeds we received in the private placement will be used to fund
our growth to the extent growth in retained earnings is insufficient and to pay
down up to $7 million in higher cost trust preferred securities. The proceeds
also satisfy regulatory requirements for additional capital in connection with
loan concentrations, if necessary.
DIVIDEND POLICY
Our holding company has not paid any cash dividends on its common stock
since its inception. Our holding company does not anticipate paying cash
dividends on shares of its common stock in the foreseeable future. Even if our
holding company eventually decides to pay cash dividends, its ability to do so
may be limited by regulatory restrictions, by our bank's ability to pay cash
dividends to our holding company and by our need to maintain sufficient capital
to support our operations. The ability of our bank to pay cash dividends to our
holding company is limited by its obligations to maintain sufficient capital and
by other restrictions on its cash dividends that are applicable to California
state banks and banks that are regulated by the FDIC.
16
SELLING SHAREHOLDERS
Selling Shareholder Table
This prospectus covers the offer and sale by the selling shareholders
of up to an aggregate of 1,400,569 shares of common stock. The following table
sets forth, to our knowledge, certain information about the selling shareholders
as of December 29, 2006, the date of the table, based on information furnished
to us by the selling shareholders. Each selling shareholder has indicated to us
that it is acting individually, not as a member of a group, and that neither it
nor any of its affiliates has held any position or office or had any other
material relationship with us in the past three years except as described in the
footnotes to the table. All of the shares of common stock being offered under
this prospectus were acquired by the selling shareholders in a private placement
transaction that closed on November 21, 2006 ("Private Placement"), as described
above under the heading "Private Placement through which the Selling
Shareholders Obtained Beneficial Ownership of the Offered Shares" beginning on
page 6.
Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to the securities. To
our knowledge, except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table below have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. Percentage of beneficial ownership is based on
10,586,659 shares of common stock outstanding as of the date of the table.
Shares shown as beneficially owned after the offering assume that all shares
being offered are sold.
The shares of common stock being offered under this prospectus may be
offered for sale from time to time during the period the registration statement
of which this prospectus is a part remains effective, by or for the accounts of
the selling shareholders named below.
Shares of Shares of
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior to Offering Shares of After Offering
Name of ------------------------- Common Stock -------------------------
Beneficial Owner Number Percentage Being Offered Number Percentage
- ------------------------------------ ---------- ----------- ---------------- -------- ----------
Acadia Master Fund I, Ltd. (1) 100,000 * 100,000 -- --
ActivFinancial Fund I, LP (2) 2,000 * 2,000 -- --
Steven W. Aichle** (3) 322,894 3.01% 4,692 318,202 2.96%
Kay Annette Anderson** (4) 10,371 * 7,038 3,333 *
James W. Andrews** & Carol A.
Andrews (5) 54,505 * 1,173 53,332 *
Bank of Stockton (6) 150,000 1.42% 150,000 -- --
Jack Barrish 10,000 * 10,000 -- --
Merrill Lynch Pierce Fenner & Smith
Inc. Cust FBO Frank Basirico Jr.
(7) 5,692 * 4,692 1,000 *
Bay Pond Investors (Bermuda) L.P.
(8) 100,000 * 100,000 -- --
Bay Pond Partners, L.P. (9) 300,000 2.83% 300,000 -- --
Robert P. Beck, D.D.S.** (10) 213,391 2.01% 2,815 210,576 1.99%
Berlin Income L.P. (11) 20,000 * 20,000 -- --
Jordan M. Blanchard** & Norma
Blanchard (12) 2,815 * 2,815 -- --
Peter Buck (13) 2,500 * 2,500 -- --
Stephanie Castagnier (14) 938 * 938 -- --
Castine Offshore Fund Ltd. (15) 13,969 * 13,969 -- --
Castine Partners LP (16) 15,738 * 15,738 -- --
Castine Partners II LP (17) 31,293 * 31,293 -- --
Center Bancorp Inc. (18) 15,000 * 15,000 -- --
17
Shares of Shares of
Common Stock Common Stock
Beneficially Owned Beneficially Owned
Prior to Offering Shares of After Offering
Name of ------------------------- Common Stock -------------------------
Beneficial Owner Number Percentage Being Offered Number Percentage
- ------------------------------------ ---------- ----------- ---------------- -------- ----------
George Cossolias** (19) 40,600 * 4,692 35,908 *
Barbara L. Davis** (20) 1,000 * 1,000 -- --
Jennifer A. Docherty (21) 750 * 750 -- --
Drake Associates L.P. (22) 25,000 * 25,000 -- --
Eastern Bank Corporation (23) 15,000 * 15,000 -- --
Craig Fertel and Kathryn Fertel 2,000 * 2,000 -- --
Shelley L. Flener** (24) 1,000 * 1,000 -- --
Robert R. Flores, Jr. (25) 9,012 * 2,346 6,666 *
FrontPoint Financial Horizons Fund,
L.P. (26) 105,000 * 105,000 -- --
Christopher S. Hooper (27) 1,500 * 1,500 -- --
Mac & Co. FBO Jayvee & Co (28) 244,200 2.31% 132,700 111,500 1.05%
Mac & Co FBO Jayvee & Co (29) 31,400 * 17,300 14,100 *
Firman Leung (30) 2,000 * 2,000 -- --
William H. McGaughey **(31) 17,345 * 2,346 14,998 *
Norguard Insurance Company (32) 15,000 * 15,000 -- --
Seidler Companies Cust FBO Donald
Anthony Pitcher IRA (33) 86,666 * 4,880 81,786 *
Charles Schwab & Co Inc Cust FBO
Martin Edward Plourd IRA (34) 12,358 * 4,692 7,666 *
Right Wall Capital Fund LP (35) 27,000 * 27,000 -- --
River Oaks Financial Fund LP (36) 55,000 * 55,000 -- --
Donald Lee Schempp ** TR UA DTD
June 18, 1998--The Donald Lee
Schempp Family Trust (37) 15,622 * 2,290 13,332 *
Thomas M. Shepherd ** & Jane B.
Shepherd (38) 67,839 * 1,173 66,666 *
Stieven Financial Investors L.P.
(39) 97,574 * 88,000 9,574 *
Stieven Financial Offshore
Investors Ltd. (40) 13,339 * 12,000 1,339 *
Temecula Valley Bank ESOP (41) 7,038 * 7,038 -- --
Revocable Trust of Marguerite
Cassandra Toroian (42) 2,680 * 2,680 -- --
UBS O'Connor LLC FBO Global
Convertible Arbitrage Master
Limited (43) 27,358 * 27,358 -- --
UBS O'Connor LLC FBO Global
Convertible Arbitrage II Master
Limited (44) 2,905 * 2,905 -- --
UBS O'Connor LLC FBO Pipes
Corporate Strategies Master
Limited (45) 44,737 * 44,737 -- --
Stephen H. Wacknitz** (46) 806,635 7.46% 5,000 801,635 7.41%
Wayne A. Wirth & Cynthia A. Wirth
(47) 4,506 * 1,173 3,333 *
Richard W. Wright** & Louise
Wright (48) 197,366 1.84% 2,346 195,020 1.82%
- ---------------------------
* Less than 1.00%.
* * A director, officer and/or employee of our holding company and/or our bank.
18
(1) Power to vote or dispose of the shares is held by Eric Jacobs and Jeff
Miller, each a managing partner of Acadia Master Fund I, Ltd.
(2) Power to vote or dispose of the shares is held by Cassandra Toroian and
Craig Fertel, as principals of C-Squared Advisors, LLC, which is the
general partner of ActivFinancial Fund I, LP
(3) Shares owned prior to and after the offering include 146,238 shares of
common stock underlying options and 171,964 shares held in The Aichle
1996 Family Trust. Mr. Aichle has been a director of our bank since 1996
and of our holding company since 2002.
(4) Ms. Anderson is Business Development Officer/National Account Manager of
our bank and joined us in 2001.
(5) Shares owned prior to and after the offering include 53,332 shares of
common stock underlying options. James W. Andrews has been EVP/Real
Estate Manager of our bank since 2002.
(6) Power to vote or dispose of the shares is held by the following officers
of this selling shareholder: Douglass M. Eberhardt, President; Douglass
M. Eberhardt II, Vice President; Thomas H. Shaffer, Executive Vice
President; D. Ray Robinson, Vice President; and John F. Dentoni, Vice
President-Strategic Planning.
(7) Power to vote or dispose of the shares is held by Frank Basirico. .Mr.
Basirico is Senior EVP/Chief Administrative Officer of our bank and
joined the bank in February 2006.
(8) Wellington Management Company, LLP ("Wellington") is an investment
advisor registered under the Investment Advisers Act of 1940, as amended,
and acts as an investment adviser to this selling shareholder. In its
capacity as investment adviser, Wellington shares voting and/or
investment power over the shares held by its client accounts and,
therefore, is deemed to share beneficial ownership over the shares held
by this selling shareholder.
(9) Wellington acts as an investment adviser to this selling shareholder. In
its capacity as investment adviser, Wellington shares voting and/or
investment power over the shares held by its client accounts and,
therefore, is deemed to share beneficial ownership over the shares held
by this selling shareholder.
(10) Shares owned prior to and after the offering include 11,000 shares of
common stock underlying options. Dr. Beck has been a director of our bank
since 1996 and of our holding company since 2002.
(11) Power to vote or dispose of the shares is held by Thomas G. Berlin as
managing member of Berlin Financial, Ltd, which is the general partner of
Berlin Income L.P.
(12) Jordan Blanchard has been EVP of our bank since September 2006.
(13) Mr. Buck is a managing director of Sandler O'Neill & Partners, L.P., the
lead placement agent in the Private Placement.
(14) Ms. Castagnier has been SVP/Loan Development of our bank since 2003.
(15) Power to vote or dispose of the shares is held by Paul D. Magidson, as
managing member of Castine Capital Management LLC, which is the
investment manager of the selling shareholder.
(16) Power to vote or dispose of the shares is held by Paul D. Magidson as
managing member of Castine Management GP, LLC, which is the general
partner of the selling shareholder.
(17) Power to vote or dispose of the shares is held by Paul D. Magidson as
managing member of Castine Management GP, LLC, which is the general
partner of the selling shareholder.
(18) Power to vote or dispose of the shares is held by Tony Weagley, an
authorized agent, and Cassandra Toroian, the account manager
(19) Shares owned prior to and after the offering include 8,000 shares of
common stock underlying options. Mr. Cossolias has been a director of our
bank since 2004 and of our holding company since 2004.
(20) Ms. Davis has been EVP of our bank since March 2006.
(21) Ms. Docherty is a managing director of Sandler O'Neill & Partners, L.P.,
the lead placement agent in the Private Placement.
(22) Power to vote or dispose of the shares is held by Alec Rutherford as
portfolio manager of Drake Associates L.P.
(23) Power to vote or dispose of the shares is held by John F. McKinlay and
Charles M. Johnston, officers of Eastern Bank Corporation.
(24) Ms. Flener has been EVP of our bank since March 2006.
(25) Shares owned prior to and after the offering include 6,666 shares of
common stock underlying options. Mr. Flores has been EVP/SBA National
Sales Manager of our bank since 2005. Mr. Flores' employment with the
bank terminates as of January 12, 2007.
(26) FrontPoint Financial Horizons Fund GP, LLC is the general partner of
FrontPoint Financial Horizons Fund, L.P. FrontPoint Partners LLC is the
sole member of FrontPoint Financial Horizons Fund GP, LLC and, as such,
has voting and dispositive power over the securities held by the fund.
Front Point Partners LLC is an indirect wholly-owned subsidiary of Morgan
Stanley.
(27) Mr. Hooper is a managing director of Sandler O'Neill & Partners, L.P.,
the lead placement agent in the Private Placement.
(28) These shares are held for further credit to Investors Group Trust Co.
Ltd. as trustee for Investors Mergers & Acquisitions Fund. Power to vote
or dispose of the shares is held by John Campbell, as portfolio manager
of Mac & Co., which is the investment adviser to this selling
shareholder.
(29) These shares are held for further credit to Investors Group Corporate
Class Inc. for Investors Mergers & Acquisitions Class. Power to vote or
dispose of the shares is held by John Campbell, as portfolio manager of
Mac & Co., which is the investment adviser to this selling shareholder.
(30) Firman Leung is a managing director of Sandler O'Neill & Partners, L.P.,
the lead placement agent in the Private Placement.
(31) Shares owned prior to and after the offering include 14,998 shares of
common stock underlying options. Mr. McGaughey is our bank's Senior
EVP/Director of Finance and SBA and has been with our bank since November
2004.
19
(32) Power to dispose of the shares is held by Cassandra Toroian, President,
and Craig Fertel, Managing Partner of Blue Rockefeller, LLC, the
investment adviser to Norguard Insurance Company. Power to vote is held
by Jeff Picker, Chief Financial Officer of Norguard Insurance Company.
(33) Shares owned prior to and after the offering include 21,666 shares of
common stock underlying options and 19,920 shares held in Scott Trade IRA
account and 40,200 shares in The Pitcher Family 2002 Trust. Power to vote
or dispose of the shares is held by Donald Pitcher. Mr. Pitcher is our
bank's EVP/Chief Financial Officer/Corporate Secretary and has been with
our bank since 1996 and of our holding company since 2002.
(34) Shares owned prior to and after the offering include 6,666 shares of
common stock underlying options. Power to vote or dispose of the shares
is held by Martin Plourd. Mr. Plourd is our bank's EVP/Chief Operating
Officer and has been with our bank since July 2005.
(35) Power to vote or dispose of the shares is held by William A. Ullman, as
Managing Partner of Right Wall Capital, LLC, which is the general partner
of Right Wall Capital Fund, LP.
(36) Power to vote or dispose of the shares is held by Matthew L. Johnson and
J. David Welch, as principals of River Oaks Capital LLC, which is the
general partner of River Oaks Financial Fund, LP and manages River Oaks
Financial Fund, LP.
(37) Shares owned prior to and after the offering include 13,332 shares of
common stock underlying options. Power to vote or dispose of the shares
is held by Donald Schempp, as trustee. Mr. Schempp has been EVP/North San
Diego County Regional Manager of our bank since January 2005.
(38) Shares owned prior to and after the offering include 66,666 shares of
common stock underlying options. Thomas M. Shepherd is the Senior
EVP/Chief Credit Officer of our bank and has been with our bank since
1998.
(39) Power to vote or dispose of the shares is held by Joseph A. Stieven, as
CEO, and Stephen Covington, John Rodis and Daniel Ellefson, as Managing
Directors, of Stieven Capital Advisors, L.P., which is the investment
manager of this selling shareholder.
(40) Power to vote or dispose of the shares is held by Joseph A. Stieven, as
CEO, and Stephen Covington, John Rodis and Daniel Ellefson, as Managing
Directors, of Stieven Capital Advisors, L.P., which is the investment
manager of this selling shareholder.
(41) Power to vote or dispose of the shares is held by Donald A. Pitcher,
William H. McGaughey, Frank Basirico Jr. and Donald L. Schempp, as
trustees. All are employees of our bank.
(42) Power to vote or dispose of the shares is held by Marguerite Cassandra
Toroian, as trustee.
(43) Power to vote or dispose of the shares is held by USB O'Connor LLC, as
investment manager. UBS O'Connor LLC is a wholly-owned subsidiary of UBS
AG, which is listed and traded on the NYSE.
(44) Power to vote or dispose of the shares is held by USB O'Connor LLC, as
investment manager. UBS O'Connor LLC is a wholly-owned subsidiary of UBS
AG, which is listed and traded on the NYSE.
(45) Power to vote or dispose of the shares is held by USB O'Connor LLC, as
investment manager. UBS O'Connor LLC is a wholly-owned subsidiary of UBS
AG, which is listed and traded on the NYSE.
(46) Mr. Wacknitz has been Chief Executive Officer/President/Chairman of our
bank since 1996 and of our holding company since 2002.
(47) Shares owned prior to and after the offering include 3,333 shares of
common stock underlying options. Wayne Wirth has been SVP Regional
Manager, Western Production of our bank since March 2005.
(48) Richard W. Wright has been a director of our bank since 1996 and of our
holding company since 2002.
20
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, donees, assignees
and successors-in-interest may, from time to time, sell in one or more
transactions, any or all of their shares of our common stock referred to in this
prospectus on any stock exchange, market or trading facility on which the shares
are traded or in private transactions. These sales may be at fixed prices, at
prevailing prices at the time of the sale, at varying prices determined at the
time of sale, or at negotiated prices. The selling shareholders may use any one
or more of the following methods when disposing of shares:
o on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
o in transactions otherwise than on these exchanges or systems;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o sales to a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o to cover short sales made after the date that the registration
statement, of which this prospectus is a part, is declared effective
by the SEC;
o broker-dealers may agree with the selling shareholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the selling shareholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling shareholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. These commissions and discounts may be in excess of those customary
in the types of transactions involved to the extent permitted by applicable law.
In connection with sales of the shares of common stock or otherwise,
the selling shareholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the shares of common
stock in the course of hedging in positions they assume. The selling
shareholders may also sell shares of common stock short and deliver shares of
common stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales. The selling
shareholders may also loan or pledge shares of common stock to broker-dealers
that in turn may sell such shares.
The selling shareholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell shares of common stock from time
to time under a supplement or amendment to this prospectus that lists the
pledgee, transferee or other successors in interest as selling shareholders.
Each selling shareholder has represented to us that such selling
shareholder is neither a broker-dealer nor an affiliate of a broker-dealer. If
sales of shares offered under this prospectus are made to broker-dealers as
principals, such broker-dealers would be "underwriters" within the meaning of
the Securities Act and we would be required to file a post-effective amendment
to the registration statement of which this prospectus is a part. In the
post-effective amendment, we would be required to disclose the names of any
participating broker-dealers and the compensation arrangements relating to such
sales.
To the extent the selling shareholders and any broker-dealers or agents
that are involved in selling the shares may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales, , any
21
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Any broker-dealers or agents
that are deemed to be underwriters may not sell shares offered under this
prospectus unless and until we set forth the names of the underwriters and the
material details of their underwriting arrangements in a supplement to this
prospectus or, if required, in a replacement prospectus included in a
post-effective amendment to the registration statement of which this prospectus
is a part.
Under the securities laws of some states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers.
We have advised each selling shareholder that it may not use shares
registered on this registration statement of which this prospectus is a part to
cover short sales of common stock made prior to the date on which this
registration statement shall have been declared effective by the SEC. If a
selling shareholder uses this prospectus for any sale of shares of our common
stock, it will be subject to the prospectus delivery requirements of the
Securities Act.
The selling shareholders and any other persons participating in the
sale or distribution of the shares offered under this prospectus will be
responsible for complying with the applicable provisions of the Exchange Act and
the rules and regulations promulgated thereunder including, without limitation,
Regulation M, as applicable. These provisions may restrict activities of, and
limit the timing of purchases and sales of any of the shares by, the selling
security holders or any other person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and other activities with respect to those securities
for a specified period of time prior to the commencement of such distributions,
subject to specified exceptions or exemptions. All of these limitations may
affect the marketability of the shares.
If any of the shares of common stock offered for sale pursuant to this
prospectus are transferred other than pursuant to a sale under this prospectus,
then subsequent holders could not use this prospectus until a post-effective
amendment or prospectus supplement is filed, naming such holders. We offer no
assurance as to whether any of the selling security holders will sell all or any
portion of the shares offered under this prospectus.
We are required to pay all fees and expenses incident to the
registration of the shares, estimated to be $37,966 in total, including, without
limitation, filing fees and expenses in compliance with state securities or
"blue sky" laws but we will not receive any proceeds from the sale of the common
stock. However, a selling shareholder will pay all discounts, concessions,
commissions and similar selling expenses, if any, that can be attributed to the
sale of securities.
We and the selling shareholders have agreed to indemnify one another
against certain losses, claims, damages and liabilities arising in connection
with this prospectus, including liabilities under the Securities Act. We may be
indemnified by the selling shareholders against civil liabilities that may arise
from any written information furnished to us by the selling shareholder
specifically for use in this prospectus, in accordance with the related
registration rights agreement, or we may be entitled to contribution.
22
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with respect to the
common stock offered under this prospectus with the SEC in accordance with the
Securities Act, and the rules and regulations enacted under its authority. This
prospectus, which is part of the registration statement, does not contain all
the information included in the registration statement. Because some information
is omitted, you should refer to the registration statement and its exhibits. For
example, the descriptions in the prospectus regarding the contents of any
contract or other document are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement. Each of these statements is qualified in
all respects by this reference. For copies of actual contracts or documents
referred to in this prospectus, you should refer to the exhibits attached to the
registration statement. You may review a copy of the registration statement,
including the attached exhibits, at the SEC's Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet website that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. The address of the SEC's website is
http://www.sec.gov.
LEGAL MATTERS
McAndrews, Allen & Matson, A.P.C., Laguna Beach, California, will pass
upon the validity of the shares of common stock in connection with this
offering.
EXPERTS
The consolidated financial statements and management's report on the
effectiveness of internal control over financial reporting incorporated in this
prospectus, by reference from Temecula Valley Bancorp Inc.'s Annual Report on
Form 10-K for the year ended December 31, 2005, have been audited by Crowe
Chizek and Company, LLP, an independent registered public accounting firm, as
stated in their reports. Such reports are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and management's report on the
effectiveness of internal control over financial reporting incorporated in this
prospectus, by reference from Temecula Valley Bancorp Inc.'s Annual Report on
Form 10-K for the years ended December 31, 2004 and December 31, 2003, have been
audited by Vavrinek, Trine, Day & Co., LLP, an independent registered public
accounting firm, as stated in their reports. Such reports are incorporated
herein by reference in reliance upon such reports given on the authority of such
firm as experts in accounting and auditing.
TRANSFER AGENT AND REGISTRAR
U.S. Stock Transfer Corporation is the transfer agent and registrar for
our common stock. Its telephone number is (818) 502-1404.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are "incorporating by reference" into this prospectus certain
information we filed with the SEC, which means that we are disclosing important
information to you by referring you to other documents that we filed separately
with the SEC. The information incorporated by reference is deemed to be part of
this prospectus. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act, after the date of this prospectus and prior to the termination
of the offering covered by this prospectus:
o Our Annual Report on Form 10-K for the year ended December 31, 2005
filed with the SEC on March 31, 2006;
o Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2006, June 30, 2006 and September 30, 2006 filed with the SEC on May
10, 2006, August 9, 2006 and November 6, 2006, respectively;
23
o Our Current Reports on Form 8-K dated February 1, February 13, March
1, March 22, April 26, June 28, July 27, August 8, August 25, August
30, September 27, November 21, December 4, December 20, 2006, January
9, and January 26, 2007 filed with the SEC on February 7, February 16,
March 7, March 23, April 27, July 5, August 2, August 8, August 28,
September 5, October 3, November 22, December 5, December 27, 2006,
January 12, and January 29, 2007 respectively; and
o The description of our capital stock contained in our Form 8-A12G
filed on June 3, 2002.
Any statement in a document incorporated or deemed to be incorporated
by reference in this prospectus is deemed to be modified or superseded to the
extent that a statement contained in this prospectus, or in any other document
we subsequently file with the SEC, modifies or supersedes that statement. If any
statement is modified or superseded, it does not constitute a part of this
prospectus, except as modified or superseded.
Notwithstanding the above, information that is "furnished to" the SEC
shall not be deemed "filed with" the SEC and shall not be deemed incorporated by
reference into this prospectus or the registration statement of which this
prospectus is a part.
We will provide to each person, including any beneficial owner, to whom
a prospectus is delivered, a copy of any or all of the information that has been
incorporated by reference in this prospectus but not delivered with this
prospectus. You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and phone number: Temecula Valley
Bancorp Inc., 27710 Jefferson Avenue, Suite A100, Temecula, California 92590,
Attention: Shareholders' Relations. Our telephone number is (951) 694-9940.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus may constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, and as such, may involve risks and
uncertainties. These forward-looking statements relate to, among other things,
expectations of the environment in which we operate and projections of future
performance, and can generally be identified by the use of the words "believe,"
"intend," "anticipate," "will" and similar words.
These forward-looking statements necessarily depend upon assumptions
and estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the
forward-looking statements.
We intend the forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for
purposes of invoking these safe harbor provisions. Such statements are based
upon current expectations and beliefs and are subject to risks, uncertainties
and changes in condition, significance, value and effect, including those
discussed in the "Risk Factors" section of this prospectus and in Item 1A of
Part I of our Annual Report on Form 10-K for the year ended December 31, 2005
and Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006. Such risks, uncertainties and changes in condition,
significance, value and effect could cause our actual results to differ
materially from those anticipated events.
24
INDEMNIFICATION OF DIRECTORS, OFFICERS AND CONTROLLING PERSONS
The California Corporations Code and our articles of incorporation and
bylaws provide for indemnification of our directors and officers for liabilities
and expenses that they may incur in such capacities.
Article IV of our holding company's articles of incorporation provides
that the liability of directors of our holding company for monetary damages
shall be eliminated to the fullest extent permissible under California law.
Article V of our bank's articles of incorporation provides that our bank is
authorized to provide indemnification of agents (as defined in Section 317 of
the California Corporations Code) to the fullest extent permissible under
California law, and that any amendment, repeal or modification of the provisions
of that article shall not adversely affect any right or protection of an agent
of our bank existing at the time of such amendment, repeal or modification.
Article V of our holding company's bylaws provides that our directors,
officers, employees and agents are entitled to indemnification unless the
standard of conduct under California law allowing for indemnification is not
met. The indemnification provisions of the articles of incorporation and bylaws
of our bank are substantially similar to those of our holding company.
Although there are indemnification obligations in connection with trust
preferred instruments for officers and directors involved in those processes,
the employee stock ownership plan relative to administrators and trustees, the
employment agreement of Stephen H. Wacknitz, the employment agreements of Tom
Ivory, James Andrews, Steve Janda and Robert Flores (which was terminated
effective January 12, 2007) in connection with their respective, immediate prior
employers and possible litigation in connection therewith, generally the
indemnification obligations are no broader than those provided in the bylaws of
our holding company and our bank.
Under California law, a corporation may indemnify any agent of the
corporation who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the corporation to
procure a judgment in its favor) as a result of acting as an agent for the
corporation against amounts actually and reasonably incurred in connection with
the proceeding if that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct of
the person was unlawful.
We maintain one or more policies of insurance covering directors' and
officers' liability in an insured amount of not less than $5 million. The
insurance policies cover, among other things, claims asserted under federal and
state securities laws and such other matters as are customary and appropriate
for publicly traded companies operating in registrant's industry.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, we have been informed that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
25
TEMECULA VALLEY BANCORP INC.
1,400,569 Shares of Common Stock
PROSPECTUS
February 21, 2007
We have not authorized any person to make a statement that differs from
what is in this prospectus or any accompanying supplement. If any person does
make a statement that differs from what is in this prospectus or any
accompanying supplement, you should not rely on it. This prospectus and any
accompanying supplement is not an offer to sell, nor is it seeking an offer to
buy, these securities in any jurisdiction in which the offer or sale is not
permitted. The information in this prospectus and any accompanying supplement is
complete and accurate as of the dates on their covers, but the information may
have changed after that date.
26