10-Q 1 p13651_10q.txt FORM 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR the quarter period ended March 31, 2001 Commission File No. 0-31080 NORTH BAY BANCORP ----------------- (Exact name of registrant as specified in its charter) California 68-0434802 ---------- ---------- (State or Jurisdiction of incorporation) (I.R.S. Employer Identification No.) 1500 Soscol Avenue, Napa, California 94559-1314 ----------------------------------------------- (Address of principal executive office including Zip Code) Registrant's telephone number, including area code: (707) 257-8585 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value -------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ----------- APPLICABLE ONLY TO CORPORATE ISSURES: Indicate the number of shares outstanding of the North Bay Bancorp's Common Stock outstanding as of May 9, 2001: 1,969,328 1 PART I. FINANCIAL INFORMATION FORWARD LOOKING STATEMENTS In addition to the historical information contained herein, this Quarterly Report contains certain forward-looking statements. The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, fee and other noninterest income earned as well as other factors. This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. Moreover, wherever phrases such as or similar to "In Management's opinion", or "Management considers" are used, such statements are as of and based upon the knowledge of Management, at the time made and are subject to change by the passage of time and/or subsequent events, and accordingly such statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. FINANCIAL INFORMATION The information for the three months ended March 31, 2001 and March 31, 2000, is unaudited, but in the opinion of management reflects all adjustments which are necessary to present fairly the financial condition of North Bay Bancorp (Company) at March 31, 2001 and the results of operations and cash flows for the three months then ended. Results for interim periods should not be considered as indicative of results for a full year. 2 Item 1. Financial Statements
North Bay Bancorp Consolidated Balance Sheets Unaudited March 31, March 31, December 31, 2001 2000 2000 ------------- ------------- ------------- Assets Cash and due from banks $ 14,524,000 $ 10,128,000 $ 15,881,000 Federal funds sold 28,836,000 9,523,000 9,475,000 Time deposits with other financial institutions 100,000 100,000 100,000 Investment Securities: Held-to-maturity 1,353,000 1,372,000 1,353,000 Available-for-sale 59,379,000 53,970,000 58,251,000 Loans, net of allowance for loan losses of $2,382,000 in March, 2001 $1,977,000 in March, 2000 and $2,268,000 in December, 2000 157,527,000 128,919,000 150,008,000 Bank premises and equipment, net 6,932,000 3,572,000 5,242,000 Accrued interest receivable and other assets 6,603,000 6,501,000 7,159,000 ------------- ------------- ------------- Total assets $ 275,254,000 $ 214,085,000 $ 247,469,000 ============= ============= ============= Liabilities and Shareholders' Equity Deposits: Non-interest bearing $ 69,792,000 $ 43,488,000 $ 60,676,000 Interest bearing 174,330,000 146,256,000 155,962,000 ------------- ------------- ------------- Total deposits 244,122,000 189,744,000 216,638,000 Long term debt 2,538,000 0 2,769,000 Short term borrowings 0 4,600,000 0 ------------- ------------- ------------- Total borrowings 2,538,000 4,600,000 2,769,000 Accrued interest payable and other liabilities 1,239,000 1,367,000 1,425,000 ------------- ------------- ------------- Total liabilities 247,899,000 195,711,000 220,832,000 ------------- ------------- ------------- Shareholders' equity: Preferred stock - no par value: Authorized, 500,000 shares; Issued and outstanding - none Common stock - no par value: Authorized, 10,000,000 shares; Issued and outstanding - 1,956,040 shares in March 2001, 1,615,410 shares in March, 2000, and 1,850,445 in December, 2000 21,873,000 14,824,000 19,802,000 Retained earnings 4,986,000 4,811,000 6,753,000 Accumulated other comprehensive income (loss) 496,000 (1,261,000) 82,000 ------------- ------------- ------------- Total shareholders' equity 27,355,000 18,374,000 26,637,000 Total liabilities and shareholders' equity $ 275,254,000 $ 214,085,000 247,469,000 ============= ============= ============= The accompanying notes are an integral part of these statements
3 North Bay Bancorp Consolidated Income Statements (Unaudited) Three Months Ended March 31, 2001 2000 ---------- ---------- Interest Income Loans (including fees) $3,589,000 $2,808,000 Federal funds sold 244,000 71,000 Investment securities 922,000 844,000 ---------- ---------- Total Interest income 4,755,000 3,723,000 Interest Expense Deposits 1,563,000 1,219,000 Short term borrowings 2,000 70,000 Long term debt 63,000 0 ---------- ---------- Total Interest expense 1,628,000 1,289,000 Net interest income 3,127,000 2,434,000 Provision for loan losses 111,000 90,000 ---------- ---------- Net interest income after provision for loan losses 3,016,000 2,344,000 Non interest income 545,000 514,000 Non interest expenses Salaries and employee benefits 1,408,000 983,000 Occupancy 221,000 112,000 Equipment 330,000 162,000 Other 712,000 511,000 ---------- ---------- Total non interest expense 2,671,000 1,768,000 ---------- ---------- Income before provision for income taxes 890,000 1,090,000 Provision for income taxes 336,000 419,000 ---------- ---------- Net income $ 554,000 $ 671,000 ========== ========== Basic earnings per common share: $ 0.28 $ 0.40 ========== ========== Diluted earnings per common share: $ 0.28 $ 0.39 ========== ========== The accompanying notes are an integral part of these statements 4 North Bay Bancorp Consolidated Statement of Change in Shareholders' Equity For the Three Months Ended March 31, 2001 (Unaudited) Accumulated Other Total Common Shares Common Retained Comprehensive Shareholders' Comprehensive Outstanding Stock Earnings Income Equity Income BALANCE, DECEMBER 31, 2000 1,850,445 $19,801,000 $6,753,000 $82,000 $26,636,000 Stock dividend 92,307 1,938,000 (1,950,000) (12,000) Cash dividend (371,000) (371,000) Comprehensive income: Net income 554,000 554,000 $554,000 Other comprehensive income, net of tax: Change in net unrealized gains on available-for-sale securities, net of tax 414,000 414,000 414,000 -------- Comprehensive income $968,000 ======== Stock options exercised 13,288 134,000 134,000 --------- ----------- ---------- -------- ----------- BALANCE, MARCH 31, 2001 1,956,040 $21,873,000 $4,986,000 $496,000 $27,355,000 ========= ============ =========== ======== =========== The accompanying notes are an integral part of these statements
5 North Bay Bancorp Consolidated Statement of Cash Flows Unaudited (In 000's) Three Months Ended March 31, 2001 2000 -------- -------- Cash Flows From Operating Activities: Net income $ 554 $ 671 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 252 97 Provision for loan losses 111 90 Amortization of deferred loan fees (98) (63) Premium amortization (discount accretion), net (20) 8 Changes in: Interest receivable and other assets 261 901 Interest payable and other liabilities (187) (269) -------- -------- Total adjustments 319 764 -------- -------- Net cash provided by operating activities 873 1,435 -------- -------- Cash Flows From Investing Activities: Investment securities held-to-maturity: Proceeds from maturities and principal payments 0 18 Investment securities available-for-sale: Proceeds from maturities and principal payments 4,155 1,132 Purchases (4,554) 0 Net increase in loans (7,532) (8,780) Capital expenditures (1,942) (787) -------- -------- Net cash used in investing activities (9,873) (8,417) -------- -------- Cash Flows From Financing Activities: Net increase in deposits 27,484 17,364 Decrease in short-term borrowings 0 (400) Repayment of long-term borrowings (231) 0 Stock options exercised 134 18 Dividends paid (383) (315) -------- -------- Net cash provided by financing activities 27,004 16,667 -------- -------- Net increase in cash and cash equivalents 18,004 9,685 Cash and cash equivalents at beginning of year 25,356 9,966 -------- -------- Cash and cash equivalents at end of period $ 43,360 $ 19,651 ======== ======== Supplemental Disclosures of Cash Flow Information: Interest paid $ 1,300 $ 1,371 The accompanying notes are an integral part of these statements 6 NORTH BAY BANCORP Notes to the Consolidated Financial Statements (Unaudited) March 31, 2001 NOTE 1 - Basis of Presentation The accompanying consolidated financial statements, which include the accounts of North Bay Bancorp and its subsidiaries (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in Management's opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for such interim periods. The subsidiaries consist of two community banks, The Vintage Bank, established in 1985, and Solano Bank, which was opened July 17, 2000. All significant intercompany transactions and balances have been eliminated. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules or regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the three months ended March 31, 2001 and 2000, are not necessarily indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company's Annual Report for the year ended December 31, 2000. NOTE 2 - Commitments The Company has outstanding standby Letters of Credit of approximately $4,433,000, undisbursed real estate and construction loans of approximately $22,308,000, and undisbursed commercial and consumer lines of credit of approximately $19,051,000, as of March 31, 2001. NOTE 3 - Earnings Per Common Share The Company declared 5% stock dividends on January 18, 2000 and January 29, 2001. As a result of the stock dividends the number of common shares outstanding and earnings per share data was adjusted retroactively for all periods presented. The following table reconciles the numerator and denominator of the Basic and Diluted earnings per share computations: Weighted Average Per-Share Net Income Shares Amount ---------- ------ ------ For the three months ended March 31, 2001 ----------------------------------------- Basic earnings per share $554,000 1,946,459 $.28 Stock options 23,990 Diluted earnings per share 1,970,449 $.28 For the three months ended March 31, 2000 ----------------------------------------- Basic earnings per share $671,000 1,694,220 $.40 Stock options 35,855 Diluted earnings per share 1,730,074 $.39 7 NOTE 4 - Comprehensive Income For the Company, comprehensive income includes net income reported on the statement of income and changes in the fair value of its available-for-sale investments reported as a component of shareholders' equity. The following table presents net income adjusted by the change in unrealized gains or losses on the available-for-sale investments as a component of comprehensive income (in thousands). Three Months Ended March 31, 2001 2000 ---- ---- Net Income $554 $671 Net change in unrealized gains (losses) on available-for-sale 414 (90) --- ---- investments, net of tax Comprehensive Income $968 $581 ==== ==== NOTE 5 - Segment Reporting The Company's operating segments consist of its traditional community banking activities provided through its Banks and activities related to the Bancorp. Community banking activities include the Banks' commercial and retail lending, deposit gathering and investment and liquidity management activities. As permitted, the Company has aggregated the results of the separate banks and branches into a single reportable segment, and the Bancorp activities reported as "Other". 8 The components of the Company's business segments for the three months ended March 31, 2001 were as follows: (In 000's) Community Intersegment Banking Other Adjustments Consolidated ------- ----- ----------- ------------ Interest Income $ 4,755 $ 0 $ 0 $ 4,755 Interest Expense 1,565 63 0 1,628 -------- -------- -------- -------- Net Interest Income 3,190 (63) 0 3,127 Provision for loan losses 111 0 0 111 Equity income of subsidiaries 0 832 832 0 Noninterest Income 588 869 912 545 Noninterest Expense 2,299 1,284 912 2,671 -------- -------- -------- -------- Income Before Tax 1,368 354 832 890 Provision for Income Taxes 536 (200) 0 336 -------- -------- -------- -------- Net Income $ 832 $ 554 $ 832 $ 554 ======== ======== ======== ======== Assets $272,638 $ 30,295 $ 27,679 $275,254 Loans, Net 157,527 0 0 157,527 Deposits 244,401 0 279 244,122 Equity 27,400 27,355 27,400 27,355 The components of the Company's business segments for the three months ended March 31, 2000 were as follows: (In 000's) Community Intersegment Banking Other Adjustments Consolidated ------- ----- ----------- ------------ Interest Income $3,723 $0 $0 $3,723 Interest Expense 1,289 0 0 1,289 ----- - - ----- Net Interest Income 2,434 0 0 2,434 Provision for loan losses 90 0 0 90 Noninterest Income 555 514 555 514 Noninterest Expense 1,548 775 555 1,768 ----- --- --- ----- Income (Loss) Before Tax 1,351 (261) 0 1,090 Provision for Income Taxes 528 (109) 0 419 --- ----- - --- Net Income (Loss) $823 ($152) $0 $671 ==== ===== == ==== Assets $213,180 $18,383 $17,478 $214,085 Loans, Net 128,919 0 0 128,919 Deposits 190,442 0 698 189,744 Equity 16,780 18,374 16,780 18,374 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS In addition to the historical information contained herein, this Quarterly Report contains certain forward-looking statements. The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, fee and other noninterest income earned as well as other factors. This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. Moreover, wherever phrases such as or similar to "In Management's opinion", "Management considers" are used, such statements are as of and based upon the knowledge of Management, at the time made and are subject to change by the passage of time and/or subsequent events, and accordingly such statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. OVERVIEW Net income was $554,000 or $.28 per diluted share for the three months ended March 31, 2001, compared with $671,000 or $.39 per diluted share for the three months ended March 31, 2000, a decrease of 17%. Total assets were $275,254,000 as of March 31, 2001; equating to a 29% growth in assets during the twelve months ended March 31, 2001. SUMMARY OF EARNINGS NET INTEREST INCOME The following table provides a summary of the components of interest income, interest expense and net interest margins for the quarters ended March 31, 2001 and March 31, 2000: 10
In 000's 2001 2000 ---- ---- Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate -------------------------------------------------------------------------------------- Loans (1) (2) $156,872 $3,589 9.15% $126,918 $2,808 8.85% Investment securities: Taxable 45,525 755 6.63% 41,449 674 6.50% Non-taxable (3) 13,913 210 6.04% 14,090 214 6.08% ------- ---- ------- ---- TOTAL LOANS AND INVESTMENT SECURITIES 216,310 4,554 8.42% 182,457 3,696 8.10% Due from banks, time 100 1 4.00% 100 1 4.00% Federal funds sold 20,502 244 4.76% 5,787 71 4.91% ------- ---- ------ --- TOTAL EARNING ASSETS 236,912 $4,799 8.10% 188,344 $3,768 8.00% -------- ------- -------- ------- Cash and due from banks 14,533 8,813 Allowance for loan losses (2,344) (1,938) Premises and equipment, net 6,368 3,233 Accrued interest receivable and other assets 6,207 6,779 -------- -------- TOTAL ASSETS $261,676 $205,231 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $78,845 $552 2.80% $61,160 $344 2.25% Savings 18,006 78 1.73% 16,133 74 1.83% Time 69,605 933 5.36% 63,944 801 5.01% ------- ---- ------- ---- 166,456 1,563 3.76% 141,237 1,219 3.45% Long-term debt 2,940 65 8.84% 0 0 0.00% Short-term borrowings 0 0 0.00% 4,600 70 6.09% TOTAL INTEREST BEARING LIABILITIES 169,396 $1,628 3.84% 145,837 $1,289 3.54% -------- ------- -------- ------- Noninterest bearing DDA 63,459 39,444 Accrued interest payable and other liabilities 1,650 1,616 Shareholders' equity 27,171 18,334 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $261,676 $205,231 ======== ======== NET INTEREST INCOME $3,171 $2,479 ====== ====== NET INTEREST INCOME TO AVERAGE EARNING ASSETS (Net Interest Margin (4)) 5.35% 5.26%
11 (1) Average loans include nonaccrual loans (2) Loan interest income includes loan fee income of $197 in 2001 and $134 in 2000 (3) Average yields shown are taxable-equivalent. On a non- taxable basis, 2001 interest income was $166 with an average yield of 4.77%; in 2000 non-taxable income was $169 and the average yield was 4.80%. (4) Net interest margin is calculated by dividing net interest income by the average balance of total earning assets for the applicable period Net interest income represents the amount by which interest earned on earning assets (primarily loans and investments) exceed the amount of interest paid on deposits. Net interest income is a function of volume, interest rates and level of non-accrual loans. Non-refundable loan origination fees are deferred and amortized into income over the life of the loan. Net interest income before the provision for loan losses on a taxable-equivalent basis for the three months ended March 31, 2001 and March 31, 2000 was $3,127,000 and $2,434,000, respectively. These results equate to a 28% increase in net interest income for the first quarter of 2001 compared to the first quarter of 2000. Loan fee income, which is included in interest income, was $197,000 for the three months ended March 31, 2001, compared with $134,000 for the three months ended March 31, 2000. The average balance of earnings assets increased $48,568,000 or 26% during the twelve months ended March 31, 2001. Taxable-equivalent interest income increased $1,031,000 in the first quarter of 2001 compared with the first quarter of 2000. Increase in the volume of earning assets accounted for $907,000 of this increase, with an increase of $124,000 attributable to higher rates. The average balance of interest-bearing liabilities increased $23,559,000 or 16% during the first three month of 2001 compared with the same period in 2000. Interest paid on interest-bearing liabilities increased $339,000 or 26% in 2001 compared with 2000. Increase in the volume of deposits and other borrowings accounted for $109,000 of this increase, while a $230,000 increase was attributed to an increase in rates. Management does not expect a material change in the Company's net interest margin during the next twelve months as the result of a modest increase or decrease in general interest rates. 12 The following table sets forth a summary of the changes in interest earned and interest paid for the first three months in 2001 over 2000 resulting from changes in assets and liabilities volumes and rates. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each. In 000's 2001 Over 2000 --------------- Volume Rate Total ------- ------- ------- Increase (Decrease) In Interest and Fee Income Time Deposits With Other Financial Institutions $ 0 $ 0 $ 0 Investment Securities: Taxable 66 15 81 Non-Taxable (1) (3) (1) (4) Federal Funds Sold 181 (8) 173 Loans 663 118 781 ------- ------- ------- Total Interest and Fee Income 907 124 1,031 ------- ------- ------- Increase (Decrease) In Interest Expense Deposits: Interest Bearing Transaction Accounts 100 108 208 Savings 8 (4) 4 Time Deposits 71 61 132 ------- ------- ------- Total Deposits 179 165 344 Long-term Debt 0 65 65 Short-term Borrowings (70) 0 (70) ------- ------- ------- Total Interest Expense 109 230 339 ------- ------- ------- Net Interest Income $ 798 ($ 106) $ 692 ======= ======= ======= (1) The interest earned is taxable-equivalent. PROVISION AND ALLOWANCE FOR LOAN LOSSES The Company maintains an allowance for loan losses at a level considered adequate to provide for losses that can be reasonably anticipated. The allowance is increased by the provision for loan losses and reduced by net charge offs. The allowance for loan losses is based on estimates, and ultimate losses may vary from current estimates. These estimates are reviewed periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known. The Company makes credit reviews of the loan portfolio and considers current economic conditions, historical loan loss experience and other factors in determining the adequacy of the allowance balance. This evaluation establishes a specific allowance for all classified loans over $50,000 and establishes percentage allowance requirements for all other loans, according to the classification as determined by the Company's internal grading system. As of 13 March 31, 2001 the allowance for loan losses of $2,382,000 represented 1.49% of loans outstanding. As of March 31, 2000, the allowance represented 1.51% of loans outstanding. During the three months ended March 31, 2001, $111,000 was charged to expense for the loan loss provision, compared with $90,000 for the same period in 2000. Net recoveries for all loans were $3,000 for the first quarter on 2001 compared with net charge-offs of $100,000 in the year earlier period. There were no loans on non-accrual status as of March 31, 2001, March 31, 2000 or December 31, 2000. The following table summarizes changes in the allowance for loan losses:
In 000's March 31, 2001 March 31, 2000 Balance, beginning of period $2,268 $1,987 Provision for loan losses 111 90 Loans charged off 0 120 Recoveries of loans previously charged off 3 20 ------ ------ Balance, end of period $2,382 $1,977 ====== ====== Allowance for loan losses to total outstanding loans 1.49% 1.51%
NON-INTEREST INCOME Non-interest income was $545,000 for the three months ended March 31, 2001 compared with $514,000 for the same period in 2000, a 6% increase. The increase in non-interest income resulted primarily from an increase in the number of deposit accounts, transaction volumes and directly related service charges. NON-INTEREST EXPENSE Non-interest expense for the three months ended March 31, 2001 and March 31, 2000 was $2,671,000 and $1,768,000, respectively, a 51% increase. The increase compared with the prior reporting period is primarily due to the Company opening its subsidiary de novo bank, Solano Bank, on July, 17, 2000. Salaries and employee benefits expense for the three months ended March 31, 2001 and 2000 were $1,408,000 and $983,000, respectively, a 43% increase. The increase in 2001 resulted from increased salary rates paid to Company officers and employees, and an increase of approximately twenty-seven full-time equivalent employees from 85 at March 31, 2000 to 112 at March 31, 2001. Occupancy expense for the three months ended March 31, 2001 and 2000 were $221,000 and $112,000, respectively, a 97% increase. The increase in 2001 is attributed to opening three branch offices of Solano Bank in mid 2000. The Company had three branch offices at March 31, 2000 compared with six at March 31, 2001. Equipment expense for the three months ended March 31, 2001 and 2000 was $330,000 and $162,000, respectively, representing an increase of 104%. The increase was primarily due to an increase in depreciation expense for the new host banking systems and the new item processing and imaging systems, as well as, furniture and equipment depreciation expenses of the three new branch offices. Other expenses for the three months ended March 31, 2001 and March 31, 2000 were $712,000 and $511,000, respectively, a 39% increase. The increase from last year is primarily due to costs associated with operating six branch offices in 2001 in comparison to three in 2000. INCOME TAXES The Company reported a provision for income tax for the three months ended March 31, 2001 and 2000 of $336,000 and $419,000, respectively. Both the 2001 and 2000 provisions reflect tax accruals at maximum rates for both federal and state income taxes, adjusted for the effect of the Company's investments in tax-exempt municipal securities. BALANCE SHEET Total assets as of March 31, 2001 were $275,254,000 compared with $214,085,000 as of March 31, 2000, and $247,469,000 at December 31, 2000 equating to a 29% increase during the twelve months then ended 14 and an 11% increase for the three month ended March 31, 2001. Total deposits as of March 31, 2001 were $244,122,000 compared with $189,744,000 as of March 31, 2000, and $216,638,000 at December 31, 2000 representing a 29% increase during the twelve months and a 13% increase for the three months ended March 31, 2001. Loans outstanding as of March 31, 2001 were $159,909,000 compared with $130,896,000 as of March 31, 2000, and $152,276,000 at December 31, 2000 equating to a 22% increase during the twelve months and a 6% increase for the three months ended March 31, 2001. BORROWINGS There were no short-term borrowings at March 31, 2001 or December 31, 2000 compared with $4,600,000 at March 31, 2000. Short-term borrowings consist primarily of federal funds purchased and borrowings from Federal Home Loan Bank. The Company has used short-term borrowings to assist in funding its increased loan demand. Continued reliance on short-term borrowings may be required if loan demand outpaces deposit growth, and, therefore short-term borrowings are expected to vary from time to time. The Company has a $3,000,000 unsecured loan with Union Bank of California, with a current balance of $2,538,000. The term of the loan is three and one half years with principal and interest payments due quarterly. The loan is a variable rate loan tied to Union Bank's reference rate, currently 7.50%. The proceeds of this loan were primarily invested into the Company's subsidiary, Solano Bank. LIQUIDITY AND CAPITAL ADEQUACY The Company's liquidity is determined by the level of assets (such as cash, Federal Funds, and investment in marketable securities) that are readily convertible to cash to meet customer withdrawals and borrowings. Management reviews the Company's liquidity position on a regular basis to ensure that it is adequate to meet projected loan funding and potential withdrawal of deposits. The Company has a comprehensive Asset/Liability Management and Liquidity Policy, which it uses to determine adequate liquidity. As of March 31, 2001 liquid assets were 37% of total assets, compared with 34% as of March 31, 2000. The Federal Deposit Insurance Corporation Improvement Act (FDICA) established ratios used to determine whether a Company is "Well Capitalized," "Adequately Capitalized," "Undercapitalized," "Significantly Undercapitalized," or "Critically Undercapitalized." A Well Capitalized Company has risk-based capital of at least 10%, tier 1 risked-based capital of at least 6%, and a leverage ratio of at least 5%. As of March 31, 2001, the Company's risk-based capital ratio was 14.44%. The Company's tier 1 risk-based capital ratio and leverage ratio were 13.30% and 10.31%, respectively. As the following table indicates, the Bank currently exceeds the regulatory capital minimum requirements. The Bank is considered "Well Capitalized" according to regulatory guidelines. 15
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- (In 000's) Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of March 31, 2001: Total Capital (to Risk Weighted Assets) Consolidated $28,784 14.44% $15,942 >8.00% $19,927 >10.00% - - The Vintage Bank 20,629 11.33% 14,572 >8.00% 18,215 >10.00% - - Solano Bank 8,246 56.85% 1,164 >8.00% 1,455 >10.00% - - Tier I Capital (to Risk Weighted Assets) Consolidated 26,507 13.30% 7,971 >4.00% 11,956 >6.00% - - The Vintage Bank 18,352 10.08% 7,286 >4.00% 10,929 >6.00% - - Solano Bank 8,200 56.54% 728 >4.00% 873 >6.00% - - Tier I Capital (to Average Assets) Consolidated 26,507 10.31% 10,287 >4.00% 12,858 >5.00% - The Vintage Bank 18,352 8.03% 9,147 >4.00% 11,433 >5.00% - - Solano Bank 8,200 28.77% 1,140 >4.00% 1,425 >5.00% - -
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. Although the Company manages other risks, as in credit quality and liquidity risk, in the normal course of business, management considers interest rate risk to be a principal market risk. Other types of market risks, such as foreign currency exchange rate risk, do not arise in the normal course of the Company's business activities. The majority of the Company's interest rate risk arises from instruments, positions and transactions entered into for the purpose other than trading. They include loans, securities available-for-sale, deposit liabilities, short-term borrowings and long-term debt. Interest rate risk occurs when assets and liabilities reprice at different times as interest rate changes. The Company manages interest rate risk through an Asset Liability Committee (ALCO). The ALCO monitors exposure to interest rate risk on a quarterly basis using both a traditional gap analysis and simulation analysis. Traditional gap analysis identifies short and long-term interest rate positions or exposure. Simulation analysis uses an income simulation approach to measure the change in interest income and expense under rate shock conditions. The model considers the three major factors of (a) volume differences, (b) repricing differences and (c) timing in its income simulation. The model begins by disseminating data into appropriate repricing buckets based on internally supplied algorithms (or overridden by calibration). Next, each major asset and liability type is assigned a "multiplier" or beta to simulate how much that particular balance sheet category type will reprice when interest rates change. The model uses eight asset and liability multipliers consisting of bank-specific or defaults multipliers. The remaining step is to simulate the timing effect of assets and liabilities by modeling a month-by-month simulation to estimate the change in interest income and expense over the next 12-month period. The results are then expressed as the change in pre-tax net interest income over a 12-month period for +1%, and +2% shocks. 16 Utilizing the simulation model to measure interest rate risk at March 31, 2001 and December 31, 2000 the Company is within the established exposure of a 4% change in "return on equity" tolerance limit. There were no significant changes in interest rate risk from the Annual Report on Form 10-KSB for December 31, 2000. 17 PART II - OTHER INFORMATION OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On March 20, 2001 a 5% stock dividend was granted to shareholders of record March 1, 2001. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) An index of exhibits begins on page 20. (b) On February 14, 2001, the Company filed a Current Report on Form 8-K, reporting the declaration of a stock dividend of one share for every twenty outstanding shares and a cash dividend of twenty cents ($.20) per share. On March 5, 2001 the Company filed a Current Report on Form 8-K, reporting its year-end results and commencement of its public stock offering. No financial statements were filed with the Current Reports on Form 8-K. 18 Pursuant to the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH BAY BANCORP A California Corporation Date: May 9, 2001 BY: /s/ Terry L. Robinson ------------------------------------ Terry L. Robinson President & CEO (Principal Executive Officer) Date: May 9, 2001 BY: /s/ Lee-Ann Cimino ----------------------------------- Lee-Ann Cimino Senior Vice President & CFO (Principal Financial Officer) 19 Exhibit No. Description --- ----------- 11 Statement re: computation of per share earnings is included in Note 3 to the unaudited condensed consolidated financial statements of Registrant.