-----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, C2armd8NCBUafbnw/PU2swQRww2TQA04mxDmsUyLBuvg4KabnoDu12oVyLL5qs1D 0bIS06tfPjnFYDJrLxe5LA== 0000950005-05-000593.txt : 20050812 0000950005-05-000593.hdr.sgml : 20050812 20050812124509 ACCESSION NUMBER: 0000950005-05-000593 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050812 DATE AS OF CHANGE: 20050812 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: 000-31080 FILM NUMBER: 051020143 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 p19473_10q.txt QUARTERLY REPORT 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 June 30, 2005 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.) 1190 Airport Road, Suite 101, Napa, California 94558 ---------------------------------------------------- (Address of principal executive office including Zip Code) Registrant's telephone number, including area code: (707) 252-5026 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 -------------------------- Preferred Share Purchase Rights ------------------------------- 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 _____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes _____ No __X__ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the North Bay Bancorp's Common Stock outstanding as of August 11, 2005: 3,887,950 Part 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) adverse conditions and volatility, as a result of recent economic uncertainty created by the United States' war on terrorism, the war in Iraq, in the stock market, the public debt market and other capital markets and the impact of such conditions of the Company; (v) continued changes in the interest rate environment may reduce interest margins and adversely impact net interest income; (vi) the ability to satisfy the requirements of the Sarbanes-Oxley Act and other regulations governing internal controls; (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 are prefaced with qualifiers such as or similar to "In Management's opinion" and "Management considers" are used throughout these statements, it is an indication that the opinion expressed was based upon the knowledge of Management at the time made, and is subject to change by the passage of time and/or subsequent events. 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 six months ended June 30, 2005 and June 30, 2004 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 June 30, 2005 and June 30, 2004 and the results of operations and cash flows for the three and six 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) (In 000's except share data) June 30, June 30, December 31, Assets 2005 2004 2004 --------- --------- -------- Cash and Cash Equivalents: Cash and due from banks $ 24,369 $ 35,740 $ 27,342 Federal funds sold 40,080 11,180 32,865 --------- --------- -------- Total cash and cash equivalents 64,449 46,920 60,207 Time deposits with other financial institutions 100 100 100 Investment Securities: Available-for-sale 89,173 94,427 94,788 Equity securities 4,641 2,532 4,595 --------- --------- -------- Total investment securities 93,814 96,959 99,383 Loans, net of allowance for loan losses of $4,541 in June, 2005 $3,782 in June, 2004 and $4,136 in December, 2004 396,622 334,358 373,629 Loans held-for-sale 9,707 18,855 4,604 Investment in subsidiary 310 310 310 Bank premises and equipment, net 9,731 10,691 10,336 Accrued interest receivable and other assets 15,424 13,636 13,494 --------- --------- -------- Total assets $ 590,157 $ 521,829 $562,063 ========= ========= ======== Liabilities and Shareholders' Equity Deposits: Non-interest bearing $ 152,065 $ 114,657 $127,250 Interest bearing 357,596 334,136 357,243 --------- --------- -------- Total deposits 509,661 448,793 484,493 Subordinated debentures 10,310 10,310 10,310 Long term borrowings 19,000 19,000 19,000 Accrued interest payable and other liabilities 3,958 3,364 4,126 --------- --------- -------- Total liabilities 542,929 481,467 517,929 Shareholders' equity: Preferred stock - no par value: Authorized, 500,000 shares; Issued and outstanding - none Common stock - no par value: Authorized, 15,000,000 shares; Issued and outstanding - 3,884,700 shares in June, 2005, 3,807,676 shares in June, 2004, and 3,641,289 in December, 2004 39,476 33,242 33,473 Retained earnings 7,981 7,684 10,500 Accumulated other comprehensive (loss) income (229) (564) 161 --------- --------- -------- Total shareholders' equity 47,228 40,362 44,134 Total liabilities and shareholders' equity $ 590,157 $ 521,829 $562,063 ========= ========= ======== The accompanying notes are an integral part of these statements
3
North Bay Bancorp Consolidated Income Statements (Unaudited) (In 000's except share data) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ------ ------ ------- ------- Interest Income Loans (including fees) $6,978 $5,394 $13,578 $10,650 Federal funds sold 210 58 340 100 Investment securities - taxable 848 706 1,683 1,312 Investment securities - tax exempt 109 136 220 296 ------ ------ ------- ------- Total interest income 8,145 6,294 15,821 12,358 Interest Expense Deposits 848 611 1,599 1,168 Short term borrowings 0 0 0 1 Long term debt 323 248 624 378 ------ ------ ------- ------- Total interest expense 1,171 859 2,223 1,547 Net interest income 6,974 5,435 13,598 10,811 Provision for loan losses 230 174 415 360 ------ ------ ------- ------- Net interest income after provision for loan losses 6,744 5,261 13,183 10,451 Non interest income 1,021 995 1,977 1,981 Gains on securities transactions, net 0 262 0 262 ------ ------ ------- ------- Total non interest income 1,021 1,257 1,977 2,243 Non interest expenses Salaries and employee benefits 2,735 2,563 5,459 5,067 Occupancy 446 344 840 711 Equipment 532 515 1,079 1,007 Other 1,460 1,149 2,830 2,383 ------ ------ ------- ------- Total non interest expense 5,173 4,571 10,208 9,168 ------ ------ ------- ------- Income before provision for Income taxes 2,592 1,947 4,952 3,526 Provision for income taxes 1,007 740 1,905 1,284 ------ ------ ------- ------- Net income $1,585 $1,207 $ 3,047 $ 2,242 ====== ====== ======= ======= Basic earnings per common share: $ 0.41 $ 0.32 $ 0.79 $ 0.59 ====== ====== ======= ======= Diluted earnings per common share: $ 0.39 $ 0.31 $ 0.75 $ 0.57 ====== ====== ======= ======= Dividends paid: $ 0.00 $ 0.00 $ 0.15 $ 0.13 ====== ====== ======= ======= The accompanying notes are an integral part of these statements
4 North Bay Bancorp Consolidated Statements of Comprehensive Income (Unaudited) (In 000's)
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ------- ------- ------- ------- Net income $ 1,585 $ 1,207 $ 3,047 $ 2,242 Other comprehensive income (loss), net of tax: Change in net unrealized losses on available-for sale securities, during the period, net of deferred income tax (benefit) of $215, ($1,140), ($278), and ($834), respectively. 304 (1,603) (390) (1,172) ------- ------- ------- ------- Total other comprehensive income (loss) $ 1,889 $ (396) $ 2,657 $ 1,070 ======= ======= ======= ======= The accompanying notes are an integral part of these statements
North Bay Bancorp Consolidated Statement of Change in Shareholders' Equity For the Six Months Ended June 30, 2005 (Unaudited) (In 000's except share data)
Accumulated Other Total Common Shares Common Retained Comprehensive Shareholders' Outstanding Stock Earnings Income (loss) Equity ---------------------------------------------------------------------- BALANCE, DECEMBER 31, 2004 3,641,289 $ 33,473 $ 10,500 $ 161 $44,134 Stock dividend 184,353 4,996 (5,011) (15) Cash dividend (555) (555) Comprehensive income: Net income 3,047 3,047 Other comprehensive loss, net of tax: Change in net unrealized losses on available-for-sale securities, net of a tax benefit of $278 (390) (390) Comprehensive income Stock options exercised, including a tax benefit of $240 59,058 1,007 0 0 1,007 ---------- -------- -------- ----- ------- BALANCE, JUNE 30, 2005 3,884,700 $ 39,476 $ 7,981 $(229) $47,228 ========== ======== ======== ===== ======= The accompanying notes are an integral part of these statements
5 North Bay Bancorp Consolidated Statement of Cash Flows Unaudited (In 000's) Six Months Ended June 30, 2005 2004 -------- --------- Cash Flows From Operating Activities: Net income $ 3,047 $ 2,242 Adjustment to reconcile net income to net cash used by operating activities: Depreciation and amortization 806 802 Provision for loan losses 415 360 Amortization of deferred loan fees (432) (297) Proceeds from sale of loans held-for-sale 48,434 84,271 Purchase of loans held-for-sale (53,537) (100,031) Premium amortization (discount accretion), net 28 175 Gain on securities transactions 0 (262) Changes in: Interest receivable and other assets (1,618) (520) Interest payable and other liabilities 72 (211) -------- --------- Net cash used in operating activities (2,785) (13,471) -------- --------- Cash Flows From Investing Activities: Investment securities available-for-sale: Proceeds from maturities and principal payments 6,453 24,897 Proceeds from sale of securities 0 4,322 Purchases (1,533) (34,911) Equity securities: Purchases (46) (1,181) Net increase in loans (22,976) (31,282) Capital expenditures (236) (584) -------- --------- Net cash used in investing activities (18,338) (38,739) -------- --------- Cash Flows From Financing Activities: Net increase in deposits 25,168 42,348 Increase in long-term borrowings 0 19,000 Stock options exercised 767 306 Dividends paid (570) (475) -------- --------- Net cash provided by financing activities 25,365 61,179 -------- --------- Net increase in cash and cash equivalents 4,242 8,969 Cash and cash equivalents at beginning of year 60,207 37,951 -------- --------- Cash and cash equivalents at end of period $ 64,449 $ 46,920 ======== ========= Supplemental Disclosures of Non-Cash Investing and Finance Activities: Unrealized gain on securities $ 667 $ 2,007 Tax benefit on non-qualified options exercised $ 240 $ 20 Stock dividends $ 4,996 $ 3,706 Supplemental Disclosures of Cash Flow Information: Interest paid $ 2,198 $ 1,511 Taxes paid $ 1,955 $ 1,770 The accompanying notes are an integral part of these statements 6 NORTH BAY BANCORP Notes to the Consolidated Financial Statements (Unaudited) June 30, 2005 NOTE 1 - Basis of Presentation - ------------------------------ The accompanying consolidated financial statements, which include the accounts of North Bay Bancorp and its subsidiary, together the "Company", have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission 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 subsidiary is The Vintage Bank, a community bank established in 1985, and its operating division Solano Bank which opened in 2000 and Vintage Capital Trust, a subsidiary of The Vintage Bank, which was established in February 2003. All significant intercompany transactions and balances have been eliminated. Certain information and note disclosures normally included in annual financial statements prepared in accordance with United States 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 and six months ended June 30, 2005 and 2004, 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, 2004. NOTE 2 - Commitments - -------------------- The Company has outstanding standby Letters of Credit of approximately $7,691,000, undisbursed real estate and construction loans of approximately $19,967,000, and undisbursed commercial and consumer lines of credit of approximately $86,068,000, as of June 30, 2005. The Company had outstanding standby Letters of Credit of approximately $2,185,000, undisbursed real estate and construction loans of approximately $20,086,000, and undisbursed commercial and consumer lines of credit of approximately $72,929,000, as of June 30, 2004. NOTE 3 - Earnings Per Common Share - ---------------------------------- The Company declared 5% stock dividends on January 26, 2004 and January 26, 2005 as well as a 3-for-2 stock split November 22, 2004. As a result of the stock dividends and stock split the number of common shares outstanding and earnings per share data were 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 ---------- ------ ------ (Dollars in 000's except share data) For the three months ended June 30, 2005 ---------------------------------------- Basic earnings per share $1,585 3,884,162 $0.41 Dilutive effect of stock options 150,042 Diluted earnings per share 4,034,205 $0.39 For the three months ended June 30, 2004 ---------------------------------------- Basic earnings per share $1,207 3,814,170 $0.32 Dilutive effect of stock options 123,050 Diluted earnings per share 3,937,220 $0.31 Weighted Average Per-Share Net Income Shares Amount ---------- ------ ------ For the six months ended June 30, 2005 -------------------------------------- Basic earnings per share $3,047 3,866,555 $0.79 Dilutive effect of stock options 171,735 Diluted earnings per share 4,038,290 $0.75 For the six months ended June 30, 2004 -------------------------------------- Basic earnings per share $2,242 3,787,596 $0.59 Dilutive effect of stock options 126,006 Diluted earnings per share 3,913,602 $0.57
7 NOTE 4- Stock-Based Compensation - -------------------------------- The Company uses the intrinsic value method to account for its stock option plans (in accordance with the provisions of Accounting Principles Board Opinion No. 25 and related interpretations). Under this method, compensation expense is recognized for awards of options to purchase shares of common stock to employees under compensatory plans only if the fair market value of the stock at the option grant date (or other measurement date, if later) is greater than the amount the employee must pay to acquire the stock. Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation", permits companies to continue using the intrinsic-value method to account for stock option plans or adopt a fair value based method. The fair value based method results in recognizing as expense over the vesting period the fair value of all stock-based awards on the date of grant. The Company has elected to continue to use the intrinsic value method and the pro forma disclosures required by SFAS 123. (See Impact of Recently Issued Accounting Standards.) Using the fair value method the Company's net income and earnings per share amounts would have been reduced to the pro forma amounts as indicated below: (In 000's except share data) For the three months ended June 30, 2005 2004 ------- ------- Net income as reported $ 1,585 $ 1,207 Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects 179 83 ------- ------- Net income pro forma $ 1,406 $ 1,124 Earnings per share: As reported: Basic $ .41 $ .32 Diluted $ .39 $ .31 Pro forma: Basic $ .36 $ .29 Diluted $ .35 $ .29 (In 000's except share data) For the six months ended June 30, 2005 2004 ------- ------- Net income as reported $ 3,047 $ 2,242 Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects 260 166 ------- ------- Net income pro forma $ 2,787 $ 2,076 Earnings per share: As reported: Basic $ .79 $ .59 Diluted $ .75 $ .57 Pro forma: Basic $ .72 $ .55 Diluted $ .69 $ .53 NOTE 5 - Impact of Recently Issued Accounting Standards - ------------------------------------------------------- In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities (VIEs), which was issued in January 2003. The Company was required to apply FIN 46R to variable interest in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the FIN 46R will be applied beginning on January 1, 2005. For an VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured a their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determined the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The Company currently does not have any VIEs that are within the scope of this Statement. In December 2004, the FASB issued FASB Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS 123) and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires all share-based payments to employees, including grants of employee stock 8 options, to be recognized in the financial statements based on their fair values beginning with the first interim reporting period of the Company's fiscal year beginning after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R on January 1, 2006. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will not have a material impact on the Company's consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123. NOTE 6 - Borrowings - ------------------- Total borrowings were $19 million at June 30, 2005 and at June 30, 2004. The following table summarizes the borrowings: Fixed Rate Borrowings at June 30, 2005 ($ in 000's) Amount Maturity Date Interest Rate ------ ------------- ------------- Federal Home Loan Bank Advance $ 5,000 4-17-2006 2.24% Federal Home Loan Bank Advance 5,000 4-16-2007 2.83% Federal Home Loan Bank Advance 9,000 4-14-2008 3.23% ------- Total $19,000 Weighted average interest rate 2.86% 9 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, fee and other noninterest income earned, the economic uncertainty created by the United States' war on terrorism and the war in Iraq, 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 are prefaced with qualifiers such as or similar to "In Management's opinion" and "Management considers" are used throughout these statements, it is an indication that the opinion expressed was based upon the knowledge of Management at the time made, and is subject to change by the passage of time and/or subsequent events. Accordingly, such statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES - ------------------------------------------ The Company's accounting policies are integral to understanding the results reported. The most complex accounting policies require management's judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. The Company has established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments. Allowance for Loan Losses. The allowance for loan losses represents management's best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged-off, net of recoveries. We evaluate our allowance for loan losses on a monthly basis. We believe that the allowance for loan losses is a "critical accounting estimate" because it is based upon management's assessment of various factors affecting the collectibility of the loans, including current and projected economic conditions, past credit experience, delinquency status, the value of the underlying collateral, if any, and a continuing review of the portfolio of loans and commitments. We determine the appropriate level of the allowance for loan losses, primarily on an analysis of the various components of the loan portfolio, including all significant credits on an individual basis. We segment the loan portfolios into as many components as practical. Each component would normally have similar characteristics, such as risk classification, past due status, type of loan, industry or collateral. Management has an established methodology for calculating the level of the allowance for loan losses. We analyze the following components of the portfolio and provide for them in the allowance for loan losses: Specific allowances defined as: o Management assessment of all loans classified as substandard or worse, with an outstanding balance of $100,000 or more o A specific allowance is provided for any amount by which the loan's collateral fair value is insufficient to cover the loan; or discounting estimated future cash flows, or by observing the loan's market price if it is of a kind for which there is a secondary market General allowance defined as: o An allowance for all loans outstanding within the portfolio and not contained in the specific allowances Judgmental allowance defined as: o National and local economic trends and conditions o Trends in volume of loans o Changes in underwriting standards and/or lending personnel o Concentrations of credit within the portfolio No assurance can be given that the Company will not sustain loan losses that are sizable in relation to the amount provided, or that subsequent evaluations of the loan portfolio will not require an increase in the allowance. Prevailing factors in association with the methodology may include improvement or deterioration of individual commitments or pools of similar loans, or loan concentrations. Available for Sale Securities. SFAS 115 requires that Available for Sale securities be carried at fair value. We believe this is a "critical accounting estimate" in that the fair value of a 10 security is based on quoted market prices or if quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments. Adjustments to the Available for Sale securities fair value impact the consolidated financial statements by increasing or decreasing assets and shareholders' equity. A decline in the market value of Investments classified as available-for-sale are reported at fair value with unrealized gains and losses net of related tax, if any, reported as other comprehensive income and are included in shareholders' equity. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Deferred Tax Assets. Deferred income taxes reflect the estimated future tax effects of temporary differences between the reported amount of assets and liabilities for financial purposes and such amounts as measured by tax laws and regulations. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, amounts available in the carryback periods, and tax planning strategies to support our position that it is more likely than not the benefit of our deferred tax assets will be realized. OVERVIEW - -------- Net income was $1,585,000 or $.39 per diluted share for the three months ended June 30, 2005, compared with $1,207,000 or $.31 per diluted share for the three months ended June 30, 2004, an increase of 31%. Net income was $3,047,000 or $.75 per diluted share for the six months ended June 30, 2005, compared with $2,242,000 or $.57 per diluted share for the six months ended June 30, 2004, an increase of 36%. Total assets were $590,157,000 as of June 30, 2005; equating to a 13% growth in assets during the twelve months ended June 30, 2005. 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 three months ended June 30, 2005 and June 30, 2004:
(In 000's) 2005 2004 --------- --------- Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate -------------------------------------------------------------------------- Loans (1) (2) $ 406,169 $ 6,978 6.87% $ 344,421 $ 5,394 6.26% Investment securities: Taxable 83,942 846 4.03% 74,431 705 3.79% Non-taxable (3) 11,855 145 4.89% 14,078 174 4.94% --------- --------- --------- --------- TOTAL LOANS AND INVESTMENT SECURITIES 501,966 7,969 6.35% 432,930 6,273 5.80% Due from banks, time 100 1 4.00% 100 1 4.00% Federal funds sold 26,074 211 3.24% 23,322 58 .99% --------- --------- --------- --------- TOTAL EARNING ASSETS 528,140 $ 8,181 6.20% 456,352 $ 6,332 5.55% --------- --------- --------- --------- Cash and due from banks 35,373 35,247 Allowance for loan losses (4,388) (3,700) Premises and equipment, net 9,928 10,737 Accrued interest receivable and other assets 14,258 13,558 --------- --------- TOTAL ASSETS $ 581,311 $ 512,194 ========= =========
11
LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $ 235,613 $ 446 0.76% $ 210,836 $ 270 0.51% Savings 41,489 22 0.21% 40,434 23 0.23% Time 73,351 380 2.07% 75,461 318 1.69% --------- --------- --------- --------- 350,453 848 .97% 326,731 611 .75% Short-term debt 0 0 0.00% 0 0 0.00% Long-term debt 29,310 323 4.41% 25,267 248 3.93% --------- --------- --------- --------- 29,310 323 25,267 248 TOTAL INTEREST BEARING LIABILITIES 379,763 $ 1,171 1.23% 351,998 $ 859 .98% --------- --------- --------- --------- Noninterest bearing DDA 151,084 116,108 Accrued interest payable and other liabilities 3,880 3,788 Shareholders' equity 46,584 40,300 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 581,311 $ 512,194 ========= ========= NET INTEREST INCOME $ 7,010 $ 5,473 ========= ========= NET INTEREST INCOME TO AVERAGE EARNING ASSETS (Net Interest Margin (4)) 5.31% 4.80% (1) Average loans would include nonaccrual loans. The Company had no nonaccrual loans during 2005 or 2004. (2) Loan interest income includes loan fee income of $267 and $221 for the three months ended June 30, 2005 and June 30, 2004, respectfully. (3) Average yields shown are on a taxable-equivalent basis. On a non-taxable basis, 2005 interest income on tax exempt securities was $109 with an average yield of 3.68%; in 2004, on a non-taxable basis, interest income on tax exempt securities was $136 with an average yield of 3.86%. (4) Net interest margin is calculated by dividing net interest income by the average balance of total earning assets for the applicable period.
The following table provides a summary of the components of interest income, interest expense and net interest margins for the six months ended June 30, 2005 and June 30, 2004:
(In 000's) 2005 2004 --------- --------- Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate -------------------------------------------------------------------------- Loans (1) (2) $ 397,081 $ 13,578 6.84% $ 329,081 $ 10,650 6.47% Investment securities: Taxable 85,198 1,682 3.95% 71,351 1,310 3.67% Non-taxable (3) 11,869 290 4.89% 15,271 392 5.13% --------- --------- --------- --------- TOTAL LOANS AND INVESTMENT SECURITIES 494,148 15,550 6.29% 415,703 12,352 5.94% Due from banks, time 100 1 2.00% 100 2 4.00% Federal funds sold 21,860 340 3.11% 19,910 100 1.00% --------- --------- --------- --------- TOTAL EARNING ASSETS 516,108 $ 15,891 6.16% 435,713 $ 12,454 5.72% --------- --------- --------- --------- Cash and due from banks 34,470 33,110 Allowance for loan losses (4,297) (3,648) Premises and equipment, net 10,074 10,781 Accrued interest receivable and other assets 14,115 13,281 --------- --------- TOTAL ASSETS $ 570,470 $ 489,237 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $ 229,647 $ 833 0.73% $ 205,849 $ 517 0.50% Savings 41,970 47 0.22% 39,206 44 0.22% Time 74,868 720 1.92% 73,786 607 1.65% --------- --------- --------- --------- 346,485 1,600 .92% 318,841 1,168 .73%
12
Short-term debt 0 0 0.00% 0 1 0.00% Long-term debt 29,310 623 4.25% 17,633 378 4.29% --------- --------- --------- --------- 29,310 623 17,633 379 TOTAL INTEREST BEARING LIABILITIES 375,795 $ 2,223 1.18% 336,474 $ 1,547 .92% --------- --------- --------- --------- Noninterest bearing DDA 144,358 108,837 Accrued interest payable and other liabilities 4,263 4,477 Shareholders' equity 46,054 39,449 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 570,470 $ 489,237 ========= ========= NET INTEREST INCOME $ 13,668 $ 10,907 ========= ======== NET INTEREST INCOME TO AVERAGE EARNING ASSETS (Net Interest Margin (4)) 5.30% 5.01% (1) Average loans would include nonaccrual loans. The Company had no nonaccrual loans during 2005 or 2004. (2) Loan interest income includes loan fee income of $642 and $577 for the six months ended June 30, 2005 and June 30, 2004, respectfully. (3) Average yields shown are on a taxable-equivalent basis. On a non-taxable basis, 2005 interest income on tax exempt securities was $220 with an average yield of 3.71%; in 2004, on a non-taxable basis, interest income on tax exempt securities was $296 with an average yield of 3.88%. (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) exceeds 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 June 30, 2005 and June 30, 2004 was $7,010,000 and $5,473,000, respectively. These results equate to a 28% increase in net interest income for the second quarter of 2005 compared to the second quarter of 2004. Loan fee income, which is included in interest income from loans, was $267,000 for the three months ended June 30, 2005, compared with $221,000 for the three months ended June 30, 2004. Net interest income before the provision for loan losses on a taxable-equivalent basis for the six months ended June 30, 2005 and June 30, 2004 was $13,668,000 and $10,907,000, respectively. These results equate to a 25% increase in net interest income for the first six months of 2005 compared to the same period of 2004. Loan fee income, which is included in interest income from loans, was $642,000 for the six months ended June 30, 2005, compared with $577,000 for the six months ended June 30, 2004. Taxable-equivalent interest income increased $1,849,000 or 29% in the second quarter of 2005 compared with the same period of 2004. The net increase of $1,849,000 was attributable to an increase in the volume of earning assets accounting for $1,037,000 of this increase, and $812,000 attributable to higher rates. Interest paid on interest-bearing liabilities increased $312,000 or 36% in the second quarter of 2005 compared with the second quarter of 2004. The increase of $312,000 was attributable to an increase in the volume of deposits and other borrowings accounting for $64,000 of this increase, and $248,000 was attributable to higher rates. Taxable-equivalent interest income increased $3,437,000 or 28% in the first six months of 2005 compared with the same period of 2004. The net increase of $3,437,000 was attributable to an increase in the volume of earning assets accounting for $2,378,000 of this increase, and $1,059,000 attributable to higher rates. Interest paid on interest-bearing liabilities increased $676,000 in the first half of 2005 compared with the first half of 2004. The increase in the volume of deposits and other borrowings accounted for an increase of $321,000, and $355,000 was attributable to higher rates. The average balance of earning assets for the six month period increased $80,395,000 or 18% when compared with June 30, 2004 and the average balance of interest-bearing liabilities increased $39,321,000 or 12% compared with the same period in 2004. 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. 13 The following table sets forth a summary of the changes in interest earned and interest paid for the three months ended June 30, 2005 over the same period of 2004 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) 2005 Over 2004 -------------- Volume Rate Total ----------------------------------- Increase (Decrease) in Interest and Fee Income Time deposits with other Financial institutions $ 0 $ 0 $ 0 Investment securities: Taxable 90 51 141 Non-taxable (1) (27) (2) (29) Federal funds sold 7 146 153 Loans 967 617 1,584 ----------------------------------- Total interest and fee income 1,037 812 1,849 ----------------------------------- Increase (Decrease) in Interest Expense Deposits: Interest bearing Transaction accounts 32 144 176 Savings 1 (2) (1) Time deposits (9) 71 62 ----------------------------------- Total deposits 24 213 237 Short-term borrowings 0 0 0 Long-term debt 40 35 75 ----------------------------------- Total Interest Expense 64 248 312 ----------------------------------- Net Interest Income $ 973 $ 564 $1,537 =================================== (1) The interest earned is taxable-equivalent.
The following table sets forth a summary of the changes in interest earned and interest paid for the six months ended June 30, 2005 over the same period of 2004 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) 2005 Over 2004 -------------- Volume Rate Total ----------------------------------- Increase (Decrease) in Interest and Fee Income Time deposits with other Financial institutions $ 0 $ (1) $ (1) Investment securities: Taxable 254 118 372 Non-taxable (1) (87) (15) (102) Federal funds sold 10 230 240 Loans 2,201 727 2,928 ----------------------------------- Total interest and fee income 2,378 1,059 3,437 ----------------------------------- Increase (Decrease) in Interest Expense Deposits: Interest bearing Transaction accounts 60 256 316 Savings 3 0 3 Time deposits 9 104 113 ----------------------------------- Total deposits 72 360 432 Short-term borrowings (1) 0 (1) Long-term debt 250 (5) 245 ----------------------------------- Total Interest Expense 321 355 676 ----------------------------------- Net Interest Income $2,057 $ 704 $2,761 =================================== (2) The interest earned is taxable-equivalent.
14 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 conducts 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 $100,000 and establishes percentage allowance requirements for all other loans, according to the classification as determined by the Company's internal grading system. As of June 30, 2005 the allowance for loan losses of $4,541,000 represented 1.13% of loans outstanding. As of June 30, 2004, the allowance represented 1.12% of loans outstanding. During the three months ended June 30, 2005 $230,000 was charged to expense for the loan loss provision, compared with $174,000 for the same period in 2004. During the six months ended June 30, 2005 $415,000 was charged to expense for the loan loss provision, compared with $360,000 for the same period in 2004. The increase in the expense for the loan loss provision was to provide for growth in the overall loan portfolio. There were net charge-offs of $10,000 during the first six months of 2005 compared with $102,000 of net charge-offs during the first six months of 2004. The following table summarizes changes in the allowance for loan losses: (In 000's) For the Six months ended June 30, 2005 June 30, 2004 Balance, beginning of period $4,136 $3,524 Provision for loan losses 415 360 Loans charged off (12) (107) Recoveries of loans previously charged off 2 5 ------ ------- Balance, end of period $4,541 $3,782 ====== ====== Allowance for loan losses to total 1.13% 1.12% outstanding loans There were no loans on non-accrual status as of June 30, 2005, June 30, 2004 or December 31, 2004. There were no loans 90 days or more past due and still accruing interest or restructured loans at June 30, 2005, June 30, 2004 or December 31, 2004. NON-INTEREST INCOME - ------------------- Non-interest income, excluding gains on the sale of securities, was $1,021,000 for the three months ended June 30, 2005 compared with $995,000 for the same period in 2004, a 3% increase. Non-interest income, excluding gains on the sale of securities, was $1,977,000 for the six months ended June 30, 2005 compared with $1,981,000 for the same period in 2004, a slight decrease. Non-interest income primarily consists of service charges and other fees related to deposit accounts. The Company has had an increase in service charge income resulting from an increase in the number of deposit accounts, offset by a decrease in service charges related to the overdraft privilege program. 15 GAINS ON SECURITIES - ------------------- There were no gains or losses for the three months and six months ended June 30, 2005. Net gains of $262,000 for the three and six months ended June 30, 2004, resulted from the sale of several available-for-sale securities. NON-INTEREST EXPENSE - -------------------- Non-interest expense for the three months ended June 30, 2005 and June 30, 2004 was $5,173,000 and $4,571,000, respectively, a 13% increase. Non-interest expense for the six months ended June 30, 2005 and June 30, 2004 was $10,208,000 and $9,168,000, respectively, an 11% increase. Salaries and employee benefits expense for the three months ended June 30, 2005 and 2004 were $2,735,000 and $2,563,000, respectively, a 7% increase. Salaries and employee benefits expense for the six months ended June 30, 2005 and 2004 were $5,459,000 and $5,067,000, respectively, an 8% increase. The increase in 2005 resulted from increased salaries paid to Company officers and employees. Full-time equivalent (FTE) employees were 169 at June 30, 2004 compared with 165 at June 30, 2005. The decreases in FTE was related to efficiencies gained with the consolidation of our Solano Bank charter into The Vintage Bank Charter and outsourcing some network technology services. Occupancy expense for the three months ended June 30, 2005 and 2004 was $446,000 and $344,000, respectively, a 30% increase. Occupancy expense for the six months ended June 30, 2005 and 2004 was $840,000 and $711,000, respectively, representing an 18% increase. The increase in Occupancy expense in 2005 is attributed to having vacancy in our Vacaville building and to opening an American Canyon branch office in August 2004. Equipment expense for the three months ended June 30, 2005 and 2004 was $532,000 and $515,000, respectively, representing an increase of 3%. Equipment expense for the six months ended June 30, 2005 and 2004 was $1,079,000 and $1,007,000, respectively, an increase of 7%. The increase in Equipment expense is primarily attributable to opening a branch office in American Canyon. Other expenses for the three months ended June 30, 2005 and June 30, 2004 were $1,460,000 and $1,149,000, respectively, a 27% increase. Other expenses for the six months ended June 30, 2005 and June 30, 2004 were $2,830,000 and $2,383,000, respectively, a 19% increase. The increase in other expense in 2005 compared with 2004 was primarily in consulting and audit expenses associated with Sarbanes-Oxley compliance work. INCOME TAXES - ------------ The Company reported a provision for income tax for the three months ended June 30, 2005 and 2004 of $1,007,000, or 39% of pretax income and $740,000, or 38% of pretax income respectively. The Company reported a provision for income tax for the six months ended June 30, 2005 and 2004 of $1,905,000 or 38% of pretax income and $1,284,000 or 36% of pretax income, respectively. Both the 2005 and 2004 provisions reflect tax accruals at statutory rates for federal income taxes, adjusted primarily for the effect of the Company's investments in tax-exempt municipal securities, bank owned life insurance policies and state taxes. The higher tax rate in 2005 was primarily due to a lower level of tax-free municipal bonds in the Company's investment portfolio. BALANCE SHEET - ------------- Total assets as of June 30, 2005 were $590,157,000 compared with $521,829,000 as of June 30, 2004, and $562,063,000 at December 30, 2004 equating to a 13% increase during the twelve months ended June 30, 2005, and a 5% increase for the six months ended June 30, 2005. Total deposits as of June 30, 2005 were $509,661,000 compared with $448,793,000 as of June 30, 2004, and $484,493,000 at December 30, 2004 representing a 14% increase during the twelve months then ended, and a 5% increase for the six months ended June 30, 2005. Gross loans outstanding as of June 30, 2005 were $401,163,000 compared with $338,140,000 as of June 30, 2004, and $377,765,000 at December 30, 2004 equating to a 19% increase during the twelve months then ended and a 6% increase for the six months ended June 30, 2005. LOANS HELD FOR SALE - ------------------- The Company had $9,707,000, $18,885,000 and $4,604,000 in purchased participations in mortgage loans as of June 30, 2005, June 30, 2004 and December 31, 2004, respectively. Loans originated or purchased and considered held for sale are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. There were no gains or losses recognized during 2004 or 2005. SUBORDINATED DEBENTURES - ----------------------- During June 2002, the Company formed North Bay Statutory Trust I (Trust), a Connecticut statutory business trust, for the purpose of issuing guaranteed undivided beneficial interests in junior subordinated debentures (trust preferred securities). During June 2002, the Trust issued $10 million in floating rate Cumulative Trust Preferred Securities (Securities). The Securities bear interest at a rate of LIBOR plus 3.45% and had an initial interest rate of 5.34%; as of June 30, 2005 the interest rate was 6.92%; the Securities will mature on June 26, 2032, but earlier redemption is permitted under certain circumstances, such as changes in tax or regulatory capital rules. As previously discussed the Company de-consolidated the Trust as of March 31, 2004. As a result, the junior subordinated debentures issued by the Company to the Trust, totaling $10,310,000 are reflected on the Company's consolidated balance sheet, under the caption Subordinated Debentures. The Company also recognized its $310,000 investment in the Trust, which is recorded in Investment in Subsidiary. The Trust has no independent assets or operations and exists for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an equivalent amount of subordinated debentures issued by the Company. The Securities, the subordinated debentures, and the common securities issued by the Trust are redeemable in whole or in part on or after June 26, 2007, or at any time in whole, but not in part, upon the occurrence of certain events. The Securities are included in Tier 1 capital for regulatory capital adequacy determination purposes, subject to certain limitations. The Company fully and unconditionally guarantees the obligations of the Trust with respect to the issuance of the Securities. Subject to certain exceptions and limitations, the Company may, from time to time, defer subordinated debenture interest payments, which would result in a 16 deferral of distribution payments on the Securities and, with certain exceptions, prevent the Company from declaring or paying cash distributions on the Company's common stock or debt securities that rank junior to the subordinated debentures. BORROWINGS - ---------- Total borrowings were $19 million at June 30, 2005 and at June 30, 2004. The following table summarizes the borrowings: Fixed Rate Borrowings ($ in 000's) Amount Maturity Date Interest Rate ------- ------------- ------------- Federal Home Loan Bank Advance $ 5,000 4-17-2006 2.24% Federal Home Loan Bank Advance 5,000 4-16-2007 2.83% Federal Home Loan Bank Advance 9,000 4-14-2008 3.23% ------- Total $19,000 Weighted average interest rate 2.86% LIQUIDITY AND CAPITAL ADEQUACY - ------------------------------ The Company's liquidity is determined by the level of assets (such as cash, Federal Funds, and investment in unpledged 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 June 30, 2005 liquid assets were 27% of total assets, compared with 28% as of June 30, 2004. The Company is within its policy guidelines. The Federal Deposit Insurance Corporation Improvement Act (FDICIA) 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 June 30, 2005, the Company's risk-based capital ratio was 12.55%. The Company's tier 1 risk-based capital ratio and leverage ratio were 11.61% and 9.88%, respectively as June 30, 2005. 17 As the following table indicates, the Company and the Bank currently exceeds the regulatory capital minimum requirements. The Company and the Bank are considered "Well Capitalized" according to regulatory guidelines.
To Be WellCapitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- (In 000's) Minimum regulatory Minimum regulatory requirement requirement Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of June 30, 2005: Total Capital (to Risk Weighted Assets) Consolidated $62,119 12.55% $39,599 8.00% $49,499 10.00% The Vintage Bank 56,996 11.52% 39,590 8.00% 49,487 10.00% Tier I Capital (to Risk Weighted Assets) Consolidated 57,457 11.61% 19,800 4.00% 29,700 6.00% The Vintage Bank 52,334 10.58% 19,795 4.00% 29,692 6.00% Tier I Capital (to Average Assets) Consolidated 57,457 9.88% 23,252 4.00% 29,066 5.00% The Vintage Bank 52,334 9.09% 23,017 4.00% 28,772 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 purposes 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 the Bank appointed 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 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 June 30, 2005 and December 31, 2004 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-K for December 31, 2004. 18 Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures: Based on their evaluation as of June 30, 2005, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Changes in Internal Controls: There were no significant changes in our internal controls that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect our disclosure controls. 19 PART 2 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 2. UNREGISTERD SALE OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Sixth Annual Meeting of the shareholders of the Company was held on May 12, 2005. (b) Proxies for the meeting were solicited pursuant to Regulation 14A under the Act, there were no solicitations in opposition to management's nominees as listed in the proxy statement, and all such nominees were elected. (c) The election of directors and to ratify the appointment of KPMG, LLP as the Company's 2005 Independent Certified Public Accounts were the only items voted upon at the annual shareholders' meeting. At the Sixth Annual Meeting, the proposal to ratify the appointment of KPMG, LLP as the Company's 2005 Independent Certified Public Accounts was approved with 3,129,039 affirmative votes. There were, 5,914 negative votes, and 19,420 abstaining votes. (d) There was no settlement between the Company and any other person terminating any solicitation subject to Rule 14a-11. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS An index of exhibits begins on page 22. 20 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: August 11, 2005 BY: /s/ Terry L. Robinson --------------------------------- Terry L. Robinson President & CEO Principal Executive Officer Date: August 11, 2005 BY: /s/ Lee-Ann Cimino --------------------------------- Lee-Ann Cimino Senior Vice President Principal Financial Officer 21 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 3.2 Amended and Restated Bylaws 10.1 Oral Employment Agreement with Suzette Junier 10.2 Oral Employment Agreement with Stephanie Rode 11 Statement re: computation of per share earnings is included in Note 3 to the unaudited condensed consolidated financial statements of Registrant. 31.1 Certificate of Principal Executive Officer Pursuant to SEC Release 33-8238 31.2 Certificate of Principal Financial Officer Pursuant to SEC Release 33-8238 32.1 Certificate of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 32.2 Certificate of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 22 EX-3 2 p19473_ex3-2.txt AMENDED AND RESTATED BYLAWS Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF NORTH BAY BANCORP A California Corporation INCLUDING AMENDMENTS THROUGH MAY 23, 2005 TABLE OF CONTENTS ARTICLE I. Offices............................................................1 Section 1. Principal Office........................................1 Section 2. Other Offices...........................................1 ARTICLE II. Meetings of Shareholders..........................................1 Section 3. Place of Meetings.......................................1 Section 4. Annual Meetings.........................................1 Section 5. Special Meetings........................................2 Section 6. Notice of Shareholders' Meetings........................2 Section 7. Quorum..................................................2 Section 8. Adjourned Meeting.......................................3 Section 9. Waiver or Consent by Shareholders.......................3 Section 10. Action Without Meeting..................................3 Section 11. Voting Rights...........................................4 Section 12. Proxies.................................................4 Section 13. Voting by Joint Holders or Proxies......................4 Section 14. Inspectors of Election..................................4 ARTICLE III. Directors; Management............................................5 Section 15. Powers..................................................5 Section 16. Number and Qualification of Directors...................5 Section 17. Vacancies...............................................7 Section 18. Place of Meetings.......................................7 Section 19. Organizational Meetings.................................7 Section 20. Other Regular Meetings..................................7 Section 21. Special Meetings........................................7 Section 22. Quorum..................................................8 Section 23. Contents of Notice and Waiver of Notice.................8 Section 24. Adjournment.............................................8 Section 25. Notice of Adjournment...................................8 Section 26. Telephone Participation.................................8 -i- Section 27. Action Without Meeting..................................8 Section 28. Fees and Compensation...................................9 ARTICLE IV. Officers..........................................................9 Section 29. Officers................................................9 Section 30. Election................................................9 Section 31. Subordinate Officers....................................9 Section 32. Removal and Resignation.................................9 Section 33. Vacancies..............................................10 Section 34. Chairman of the Board..................................10 Section 35. President..............................................10 Section 36. Vice Presidents........................................10 Section 37. Secretary..............................................10 Section 38. Chief Financial Officer................................11 ARTICLE V. General Corporate Matters.........................................11 Section 39. Record Date and Closing of Stock Books.................11 Section 40. Corporate Records and Inspection by Shareholders.......12 Section 41. Checks, Drafts, Evidences of Indebtedness..............12 Section 42. Corporate Contracts and Instruments; How Executed......12 Section 43. Stock Certificates.....................................12 Section 44. Lost Certificates......................................13 Section 45. Reports to Shareholders................................13 Section 46. Indemnity of Officers, Directors, etc..................13 Section 47. Fiscal Year............................................13 Section 48. Construction and Definitions...........................13 ARTICLE VI. Amendments.......................................................13 Section 49. Amendments by Shareholders.............................13 Section 50. Amendment by Directors.................................14 -ii- BYLAWS OF NORTH BAY BANCORP (A California Corporation) ARTICLE I. Offices ------- Section 1. Principal Office. The principal executive office in the State of California for the transaction of the business of the corporation (called the principal office) is fixed and located at 1190 Airport Road, Suite 101, Napa, California, 94558. The Board of Directors shall have the authority from time to time to change the principal office from one location to another within or without the State by amending this Section 1 of the Bylaws. Section 2. Other Offices. One or more branches or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate. ARTICLE II. Meetings of Shareholders ------------------------ Section 3. Place of Meetings. Meetings of the shareholders shall be held at any place within the State of California that may be designated either by the Board of Directors in accordance with these Bylaws. If no such designation is made, the meetings shall be held at the principal office of the corporation. Section 4. Annual Meetings. The annual meeting of the shareholders shall be held on the 2nd Thursday of May of each year. The exact date and time of such annual meeting shall be fixed by resolution of the Board of Directors; provided, however, that should such day fall on a legal holiday, then the meeting shall be held on the next succeeding business day, at which time the shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation, and transact such other business as may properly be brought before the meeting. If the annual meeting of shareholders shall not be held during the time above specified, the Board of Directors shall cause such a meeting to be held as soon thereafter as convenient and any business transacted or election held at such meeting shall be as valid as if transacted or held at an annual meeting during the time above specified. -1- Section 5. Special Meetings. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by a majority of the Board of Directors, the Chairman of the Board of Directors, the President, or by holders of shares entitled to cast not less than 10 percent (10%) of the votes at the meeting. Section 6. Notice of Shareholders' Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 (or, if sent by third class mail, 30) nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of Section 601(f) of the California Corporations Code, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. Notice of a shareholders' meeting shall be given either personally or by first class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in Section 605 of the California Corporations Code) on the record date for the shareholders' meeting, notice may be sent by third class mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal office of the corporation is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder to the principal office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders. Upon request in writing to the Chairman of the Board of Directors, the President, or the Secretary by any person entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. Section 7. Quorum. The presence at any meeting, in person or by proxy, of persons entitled to vote a majority of the voting shares of the corporation shall constitute a quorum for the transaction of business. Shareholders present at a valid meeting at which a quorum is initially present may continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. -2- Section 8. Adjourned Meeting. Any annual or special shareholders' meeting may be adjourned from time to time, even though a quorum is not present, by vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy, provided that in the absence of a quorum, no other business may be transacted at the meeting except as provided in Section 7 of these Bylaws. Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 9. Waiver or Consent by Shareholders. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by Section 6 of these Bylaws or Section 601(f) of the California Corporations Code to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, except as provided in Section 601(f) of the California Corporations Code. Section 10. Action Without Meeting. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, except that unanimous written consent shall be required for election of directors to non-vacant positions. Unless the consents of all shareholders entitled to vote have been solicited or received in writing, notice shall be given to non-consenting shareholders to the extent required by Section 603(b) of the California Corporations Code. Any shareholder giving written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares -3- required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 11. Voting Rights. Only persons in whose names shares entitled to vote stand on the stock records of the Company at the close of business on the record date fixed by the Board of Directors as provided in Section 41 of these Bylaws for the determination of shareholders of record are entitled to notice of and to vote at a meeting of shareholders. Except as may be provided in the Articles of Incorporation or in these Bylaws, each shareholder entitled to vote is entitled to one vote for each share held on each matter submitted to a vote of shareholders. In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, are elected. Voting may be by voice or ballot, provided that any election of directors must be by ballot upon the demand of any shareholder made at the meeting and before the voting begins. Cumulative voting to elect directors shall not be permitted. Section 12. Proxies. Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. All proxies must be in writing and must be signed by the shareholder confirming the proxy or his or her attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in Section 705 of the California Corporations Code. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting, by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. Section 13. Voting by Joint Holders or Proxies. Shares or proxies standing in the names of two or more persons shall be voted or represented in accordance with the provisions of Section 704 of the California Corporations Code, so that, if only one of such persons is present in person or by proxy, that person shall have the right to vote all such shares, and all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum. Section 14. Inspectors of Election. In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. -4- The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; receive votes, ballots or consents; hear and determine all challenges and questions in any way arising in connection with the right to vote; count and tabulate all votes or consents; determine when the polls shall close; determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III. Directors; Management --------------------- Section 15. Powers. Subject to any provisions of the Articles of Incorporation, of the Bylaws and of law limiting the powers of the Board of Directors or reserving powers to the shareholders, the Board of Directors shall, directly or by delegation, manage the business and affairs of the corporation and exercise all corporate powers permitted by law. Section 16. Number and Qualification of Directors The authorized number of directors shall be not less than nine (9) nor more than seventeen (17), until changed by amendment of the Articles of Incorporation or, if not prohibited by the Articles, by an amendment of this bylaw adopted by the shareholders. The exact number of directors within said range is fixed at ten (10) and may be reduced or increased within said range by a resolution duly adopted by the Board of Directors. Directors need not be shareholders of the corporation. No reduction of the authorized number of directors shall have the effect of removing any director before his or her term of office expires. Nomination for election of members of the Board of Directors may be made by the Board of Directors or by any shareholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations shall be made in writing and shall be delivered or mailed to the President of the corporation not less than 21 days nor more than 60 days prior to any meeting of shareholders called for the election of directors; provided however, that if less than 21 days' notice of the meeting is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the President of the corporation not later than the close of business on the tenth day following the day on which the notice of meeting was mailed; provided further, that if notice of such meeting is sent by third class mail as permitted by Section 6 of these Bylaws, no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in the discretion of the Chairman of the meeting, be disregarded and upon the Chairman's instructions, the inspectors of election can disregard all votes cast for each such nominee. A copy of this paragraph shall be set forth in a notice to shareholders of any meeting at which directors are to be elected. -5- Section 17. Election and Term of Office. The Board of Directors is classified into three (3) classes, the members of each class to serve for a term of three (3) years. At the 2004 annual meeting of shareholders, nominees elected as directors will be classified according to the recommendations of the Board of Directors. The directors will be divided, with respect to the time for which each will hold office, into three classes, as nearly equal in number of directors as practicable. The term of office of the first class ("Class A") will expire at the 2005 annual meeting of shareholders, the term of the second class ("Class B") will expire at the 2006 annual meeting of shareholders, and the term of office of the third class ("Class C") will expire at the 2007 annual meeting of shareholders. At subsequent annual meetings of shareholders, the number of directors to be elected will equal the number of directors with terms expiring at that annual meeting, subject to the power of the Board of Directors, in its discretion, to increase or decrease the number of directors. At each subsequent annual meeting the directors elected will be elected for a term of three (3) years. The Board of Directors shall increase or decrease the number of directors in one or more classes as may be appropriate whenever it increases or decreases the number of directors to constitute the full Board of Directors in order to ensure that the three classes shall be as nearly equal in number of directors as practicable. A director will hold office until the annual meeting for the year in which his or her term expires and until his or her successor is be elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, no matter how created, may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that will coincide with the term of the class to which that director will have been elected. Section 18. Removal of Directors. A director may be removed from office by the Board of Directors if he or she is declared of unsound mind by an order of court or convicted of a felony. Any or all of the directors may be removed from office without cause by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors; however, unless the entire Board of Directors is removed, an individual director shall not be removed if the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director at an election at which the same total number of votes were cast, or, if such action is taken by written consent, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. A director may also be removed from office by the Superior Court of the county in which the principal office is located, at the suit of shareholders holding at least ten percent (10%) of the number of outstanding -6- shares of any class, in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation, in the manner provided by law. Section 17. Vacancies. A vacancy or vacancies on the Board of Directors shall exist on the death, resignation, or removal of any director, or if the authorized number of directors is increased or the shareholders fail to elect the full authorized number of directors. Except for a vacancy created by the removal of a director, vacancies on the Board of Directors may be filled by a majority of the remaining directors although less than a quorum, or by a sole remaining director, and each director elected in this manner shall hold office until his or her successor is elected at an annual or special shareholders' meeting. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the Chairman of the Board of Directors, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 18. Place of Meetings. Regular and special meetings of the Board of Directors shall be held at any place within the State of California that is designated by resolution of the Board or, either before or after the meeting, consented to in writing by all the Board members. If the place of a regular or special meeting is not fixed by resolution or written consents of the Board, it shall be held at the corporation's principal office. Section 19. Organizational Meetings. Immediately following each annual shareholders' meeting, the Board of Directors shall hold a regular meeting to organize, elect officers, and transact other business. Notice of this meeting shall not be required. Section 20. Other Regular Meetings. Other regular meetings of the Board of Directors shall be held at least once each calendar month at such time and place as the Board of Directors by resolution shall determine. Notice of these regular meetings shall not be required. Section 21. Special Meetings. Special meetings of the Board of Directors for any purpose may be called at any time by the Chairman of the Board of Directors, or the President, or any Vice President, or the Secretary, or any two directors. Special meetings of the Board shall be held upon four days' notice by mail or 48 hours' notice delivered personally or by telephone, including a voice messaging system or other technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States Mails, postage prepaid. Any other written notice, including facsimile, telegram or electronic mail message, shall be -7- deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone, including a voice messaging system or other system or technology designed to record or communicate messages, or wireless, to the recipient, including the recipient's designated voice mailbox or address on such system, or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Section 22. Quorum. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn a meeting under Section 26 of these Bylaws. Every act done or decision made by a majority of the directors present at a meeting at which a quorum is present shall be regarded as the act of the Board of Directors, unless the vote of a greater number is required by law, the Articles of Incorporation, or these Bylaws, and subject to the provisions of Section 310 and Section 317(e) of the California Corporations Code. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by a majority of the required quorum for such meeting. Section 23. Contents of Notice and Waiver of Notice. Neither the business to be transacted at, nor the purpose of, any regular or special Board meeting need be specified in the notice or waiver of notice of the meeting. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to said director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 24. Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Section 25. Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place are fixed at the meeting being adjourned, except that if the meeting is adjourned for more than 24 hours such notice shall be given prior to the adjourned meeting to the directors who were not present at the time of the adjournment. Section 26. Telephone Participation. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meetings can hear one another. Such participation constitutes presence in person at such meeting. Section 27. Action Without Meeting. The Board of Directors may take any action without a meeting that may be required or permitted to be taken by the Board at a meeting, if all members of the Board individually or collectively consent in writing to the action. The written consent or consents shall be filed in the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same effect as a unanimous vote of directors. -8- Section 28. Fees and Compensation. Directors and members of committees shall receive neither compensation for their services nor reimbursement for their expenses unless these payments are fixed by resolution of the Board. This Section shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation for those services. ARTICLE IV. Officers -------- Section 29. Officers. The officers of the corporation shall be a President, a Chief Financial Officer and a Secretary. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board and a Vice Chairman of the Board (each of whom shall be chosen from the Board of Directors), one or more Vice Presidents, one or more Cashiers, one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Cashiers and/or Financial Officers, and any other officers who may be appointed under Section 33 of these Bylaws. Any two or more offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity unless authorized to do so generally or in the specific instance by the Board of Directors. Any officer of the corporation may be excluded by resolution of the Board of Directors or by a provision of these Bylaws from participation, other than in the capacity of a director, in major policy making functions of the corporation. Upon direction by the Board of Directors, any officer or employee of the corporation so designated shall give bond of suitable amount with security to be approved by the Board of Directors, conditioned on the honest and faithful discharge of his or her duties as such officer or employee. At the discretion of the Board, such bonds may be schedule or blanket form and the premiums shall be paid by the corporation. The amount of such bonds, the form of coverage, and the name of the company providing the surety therefore shall be reviewed annually by the Board of Directors. Action shall be taken by the Board at that time approving the amount of the bond to be provided by each officer and employee of the corporation for the ensuing year. Section 30. Election. The officers of the corporation, except those appointed under Section 33 of these Bylaws, shall be chosen annually by the Board of Directors, and each shall hold his or her office until he or she resigns or is removed or otherwise disqualified to serve, or his or her successor is elected and qualified. Section 31. Subordinate Officers. The Board of Directors may elect or appoint, and may authorize the President or the Chief Executive Officer to appoint, any other officers that the business of the corporation may require, each of whom shall hold office for the period, have the authority, and perform the duties specified in the Bylaws or by the Board of Directors. Section 32. Removal and Resignation. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed with or without cause either by the Board of Directors at any time or, except for an officer chosen by the Board, by any officer on whom the power of removal may be conferred by the Board. -9- Any officer may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the corporation, but such notice shall not prejudice the rights, if any, of the corporation under any contract of employment to which the officer is a party. An officer's resignation shall take effect when it is received or at any later time specified in the resignation. Unless the resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective. Section 33. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in the Bylaws for regular election or appointment to the office. Section 34. Chairman of the Board. The Board of Directors may appoint one of its members to be the Chairman to serve at the pleasure of the Board of Directors. If appointed, the Chairman shall preside at all meetings of the Board of Directors and of the shareholders of the corporation and shall supervise the carrying out of the policies adopted or approved by the Board of Directors; shall have general executive powers, as well as the specific powers conferred by these Bylaws; and, shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned by the Board of Directors. Section 35. President. The President shall be the corporation's chief executive officer and shall, subject to the control of the Board of Directors, have general supervision, direction, and control over the corporation's business and officers. In the absence of the Chairman, the President shall preside at any meeting of the Board of Directors or the shareholders of the corporation. The President shall have general executive powers, shall be ex officio a member of all the standing committees except the Audit Committee, and shall have and may exercise any and all other powers and duties pertaining by law, regulation or practice, to the Office of President, or imposed by these Bylaws. The President shall also have and may exercise such further powers and duties as from time to time may be conferred, or assigned by the Board of Directors. Section 36. Vice Presidents. If the President is absent or is unable or refuses to act, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions on, the President. Each Vice President shall have any other duties that are prescribed for said Vice President by the Board of Directors or the Bylaws. Section 37. Secretary. The Secretary shall keep or cause to be kept and shall make available at the principal office and any other place that the Board of Directors specifies, a book of minutes of all directors' and shareholders' meetings. The minutes of each meeting shall state the time and place that it was held; whether it was regular or special; if a special meeting, how it was authorized; the notice given; the names of those present or represented at shareholders' meetings; and the proceedings of the meetings. A similar minute book shall be kept for each committee of the Board. -10- The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the shareholders' names and addresses, the number and classes of shares held by each, the number and date of each certificate issued for these shares, and the number and date of cancellation of each certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all directors' and shareholders' meetings required to be given under these Bylaws or by law, shall keep the corporate seal in safe custody, and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or these Bylaws. The Secretary shall be deemed not to be an executive officer of the corporation and the Secretary shall be excluded from participation, other than in the capacity of director if the Secretary is also a director, in major policy making functions of the corporation. Section 38. Chief Financial Officer. The Chief Financial Officer shall be the corporation's chief financial officer and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares and shall file or cause to be filed all regulatory reports required pursuant to law or regulation. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with the depositories designated by the Board of Directors. The Chief Financial Officer shall disburse the corporation's funds as ordered by the Board of Directors; shall render to the President and directors, whenever they request it, an account of all his transactions as Chief Financial Officer and of the corporation's financial condition; and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or Bylaws. If required by the Board of Directors, the Chief Financial Officer shall give the corporation a bond in the amount and with the surety or sureties specified by the Board for faithful performance of the duties of that person's office and for restoration to the corporation of all its books, papers, vouchers, money, and other property of every kind in that person's possession or under that person's control on that person's death, resignation, retirement, or removal from office. ARTICLE V. General Corporate Matters ------------------------- Section 39. Record Date and Closing of Stock Books. The Board of Directors may fix a time in the future as a record date for determining shareholders entitled to notice of and to vote at any shareholders' meeting; to receive any dividend, distribution, or allotment of rights; or to exercise rights in respect of any other lawful action, including change, conversion, or exchange of shares. -11- The record date shall not, however, be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action. If a record date is fixed for a particular meeting or event, only shareholders of record on that date are entitled to notice and to vote and to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. Section 40. Corporate Records and Inspection by Shareholders. Books and records of account and minutes of the proceedings of the shareholders, Board, and committees of the Board shall be kept available at the principal office for inspection by the shareholders to the extent required by Section 1601 of the California Corporations Code. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and make extracts. Section 41. Checks, Drafts, Evidences of Indebtedness. All checks, drafts, or other orders for payment of money, notes, and all mortgages, or other evidences of indebtedness, issued in the name of or payable to the corporation, and all assignments and endorsements of the foregoing, shall be signed or endorsed by the person or persons and in the manner specified by the Board of Directors. Section 42. Corporate Contracts and Instruments; How Executed. Except as otherwise provided in the Bylaws, officers, agents, or employees must be authorized by the Board of Directors to enter into any contract or execute any instrument in the corporation's name and on its behalf. This authority may be general or confined to specific instances. Section 43. Stock Certificates. One or more certificates for shares for the corporation's capital stock shall be issued to each shareholder for any of such shareholder's shares that are fully paid. The corporate seal or its facsimile may be fixed on certificates. All certificates shall be signed by the Chairman of the Board, President, Chief Financial Officer and Secretary, or Assistant Secretary. Any or all of the signatures on the certificate may be facsimile signatures. -12- Section 44. Lost Certificates. No new share certificate that replaces an old one shall be issued unless the old one is surrendered and canceled at the same time; provided, however, that if any share certificate is lost, stolen, mutilated or destroyed, the Board of Directors may authorize issuance of a new certificate replacing the old one on any terms and conditions, including reasonable arrangement for indemnification of the corporation, that the Board may specify. Prior to the due presentment for registration of transfer in the stock transfer book of the corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the State of California. Section 45. Reports to Shareholders. The requirement for the annual report to shareholders referred to in Section 1501(a) of the California Corporations Code is hereby expressly waived so long as there are less than 100 holders of record of the corporation's shares. The Board of Directors shall cause to be sent to the shareholders such annual or other periodic reports as the Board considers appropriate or as otherwise required by law. If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to the person making the request within 30 days thereafter the financial statements referred to in Section 1501(a) for such year. Section 46. Indemnity of Officers, Directors, etc. The corporation shall indemnify its "agents", as defined in Section 317 of the California Corporations Code, to the full extent permitted by said Section, as amended from time to time, or as permitted by any successor statute to said Section. Section 47. Fiscal Year. The fiscal year of this corporation shall begin on the first day of January and end on the 31st day of December of each year. Section 48. Construction and Definitions. Unless the context otherwise requires, the general provisions, rules of construction and definitions in the California Corporations Code shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular includes the plural, the plural includes the singular and the term "person" includes both a corporation and a natural person. -13- ARTICLE VI. Amendments ---------- Section 49. Amendments by Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote. Section 50. Amendment by Directors. Subject to the right of shareholders under the preceding Section 49, new bylaws may be adopted, or these Bylaws may be amended, or repealed by the Board of Directors, except that only the shareholders can adopt a by-law or amendment thereto which specifies or changes the number of directors on a fixed-number Board of Directors or the minimum or maximum number of directors on a variable-number Board of Directors, or which changes from a fixed-number Board of Directors to a variable-number Board of Directors or vice versa. -14- CERTIFICATE OF SECRETARY I, the undersigned, certify that: 1. I am the duly elected and acting Secretary of North Bay Bancorp, a California corporation; and 2. The foregoing Amended and Restated Bylaws, consisting of fourteen (14) pages, are the Bylaws of this corporation as duly adopted by Resolutions of the Board of Directors of the Company dated March 29, 2004. The amendments to Sections 11, 17, and 18 were approved at the 2003 Annual Meeting of Shareholders on May 8, 2003. The amendment to Section 16 was approved at the 2004 Annual Meeting of Shareholders on May 6, 2004. The amendment to Section 4 was approved by Resolutions of the Board of Directors of the Company dated May 23, 2005. IN WITNESS WHEREOF, I have subscribed my name and affixed the seal of this corporation on May 23, 2005. ----------------------------- Wyman G. Smith Corporate Secretary -15- EX-10 3 p19473_ex10-1.txt ORAL EMPLOYMENT AGREEMENT Exhibit 10.1 On May 23, 2005, the Company's Board of Directors designated Suzette R. Junier, Senior Vice President/IS Director & Operations Administrator. The base salary for Ms. Junier is $90,000 per year, subject to annual adjustments to be determined by the Board of Directors in its sole discretion. Ms. Junier will be eligible to receive additional compensation under the terms of an incentive compensation plan adopted by the Board of Directors, participation in the Company's 401(k) Plan, paid time off in accordance with the Company's Employee Handbook, and reimbursement of reasonable business expenses. EX-10.2 4 p19473_ex10-2.txt ORAL EMPLOYMENT AGREEMENT Exhibit 10.2 On May 23, 2005, the Company's Board of Directors designated Stephanie L. Rode, Senior Vice President/Compliance and Risk Manager. The base salary for Ms. Rode is $90,000 per year, subject to annual adjustments to be determined by the Board of Directors in its sole discretion. Ms. Rode will be eligible to receive additional compensation under the terms of an incentive compensation plan adopted by the Board of Directors, participation in the Company's 401(k) Plan, paid time off in accordance with the Company's Employee Handbook, and reimbursement of reasonable business expenses. EX-31.1 5 p19473_ex31-1.txt CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATION I, Terry L. Robinson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of North Bay Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedure, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph reserved pursuant to SEC Release 33-8238] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 11, 2005 /s/ Terry L. Robinson ----------------------------------- Terry L. Robinson President and Chief Executive Officer Principal Executive Officer EX-31.2 6 p19473_ex31-2.txt CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER Exhibit 31.2 CERTIFICATION I, Lee-Ann Cimino, certify that: 1. I have reviewed this quarterly report on Form 10-Q of North Bay Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedure, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph reserved pursuant to SEC Release 33-8238] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 11, 2005 /s/ Lee-Ann Cimino ------------------------------------------------- Lee-Ann Cimino Senior Vice President and Chief Financial Officer Principal Financial Officer EX-32.1 7 p19473_ex32-1.txt CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER EXHIBIT 32.1 The following certification accompanies North Bay Bancorp's Quarterly Report on Form 10-Q and is not filed as provided in SEC Release Nos. 33-8212, 34-47551 and IC 25967, dated March 21, 2003. CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of North Bay Bancorp for the quarter ended June 30, 2005, I, Terry L. Robinson, President and Chief Executive Officer of North Bay Bancorp, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: (1) such Quarterly Report on Form 10-Q of North Bay Bancorp for the quarter ended June 30, 2005, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of North Bay Bancorp for the quarter ended June 30, 2005, fairly presents, in all material respects, the financial condition and results of operations of North Bay Bancorp. Dated: August 11, 2005 /s/ Terry L. Robinson --------------------------------------- Terry L. Robinson President and Chief Financial Officer (Principal Executive Officer) EX-32.2 8 p19473_ex32-2.txt CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 32.2 The following certification accompanies North Bay Bancorp's Quarterly Report on Form 10-Q and is not filed as provided in SEC Release Nos. 33-8212, 34-47551 and IC 25967, dated March 21, 2003. CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of North Bay Bancorp for the quarter ended June 30, 2005, I, Lee-Ann Cimino, Chief Financial Officer of North Bay Bancorp, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) such Quarterly Report on Form 10-Q of North Bay Bancorp for the quarter ended June 30, 2005, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of North Bay Bancorp for the quarter ended June 30, 2005, fairly presents, in all material respects, the financial condition and results of operations of North Bay Bancorp. Dated: August 11, 2005 /s/ Lee-Ann Cimino -------------------------------------------- Lee-Ann Cimino Senior Vice President and Chief Financial Officer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----