-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RDgwLojWLkOJj7UguSaWiRxm3XW0X1gPOf53BjsBycpKjGc7/Kpy+x6+sJqsBw9z i4fGB85UN39+o6gQo5lJRQ== 0000950005-01-500632.txt : 20020410 0000950005-01-500632.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950005-01-500632 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH BAY BANCORP/CA CENTRAL INDEX KEY: 0001102595 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 680434802 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-93537 FILM NUMBER: 1779322 BUSINESS ADDRESS: STREET 1: 1500 SOSCOL AVE CITY: NAPA STATE: CA ZIP: 94559 BUSINESS PHONE: 7072578500 MAIL ADDRESS: STREET 1: 1500 SOSCOL AVE CITY: NAPA STATE: CA ZIP: 94559 10-Q 1 p1458510q.txt 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 September 30, 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 November 6, 2001: 1,960,902 Item 1. Financial Information FORWARD LOOKING STATEMENTS In addition to the historical information, this Quarterly Report contains certain forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 321E of the Securities Exchange Act of 1934, as amended, and are subject to the "Safe Harbor" created by those Sections. 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, (i) 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, and fee and other noninterest income earned; (ii) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (iii) enactment of adverse government regulations; (iv) the potential effects of the California energy crisis; (v) adverse conditions and volatility, including as a result of recent economic uncertainty created by the September 11, 2001 terrorists attacks on the World Trade Center and the Pentagon, the United States' war on terrorism, in the stock market, the public debt market and other capital markets and the impact of such conditions of the Company; (vi) continued changes in the interest rate environment may reduce interest margins and adversely impact net interest income; (vii) 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 and nine months ended September 30, 2001 and September 30, 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 September 30, 2001 and the results of operations and cash flows for the three months and nine months then ended. Results for interim periods should not be considered as indicative of results for a full year. 2 North Bay Bancorp Consolidated Balance Sheets (Unaudited)
September 30, September 30, December 31, Assets: 2001 2000 2000 --------------- --------------- --------------- Cash and due from banks $ 17,467,000 $ 11,708,000 $ 15,881,000 Federal funds sold 1,992,000 7,730,000 9,475,000 Time deposits with other financial institutions 100,000 100,000 100,000 ------------ ------------ ------------ Total cash and cash equivalents 19,559,000 19,538,000 25,456,000 Investment securities: Held-to-maturity 1,314,000 1,353,000 1,353,000 Available-for-sale 91,239,000 49,420,000 58,251,000 Loans, net of allowance for loan losses of $2,601,000 in September, 2001 $2,168,000 in September, 2000 and $2,268,000 in December, 2000 183,229,000 147,503,000 150,008,000 Bank premises and equipment, net 9,286,000 5,175,000 5,242,000 Accrued interest receivable and other assets 8,441,000 6,928,000 7,159,000 ------------ ------------ ------------ Total assets $313,068,000 $229,917,000 $247,469,000 ============ ============ ============ Liabilities and Shareholders' Equity Liabilities: Deposits: Non-interest bearing $ 72,897,000 $ 50,055,000 $60,676,000 Interest bearing 206,429,000 149,515,000 155,962,000 ------------ ------------ ------------ Total deposits 279,326,000 199,570,000 216,638,000 Long term borrowings 2,077,000 3,000,000 2,769,000 Short term borrowings 0 0 0 ------------ ------------ ------------ Total borrowings 2,077,000 3,000,000 2,769,000 Accrued interest payable and other liabilities 1,877,000 2,025,000 1,426,000 ------------ ------------ ------------ Total liabilities 283,280,000 204,595,000 220,833,000 ------------ ------------ ------------ 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 - 1,960,902 shares in September 2001, 1,848,403 shares in September, 2000, and 1,850,445 in December, 2000 21,935,000 19,761,000 19,801,000 Retained earnings 6,526,000 6,190,000 6,753,000 Accumulated other comprehensive income (loss) 1,327,000 (629,000) 82,000 ------------ ------------ ------------ Total shareholders' equity 29,788,000 25,322,000 26,636,000 Total liabilities and shareholders' equity $313,068,000 $229,917,000 247,469,000 ============ ============ ============ The accompanying notes are an integral part of these statements
3 North Bay Bancorp Consolidated Income Statements (Unaudited)
Three Months Ended Nine Months Ended September September September September 30, 30, 30, 30, 2001 2000 2001 2000 ---------------------------------------------------- Interest Income Loans (including fees) $3,993,000 $3,402,000 $11,374,000 $ 9,355,000 Federal funds sold 298,000 89,000 903,000 210,000 Investment securities - taxable 869,000 624,000 2,392,000 1,958,000 Investment securities - tax exempt 164,000 167,000 496,000 507,000 ---------- ---------- ----------- ----------- Total Interest income 5,324,000 4,282,000 15,165,000 12,030,000 Interest Expense Deposits 1,448,000 1,373,000 4,650,000 3,884,000 Short term borrowings 0 1,000 2,000 89,000 Long Term Borrowings 34,000 70,000 141,000 86,000 ---------- ---------- ----------- ----------- Total Interest Expense 1,482,000 1,444,000 4,793,000 4,059,000 Net interest income 3,842,000 2,838,000 10,372,000 7,971,000 Provision for loan losses 111,000 100,000 333,000 280,000 ---------- ---------- ----------- ----------- Net interest income after provision for loan losses 3,731,000 2,738,000 10,039,000 7,691,000 Non interest income 547,000 510,000 1,659,000 1,661,000 Gains (losses) on securities 0 5,000 0 (3,000) transactions, net Non interest expenses Salaries and employee benefits 1,671,000 1,217,000 4,621,000 3,239,000 Occupancy 228,000 190,000 649,000 442,000 Equipment 247,000 266,000 795,000 614,000 Other 800,000 621,000 2,427,000 1,699,000 ---------- ---------- ----------- ----------- Total non interest expense 2,946,000 2,294,000 8,492,000 5,994,000 ---------- ---------- ----------- ----------- Income before provision for income taxes 1,332,000 959,000 3,206,000 3,355,000 Provision for income taxes 414,000 369,000 1,112,000 1,305,000 ---------- ---------- ----------- ----------- Net income $ 918,000 $ 590,000 $ 2,094,000 $ 2,050,000 ========== ========== =========== =========== Basic earnings per common share: $ 0.47 $ 0.30 $ 1.07 $ 1.14 ========== ========== =========== =========== Diluted earnings per common share: $ 0.46 $ 0.30 $ 1.06 $ 1.12 ========== ========== =========== =========== The accompanying notes are an integral part of these statements
4 North Bay Bancorp Consolidated Statement of Changes in Shareholders' Equity September 30, 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 2,094,000 2,094,000 $2,094,000 Other comprehensive income, net of tax: Change in net unrealized gains on available-for-sale securities, net of reclassification adjustment 1,245,000 1,245,000 1,245,000 --------- Comprehensive income $3,339,000 ---------- Stock options exercised 18,150 196,000 196,000 --------- ----------- ------------ BALANCE, September 30, 2001 1,960,902 $21,935,000 $ 6,526,000 $1,327,000 $ 29,788,000 ========= =========== =========== ========== ============ The accompanying notes are an integral part of these statements
5 North Bay Bancorp Consolidated Statement of Cash Flows For The Nine Months Ended September 30, 2001 and 2000 (Unaudited) (In 000's)
Nine months Ended September 30, 2001 2000 ---- ---- Cash Flows From Operating Activities: Net income $2,094 $2,050 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 774 391 Provision for loan losses 333 280 Amortization of deferred loan fees (337) (201) Premium amortization, net 35 17 Net loss on sale of investment securities 0 3 Net loss on sale of assets 0 8 Changes in: Interest receivable and other assets (2,167) 24 Interest payable and other liabilities 451 389 ------- ------- Total adjustments (911) 911 ------- ------- Net cash provided by operating activities 1,183 2,961 ------- ------- Cash Flows From Investing Activities: Investment securities held-to-maturity: Proceeds from maturities and principal payments 39 37 Investment securities available-for-sale: Proceeds from maturities and principal payments 12,083 7,990 Proceeds from sales 0 5,151 Purchases (42,976) (6,389) Net increase in loans (33,217) (27,416) Sale of capital assets 42 5 Capital expenditures (4,860) (2,697) ------- ------- Net cash used in investing activities (68,889) (23,319) ------- ------- Cash Flows From Financing Activities: Net increase in deposits 62,688 27,190 Increase in long term debt 0 3,000 Repayment of long-term borrowings (692) 0 Increase in short-term borrowings 0 (5,000) Stock issued, net of issuance costs 0 4,867 Stock options exercised 196 88 Dividends paid (383) (315) ----- ------- Net cash provided by financing activities 61,809 29,830 ------- ------- Net increase (decrease) in cash and cash equivalents (5,897) 9,472 Cash and cash equivalents at beginning of year 25,456 10,066 ------- ------- Cash and cash equivalents at end of period $19,559 $19,538 ======= ======= Supplemental Disclosures of Cash Flow Information: Interest paid $ 4,496 $ 4,190 Income taxes paid $ 851 $ 1,359 Retirement of fixed assets $ 139 $ 0 The accompanying notes are an integral part of these statements
6 NORTH BAY BANCORP Notes to the Consolidated Financial Statements (Unaudited) September 30, 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 nine months and three months ended September 30, 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 $1,793,000, undisbursed real estate and construction loans of approximately $19,733,000, and undisbursed commercial and consumer lines of credit of approximately $28,635,000, as of September 30, 2001. NOTE 3 - Earnings Per Common Share The Company declared 5% stock dividends on January 28, 2000 and January 18, 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 September 30, 2001 --------------------------------------------- Basic earnings per share $918,000 1,958,899 $.47 Stock options 21,390 --------- Diluted earnings per share 1,980,289 $.46 For the three months ended September 30, 2000 --------------------------------------------- Basic earnings per share $590,000 1,938,599 $.30 Stock options 30,064 --------- Diluted earnings per share 1,968,663 $.30 Weighted Average Per-Share Net Income Shares Amount ---------- ------ ------ For the nine months ended September 30, 2001 -------------------------------------------- Basic earnings per share $2,094,000 1,953,845 $1.07 Stock options 22,140 --------- Diluted earnings per share 1,975,985 $1.06 For the nine months ended September 30, 2000 -------------------------------------------- Basic earnings per share $2,050,000 1,791,492 $1.14 Stock options 33,528 --------- Diluted earnings per share 1,825,020 $1.12
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 September 30, 2001 2000 ---- ---- Net Income $918 $590 Net change in unrealized gains on available-for-sale investments, net of tax 811 465 --- --- Comprehensive Income $1,729 $1,055 ====== ====== Nine Months Ended September 30, 2001 2000 ---- ---- Net Income $2,094 $2,050 Net change in unrealized gains on available-for-sale investments, net of tax 1,245 542 ----- --- Comprehensive Income $3,339 $2,592 ====== ====== NOTE 5 - Segment Reporting The Company's operating segments consist of its traditional community banking activities provided through its banks 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". The components of the Company's business segments for the nine months ended September 30, 2001 were as follows: (In 000's) Community Intersegment Banking Other Adjustments Consolidated ------- ----- ------------ ------------ Interest Income 15,165 $0 0 15,165 Interest Expense 4,652 141 0 4,793 ----- ----- ----- ------ Net Interest Income 10,513 (141) 0 10,372 Provision for loan losses 333 0 0 333 Equity income of subsidiaries 0 2,493 2,493 0 Noninterest Income 1,783 3,486 3,610 1,659 Noninterest Expense 8,081 4,021 3,610 8,492 ----- ----- ----- ------ Income (Loss) Before Tax 3,882 1,817 2,493 3,206 Provision for Income Taxes 1,389 (277) 0 1,112 ----- ----- ----- ------ Net Income (Loss) 2,493 2,094 2,493 2,094 ----- ----- ----- ------ The components of the Company's business segments for the nine months ended September 30, 2000 were as follows: 8 (In 000's) Community Intersegment Banking Other Adjustments Consolidated -------- ------- ----------- ------------ Interest Income $ 12,129 $ 0 $ 99 $ 12,030 Interest Expense 4,072 86 99 4,059 -------- ------- ------- --------- Net Interest Income 8,057 (86) 0 7,971 Provision for loan losses 280 0 0 280 Equity income of subsidiaries 0 2,480 2,480 0 Noninterest Income 1,782 1,676 1,800 1,658 Noninterest Expense 5,467 2,327 1,800 5,994 -------- ------- ------- -------- Income (Loss) Before Tax 4,092 1,743 2,480 3,355 Provision for Income Taxes 1,612 (307) 0 1,305 -------- ------- ------- -------- Net Income (Loss) $ 2,480 $ 2,050 $ 2,480 $ 2,050 -------- ------- ------- -------- Assets $234,932 $28,750 $33,765 $229,917 Loans, Net 147,503 0 0 147,503 Deposits 201,666 0 2,096 199,570 Equity 26,069 25,322 26,069 25,322 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS In addition to the historical information 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, the potential effects of the California energy crisis, fee and other noninterest income earned, the economic uncertainty created by the September 11, 2001 terrorist attacks on the World Trade Center and the United States' war on terrorism, 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 $918,000 or $.46 per diluted share for the three months ended September 30, 2001, compared with $590,000 or $.30 per diluted share for the three months ended September 30, 2000, an increase of 56%. Net income was $2,094,000 or $1.06 per diluted share for the nine months ended September 30, 2001, compared with $2,050,000 or $1.12 per diluted share for the nine months ended September 30, 2000. Net Income increased 2%; diluted share per share income decreased 5% due to an increase in the number of shares at September 30, 2001 compared with the September 30, 2000. Total assets were $313,068,000 as of September 30, 2001; equating to a 36% growth in assets during the twelve months ended September 30, 2001. 9 SUMMARY OF EARNINGS NET INTEREST INCOME The following table provides a summary of the components of interest income, interest expense and net interest margin for the nine months ended September 30, 2001 and September 30, 2000:
In 000's 2001 2000 ---- ---- Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate ---------------------------------------------------------------------------- Loans (1) (2) $169,934 $11,374 8.92% $ 137,783 $ 9,355 9.05% Investment securities: Taxable 53,710 2,387 5,93% 39,123 1,954 6.66% Non-taxable (3) 13,772 625 6.05% 14,018 640 6.09% -------- ------- --------- ------- TOTAL LOANS AND INVESTMENT SECURITIES 237,416 14,386 8.08% 190,924 11,949 8.34% Due from banks, time 100 5 6.67% 100 4 5.33% Federal funds sold 26,332 903 4.57% 5,424 210 5.16% -------- ------- --------- ------- TOTAL EARNING ASSETS 263,848 $15,294 7.73% $ 196,448 $12,163 8.26% -------- ------- --------- ------- Cash and due from banks 16,389 11,398 Allowance for loan losses (2,451) (2,035) Premises and equipment, net 7,566 4,244 Accrued interest receivable and other assets 6,272 6,776 -------- --------- TOTAL ASSETS $291,624 $ 216,831 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $100,010 $ 1,819 2.43% $ 63,797 $ 1,129 2.36% Savings 18,899 180 1.27% 15,790 221 1.87% Time 71,401 2,651 4.95% 64,197 2,534 5.26% -------- ------- ----- --------- ------- ----- 190,310 4,650 3.26% 143,784 3,884 3.60% Long-term debt 2,258 141 8.33% 1,111 86 10.32% Short-term borrowings 75 2 3.56% 2,689 89 4.41% TOTAL INTEREST BEARING LIABILITIES 192,643 $ 4,793 3.32% 147,584 $ 4,059 3.67% -------- ------- --------- ------- Noninterest bearing DDA 69,267 46,569 Accrued interest payable and other liabilities 1,755 1,621 Shareholders' equity 27,959 21,057 -------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $291,624 $ 216,831 ======== ========= NET INTEREST INCOME $10,501 $ 8,104 ======= ======= NET INTEREST INCOME TO AVERAGE EARNING ASSETS (Net Interest Margin (4)) 5.31% 5.50% (1) Average loans include nonaccrual loans. (2) Loan interest income includes loan fee income of $723 in 2001 and $457 in 2000. (3) Average yields shown are taxable-equivalent. On a non- taxable basis, 2001 interest income was $496 with an average yield of 4.80%; in 2000 non-taxable income was $507 and the average yield was 4.82%. (4) Net interest margin is calculated by dividing net interest income by the average balance of total earning assets for the applicable period.
10 Net interest income before the provision for loan losses on a taxable-equivalent basis for the three months ended September 30, 2001 and September 30, 2000 was $3,883,000 and $2,880,000, respectively. These results equate to a 35% increase in net interest income for the third quarter of 2001 compared to the third quarter of 2000. Loan fee income, which is included in interest income from loans, was $181,000 for the three months ended September 30, 2001, compared with $144,000 for the three months ended September 30, 2000. Net interest income before the provision for loan losses on a taxable-equivalent basis for the nine months ended September 30, 2001 and September 30, 2000 was $10,501,000 and $8,104,000, respectively. These results equate to a 30% increase in net interest income for the first nine months of 2001 compared to the same period in 2000. Loan fee income, which is included in interest income from loans, was $723,000 for the nine months ended September 30, 2001, compared with $457,000 for the nine months ended September 30, 2000. The average balance of earning assets increased $67,400,000 or 34% during the twelve months ended September 30, 2001. Taxable-equivalent interest income increased $3,131,000 or 26% in the first nine months of 2001 compared with the same period of 2000. Increase in the volume of earning assets accounted for $3,706,000 of this increase, with a decrease of $575,000 attributable to lower rates. The average balance of interest-bearing liabilities increased $45,059,000 or 31% during the first nine months of 2001 compared with the same period in 2000. Interest paid on interest-bearing liabilities increased $734,000 in 2001 compared with 2000. Increase in the volume of deposits and other borrowings accounted for $970,000 of this increase, while a $236,000 decrease was attributable to a decrease 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. The following table sets forth a summary of the changes in interest income and interest expense for the nine months ended September 30, 2001 over September 30, 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 $1 $1 Investment Securities: Taxable 729 (296) 433 Non-Taxable (1) (11) (4) (15) Federal Funds Sold 809 (116) 693 Loans 2,179 (160) 2,019 -------------------------------- Total Interest and Fee Income 3,706 (575) 3,131 -------------------------------- Increase (Decrease) In Interest Expense Deposits: Interest Bearing Transaction Accounts 641 49 690 Savings 44 (85) (41) Time Deposits 283 (166) 117 -------------------------------- Total Deposits 968 (202) 766 Long-term Debt 89 (34) 55 -------------------------------- Short-term Borrowings (87) 0 (87) -------------------------------- Total Interest Expense 970 (236) 734 -------------------------------- Net Interest Income $2,736 ($339) $2,397 ================================ (1) The interest earned is taxable-equivalent. 11 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 September 30, 2001 the allowance for loan losses of $2,601,000 represented 1.40% of loans outstanding. As of September 30, 2000, the allowance represented 1.45% of loans outstanding. During the nine months ended September 30, 2001, $333,000 was charged to expense for the loan loss provision, compared with $280,000 for the same period in 2000. There were no net charge-offs for loans for the first nine months of 2001 compared with net charge-offs for all loans of $99,000, or 0.01% of total loans as of September 30, 2000. The following table summarizes changes in the allowance for loan losses:
In 000's September 30, 2001 September 30, 2000 Balance, beginning of year $2,268 $1,987 Provision for loan losses 333 280 Loans charged off (5) (102) Recoveries of loans previously charged off 5 3 ------ ------ Balance, end of period $2,601 $2,168 ====== ====== Allowance for loan losses to total outstanding 1.40% 1.45% loans
There were no loans on non-accrual status at September 30, 2001 or at September 30, 2000. NON-INTEREST INCOME Non-interest income was $547,000 for the three months ended September 30, 2001 compared with $510,000 for the same period in 2000, a 7% increase. Non-interest income was $1,659,000 for the nine months ended September 30, 2001 compared with $1,661,000 for the same period in 2000, a .1% decrease. The decrease in 2001 income compared with 2000 was primarily the result of non-recurring income realized in the second quarter of 2000 from a stock sale. The stock had been acquired as a result of the demutualization of an insurance company in which the Company held policies. Other increases in non-interest income resulted primarily from an increase in the number of deposit accounts, transaction volumes and directly related service charges. GAIN (LOSSES) ON SECURITIES There were no gains or losses on securities for the three or nine months ended September 30, 2001. Net losses of $3,000 for the nine months ended September 30, 2000 resulted from the sale of several available-for-sale securities. NON-INTEREST EXPENSE Non-interest expense for the three months ended September 30, 2001 and September 30, 2000 was $2,946,000 and $2,294,000, respectively, a 28% increase. Non-interest expense for the nine months ended September 30, 2001 and September 30, 2000 was $8,492,000 and $5,994,000, respectively, a 42% increase. The increase compared with prior reporting periods 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 September 30, 2001 and 2000 were $1,671,000 and $1,217,000, respectively, a 37% increase. Salaries and employee benefits expense for the nine months ended September 30, 2001 and 2000 were $4,621,000 and $3,239,000, respectively, a 43% increase. The increase in 2001 resulted from 12 increased salaries paid to Company officers and employees, and an increase of approximately twenty-eight full-time equivalent employees from 96 at September, 2000 to 124 at September 30, 2001. The increase in employees is primarily due to growth of the Company. Occupancy expense for the three months ended September 30, 2001 and 2000 was $228,000 and $190,000, respectively, a 20% increase. Occupancy expense for the nine months ended September 30, 2001 and 2000 was $649,000 and $442,000, respectively, representing a 47% increase. The increase in 2001 is attributed to opening three branch offices of Solano Bank in mid 2000. Equipment expense for the three months ended September 31, 2001 and 2000 was $247,000 and $266,000, respectively, representing a decrease of 7%. Equipment expenses for the nine months ended September 30, 2001 and 2000 was $795,000 and $614,000, respectively, an increase of 29%. The increase was primarily due to an increase in depreciation expense for new host banking systems and 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 September 30, 2001 and September 30, 2000 were $800,000 and $621,000, respectively, a 29% increase. Other expenses for the nine months ended September 30, 2001 and September 30, 2000 were $2,427,000 and $1,699,000, respectively, a 43% 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 September 30, 2001 and 2000 of $414,000 and $369,000, respectively. The Company reported a provision for income tax for the nine months ended September 30, 2001 and 2000 of $1,112,000 and $1,305,000, 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 September 30, 2001 were $313,068,000 compared with $229,917,000 as of September 30, 2000, and $247,469,000 at December 31, 2000 equating to a 36% increase during the twelve months and a 27% increase for the nine months ended September 30, 2001. Total deposits as of September 30, 2001 were $279,326,000 compared with $199,570,000 as of September 30, 2000, and $216,638,000 at December 31, 2000 representing a 40% increase during the twelve months and a 29% increase for the nine months ended September 30, 2001. Loans outstanding as of September 30, 2001 were $185,830,000 compared with $149,671,000 as of September 30, 2000, and $152,276,000 at December 31, 2000 equating to a 24% increase during the twelve months and a 22% increase for the nine months ended September 30, 2001. BORROWINGS There were no short-term borrowings at September 30, 2001, September 30, 2000 or December 31, 2000. Short-term borrowings would consist primarily of federal funds purchased and borrowings from Federal Home Loan Bank. The Company has a $3,000,000 unsecured loan with Union Bank of California, with a current balance of $2,077,000. The loan will mature in 2003 with principal and interest payments due quarterly. The loan is a variable rate loan tied to Union Bank's reference rate, currently 5.50%. 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 September 30, 2001 liquid assets were 35% of total assets, compared with 30% as of September 30, 2000 and 34% at December 31, 2000. The Federal Deposit Insurance Corporation Improvement Act (FDICIA) established ratios used to determine whether a Company is "Well Capitalized," "Adequately Capitalized," "Undercapitalized," 13 "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 September 30, 2001, the Company's risk-based capital ratio was 12.91%. The Company's tier 1 risk-based capital ratio and leverage ratio were 11.83% and 9.06%, respectively. As the following table indicates, both The Vintage Bank and Solano Bank currently exceed the regulatory capital minimum requirements. The Banks are considered "Well Capitalized" according to regulatory guidelines.
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 September 30, 2001: Total Capital (to Risk Weighted Assets) Consolidated $31,062 12.91% $19,243 >8.00% $24,054 >10.00% - - The Vintage Bank 22,271 10.62% 16,784 >8.00% 20,981 >10.00% - - Solano Bank 7,895 27.21% 2,321 >8.00% 2,901 >10.00% - - Tier I Capital (to Risk Weighted Assets) Consolidated 28,461 11.83% 9,621 >4.00% 14,432 >6.00% - - The Vintage Bank 19,758 9.42% 8,392 >4.00% 12,588 >6.00% - - Solano Bank 7,807 26.91% 1,161 >4.00% 1,741 >6.00% - - Tier I Capital (to Average Assets) Consolidated 28,461 9.06% 12,560 >4.00% 15,699 >5.00% - The Vintage Bank 19,758 7.36% 10,735 >4.00% 13,418 >5.00% - - Solano Bank 7,807 17.11% 1,825 >4.00% 2,281 >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 principally a 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 rates change. 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 default 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 14 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. Utilizing the simulation model to measure interest rate risk at September 30, 2001 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 10KSB for December 31, 2000. Since the beginning of 2001, the Board of Governors of the Federal Reserve System has reduced interest rates by 450 basis points. North Bay is slightly asset sensitive, which means that its interest bearing liabilities mature, or otherwise reprice, at a slower rate than its interest earning assets. As a result, in a period of declining interest rates, North Bay will experience a shrinking of its interest margin as its floating rate loans and investments will reprice immediately, while its fixed rate deposits will reprice over the course of a year. This reduction in interest margin may adversely affect North Bay's earnings. PART II - OTHER INFORMATION OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Other than ordinary routine litigation incidental to the business of the Company, there are no material pending legal proceedings. ITEM 6. EXHIBITS AND REPORTS ON FORM-8-K (1) Exhibits. An index of Exhibits begins on page 17. (2) Current Reports. (a) On July 24, 2001, the Company filed a Current Report on Form 8-K, reporting under Item 5 "Other Matters": (i) The issuance of a press release announcing the Company's earnings for the quarter ended June 30, 2001. (b) On September 19, 2001, the Company filed a Current Report on Form 8-K, reporting under Item 5 "Other Matters": (i) The release of the Company's Fall 2001 Edition of The North Bay Voice, a quarterly newsletter provided to the Company's shareholders. 15 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: November 7, 2001 BY: /s/ Terry L. Robinson -------------------- Terry L. Robinson President & CEO (Principal Executive Officer) Date: November 7, 2001 BY: /s/ Lee-Ann Cimino ------------------------------ Lee-Ann Cimino Sr. Vice President & CFO (Principal Financial Officer) 16 EXHIBIT INDEX Exhibit 11. Statement re: computation of per share data is included in Footnote 3 to the unaudited consolidated financial statements of Registrant 17 -----END PRIVACY-ENHANCED MESSAGE-----