-----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, PUGbwuLEKCIqD5KyZqkHpeEhn6A47cc1Ekmxqq2KdfYPhj6tWQFvthKSVf49WTX5 QFkhjmes8gTjI342cSdXew== 0000950005-05-000744.txt : 20051114 0000950005-05-000744.hdr.sgml : 20051111 20051114142357 ACCESSION NUMBER: 0000950005-05-000744 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 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: 051200058 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 p19562_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 September 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__ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _____ No __X__ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of North Bay Bancorp's Common Stock outstanding as of November 10, 2005: 3,897,504 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 on 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 such as or similar to "In Management's opinion", or "Management considers" are used, such statements are as of and based upon the knowledge of Management at the time made and are subject to change by the passage of time and/or subsequent events, and accordingly such statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. FINANCIAL INFORMATION - --------------------- The information for the three months and nine months ended September 30, 2005 and September 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 September 30, 2005 and September 30, 2004 and the results of operations and cash flows for the three and nine 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 (In 000's except share data) (Unaudited) September 30, December 31, Assets 2005 2004 --------- --------- Cash and due from banks $ 31,148 $ 27,442 Federal funds sold 70,745 32,865 --------- --------- Total cash and cash equivalents 101,893 60,307 Investment Securities: Available-for-sale 104,741 94,788 Equity securities 4,662 4,595 --------- --------- Total investment securities 109,403 99,383 Loans, net of allowance for loan losses of $4,832 at September, 2005 and $4,136 at December, 2004 392,877 373,629 Loans held-for-sale 0 4,604 Investment in subsidiary 310 310 Bank premises and equipment, net 9,542 10,336 Accrued interest receivable and other assets 16,018 13,494 --------- --------- Total assets $ 630,043 $ 562,063 ========= ========= Liabilities and Shareholders' Equity Deposits: Non-interest bearing $ 166,239 $ 127,250 Interest bearing 380,611 357,243 --------- --------- Total deposits 546,850 484,493 Subordinated debentures 10,310 10,310 Long Term Borrowings 19,000 19,000 Accrued interest payable and other liabilities 4,763 4,126 --------- --------- Total liabilities 580,923 517,929 Shareholders' equity: Preferred stock - no par value: Authorized, 500,000 shares; Issued and outstanding - none Common stock - no par value: Authorized, 10,000,000 shares; Issued and outstanding - 3,897,504 shares at September, 2005 and 3,641,289 at December, 2004 39,816 33,473 Retained earnings 9,799 10,500 Accumulated other comprehensive income (495) 161 --------- --------- Total shareholders' equity 49,120 44,134 --------- --------- Total liabilities and shareholders' equity $ 630,043 $ 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 Nine months Ended September 30, September 30, September 30, September 30, 2005 2004 2005 2004 ------- ------- ------- ------- Interest Income Loans (including fees) $ 7,340 $ 5,865 $20,918 $16,515 Federal funds sold 465 39 805 139 Investment securities - taxable 921 805 2,604 2,117 Investment securities - tax exempt 121 113 341 409 ------- ------- ------- ------- Total interest income 8,847 6,822 24,668 19,180 Interest Expense Deposits 1,081 677 2,680 1,845 Short term borrowings 0 0 0 1 Long term debt 334 284 958 662 ------- ------- ------- ------- Total interest expense 1,415 961 3,638 2,508 ------- ------- ------- ------- Net interest income 7,432 5,861 21,030 16,672 Provision for loan losses 300 180 715 540 ------- ------- ------- ------- Net interest income after provision for loan losses 7,132 5,681 20,315 16,132 Non interest income 1,027 986 3,005 2,967 Gains on securities transactions, net 0 0 0 262 ------- ------- ------- ------- Total non interest income 1,027 986 3,005 3,229 Non interest expense Salaries and employee benefits 2,763 2,566 8,221 7,633 Occupancy 477 369 1,317 1,080 Equipment 487 502 1,566 1,509 Other 1,484 1,230 4,315 3,613 ------- ------- ------- ------- Total non interest expense 5,211 4,667 15,419 13,835 ------- ------- ------- ------- Income before provision for Income taxes 2,948 2,000 7,901 5,526 Provision for income taxes 1,131 750 3,036 2,034 ------- ------- ------- ------- Net income $ 1,817 $ 1,250 $ 4,865 $ 3,492 ======= ======= ======= ======= Basic earnings per common share: $ 0.47 $ 0.33 $ 1.26 $ 0.92 ======= ======= ======= ======= Diluted earnings per common share: $ 0.45 $ 0.32 $ 1.20 $ 0.89 ======= ======= ======= ======= 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 Nine Months Ended September 30, September 30, September 30, September 30, 2005 2004 2005 2004 ---------------------------------------------------------------- Net income $1,817 $1,250 $4,865 $3,492 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 ($188), $641, ($466), and $193, respectively. (266) 901 (656) (271) ----------------------------------------------------------------- Total other comprehensive income (loss) $1,151 $2,151 $4,209 $3,221 ====== ====== ====== ======
The accompanying notes are an integral part of these statements
North Bay Bancorp Consolidated Statement of Change in Shareholders' Equity For the Nine months Ended September 30, 2005 (Unaudited) (In 000's except share data) . Accumulated Other Total Common Shares Common Retained Comprehensive Shareholders' Comprehensive Outstanding Stock Earnings Income (loss) Equity Income ----------------------------------------------------------------------------------------- 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 4,865 4,865 $4,865 Other comprehensive loss, net of tax: Change in net unrealized losses on available-for-sale securities, net of tax of $466 (656) (656) (656) ------- Comprehensive income $4,209 ======= Stock options exercised, including tax benefit of $373 71,862 1,347 1,347 --------- ------- ------- ------ ------- BALANCE, SEPTEMBER 30, 2005 3,897,504 $39,816 $ 9,799 $ (495) $49,120 ========= ======= ======= ====== =======
The accompanying notes are an integral part of these statements 5 North Bay Bancorp Consolidated Statement of Cash Flows (Unaudited ) (In 000's)
Nine months Ended September 30, 2005 2004 --------- --------- Cash Flows From Operating Activities: Net income $ 4,865 $ 3,492 Adjustment to reconcile net income to net cash provided by (used by) operating activities: Depreciation and amortization 1,153 1,212 Provision for loan losses 715 540 Amortization of deferred loan fees (622) (442) Proceeds from sale of loans held-for-sale 75,886 182,777 Purchase of loans held-for-sale (71,282) (199,914) Premium amortization (discount accretion), net 41 199 Cash benefit from the exercise of stock options (373) (65) Gain on securities transactions 0 (262) Changes in: Interest receivable and other assets (2,058) (940) Interest payable and other liabilities 1,009 136 --------- --------- Net cash provided by (used by) operating activities 9,334 (13,267) Cash Flows From Investing Activities: Investment securities available-for-sale: Proceeds from maturities and principal payments 9,756 30,226 Proceeds from sale of securities 0 4,322 Purchases (20,871) (36,911) Equity securities: Purchases (67) (1,203) Net increase in loans (19,341) (51,362) Capital expenditures (359) (960) --------- --------- Net cash used in investing activities (30,882) (55,888) Cash Flows From Financing Activities: Net increase in deposits 62,357 70,347 Increase in long-term borrowings 0 19,000 Stock options exercised 1,347 543 Dividends paid (570) (475) --------- --------- Net cash provided by financing activities 63,134 89,415 --------- --------- Net increase in cash and cash equivalents 41,586 20,260 Cash and cash equivalents at beginning of year 60,307 37,951 --------- --------- Cash and cash equivalents at end of period $ 101,893 $ 58,211 ========= ========= Supplemental Disclosures of Cash Flow Information: Interest paid $ 3,308 $ 2,299 Taxes paid $ 3,145 $ 2,860
The accompanying notes are an integral part of these statements 6 NORTH BAY BANCORP Notes to the Consolidated Financial Statements ---------------------------------------------- (Unaudited) September 30, 2005 NOTE 1 - Basis of Presentation - ------------------------------ The accompanying consolidated financial statements, which include the accounts of North Bay Bancorp and its subsidiaries 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 subsidiaries consist of The Vintage Bank, established in 1985, and Vintage Capital Trust, a subsidiary of The Vintage Bank, which was established in February 2003. Solano Bank, formerly a subsidiary of the Company, was merged into The Vintage Bank in the first quarter of 2005 and now operates as a division of The Vintage Bank. All significant intercompany transactions and balances have been eliminated. The Company de-consolidated its subsidiary, North Bay Statutory Trust 1, effective March 31, 2004. The Trust has no independent assets or operations and exists solely for the purpose of issuing and selling trust preferred securities. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules or regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the three months and nine months ended September 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 $8,832,000, undisbursed real estate and construction loans of approximately $21,043,000, and undisbursed commercial and consumer lines of credit of approximately $97,364,000, as of September 30, 2005. The Company had outstanding standby Letters of Credit of approximately $2,221,000, undisbursed real estate and construction loans of approximately $24,123,000, and undisbursed commercial and consumer lines of credit of approximately $82,961,000, as of September 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 on 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 September 30, 2005 --------------------------------------------- Basic earnings per share $1,817 3,888,998 $0.47 Dilutive effect of stock options 171,598 --------- Diluted earnings per share 4,060,596 $0.45 For the three months ended September 30, 2004 --------------------------------------------- Basic earnings per share $1,250 3,820,591 $0.33 Dilutive effect of stock options 103,462 --------- Diluted earnings per share 3,924,053 $0.32 For the nine months ended September 30, 2005 -------------------------------------------- Basic earnings per share $4,865 3,874,118 $1.26 Dilutive effect of stock options 171,689 --------- Diluted earnings per share 4,045,807 $1.20 For the nine months ended September 30, 2004 -------------------------------------------- Basic earnings per share $3,492 3,796,906 $.92 Dilutive effect of stock options 118,498 --------- Diluted earnings per share 3,915,404 $.89
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 123R), "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. 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 September 30, 2005 2004 ------ ------ Net income as reported $1,817 $1,250 Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects 61 83 ------ ------ Net income pro forma $1,756 $1,167 ====== ====== Earnings per share: As reported: Basic $ .47 $ .33 Diluted $ .45 $ .32 Pro forma: Basic $ .45 $ .31 Diluted $ .43 $ .30 (In 000's except share data) For the nine months ended September 30, 2005 2004 ------ ------ Net income as reported $4,865 $3,492 Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects 299 249 ------ ------ Net income pro forma $4,566 $3,243 ====== ====== Earnings per share: As reported: Basic $ 1.26 $ .92 Diluted $ 1.20 $ .89 Pro forma: Basic $ 1.18 $ .85 Diluted $ 1.13 $ .83 NOTE 5 - Impact of Recently Issued Accounting Standards - ------------------------------------------------------- In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" (FIN 46). FIN 46 provides a new framework for identifying variable interest entities (VIEs) and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. Prior to the implementation of FIN 46, VIEs were generally consolidated by the company when the company had a controlling financial interest through ownership of the majority of the voting interest in the company. In October 2003, the FASB agreed to defer the effective date of FIN 46 for VIEs to allow time for certain implementation issues to be addressed. On December 24, 2003, the FASB released its latest interpretation (FIN 46R) of the appropriate accounting treatment for VIEs, which in part, specifically addresses limited purpose trusts formed to issue trust preferred securities. In July 2003, the Board of Governors of the Federal Reserve issued a supervisory letter instructing bank holding companies to continue to include the trust preferred securities in their Tier 1 capital for regulatory capital purposes until notice is given to the contrary. On March 1, 2005, the Federal Reserve adopted a final rule that allows the continued inclusion of Trust Preferred securities in the Tier 1 capital of Bank Holding Companies, subject to certain quantitative limits. 8 The Company adopted FIN 46R effective March 31, 2004, and the effect was to de-consolidate the subsidiary trust, North Bay Statutory Trust 1, and move the mandatory redeemable preferred securities directly to the parent company balance sheet under the caption "subordinated debentures". The Company prospectively applied this ruling in the accompanying financial information. 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 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. In May 2005, the FASB issued FASB Statement of Financial Accounting Standard No. 154, Accounting Changes and Error Corrections, (SFAS 154) a Replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS 154 establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. Previously, most changes in accounting principles were recognized by including the cumulative effect of changing to the new accounting principle in net income of the period of the change. Under SFAS 154, retrospective application requires (i) the cumulative effect of the change to the new accounting principle on periods prior to those presented to be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented, (ii) an offsetting adjustment, if any, to be made to the opening balance of retained earnings (or other appropriate components of equity) for that period, and (iii) financial statements for each individual prior period presented to be adjusted to reflect the direct period-specific effects of applying the new accounting principle. Special retroactive application rules apply in situations where it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Indirect effects of a change in accounting principle are required to be reported in the period in which the accounting change is made. SFAS 154 carries forward the guidance in APB Opinion 20 "Accounting Changes," requiring justification of a change in accounting principle on the basis of preferability. SFAS 154 also carries forward without change the guidance contained in APB Opinion 20, for reporting the correction of an error in previously issued financial statements and for a change in accounting estimate. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect SFAS 154 will significantly impact its financial statements upon its adoption on January 1, 2006. NOTE 6 - Borrowings - ------------------- Total borrowings were $19 million at September 30, 2005 and 2004. The following table summarizes the borrowings:
Fixed Rate Borrowings at September 30, 2005 and 2004 ($ 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 such as or similar to "In Management's opinion" "Management considers" are used, such statements are as of and based upon the knowledge of Management at the time made and are subject to change by the passage of time and/or subsequent events, and accordingly such statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. CRITICAL ACCOUNTING POLICIES - ---------------------------- 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 loss on a monthly basis. We believe that the allowance for loan loss 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 associated with: 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. The fair value of most securities classified as Available for Sale is based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments. Adjustments to the 10 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, and 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 $1,817,000 or $.45 per diluted share for the three months ended September 30, 2005, compared with $1,250,000 or $.32 per diluted share for the three months ended September 30, 2004, an increase of 45%. Net income was $4,865,000 or $1.20 per diluted share for the nine months ended September 30, 2005, compared with $3,492,000 or $.89 per diluted share for the nine months ended September 30, 2004, an increase of 39%. Total assets were $630,043,000 as of September 30, 2005; equating to a 14% growth in assets during the twelve months ended September 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 September 30, 2005 and September 30, 2004:
(In 000's) 2005 2004 ---- ---- Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate ---------------------------------------------------------------------------- ASSETS Loans (1) (2) $407,741 $7,340 7.20% $369,384 $5,865 6.35% Investment securities: Taxable 92,297 921 3.99% 84,778 805 3.79% Non-taxable (3) 13,200 162 4.91% 12,241 150 4.90% -------- ------ -------- ------ TOTAL LOANS AND INVESTMENT SECURITIES 513,238 8,423 6.56% 466,403 6,819 5.85% Federal funds sold 52,223 465 3.56% 10,551 39 1.48% -------- ------ -------- ------ TOTAL EARNING ASSETS 565,461 $8,888 6.29% 476,954 $6,859 5.75% -------- ------ -------- ------ Cash and due from banks 32,858 41,786 Allowance for loan losses (4,647) (3,863) Premises and equipment, net 9,704 10,791 Accrued interest receivable and other assets 16,066 13,910 -------- -------- TOTAL ASSETS $619,442 $539,578 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $247,613 $ 564 0.91% $216,747 $ 312 0.58% Savings 41,444 22 0.21% 44,638 27 0.24% Time 83,337 495 2.38% 78,006 338 1.73% -------- ------ -------- ------ 372,394 1,081 1.16% 339,391 677 .80% Long-term debt 29,310 334 4.56% 29,000 284 3.92% -------- ------ -------- ------ 11 TOTAL INTEREST BEARING LIABILITIES 401,704 $1,415 1.41% 368,391 $ 961 1.04% -------- ------ -------- ------ Noninterest bearing DDA 165,145 125,238 Accrued interest payable and other liabilities 4,274 4,013 Shareholders' equity 48,319 41,936 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $619,442 $539,578 ======== ======== NET INTEREST INCOME $7,473 $5,898 ====== ====== NET INTEREST SPREAD 4.88% 4.71% CONTRIBUTION OF INTEREST FREE FUNDS 0.41% 0.24% ------ ------ NET INTEREST MARGIN (4) 5.29% 4.95% ====== ====== (1) Average loans include nonaccrual loans. There were no nonaccrual loans for the three month periods ending 2005 and 2004. (2) Loan interest income includes loan fee income of $303 and $237 for the three months ended September 30, 2005 and September 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 $121 with an average yield of 3.67%; in 2004, on a non-taxable basis, interest income on tax exempt securities was $113 with an average yield of 3.69%. (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 nine months ended September 30, 2005 and September 30, 2004:
(In 000's) 2005 2004 Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate ---------------------------------------------------------------------------- ASSETS Loans (1) (2) $400,634 $20,918 6.96% $342,515 $16,515 6.43% Investment securities: Taxable 87,565 2,604 3.96% 75,831 2,117 3.72% Non-taxable (3) 12,313 452 4.89% 14,261 542 5.07% -------- ------- -------- ------- TOTAL LOANS AND INVESTMENT SECURITIES 500,512 23,974 6.39% 432,607 19,174 5.91% Federal funds sold 31,981 805 3.36% 16,788 139 1.10% -------- ------- -------- ------- TOTAL EARNING ASSETS 532,393 $24,779 6.20% 449,295 $19,313 5.73% -------- ------- -------- ------- Cash and due from banks 34,099 36,169 Allowance for loan losses (4,413) (3,720) Premises and equipment, net 9,951 10,784 Accrued interest receivable and other assets 14,764 13,490 -------- -------- TOTAL ASSETS $586,794 $506,018 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $235,636 $ 1,397 0.79% $209,482 $ 830 0.53% Savings 41,795 69 0.22% 41,016 71 0.23% Time 77,691 1,214 2.08% 75,193 944 1.67% -------- ------- -------- ------- 355,122 2,680 1.01% 325,691 1,845 .76% -------- ------- -------- ------- Short-term debt 0 0 0.00% 0 1 0.00% Long-term debt 29,310 958 4.36% 21,422 662 4.12% -------- ------- -------- ------- 29,310 958 21,422 663 -------- ------- -------- ------- 12 TOTAL INTEREST BEARING LIABILITIES 384,432 $ 3,638 1.26% 347,113 $ 2,508 .96% -------- ------- -------- ------- Noninterest bearing DDA 151,287 114,304 Accrued interest payable and other liabilities 4,267 4,323 Shareholders' equity 46,808 40,278 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $586,794 $506,018 ======== ======== NET INTEREST INCOME $21,141 $16,805 ======= ======= NET INTEREST SPREAD 4.94% 4.77% CONTRIBUTION OF INTEREST FREE FUNDS 0.35% 0.21% ---- ---- NET INTEREST MARGIN (4) 5.29% 4.98% ==== ==== (1) Average loans include nonaccrual loans. There were no nonaccrual loans for the nine month periods ending 2005 and 2004. (2) Loan interest income includes loan fee income of $945 and $814 for the nine months ended September 30, 2005 and September 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 $341 with an average yield of 3.68%; in 2004, on a non-taxable basis, interest income on tax exempt securities was $409 with an average yield of 3.82%. (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 September 30, 2005 and September 30, 2004 was $7,473,000 and $5,898,000, respectively. These results equate to a 27% increase in net interest income for the third quarter of 2005 compared to the third quarter of 2004. Loan fee income, which is included in interest income from loans, was $303,000 for the three months ended September 30, 2005, compared with $237,000 for the three months ended September 30, 2004. Net interest income before the provision for loan losses on a taxable-equivalent basis for the nine months ended September 30, 2005 and September 30, 2004 was $21,141,000 and $16,805,000, respectively. These results equate to an 26% increase in net interest income for the first nine months of 2004 compared to the same period of 2004. Loan fee income, which is included in interest income from loans, was $945,000 for the nine months ended September 30, 2005, compared with $814,000 for the nine months ended September 30, 2004. Taxable-equivalent interest income increased $2,029,000 or 30% in the third quarter of 2005 compared with the same period of 2004. The net increase of $2,029,000 was attributable to an increase in the volume of earning assets accounting for $846,000 of this increase, and an increase of $1,183,000 attributable to higher rates. Interest paid on interest-bearing liabilities increased $454,000 or 47% in the third quarter of 2005 compared with the third quarter of 2004. The increase of $454,000 was attributable to an increase in the volume of deposits and other borrowings accounting for $68,000 of this increase, and $386,000 was attributable to higher rates. Taxable-equivalent interest income increased $5,466,000 or 28% in the first nine months of 2005 compared with the same period of 2004. The net increase of $5,466,000 was attributable to an increase in the volume of earning assets accounting for $3,181,000 of this increase and an increase of $2,285,000 attributable to higher rates. Interest paid on interest-bearing liabilities increased $1,130,000 in the first nine months of 2005 compared with the same period of 2004. The increase of $1,130,000 was attributable to an increase in the volume of deposits and other borrowings accounting for $379,000 of this increase, and $751,000 was attributable to higher rates. The average balance of earning assets for the nine month period increased $83,098,000 or 18% when compared with September 30, 2004 and the average balance of interest-bearing liabilities increased $37,319,000 or 11% 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 September 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 Investment securities: Taxable $ 71 $ 45 $ 116 Non-taxable (1) 12 0 12 Federal funds sold 154 272 426 Loans 609 866 1,475 ------- ------- ------- Total interest and fee income 846 1,183 2,029 ------- ------- ------- Increase (Decrease) in Interest Expense Deposits: Interest bearing demand accounts 44 208 252 Savings (2) (3) (5) Time deposits 23 134 157 ------- ------- ------- Total deposits 65 339 404 Long-term debt 3 47 50 ------- ------- ------- Total Interest Expense 68 386 454 ------- ------- ------- Net Interest Income $ 778 $ 797 $ 1,575 ======= ======= ======= (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 nine months ended September 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 Investment securities: Taxable $ 327 $ 160 $ 487 Non-taxable (1) (74) (16) (90) Federal funds sold 126 540 666 Loans 2,802 1,601 4,403 ------- ------- ------- Total interest and fee income 3,181 2,285 5,466 ------- ------- ------- Increase (Decrease) in Interest Expense Deposits: 14 Interest bearing demand accounts 104 463 567 Savings 1 (3) (2) Time deposits 31 239 270 ------- ------- ------- Total deposits 136 699 835 Short-term borrowings (1) 0 (1) Long-term debt 244 52 296 ------- ------- ------- Total Interest Expense 379 751 1,130 ------- ------- ------- Net Interest Income $ 2,802 $ 1,534 $ 4,336 ======= ======= ======= (2) The interest earned is taxable-equivalent.
PROVISION AND ALLOWANCE FOR LOAN LOSSES - --------------------------------------- The Company maintains an allowance for loan losses inherent in the portfolio at a level considered adequate as of the balance sheet date. 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. As adjustments become necessary, they are reported in earnings during the periods 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 September 30, 2005 the allowance for loan losses of $4,832,000 represented 1.21% of loans outstanding. As of September 30, 2004 the allowance for loan loss of $4,040,000, represented 1.12% of loans outstanding. During the three months ended September 30, 2005, $300,000 was charged to expense for the loan loss provision, compared with $180,000 for the same period in 2004. During the nine months ended September 30, 2005 $715,000 was charged to expense for the loan loss provision, compared with $540,000 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 $19,000 during the first nine months of 2005 compared with $24,000 of net charge-offs during the first nine months of 2004. The following table summarizes changes in the allowance for loan losses: (In 000's) For the Nine months ended September 30, September 30, 2005 2004 ---- ---- Balance, beginning of period $4,136 $3,524 Provision for loan losses 715 540 Loans charged off (24) (109) Recoveries of loans previously charged off 5 85 ------ ------ Balance, end of period $4,832 $4,040 ====== ====== Allowance for loan losses to total outstanding loans 1.21% 1.12% There were no loans on non-accrual status as of September 30, 2005, September 30, 2004 or December 31, 2004. There were no loans 90 days or more past due and still accruing interest or restructured loans at September 30, 2005, September 30, 2004 or December 31, 2004. NON-INTEREST INCOME - ------------------- Non-interest income, other than gains on the sale of securities, was $1,027,000 for the three months ended September 30, 2005 compared with $986,000 for the same period in 2004, a 4.2% increase. Non-interest income, excluding gains on the sale of securities, was $3,005,000 for the nine months ended September 30, 2005 compared with $2,967,000 for the same period in 2004, a 1.3% increase. Non-interest income primarily consists of service charges and other fees related to deposit accounts. For the three-month period, the increase in non-interest income resulted primarily from an increase in the number of deposit accounts, transaction volumes and directly related service charges. GAINS ON SECURITIES - ------------------- There were no gains or losses for the three and nine months ended September 30, 2005. Net gains of $262,000 for the nine months ended September 30, 2004 resulted from the sale of several available-for-sale securities. NON-INTEREST EXPENSE - -------------------- Non-interest expense for the three months ended September 30, 2005 and September 30, 2004 were $5,211,000 and $4,667,000, respectively, a 12% increase. Non-interest expense for the nine months ended September 30, 2005 and September 30, 2004 were $15,419,000 and $13,835,000, respectively, an 11% increase. 15 Salaries and employee benefits expense for the three months ended September 30, 2005 and 2004 were $2,763,000 and $2,566,000, respectively, a 7.7% increase. Salaries and employee benefits expense for the nine months ended September 30, 2005 and 2004 were $8,221,000 and $7,633,000, respectively, an 7.7% increase. The increase in 2005 resulted from increased salaries paid to Company officers and employees, and an increase of approximately two full-time equivalent (FTE) employees from 165 at September 30, 2004 to 167 at September 30, 2005. The increases in FTE were related to increasing sales activity and staffing new offices. Occupancy expense for the three months ended September 30, 2005 and 2004 were $477,000 and $369,000, respectively, a 29.3% increase. Occupancy expense for the nine months ended September 30, 2005 and 2004 were $1,317,000 and $1,080,000, respectively, representing a 21.9% increase. The increase in occupancy expense in 2005 is attributed to having vacant space in the Vacaville office building owned by the Company and to opening a branch office in American Canyon in August 2004. Equipment expense for the three months ended September 30, 2005 and 2004 were $487,000 and $502,000, respectively, representing a decrease of 3%. Equipment expense for the nine months ended September 30, 2005 and 2004 were $1,566,000 and $1,509,000, respectively, an increase of 3.8%. The increase in equipment expenses is primarly attributable to opening a branch office in American Canyon. Other expenses for the three months ended September 30, 2005 and September 30, 2004 were $1,484,000 and $1,230,000, respectively, a 20.7% increase. Other expenses for the nine months ended September 30, 2005 and September 30, 2004 were $4,315,000 and $3,613,000, respectively, a 19.4% increase. The increase in other expenses in 2005 compared with 2004 were 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 September 30, 2005 and 2004 of $1,131,000 and $750,000, or 38% of pretax income. The Company reported a provision for income tax for the nine months ended September 30, 2005 and 2004 of $3,036,000 and $2,034,000, or 38% and 37% 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. Comparison with the first nine months of 2004 were impacted by the Vintage Capital Trust real estate investment trust ("REIT") state tax benefits which were reflected in net income in the first three quarters of 2004 and were reversed in the fourth quarter of 2004. BALANCE SHEET - ------------- Total assets as of September 30, 2005 were $630,043,000 compared with $562,063,000 at December 30, 2004 equating to a 12% increase for the nine months ended September 30, 2005. Total deposits as of September 30, 2005 were $546,850,000 compared with $484,493,000 at December 30, 2004 representing a 13% increase for the nine months ended September 30, 2005. Gross loans outstanding as of September 30, 2005 were $397,709,000 compared with $377,765,000 at December 30, 2004 equating to a 5% increase for the nine months ended September 30, 2005. LOANS HELD FOR SALE - ------------------- The Company had $0 and $4,604,000 in purchased participations in mortgage loans as of September 30, 2005 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 September 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 September 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 September 30, 2005 the interest rate was 7.41%; the Securities will mature on September 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 and the subordinated debenture issued by the Trust are redeemable in whole or in part on or after September 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 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. 16 BORROWINGS - ---------- Total borrowings were $19 million at September 30, 2005 and December 31, 2004. The following table summarizes the borrowings:
Fixed Rate Borrowings at September 30, 2005 ($ 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%
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 September 30, 2005 liquid assets were 29% of total assets, compared with 28% as of September 30, 2004, which is within the Company's policy. 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 September 30, 2005, the Company's risk-based capital ratio was 12.87%. The Company's tier 1 risk-based capital ratio and leverage ratio were 11.88% and 9.63%, respectively as of September 30, 2005. As the following table indicates, the Company and the Bank currently exceed the regulatory capital minimum requirements. The Company and the Bank are considered "Well Capitalized" according to regulatory guidelines.
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- (In 000's) Minimum regulatory Minimum regulatory requirement requirement Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of September 30, 2005: Total Capital (to Risk Weighted Assets) Consolidated $64,569 12.87% $40,130 8.00% $50,163 10.00% The Vintage Bank 59,271 11.82% 40,122 8.00% 50,152 10.00% Tier I Capital (to Risk Weighted Assets) Consolidated 59,614 11.88% 20,065 4.00% 30,098 6.00% The Vintage Bank 54,317 10.83% 20,061 4.00% 30,091 6.00% Tier I Capital (to Average Assets) Consolidated 59,614 9.63% 24,767 4.00% 30,959 5.00% The Vintage Bank 54,317 8.85% 24,548 4.00% 30,685 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 principally be a market risk. Other types of market risks, such as foreign currency exchange rate risk, do not arise in the normal course of the Company's business activities. The majority of the Company's interest rate risk arises from instruments, positions and transactions entered into for 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. 17 The Company manages interest rate risk through the Asset Liability Committee (ALCO) of the Vintage Bank. 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 September 30, 2005 and December 31, 2004 the Company is within the established exposure of a 4% change in "return on equity" tolerance limit set by the Company's risk policy. 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 September 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 over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over disclosure. 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. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION "Effective October 1, 2005, the North Bay Bancorp Board of Directors adopted The 2005 North Bay Bancorp Supplemental Executive Retirement Plan. The purpose of the plan was to conform the terms of the amended and restated executive supplemental compensation agreements previously entered into with various executive officers of the Company to the provisions of the Section 409A of the Internal Revenue Code as enacted by the American Jobs Creation Act. There were no material changes to terms of the existing agreements. The plan is attached as Exhibit 10.2 to this Report." 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: November 14, 2005 BY: /s/ Terry L. Robinson ---------------------------------- Terry L. Robinson President & CEO Principal Executive Officer Date: November 14, 2005 BY: /s/ Terry L. Robinson ---------------------------------- Terry L. Robinson Interim Chief Financial Officer Principal Financial Officer 21 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1 Employment Agreement by and between John A. Nerland and The Vintage Bank. 10.2 The North Bay Bancorp Supplemental Executive Retirement Plan. 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-10 2 p19562_ex10-1.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of the 1st day of August, 2005 by and between The Vintage Bank, a California corporation (the "Bank"), and John A. Nerland (the "Employee"). BACKGROUND ---------- WHEREAS, the Employee is currently employed by the Bank and possesses valuable knowledge and skills that have contributed to the operation of the Bank and its Solano Bank division; WHEREAS, the Bank desires to continue Employee's employment and the Employee is willing to continue to be employed by the Bank, upon the terms and subject to the conditions hereinafter set forth; and WHEREAS, the Bank is a wholly-owned subsidiary of North Bay Bancorp, a California corporation (the "Company"). NOW, THEREFORE, in consideration of the premises, agreements and mutual covenants set forth herein, the parties hereto hereby agree as follows: 1. Employment ---------- 1.1 General. The Bank hereby employs the Employee as President of its Solano Bank division on the terms and subject to the conditions contained in this Agreement, and the Employee hereby accepts such employment on the terms and subject to the conditions contained in this Agreement. 1.2 Duties of Employee. During the Term of this Agreement, the Employee shall diligently perform all duties and responsibilities reasonably accorded to and expected of the President of the Solano Bank division of the Bank and as may be assigned to him by the Board of Directors of the Bank (the "Board of Directors"), the Chief Executive Officer of the Bank, or the President and Chief Executive Officer of the Company, and shall exercise such power and authority as may from time to time be delegated to him thereby. The Employee shall devote his full business time and attention to the business and affairs of the Bank as necessary to perform his duties and responsibilities hereunder, render such services to the best of his ability and use his best efforts to promote the interests of the Bank. The Employee shall faithfully adhere to, execute and fulfill all policies established by the Bank. 1.3 Place of Performance. Except for required travel for the Bank's business, the Employee shall perform his duties and responsibilities from the offices of the Company and the Solano Bank division of the Bank. 2. Term. Subject to the provisions of Section 4 of this Agreement, the initial term of Employee's employment hereunder shall commence on the date of this Agreement (the "Effective Date") and shall continue thereafter until the third anniversary of the Effective Date (the "Initial Term"). Unless the Employee shall have notified the Bank, or the Bank shall have notified the Employee, not less than sixty days prior to the expiration of the Initial Term of such party's election not to continue the Term of this Agreement, upon expiration of the Initial Term, the Employee's employment hereunder shall continue until the fourth anniversary of the Effective Date and thereafter shall continue on a year-to-year basis unless either party notifies the other, not less than sixty days prior to expiration of the then current Renewal Term, of such party's election not to continue the Term of this Agreement (each such additional one-year period, a "Renewal Term"; the Initial Term and any Renewal Term are collectively referred to hereinafter as the "Term"). The election by the Bank not to continue the Term of Employee's employment for a Renewal Term shall not be deemed a termination without Cause pursuant to Section 4.1(b) hereof except as expressly provided in Section 4.1(d) hereof. 3. Compensation. ------------- 3.1 Salary. During the Term of the Employee's employment hereunder, the Employee shall receive an annual salary of one hundred thirty four thousand dollars ($134,000) payable at such times and in such manner as the Bank's normal payroll schedule may from time to time provide. Employee's annual salary shall be subject to annual adjustment as may be determined by the Board of Directors in its sole and absolute discretion. 3.2 Incentive Compensation. The Employee shall be eligible to receive as additional compensation each year during his employment hereunder, as determined by the Board of Directors or an applicable committee thereof, in accordance with the terms of an Incentive Compensation Plan adopted annually by the Board of Directors. Such additional compensation (if any) to be paid at a time or times and in a manner consistent with the Bank's normal practices for the payment of bonuses, or as the Board of Directors or applicable committee may otherwise determine. 3.3 Benefits. During his employment hereunder, the Employee shall be entitled to participate in all plans adopted for the general benefit of the Bank's management employees, including medical plans and 401(k) plan, to the extent that the Employee is and remains eligible to participate therein and subject to the eligibility provisions of such plans in effect from time to time. In the event Employee's employment hereunder is terminated and the Employee is entitled to compensation pursuant to Section 4.4(d), the Employee shall be entitled to continue to participate in the Bank's medical plan until the earlier of (a) expiration of the applicable payment period set forth in Section 4.4(d)(i) or (b) the date Employee obtains new employment. 3.4 Paid Time Off ("PTO"). During each calendar year of his employment hereunder, the Employee shall be entitled to twenty-five (25) days of PTO in accordance with the Bank's PTO policy, prorated for any period of employment of less than an entire year, provided that PTO will continue to accrue only so long as Employee's total accrued PTO does not exceed thirty-five (35) days. Should 2 Employee's accrued PTO reach thirty-five (35) days, Employee will cease to accrue further PTO until Employee's accrued PTO falls below that level. Notwithstanding anything contained in the foregoing, Employee shall take not less than ten (10) consecutive days of PTO during each calendar year during the Term of this Agreement. Employee may be absent from his employment for PTO only at such time as the President and Chief Executive Officer of the Company shall determine from time to time. 3.5 Withholding. Notwithstanding any provision in this Agreement to the contrary, all payments required to be made by the Bank to the Employee hereunder or otherwise arising out of, related or incidental to or in connection with the Employee's employment hereunder shall be subject to withholding of such amounts relating to taxes as the Bank may reasonably determine it should withhold pursuant to any applicable law or regulation. 3.6 Reimbursement of Expenses. The Bank agrees to reimburse the Employee for all reasonable business travel and other out-of-pocket expenses incurred by the Employee in the discharge of his duties hereunder, subject to the Bank's reimbursement policies in effect from time to time. All reimbursable expenses shall be appropriately documented in reasonable detail by the Employee upon submission of any request for reimbursement, and in a format and manner consistent with the Bank's expense reporting policy, as well as applicable federal and state record keeping requirements. 3.7. Automobile. The Bank will pay to Employee an automobile allowance in the amount of five hundred dollars ($500) per month. The Employee shall be responsible for insurance and maintenance costs associated with such automobile's operation. The Employee shall not be entitled to reimbursement for mileage. Employee shall procure and maintain an automobile liability insurance policy on the automobile, with coverage including Employee for at least a minimum of $300,000 for bodily injury or death to any one person in any one accident, and $100,000 for property damage in any one accident. The Employer shall be named as an additional insured and Employee shall provide Employer copies of policies evidencing insurance and Employer's inclusion as an additional insured. 4. Termination ----------- 4.1 By Bank. -------- (a) With Cause. Notwithstanding any provision in this Agreement to the contrary, the Employee's employment hereunder may be terminated by the Bank at any time for "Cause," and such termination shall be effective immediately upon written notice to the Employee. For purposes of this Agreement, "Cause" for the termination of the Employee's employment hereunder shall be deemed to exist if, in the reasonable judgment of the Board of Directors: (i) the Employee commits fraud, theft or embezzlement against the Bank, or any subsidiary or affiliate thereof; (ii) the Employee commits a felony or a crime involving moral turpitude; (iii) the Employee compromises trade secrets or other proprietary information of the Bank, or any subsidiary or affiliate thereof; (iv) the Employee breaches any non-solicitation agreement with the Bank, or any 3 subsidiary or affiliate thereof; (v) the Employee breaches any of the terms of this Agreement (other than those referenced in clauses (iii) and (iv) of this Section 4.1(a)) and fails to cure such breach within ten (10) days after the receipt of written notice of such breach from the Bank; (vi) the Employee engages in any grossly negligent act or willful misconduct that causes, or could be reasonably expected to cause, harm to the business, operations or reputation of the Bank, or any subsidiary or affiliate thereof; or (vii) the Bank, or any subsidiary or affiliate thereof, is ordered to terminate this Agreement by any governmental regulatory agency with supervisory authority over the Bank, or any subsidiary or affiliate thereof. (b) Without Cause. The Bank may at any time, in its sole and absolute discretion, terminate the employment of the Employee hereunder without Cause, or otherwise without any cause, reason or justification, provided that the Bank provides to the Employee written notice (the "Termination Notice") of such termination. In the event of any such termination by the Bank, the Employee's employment with the Bank shall cease and terminate on the date specified in the Termination Notice. (c) For Disability of the Employee. If, as a result of incapacity due to physical or mental illness or injury, the Employee is determined to be disabled under any disability policy maintained by the Bank or, in the event no such policy is maintained by the Bank, the Employee shall have been unable to perform the essential functions of his position, with or without reasonable accommodation, on a full-time basis for a period of sixty (60) consecutive days, or for a total of ninety (90) days in any twelve-month period (a "Disability"), then thirty (30) days after written notice to the Employee (which notice may be given before or after the end of the aforementioned periods, but which shall not be effective earlier than the last day of the applicable period), the Bank may terminate the Employee's employment hereunder if the Employee is unable to resume his full-time duties at the conclusion of such notice period. 4.2 Death of the Employee. This Agreement shall immediately cease and terminate upon the death of Employee. 4.3 Termination by Employee. The Employee may terminate his employment under this Agreement upon not less than thirty (30) days prior written notice to the Bank. Upon learning that the Employee is terminating his employment under this Agreement, the Bank may, in its sole discretion but subject to its other obligations under this Agreement, relieve Employee of his duties under this Employment Agreement, and assign Employee other reasonable duties and responsibilities to be performed until the termination becomes effective. 4 4.4 Compensation Upon Early Termination. ------------------------------------ (a) As a Result of Death, Cause or Resignation. If the Employee's employment under this Agreement is terminated prior to the scheduled expiration of the Term by reason of his death, termination by the Bank for Cause or resignation by the Employee, the Employee shall be entitled to be paid solely (i) the Employee's salary then in effect through the effective date of termination, (ii) any accrued PTO due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) those benefits, if any, that have vested by operation of state or federal law or under any written term of a plan ("Vested Benefits"), and (v) health care coverage continuation rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA Rights"), and the Bank shall have no further liability or other obligation of any kind whatsoever to the Employee. In the case of termination as a result of the death of Employee, any amounts due pursuant to this Section 4.4(a) shall be paid to the Employee's estate, heirs (at law), devisees, legatees or other proper and legally entitled descendants, or the personal representative, executor, administrator or other proper legal representative on behalf of such descendants. (b) By the Bank other than for Cause. Except as otherwise expressly provided in Section 4.4(d), if, prior to the scheduled expiration of the Term, the Bank terminates the Employee's employment without Cause, the Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of six months following the effective date of the termination of Employee's employment payable over such period at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time ("Severance Pay"), (ii) any accrued PTO due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA Rights, and the Bank shall have no further liability or other obligation of any kind whatsoever to the Employee. The payment of Severance Pay shall constitute liquidated damages in lieu of any and all claims by the Employee against the Bank, shall be in full and complete satisfaction of any and all rights which the Employee may enjoy hereunder, and shall constitute consideration for a full and unconditional release of any and all liability of the Bank or any of its shareholders, benefit plans, affiliate companies, subsidiaries, and the directors, officers, employees, trustees and agents of such entities and their successors or assigns, arising out of this Agreement or out of the employment relationship between the Employee and the Bank (in the form of Exhibit A, hereafter the "Release"). Payment of the Severance Pay is expressly conditioned upon receipt by the Bank of the Release executed by the Employee. (c) Disability. For the sixty (60) day period following onset of the Employee's Disability, Employee shall be entitled to receive and be paid solely (i) the Employee's salary then in effect until the expiration of said sixty (60) day period payable over such period of time at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time, (ii) any accrued PTO due pursuant to Section 3.4, (iii) any amounts due pursuant to Section 3.6, (iv) any Vested Benefits, and (v) any COBRA rights. Following expiration of the sixty (60) day period, the Employee shall be entitled to receive and be paid solely a salary at a rate commensurate with the benefit Employee is eligible to receive under any disability policy maintained by the 5 Bank for a period of one hundred twenty (120) days or until Employee's benefits under any disability policy maintained by the Bank for the Employee commences, whichever period is shorter, payable over such period of time at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time, and the Bank shall have no further liability or other obligation of any kind whatsoever to the Employee. (d) Change in Control. Notwithstanding anything contained in the foregoing, if within one year of the effective date of a Change in Control (as defined below), of the Company (i) Employee's employment under this Agreement is terminated by the Bank, its assignee or successor, without Cause (including, for purposes of this Section 4.1(d), an election by the Bank not to continue to Term of Employee's employment) or (ii) Employee terminates his employment under this Agreement on account of (y) Employee's position, responsibilities or working conditions being substantially diminished or (z) a material reduction in the Employee's compensation or benefits, the Employee shall be entitled to receive and be paid compensation as follows in lieu of compensation payable pursuant to Section 4.4(b): (i) Less Than Five Years of Service. If as of the effective date of the Change in Control of the Company the Employee has completed less than five years of service to the Bank (including service to any predecessor or subsidiary of the Bank and service to Solano Bank measured from the date service thereto commenced which the parties agree was April 15, 2002), the Employee shall be entitled to receive and be paid an amount equal to (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Bank. Said amount shall be payable to the Employee for a period of twelve months following the effective date of the termination of the Employee's employment (the "Date of Termination"). Said amount shall be payable for such period at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued PTO due pursuant to Section 3.4, (w) any amounts due pursuant to Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Bank; or (ii) More than Five Years of Service. If as of the effective date of the Change in Control of the Company the Employee has completed five or more years of service to the Bank (including service to any predecessor or subsidiary of the Bank and service to Solano Bank measured from the date service thereto commenced with the parties agree was April 15, 2002), the Employee shall be entitled to receive and be paid an amount equal to two times (a) the Employee's annual salary then in effect plus (b) the average of the incentive compensation paid to the Employee for the two most recently completed fiscal years of the Bank. Said amount shall be payable to the Employee for a period of twenty-four months following the Date of Termination. Said amount shall be payable for such period at the Bank's regular and customary intervals for the payment of salaries as in effect from time to time. In addition, the Employee shall be entitled to receive and be paid (v) any accrued PTO due pursuant to Section 3.4, (w) any amounts due pursuant to Section 3.6, (x) any Vested Benefits, (y) any COBRA rights, and (z) prorated incentive compensation for the current fiscal year of the Bank. 6 (e) Change in Control Defined. "Change in Control" means in any transaction or related series of transactions: (a) the acquisition (other than solely from the Company), by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than the Company or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company, of beneficial ownership (within the meaning of Rule 13(d)(3) promulgated under the Exchange Act) of more than 30% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Voting Securities"); (b) a reorganization, merger, consolidation, share exchange or recapitalization of the Company (a "Business Combination"), other than a Business Combination in which more than 50% of the combined voting power of the outstanding voting securities of the surviving or resulting entity immediately following the Business Combination is held by the persons who, immediately prior to the Business Combination, were the holders of the Voting Securities; or (c) a complete liquidation or dissolution of the Company, or a sale of all or substantially all of the Company's assets. (f) Tax Gross-Up Payment. In the event the compensation payable to the Employee pursuant to and by reason of Section 4.4(d) hereof and otherwise payable by the Bank to the Employee by reason of a Change in Control of the Company (including without limitation, accelerated vesting of stock options and other compensation payable outside of this Agreement (together the "Total Benefits"), but determined without regard to any additional payments required under this Section 4.4(f)) constitute excess parachute payments within the meaning of Section 280G of the Internal Revenue Code (the "Code") and the Employee will be subject to the excise tax imposed by Section 4999 of the Code, then the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) shall be increased by an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any excise tax on the Total Benefits and any federal, state and local income tax, excise taxes and FICA Medicare withholding taxes upon the Gross-Up Payment shall be equal to the Total Benefits. The Gross-Up Payment shall be calculated, and all assumptions to be utilized in performing such calculation, shall be made by the Bank's independent auditors (the "Accounting Firm") which shall provide detailed supporting calculations both to the Bank and the Employee within fifteen (15) business days after the Date of Termination (defined in Section 4(d)(i)). The calculation of the Gross-Up Payment by the Accounting Firm shall be binding upon the Bank and Employee unless with ten (10) business days of receiving the calculations from the Accounting Firm either party objects to the calculation by serving upon the other party a written notice of objection (which shall contain specific details supporting the objection). In the event of a timely objection to the calculation, the Bank and Employee shall meet and in good faith attempt to resolve the objection. If the parties fail to resolve the objection with ten (10) business days of receipt of 7 the objection, either party may initiate arbitration, and the dispute shall be resolved by arbitration, pursuant to Section 11 hereof. All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Bank. The Gross-Up Payment shall be added to the aggregate compensation payable to the Employee pursuant to and by reason of Section 4.4(d) and be payable over the applicable payment period set forth in Section 4.4(d)(i) or (ii), subject to withholding pursuant to Section 3.5 hereof. 4.5 Expiration of the Term. If not sooner terminated, Employee's employment hereunder shall terminate on the expiration of the Initial Term or the Renewal Term, as applicable in accordance with Section 2 hereof. Not less than 45 days prior to the scheduled expiration of Employee's employment hereunder, the parties agree to commence discussions with respect to the possible extension of the Term of this Agreement, possible execution of a new employment agreement or other possible continuation of the Employee's employment (it being understood and agreed that no such discussion shall imply any current or future obligation or commitment to enter into any such agreement or extension or any other expressed or implied arrangement for the continued employment of the Employee following the expiration of the Initial Term or any other termination of the Employee's employment hereunder). 5. Agreement Not to Solicit Customers. The Employee agrees that, during the Term of his employment with the Bank or any entity owned by or affiliated with the Bank (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, call on, solicit, or take away as a client, customer or prospective client or customer, or attempt to call on, solicit, or take away as a client, customer or prospective client or customer, any person or entity that was a client, customer or prospective client or customer of the Bank, or any subsidiary or affiliate thereof. For purposes of this agreement "prospective client or customer" shall include any person or entity with whom the Bank has had contact for the purpose of soliciting business within the six months prior to the termination of employment or whom the Bank intended to contact for the purpose of soliciting business within six months after termination of employment, of which contact or intended contact the Employee had knowledge while employed by the Bank. 6. Agreement Not to Solicit or Hire Employees. The Employee agrees that during the Term of his employment with the Bank or any entity owned by or affiliated with the Bank (whether pursuant to this Agreement or otherwise), and for two (2) years following the termination thereof whether or not for any reason whatsoever, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit or divert, attempt to solicit or divert or induce or attempt to induce to discontinue employment with the Bank, or any subsidiary or affiliate thereof, any person employed by the Bank, or any subsidiary or affiliate thereof, whether or not such employee is a full time employee or a temporary employee of the Bank, or any subsidiary or affiliate thereof and whether or not such employment is for a determined period or is at will. 8 7. Ownership and Non-Disclosure and Non-Use of Confidential Information. --------------------------------------------------------------------- 7.1 Confidential Information. As used in this Agreement, "Confidential Information" shall mean all customer deposit, loan, sales and marketing information, customer account records, proprietary receipts and/or processing techniques, information regarding vendors and products, training and operations memoranda and similar information, personnel records, pricing information, financial information and trade secrets concerning or relating to the business, accounts, customers, employees and affairs of the Bank, or any subsidiary or affiliate thereof, obtained by or furnished, disclosed or disseminated to the Employee, or obtained, assembled or compiled by the Employee or under his supervision during the course of his employment by the Bank, and all physical embodiments of the foregoing, all of which are hereby agreed to be the property of and confidential to the Bank, but Confidential Information shall not include any of the foregoing to the extent that the Employee can show that the same is or becomes publicly known through no action, omission, fault or breach of this Agreement by the Employee. 7.2. Ownership. The Employee acknowledges and agrees that all Confidential Information, and all physical embodiments thereof, are confidential to and shall be and remain the sole and exclusive property of the Bank. The Employee agrees that upon request by the Bank, and in any event upon termination of the Employee's employment with the Bank whether or not for any reason whatsoever, the Employee shall deliver to the Bank all property belonging to the Bank, or any of its subsidiaries or affiliates, including, without limitation, all Confidential Information (and all embodiments thereof), then in his custody, control or possession. 7.3 Non-Disclosure and Non-Use. The Employee agrees that he will not, either during the Term of his employment hereunder or at any time thereafter, use, disclose or make available any Confidential Information to any person or entity, nor shall he use, disclose, make available or cause to be used, disclosed or made available, or permit or allow, either on his own behalf or on behalf of others, any use or disclosure of such Confidential Information other than in the proper performance of the Employee's duties hereunder. 8. Reasonableness of Restrictions. In the event that any provision relating to time period set forth in Section 5, 6, or 7 shall be held by a court of competent jurisdiction to exceed the maximum time period that the court deems reasonable and enforceable, the time period which the court finds to be reasonable and enforceable shall be deemed to become, and thereafter shall be, the maximum time period of such restriction as to such jurisdiction. 9. Enforceability. Any provision of this Agreement which is held by a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, but shall be enforced to the maximum extent permitted by law, and any such holding of invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9 10. Injunction. The Employee represents that his experience and capabilities are such that the provisions of Sections 5, 6, and 7 will not prevent him from earning his livelihood, and acknowledges that a breach by the Employee of any of the covenants contained therein will cause irreparable harm and damage to the Bank, the monetary amount of which may be virtually impossible to ascertain. As a result, the Employee recognizes and hereby acknowledges that the Bank shall be entitled to an injunction from any court of competent jurisdiction enjoining and restraining any violation of any or all of the covenants contained in Section 5, 6, and/or 7 of this Agreement by the Employee or any of his affiliates, associates, partners or agents, either directly or indirectly, without any requirement to post bond or other security and that such right to injunction shall be cumulative and in addition to whatever other remedies the Bank may possess. 11. Arbitration. Subject to the provisions of Section 10 hereof regarding the remedy of injunctive relief, any dispute (whether based on contract, tort, or statutory duty or prohibition) arising out of or in connection with this Agreement shall be submitted to binding arbitration, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (as modified by this Agreement) by one arbitrator, designated in accordance with those rules. No one who has ever had any business, financial, family, or social relationship with any party to this Agreement shall serve as an arbitrator unless the related party informs the other party of the relationship and the other party consents in writing to the use of that arbitrator. The party demanding arbitration shall submit a written claim to the other party, setting out the basis of the claim. A prearbitration hearing shall be held within twenty (20) business days after the arbitrator's selection. The arbitration shall be held within ninety (90) calendar days after the prearbitration hearing. The arbitrator shall establish any deadlines to accomplish this goal. The arbitration shall take place in Napa, California, at a time and place selected by the arbitrator. Each party shall be entitled to discovery of essential documents and witnesses, as determined by the arbitrator. No less than thirty (30) calendar days before the arbitration, a party may serve a document request calling for any document that would be discoverable in a state civil proceeding. The served with this request shall deliver the requested documents and any objections within ten (10) calendar days. The arbitrator may resolve any dispute over the exchange of documents. Each party may take no more than three (3) depositions, unless additional depositions are allowed by the arbitrator for good cause. All depositions must be completed as of fifteen (15) calendar days before the arbitration hearing unless the parties otherwise agree. The arbitrator may resolve any dispute over the depositions as they would be resolved in a state civil proceeding. Any motion may be heard by the arbitrator on three (3) days notice unless the parties otherwise agree. The arbitrator shall apply California law. 10 The parties agree that all information supplied by any party shall be deemed to be confidential information, and the arbitrator and other participants in the dispute shall protect such information from disclosure to the same extent as confidential information under Section 7 of this Agreement. The arbitrator shall have the following powers: (a) To issue subpenas for the attendance of witnesses and subpenas duces tecum for the production of books, records, documents, and other evidence; (b) To order depositions to be used as evidence; (c) Consistent with the discovery procedures enumerated above, to enforce the rights, remedies, procedures, duties, liabilities, and obligations of discovery as if the arbitration were a civil action before a California superior court; (d) To conduct a hearing on the arbitration issues and related legal and discovery issues; (e) To administer oaths to parties and witnesses; (f) To award all damages and remedies which would be available in a civil action before a California superior court. (g) To award expenses and fees of arbitration as the arbitrator deems proper; and (h) To order such other relief as the arbitrator deems proper. Within fifteen (15) calendar days after completion of the arbitration, the arbitrator shall submit a tentative decision in writing specifying the reasoning for the decision and any calculations necessary to explain the award. Each party shall have fifteen (15) calendar days in which to submit written comments to the tentative decision. Within ten (10) calendar days after the deadline for written comments, the arbitrator shall announce the final award. Any party may enter the final award as a judgment in any court of competent jurisdiction. The Bank shall pay the arbitrator's expenses and fees, all meeting room charges, and any other expenses that would not have been incurred if the case were litigated in the judicial forum having jurisdiction over it. Unless otherwise ordered by the arbitrator, each party shall pay its own attorney fees, witness fees and other expenses incurred by the party for his or its own benefit. The arbitrator may award the prevailing party his or its expenses and fees of arbitration, including reasonable attorney fees and costs, including witness fees, in such proportion as the arbitrator decides. 11 12. No Prior Agreements. The Employee represents and warrants that he is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect his ability to perform his obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions in any manner similar to those contained in Sections 5, 6, and/or 7 hereof. The Employee further represents and warrants that his employment with the Bank will not require him to disclose or use any confidential information belonging to prior employers or other persons or entities. 13. Assignment. The Employee shall not delegate his employment obligations pursuant to this Agreement to any other person. This Agreement may be assigned by the Bank without the Employee's consent. The rights and protections of the Bank hereunder shall extend to any successors or assigns of the Bank and to the Bank's present or future parents, subsidiaries, divisions and affiliates. 14. Employer's Authority. The relationship between the parties hereto is that of employer and employee. The Employee agrees to observe and comply with the rules and regulations of the Bank, as adopted by the Bank from time to time with respect to the performance of the duties of the Employee. The Employee acknowledges that he has no authority to enter into any contracts or other obligations that are binding upon the Bank unless such contracts or obligations are authorized by the Board of Directors. The Bank shall have the power to direct, control and supervise the duties to be performed by the Employee, the manner of performing said duties, and the time of performing said duties. 15. Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California, without giving effect to any of the conflicts of laws provisions thereof that would compel the application of the substantive laws of any other jurisdiction. The Bank and the Employee each hereby irrevocably submit to the jurisdiction of the state or federal courts located in the State of California in connection with any suit, action or other proceeding arising out of or relating to this Agreement and hereby agree not to assert, by way of motion, as a defense, or otherwise in any such suit, action or proceeding that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced by such courts. 16. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties hereto with respect to such subject matter. 17. Notices. All notices, requests, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given (a) on the date of the service if served personally on the party to whom notice is to be given, (b) on the date of transmission if transmitted by facsimile with confirmation of receipt, (c) on the date of receipt if mailed to the party to 12 whom notice is to be given by first class mail, registered or certified, postage prepaid or by overnight courier service (i.e., Federal Express or equivalent) and unless either party should notify the other of a change of address properly addressed as follows, or (d) otherwise on the date of receipt when the intended recipient has acknowledged receipt: (i) If to the Employee: John A. Nerland _______________________ _______________________ (ii) If to the Bank: The Vintage Bank 1190 Airport Road, Suite 101 P.O. Box 2200 Napa, California 94558 Attention: President and Chief Executive Officer of North Bay Bancorp Facsimile: (707) 252-5025 18. Binding Effect. The obligations of the Employee under this Agreement shall continue after the expiration of this Agreement and the termination of his employment with the Bank for any reason, shall be binding upon his heirs, executors, personal representatives, legal representatives and assigns and shall inure to the benefit of any successor and assigns of the Bank. 19. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement or any part thereof shall be declared invalid, this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections or subsection or subsections had not been inserted. If such invalidity is caused by length of time or size of area, or both, the otherwise invalid provision will be considered to be reduced to a period or area which would cure such invalidity. 20. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13 21. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representative, legal representative, successors and assigns, any rights or remedies under or by reason of this Agreement. 22. Amendment; Modification; Waiver. No amendment, modification or waiver of the terms of this Agreement shall be valid unless made in writing and duly executed by the Bank and the Employee. No delay or failure at any time on the part of the Bank in exercising any right, power or privilege under this Agreement, or in enforcing any provision of this Agreement, shall impair any such right, power or privilege, or be construed as a waiver of any default or as any acquiescence therein, or shall affect the right of the Bank thereafter to enforce each and every provision of this Agreement in accordance with its terms. The waiver by either party hereto of a breach or violation of any term or provision of this Agreement shall neither operate nor be construed as a waiver of any subsequent breach or violation. THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ AND UNDERSTANDS THE FOREGOING PROVISIONS AND THAT SUCH PROVISIONS ARE REASONABLE AND ENFORCEABLE. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. EMPLOYEE /s/ John A. Nerland ------------------------------ John A. Nerland BANK By: /s/ Terry L. Robinson ------------------------- Terry L. Robinson Chief Executive Officer 14 EX-10 3 p19562_ex10-2.txt SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN THE 2005 NORTH BAY BANCORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Effective October 1, 2005
TABLE OF CONTENTS Page ARTICLE I PURPOSE; EFFECTIVE DATE 1 ARTICLE II DEFINITIONS 1 2.1 Actuarial Equivalent 1 2.2 Applicable Percentage 1 2.3 Basic Benefit 1 2.4 Board 1 2.5 Change in Control 1 2.6 Committee 2 2.7 Company 2 2.8 Disability/Disabled 2 2.9 Retirement 2 2.10 Normal Retirement Date 2 2.11 Early Retirement Date 2 2.12 Early Retirement Benefit 3 2.13 Participant 3 2.14 Participation Agreement 3 2.15 Supplemental Retirement Benefit 3 ARTICLE III ELIGIBILITY AND PARTICIPATION 3 3.1 Eligibility and 3 ARTICLE IV SUPPLEMENTAL RETIREMENT BENEFITS 4 4.1 Retirement on or After Normal Retirement Date 4 4.2 Retirement on or After Early Retirement Date but Before Normal Retirement Date 4 4.3 Termination Without Cause 4 4.4 Voluntary Termination 4 4.5 Termination Pursuant to a Change in Control 4 4.6 Termination Following the Determination of Disability 5 4.7 Termination for Cause 5 4.8 Death of Participant During Active Employment 5 ARTICLE V FORM AND PAYMENT OF BENEFITS 5 5.1 Internal Revenue Code Section 409A Compliance 5 5.2 Reduction for Early Commencement of Benefits 6 5.3 Form of Benefit Payment 6 5.4 Modifying Form of Benefit Payment 6 5.5 Withholding of Payroll Taxes 7 5.6 Payment to Guardian 7
ii
TABLE OF CONTENTS (Continued) Page ARTICLE VI ADMINISTRATION 7 6.1 Committee and Duties 7 6.2 Agents 7 6.3 Binding Effect of Decisions 7 6.4 Indemnity of Committee 7 ARTICLE VII BENEFICIARY DESIGNATION 7 7.1 Designation 7 7.2 Amendments to Beneficiary Designation 8 7.3 No Participant Designation 8 7.4 Effect of Payment 8 ARTICLE VIII CLAIMS PROCEDURE 8 8.1 Claim 8 8.2 Arbitration of Disputes 8 ARTICLE IX MISCELLANEOUS 9 9.1 Unfunded Plan 9 9.2 Unsecured General Creditor 9 9.3 Trust Fund 9 9.4 Nonassignability 10 9.5 Not a Contract of Employment 10 9.6 Protective Provisions 10 9.7 Terms 10 9.8 Captions 10 9.9 Governing Law 10 9.10 Validity 10 9.11 Notice 10 9.12 Successors 11 9.13 IRS Section 280G Issues 11 EXHIBIT 1: Participation Agreement EXHIBIT 2: Distribution Election Form EXHIBIT 3: Beneficiary Agreement
iii THE 2005 NORTH BAY BANCORP SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I --------- PURPOSE AND EFFECTIVE DATE -------------------------- The purpose of this Supplemental Executive Retirement Plan (the "Plan") is to memorialize the Company's supplemental executive retirement plan pursuant to which the Company entered into Executive Supplemental Compensation Agreements with key employees and to provide supplemental retirement benefits for certain key employees of North Bay Bancorp and subsidiaries or affiliates thereof who are employed by the Company on, or after October 1, 2005. It is intended that the Plan will aid in retaining and attracting individuals of exceptional ability by providing them with these benefits. It is intended that the Plan and related Participation Agreements (including those Participation Agreements entered into in place of the Executive Supplemental Compensation Agreements previously entered into by the Company pursuant to its supplemental executive retirement plan meet the requirements of Internal Revenue Code Section 409A. This Plan shall be effective as of October 1, 2005. ARTICLE II DEFINITIONS For the purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise: 2.1 Actuarial Equivalent. "Actuarial Equivalent" means equivalence in value between two or more forms and/or times of payment based on a determination by an actuary chosen by the Committee, using sound actuarial assumptions at the time of such determination. 2.2 Applicable Percentage. The term "Applicable Percentage" shall mean that percentage of the Supplemental Retirement Benefits that the Participant is entitled to receive based on the circumstances surrounding the termination of Employment. The Applicable Percentage of Supplemental Retirement Benefits shall accrue on the schedule incorporated in the Participation Agreement. 2.3 Basic Benefit. The term "Basic Benefit" shall have the meaning set forth in Section 5.3(A). 2.4 Board. "Board" means the Board of Directors of North Bay Bancorp. 2.5 Change in Control. Change in Control shall be defined as follows: 1 (A) The acquisition of more than fifty percent (50%) of the value or voting power of the Company's stock by a person or group; (B) The acquisition in a period of twelve (12) months or less of at least thirty-five percent (35%) of the Company's stock by a person or group; (C) The replacement of a majority of the Company's Board of Directors in a period of twelve (12) months or less by directors who were not endorsed by a majority of the current board members; or (D) The acquisition in a period of twelve (12) months or less of forty percent (40%) or more of the Company's assets by an unrelated entity. For the purpose of this Agreement, transfers made on account of deaths or gifts, transfers between family members or transfers to a qualified retirement plan maintained by the Company shall not be considered in determining whether there has been a Change in Control. 2.6 Committee. "Committee" means the Compensation Committee of the Board. 2.7 Company. "Company" means North Bay Bancorp, any subsidiaries or affiliates thereof, or any successors thereto. 2.8 Disability/Disabled. For the purpose of this Plan, a Participant will be considered disabled if: (A) He is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (B) He is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of Participant's employer. 2.9 Retirement. The term "Retirement" or "Retires" shall refer to the date which the Participant acknowledges in writing to Company to be the last day the Participant will provide any significant personal services, whether as an employee or independent consultant or contractor, to Company (for any reason other than Termination for Cause, because of a Disability, or Following a Change of Control, as defined herein). For purposes of this Plan, the phrase "significant personal services" shall mean more than ten (10) hours of personal services rendered to one or more individuals or entities in any thirty (30) day period. 2 2.10 Normal Retirement Date. "Normal Retirement Date" shall mean the date specified in the Participation Agreement on which the Participant terminates employment with the Company (for any reason other than Termination for Cause, because of a Disability, or Following a Change of Control), if such termination date occurs on or after such Participant's Normal Retirement Date. 2.11 Early Retirement Date. "Early Retirement Date" means the date specified in the Participation Agreement on which a Participant terminates employment with the Company (for any reason other than Termination for Cause, because of a Disability, or Following a Change of Control), if such termination date occurs on or after such Participant's Early Retirement Date. 2.12 Early Retirement Benefit. "Early Retirement Benefit", except as may otherwise be provided in the Participation Agreement, means the Actuarial Equivalent of the Supplemental Retirement Benefit based on the actual Early Retirement Date. 2.13 Participant. "Participant" means any individual who is participating in or has participated in this Plan, and who has not yet received his full benefit hereunder, as provided in Article III. 2.14 Participation Agreement. "Participation Agreement" means the agreement filed by a Participant and approved by the Board pursuant to Article III. 2.15 Supplemental Retirement Benefit. "Supplemental Retirement Benefit" means the benefit specified in the Participation Agreement. ARTICLE III ----------- ELIGIBILITY AND PARTICIPATION ----------------------------- 3.1 Eligibility and Participation. (A) Eligibility. Eligibility to participate in the Plan is limited to those key employees of the Company that are designated, from time to time, by the Board. (B) Participation. An employee's participation in the Plan shall be effective upon notification of such person by the Committee of eligibility to participate, completion of a Participation Agreement by such person, and acceptance of the Participation Agreement by the Committee. Participation in the Plan shall continue until such time as the Participant terminates employment with the Company and as long thereafter as the Participant is eligible to receive benefits under this Plan. 3 ARTICLE IV ---------- SUPPLEMENTAL RETIREMENT BENEFITS -------------------------------- 4.1 Retirement on or After Normal Retirement Date. The Applicable Percentage of the Supplemental Retirement Benefit (as identified in the Participant Agreement) for a Participant whose employment with the Company terminates on or after the Normal Retirement Date shall be one hundred percent (100%). Unless selected otherwise in accordance with the terms of paragraph 5.3, this Supplemental Retirement Benefit shall be paid monthly, with payments to commence on the first day of the month following the Participant's Normal Retirement Date and continuing until the death of the Participant. 4.2 Retirement on or After Early Retirement Date but Before Normal Retirement Date. The Participant may elect to retire on or after a date that constitutes an Early Retirement Date and receive the Actuarial Equivalent of the Applicable Percentage of the Supplemental Retirement Benefit based on the actual Early Retirement Date. Unless selected otherwise in accordance with the terms of paragraph 5.3, this Supplemental Retirement Benefit shall be paid monthly, with payments to commence on the first day of the month following the Participant's Early Retirement Date and continuing until the death of the Participant. 4.3 Termination Without Cause. If the Participant's employment is terminated by the Company without Cause, the Participant shall be eligible to receive the Actuarial Equivalent of the Applicable Percentage of the Supplemental Retirement Benefits as of the effective date of Termination with payments to commence thirty (30) days after the later of the Normal Retirement Date or the date of termination, and continuing until the death of the Participant. Participant shall have the ability to select an alternate payment form in accordance with the terms of paragraph 5.3. 4.4 Voluntary Termination. If the Participant's employment is terminated by voluntary resignation prior to the Early Retirement Date, and such resignation is not subject to the provisions of paragraph 4.5 below, the Participant shall be entitled to be paid the Actuarial Equivalent of the Applicable Percentage of the Supplemental Retirement Benefit as of the effective date of Termination with payments to commence thirty (30) days after the Normal Retirement Date, and shall continue until the death of the Participant. Participant's Supplemental Retirement Benefit shall be subject to forfeiture prior to the commencement of payments if so provided in the Participation Agreement. 4.5 Termination Pursuant to a Change in Control. In the event a Participant is terminated "Pursuant to a Change in Control", the Applicable Percentage shall be one hundred percent (100%). A termination shall be deemed to be "Pursuant to a Change in Control" if, within two (2) years following the occurrence of a Change in Control, the Participant's employment with the Company is terminated by (i) the Company without Cause or (ii) the Participant on account of (y) Participant's position, responsibilities or working conditions being substantially diminished or (z) a material reduction in the Participant's compensation or benefits. At the Participant's option, this Benefit shall be paid monthly, with payments to commence on the first day of the month following the Participant's Early Retirement Date (reduced to actuarial equivalent in accordance with the terms of paragraph 5.2) or the Normal Retirement Date, and continuing until the death of the Participant. In the event Participant fails to select a payment start date, payments shall begin one month following the Participant's Normal Retirement Date. 4 4.6 Termination Following the Determination of Disability. The Applicable Percentage for a Participant whose employment with the Company terminates because of Disability shall be the Applicable Percentage as of the date of termination. Unless selected otherwise in accordance with the terms of paragraph 5.3, payments shall commence thirty (30) days after the later of the Normal Retirement Date or the date of termination and shall continue until the death of the Participant. 4.7 Termination For Cause. If a Participant is terminated for Cause, as defined below, Participant shall forfeit any and all benefits payable under this Plan. For the purpose of this Plan, Cause shall be defined as any of the following: (A) The Participant commits fraud, theft or embezzlement against the Company; (B) The Participant commits a felony or a crime involving moral turpitude; (C) The Participant compromises trade secrets or other proprietary information of the Company; (D) The Participant breaches any non-solicitation agreement with the Company; (E) The Participant breaches of the material terms of any employment agreement entered into with the Company, and if give the right in any such employment agreement, fails to cure said breach in accordance therewith; (F) The Participant breaches any of the material terms of his Participation Agreement; (G) The Participant engages in any grossly negligent act or willful misconduct that causes, or could be reasonably expected to cause, harm to the business, operations or reputation of the Company; (H) The Company is ordered to terminate any employment agreement with the Participant by any governmental agency with supervisory authority over the Company. 4.8 Death of Participant During Active Employment. In the event Participant dies while actively employed by Company, then no death benefits shall be payable under this Agreement (other than a survivor benefit qualified for under paragraphs 4.1 through 4.7 above and selected pursuant to paragraph 5.3). Such benefits are described by a Joint Beneficiary Designation Agreement, if any. ARTICLE V --------- FORM AND PAYMENT OF BENEFITS ---------------------------- 5.1 Internal Revenue Code Section 409A Compliance. It is the intent of the parties to comply with all applicable Internal Revenue Code Sections, including, but not limited to, IRC 409A. Thus, for any benefits payable pursuant to this Plan, if the Participant is a Key Employee, as defined by the Internal Revenue Service, and said Company is publicly traded at the time of "separation from service" (as defined by IRC 409A), any such benefit payment described herein shall be withheld for six (6) months following such separation from service, in order to comply with IRC 409A. 5 5.2 Reduction for Early Commencement of Benefits. If a Participant receives a Supplemental Retirement Benefit under this Plan before the Participant's Normal Retirement Date, the monthly Supplemental Retirement Benefit shall, except as may otherwise be provided in the Participation Agreement, be reduced to its Actuarial Equivalent value. 5.3 Form of Benefit Payment. The Supplemental Retirement Benefit shall be paid in the basic form provided in (A) below, unless the Participant selects an alternate form of payment. The basic and alternative forms of payment are as follows: (A) Basic Form of Benefit Payments. Unless an alternate selection is made, payments made pursuant to this Plan shall be made as follows: Monthly single life annuity for the Participant's life in the amount specified in the Participation Agreement ("Basic Benefit"). (B) Alternative Forms of Benefit Payment. (i) A joint and survivor annuity of the Actuarial Equivalent Value equal to the Basic Benefit with payment continued to the survivor in the same amount as the amount paid to the Participant. (ii) A joint and survivor annuity of the Actuarial Equivalent Value equal to the Basic Benefit with payment continued to the survivor in one-half of the amount paid to the Participant. (iii) Any other Actuarial Equivalent method as approved by the Board and selected in accordance with the provisions of the appropriate IRS requirements, including but not limited to IRC 409A. 5.4 Modifying Form of Benefit Payment. A Participant may modify the form of Benefit Payment, however any such modification (i) may not take effect until at least twelve (12) months after the date on which the election is made, and (ii) the first payment to which such election is made must be deferred for a period of at least five (5) years from the date the payment would otherwise have been made. 5.5 Withholding of Payroll Taxes. The Company shall withhold from payments made hereunder any taxes required to be withheld from a Participant's age under federal, state or local law. However, a Participant's designated Beneficiary may elect not to have withholding for federal income tax purposes pursuant to Section 3405(a) (2) of the Internal Revenue Code, or any successor provision thereto. 6 5.6 Payment to Guardian. If a Plan benefit is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct payment of such Plan benefit to the guardian, legal representative or such person having the care and custody of such minor, incompetent or person. The Committee may require proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the Plan benefit. Such distribution shall completely discharge the Committee and the Company from all liability with respect to such benefit. ARTICLE VI ---------- ADMINISTRATION -------------- 6.1 Committee and Duties. This Plan shall be administered by the Committee. The Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. 6.2 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 6.3 Binding Effect of Decisions. The decision or action of the Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 6.4 Indemnity of Committee. The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense, or liability arising from any action or failure to act with respect to this Plan, except in the case of gross negligence or willful misconduct. ARTICLE VII ----------- BENEFICIARY DESIGNATION ----------------------- 7.1 Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of his death prior to complete distribution to the Participant of the benefits due under the Plan. Each Beneficiary designation shall be in a written form prescribed by the Committee, and will be effective only when filed with the Committee during the Participant's lifetime. 7.2 Amendments to Beneficiary Designation. Any Beneficiary designation may be changed by a Participant without the consent of any designated Beneficiary by the filing of a new Beneficiary designation with the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If a Participant's Compensation is community property, any Beneficiary designation shall be valid or effective only as permitted under applicable law. 7 7.3 No Participant Designation. In the absence of an effective Beneficiary designation, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be the Participant's estate. 7.4 Effect of Payment. The payment to the deemed Beneficiary shall completely discharge the Company's obligations under this Plan. ARTICLE VIII ------------ CLAIMS PROCEDURE ---------------- 8.1 Claim. The Company shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Plan and shall have authority to control and manage the operation and administration of this Plan. Consistent therewith, the Company shall make all determinations as to the rights to benefits under this Plan. Any decision by the Company denying a claim by the Participant, the Participant's spouse, or the Participant's beneficiary for benefits under this Plan shall be stated in writing and delivered or mailed, via registered or certified mail, to the Participant, the Participant's spouse or the Participant's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Company shall provide the Participant, the Participant's spouse or the Participant's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim. 8.2 Arbitration of Disputes. All unresolved claims, disputes and other matters in question arising out of or relating to this Plan or the breach or interpretation thereof, other than those matters which are to be determined by the Company in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in San Francisco, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in San Francisco, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Plan and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Napa, California, unless otherwise agreed to by the parties. 8 ARTICLE IX ---------- MISCELLANEOUS ------------- 9.1 Unfunded Plan. This Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security act of 1974, as amended ("ERISA"), and therefore to be exempt from the provisions of Parts 2, 3, and 4 of Title I ERISA. Accordingly, the Plan shall terminate and no further benefits shall be paid hereunder in the event it is determined by a court of competent jurisdiction or by an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not so exempt. 9.2 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest or claims in any property or assets of the Company, nor shall they be Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts, or the proceeds therefrom owned or which may be acquired by the Company. Except as may be provided in Section 8.3, such policies, annuity contracts or other assets of the Company shall not be held under any trust for the benefit of Participants, their Beneficiaries, heirs, successors or assigns, or held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan. Any and all of the Company's assets and policies shall be, and remain, the general, unpledged, unrestricted assets of the Company. The Company's obligation under the Plan shall be that of an unfunded and unsecured promise to pay money in the future. 9.3 Trust Fund. The Company shall be responsible for the payment of all benefits provided under the Plan. At its discretion, the Company may establish one or more trusts, with such trustee as the Board may approve, for the purpose of providing for the payment of such benefits. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's creditors. To the extent any benefits provided under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, the Company. 9.4 Nonassignabiliy. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amount payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 9 9.5 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company and the Participant, and the Participant (or his Beneficiary) shall have no rights against the Company except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or to interfere with the right of the Company to discipline or discharge him at any time. 9.6 Protective Provisions. A Participant will cooperate with the Company by furnishing any and all information requested by the Company, in order to facilitate the payment of benefit hereunder, and by taking such physical examinations as the Company may deem necessary and taking such other action as may be requested by the Company. 9.7 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. 9.8 Captions. The captions of the articles, sections, and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 9.9 Governing Law. The provisions of this Plan shall be construed, interpreted, and governed in all respects in accordance with applicable federal law and, to the extent not preempted by such federal law, in accordance with the laws of the State of California. 9.10 Validity. If any provision of this Plan shall be held illegal or invalid for any reason, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. 9.11 Notice. Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient in writing and hand delivered, or sent by registered or certified mail, to any member of the Committee, or to the Company's statutory agent. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 9.12 Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity. 10 9.13 IRC Section 280G Issues. Unless otherwise provided in a Participant's Participation Agreement or other agreement between the Participant and the Company, if all or any portion of the amounts payable to the Participant under this Plan, either alone or together with other payments which the Participant has the right to receive from the Company, constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the excise tax imposed by Section 4999 of the Code (or similar tax and/or assessment), Participant shall be responsible for the payment of such excise tax and Company shall be responsible for any loss of deductibility related thereto; provided, however, that Company and Participant shall cooperate with each other and use all reasonable efforts to minimize to the fullest extent possible the amount of excise tax imposed by Section 4999 of the Code. If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by the Participant is greater than the amount initially so determined, then the Participant shall pay an amount equal to the sum of such additional excise taxes and any interest, fines and penalties resulting from such underpayment. The determination of the amount of any such excise taxes shall be made by the independent accounting firm employed by the Company immediately prior to the change in control or such other independent accounting firm or advisor as may be mutually agreeable to Company and Participant in the exercise of their reasonable good faith judgment. NORTH BAY BANCORP By:________________________________ By: ______________________________ Signature and Date Secretary and Date Title:______________________________ 11 EXHIBIT 1 Participation Agreement The 2005 North Bay Bancorp Supplemental Executive Retirement Plan Participant: (INSERT NAME) ----------------------------------------------- Eligibility Date: (INSERT DATE OF ELIGIBILITY) ------------------------------------------ The above named Participant is authorized to receive benefits pursuant to The 2005 North Bay Bancorp Supplemental Executive Retirement Plan as described below. Benefit accrual shall commence as of the Eligibility Date listed above. Applicable Percentage Schedule: [insert] Benefit Amount: Unless an alternate method of payment is selected using the attached Distribution Election Form, the Company shall pay to the Participant pursuant to the Plan during the Participant's lifetime, an amount equal to ___________________________ ($________) per year in twelve (12) equal monthly installments. The amount of Participant Benefits payable under the Plan shall be increased annually at the rate of two percent (2%) per year from the date of commencement of payments of the Benefits until the death of the Participant. Normal Retirement Date: Attainment of age _____ (___). Early Retirement Date: Attainment of age ______ (___). Risk of Forfeiture: Participant acknowledges that in the course of employment Participant has become privy to confidential information of the Company including customer deposit, loan, sales and marketing information, customer account records, proprietary processing techniques, information regarding vendors and products, training and operations memoranda and similar information, personnel records, pricing information, financial information, and trade secrets concerning or relating to the business, accounts, customers and employees and affairs of the Company (the foregoing constituting "Confidential Information"). On account of the foregoing and Participant's position of trust and confidence with the Company, Participant agrees that in the event Participant voluntarily terminates employment and such termination occurs after Participant has achieved an Applicable Percentage of one hundred percent (100%) and such termination is not subject to the provisions of Section 4.5 of the Plan, Participant shall forfeit any and all rights and benefits, including Participant Benefits payable under the Plan, Participant may have under the terms of this Participation Agreement and shall have no right to be paid any of the amounts which would otherwise be due or paid to Participant by the Company pursuant to the terms of this Participation Agreement if Participant violates any of the following provisions prior to attaining Normal Retirement Age. 12 (a) Participant shall not utilize Confidential Information, either directly or indirectly, to call on, solicit, or take away as a client, customer or prospective client or customer, or attempt to call on, solicit or take away as a client, customer or prospective client or customer, any person or entity that was a client, customer or prospective client or customer of the Company. For purposes of this Agreement "prospective client or customer" shall include any person or entity with whom the Company has had contact for the purpose of soliciting business within six months prior to Participant's voluntary termination of employment or whom the Company intended to contact for the purpose of soliciting business within six months after termination of employment, of which contact or intended contact Participant had knowledge while employed by the Company. Participant acknowledges that it would be extremely difficult or impractical to determine whether Participant used Confidential Information in connection with the activity prohibited by this provision and that it is reasonable to presume, based upon Participant's period of service to the Company, that Participant used Confidential Information in connection with any violation of this provision. (b) Participant shall not, either directly or indirectly, on Participant's own behalf or in the service or on behalf of others, solicit, divert , attempt to solicit, divert or induce or attempt to induce to discontinue employment with the Company any person employed by the Company, whether or not such employee is a full time employee or a temporary employee of the Company and whether or not such employment is for a determined period or is at will. (c) Participant shall not, either directly or indirectly, use, disclose or make available Confidential Information to any person or entity, nor shall Participant use, disclose, make available or cause to be used, disclosed or made available, or permit or allow, either on Participant's own behalf or on behalf of others, any use or disclosure of such Confidential Information. Participant acknowledges and agrees that (i) a breach by Participant of any of the foregoing covenants will result in the Company incurring certain costs and damages in an amount that would be extremely difficult or impractical to ascertain, (ii) the forfeiture of Participant's rights and benefits under this Agreement bear a reasonable relationship to the damages which the Company may suffer by reason of Participant's breach, and (iii) the forfeiture of Participant's rights and benefits under this Agreement is reasonable and equitable considering that absent forfeiture of such rights and benefits the Company will be in the position of paying benefits to Participant while suffering damages on account of Participant's breach. 13 Waiver and Release of Claims: [If Applicable] (a) The Participant is a party to that certain _____________Agreement made with the Company or its predecessor dated_____(the "Prior Plan Agreement"); (b) The Plan and the benefits provided under the Plan substitute for the Prior Plan Agreement and the benefits provided thereunder; (c) The Prior Plan Agreement and the benefits otherwise to be provided thereunder are hereby terminated effective as of the date of this Plan; (d) The Participant hereby waives and relinquishes for himself or herself, and his or her heirs, beneficiaries, legal representatives, agents, successors and assigns, any and all right, entitlement and interest that the Participant has or may have pursuant to the Prior Plan Agreement and the benefits thereunder; (e) The Participant accepts the benefits afforded by the Participation Agreement in full and complete satisfaction and substitution for the benefits otherwise provided by the Prior Plan Agreement; and (f) The Participant (i) has had an opportunity to consult with legal, tax and financial advisors of the Participant's own choice in determining whether to enter into the Agreement and this Waiver, (ii) understands the benefits that were to be provided to the Participant and to his or her surviving spouse or beneficiaries under the Prior Plan Agreement and the terms and conditions that applied to such benefits, (iii) understands that the effect of this Waiver is to terminate, waive and relinquish forever all rights, entitlements and interests that the Participant has or may have under the Prior Plan Agreement and the benefits thereunder as a condition to receiving benefits under the Plan; and (iv) the Participant is entering into the Participation Agreement and this Waiver voluntarily and with full appreciation of the effects of doing so. Participant: --------------------------------------------------- (Signature) --------------------------------------------------- (Print Name) North Bay Bancorp: ---------------------------------------------- (Signature of Authorized Executive) ---------------------------------------------- (Print Name and Title) Date: --------------------------------------------------- 14 EXHIBIT 2 Distribution Election Form The 2005 North Bay Bancorp Supplemental Executive Retirement Plan (Effective as of _________, 200__) I understand the significance of, and want to comply with, all applicable Internal Revenue Code Sections, including, but not limited to, IRC 409A. Thus, for any benefits payable pursuant to this Plan, if I am a Key Employee, as defined by the Internal Revenue Service, and the Company is publicly traded at the time of "separation from service" (as defined by IRC 409A), any such benefit payment to be made pursuant to this Plan shall be withheld for six (6) months following such separation from service, in order to comply with IRC 409A. Pursuant to the Provisions of the Plan, I hereby elect to have my Supplemental Retirement Benefit paid to me as designated below: In the event of a Change in Control, I elect to have my benefit payments commence on the following Date: __________ On the first day of the month following my Early Retirement Date (reduced to Actuarial Equivalent in accordance with the terms of paragraph 5.2) OR (Verify for existing Participants) __________ On the first day of the month following the my Normal Retirement Date. I further elect to have my Supplemental Retirement Benefit paid to me as designated below: _________ A monthly single life annuity for the Participant's life. _________ A joint and survivor annuity with an Actuarial Equivalent Value equal to the Basic Benefit with payment continued to the survivor in the same amount as the amount paid to the Participant. _________ A joint and survivor annuity with an Actuarial Equivalent Value equal to the Basic Benefit with payment continued to the survivor and one-half of the amount paid to the Participant. _________ Alternate form as approved by the Board and selected in accordance with the provisions of the appropriate IRS requirements, including but not limited to IRC 409A, as follows: ________________________________________________________ In addition, I have been advised and understand that I may modify the Form of Benefit Payment, however any such modification (i) may not take effect until at least twelve (12) months after the date on which the election is made, and (ii) the first payment to which such election is made must be deferred for a period of at least five (5) years from the date the payment would otherwise have been made. Signed__________________________ Print Name ____________________ Dated ________________ 15 EXHIBIT 3 Beneficiary Designation Form The 2005 North Bay Bancorp Supplemental Executive Retirement Plan I. PRIMARY DESIGNATION ------------------- (You may refer to the beneficiary designation information prior to completion of this form.) A. Person(s) as a Primary Designation: ----------------------------------- (Please indicate the percentage for each beneficiary.) Name__________________________ Relationship___________________ / _______% Address:________________________________________________________________________ (Street) (City) (State) (Zip) Name__________________________ Relationship___________________ / _______% Address:________________________________________________________________________ (Street) (City) (State) (Zip) Name__________________________ Relationship___________________ / _______% Address:________________________________________________________________________ (Street) (City) (State) (Zip) B. Estate as a Primary Designation: -------------------------------- My Primary Beneficiary is The Estate of ______________________________________ as set forth in the last will and testament dated the _____ day of _____________, _____ and any codicils thereto. C. Trust as a Primary Designation: ------------------------------- Name of the Trust: ____________________________________________________________ Execution Date of the Trust: _____ / _____ / _________ Name of the Trustee: __________________________________________________________ Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary): ___________________________________________________________________________ ___________________________________________________________________________ Is this an Irrevocable Life Insurance Trust? ________ Yes ________ No (If yes and this designation is for a Split Dollar agreement, an Assignment of Rights form should be completed.) 16 II. SECONDARY (CONTINGENT) DESIGNATION ---------------------------------- A. Person(s) as a Secondary (Contingent) Designation: -------------------------------------------------- (Please indicate the percentage for each beneficiary.) Name__________________________ Relationship___________________ / _______% Address:________________________________________________________________________ (Street) (City) (State) (Zip) Name__________________________ Relationship___________________ / _______% Address:________________________________________________________________________ (Street) (City) (State) (Zip) Name__________________________ Relationship___________________ / _______% Address:________________________________________________________________________ (Street) (City) (State) (Zip) B. Estate as a Secondary (Contingent) Designation: ----------------------------------------------- My Secondary Beneficiary is The Estate of _____________________________________ as set forth in my last will and testament dated the _____ day of ___________, _____ and any codicils thereto. C. Trust as a Secondary (Contingent) Designation: ---------------------------------------------- Name of the Trust: ____________________________________________________________ Execution Date of the Trust: _____ / _____ / _________ Name of the Trustee: __________________________________________________________ Beneficiary(ies) of the Trust (please indicate the percentage for each beneficiary): ___________________________________________________________________________ ___________________________________________________________________________ All sums payable under this Agreement by reason of my death shall be paid to the Primary Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary (Contingent) Beneficiary(ies). This beneficiary designation is valid until the participant notifies the bank in writing. - ---------------------------------- ---------------------------------------- Participant's Signature Date 17 EX-31 4 p19562_ex31-1.txt EXHIBIT 31.1 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: November 14, 2005 /s/ Terry L. Robinson ------------------------------------- Terry L. Robinson President and Chief Executive Officer Principal Executive Officer 23 EX-31 5 p19562_ex31-2.txt EXHIBIT 31.2 Exhibit 31.2 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: November 14 , 2005 /s/ Terry L. Robinson ------------------------------------- Terry L. Robinson Interim Chief Financial Officer Principal Financial Officer 24 EX-32 6 p19562_ex32-1.txt EXHIBIT 32.1 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 September 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 September 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 September 30, 2005, fairly presents, in all material respects, the financial condition and results of operations of North Bay Bancorp. Dated: November 14 , 2005 /s/ Terry L. Robinson ------------------------------------- TERRY L. ROBINSON President and Chief Executive Officer Principal Executive Officer 25 EX-32 7 p19562_ex32-2.txt EXHIBIT 32.2 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 September 30, 2005, I, Terry L. Robinson, Interim 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 September 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 September 30, 2005, fairly presents, in all material respects, the financial condition and results of operations of North Bay Bancorp. Dated: November 14, 2005 /s/ Terry L. Robinson ------------------------------------- TERRY L. ROBINSON Interim Chief Financial Officer Principal Financial Officer 26 -----END PRIVACY-ENHANCED MESSAGE-----