-----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, Q7sOLU58j91P35XigJqcdMNWj9Ovzc4lurIWk0/A7/SJ9V2TYYLP1P6FRACZb81X BXUszOLvzgpzHx1D1diEfg== 0000950005-99-001104.txt : 19991223 0000950005-99-001104.hdr.sgml : 19991223 ACCESSION NUMBER: 0000950005-99-001104 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19991222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH BAY BANCORP CENTRAL INDEX KEY: 0000754440 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 680434802 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-93365 FILM NUMBER: 99778927 BUSINESS ADDRESS: STREET 1: 1500 SOSCOL AVE CITY: NAPA STATE: CA ZIP: 94559 BUSINESS PHONE: 7072578585 MAIL ADDRESS: STREET 1: 1500 SOSCOL AVE CITY: NAPA STATE: CA ZIP: 94559 SB-2 1 SB-2 File No. 333- As Filed with the Securities and Exchange Commission on December , 1999 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 Registration Statement Under the Securities Act of 1933 NORTH BAY BANCORP (Name of small business issuer in its charter) California 6021 68-0434802 - ---------------------------- --------------------------- ------------------- (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer or Organization) Classification Code Number) Identification No.) 1500 Soscol Avenue, Napa California 94559 (707) 257-8585 --------------------------------------------------------- (Address and telephone number of principal executive offices) 1500 Soscol Avenue, Napa California 94559 ----------------------------------------- (Address of principal place of business) TERRY L. ROBINSON, PRESIDENT & CHIEF EXECUTIVE OFFICER 1500 Soscol Avenue, Napa California 94559 (707) 257-8585 --------------------------------------------------------- (Name, address and telephone of agent for service) Copy to: R. Brent Faye, Esq., Lillick & Charles LLP 2 Embarcadero Center, 27th Floor, San Francisco, California 94111 (415) 984-8365 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------ Title of each class of Amount to be Proposed maximum Proposed maximum Amount of registration securities to be registered registered offering price per unit aggregate offering price fee - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, No Par Value (1) (2) $(2) $5,000,000 $1,390.00(3) - ------------------------------------------------------------------------------------------------------------------------------------ (1) This Registration Statement relates to new shares of Common Stock of the Registrant issuable to the public. (2) To be provided by amendment. (3) Pursuant to Rule 457(o), the registration fee was computed on the basis of the maximum offering price of securities being offered.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PRELIMINARY PROSPECTUS DATED DECEMBER __, 1999 PROSPECTUS NORTH BAY BANCORP 1500 SOSCOL AVENUE NAPA, CALIFORNIA 94559 (707) 257-8585 ___________________ Shares Common stock, No Par Value North Bay Bancorp is offering up to _________________shares of Common stock for sale to the public at a price of $________ per share. The offering will be conducted on a best efforts basis by the officers and directors of North Bay, Vintage Bank, and the proposed directors of Solano County Bank (Proposed). See "THE OFFERING." The purpose of the offering is to raise funds for North Bay to invest in Solano Bank, a proposed wholly-owned subsidiary of North Bay which intends to conduct a banking business in Solano County, California and for general corporate purposes. North Bay will pay the expenses of registering the securities offered . North Bay's common stock is publicly traded in the over-the-counter market under the symbol NBAN and is not listed on any stock exchange or quoted on the NASDAQ. On _____________, 2000, the last reported sales price of the common stock was $____________. Directors and officers of North Bay, Vintage Bank and the proposed directors of Solano Bank have committed to purchase an aggregate of _______ shares in the offering. --------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE SECURITIES COMMISSION OF ANY STATE, OR ANY FEDERAL OR STATE BANK REGULATORY AGENCY NOR HAS THE COMMISSION, ANY STATE SECURITIES COMMISSION, OR ANY FEDERAL OR STATE BANK REGULATORY AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. FOR A DISCUSSION OF CERTAIN FACTORS IMPORTANT TO THE INVESTMENT DECISION, SEE "RISK FACTORS" COMMENCING AT PAGE ___ OF THIS PROSPECTUS.
- ---------------------------------------------------------------------------------------------------- Underwriting discounts Proceeds to issuer Price to Public and commissions or other persons (1) - ---------------------------------------------------------------------------------------------------- Per Share of Common stock $ N/A $ - ---------------------------------------------------------------------------------------------------- Total $5,000,000 N/A $5,000,000. - ---------------------------------------------------------------------------------------------------- (1) Before deducting expenses payable by North Bay estimated at an aggregate of $__________.
The date of this Prospectus is January ___, 2000 OTHER AVAILABLE INFORMATION This prospectus is a part of a Registration Statement on Form SB-2 filed by North Bay with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The registration statement registers the shares being offered for sale in the offering. For information in addition to that contained in this prospectus, reference is made to the Registration Statement, including the exhibits contained in the registration statement. North Bay is subject to the informational requirements of the Securities Exchange Act of 1934, as amended and in accordance with that Act files reports and other information with the Securities and Exchange Commission. These reports, North Bay's Proxy Statements filed pursuant to Section 14(a) of the 1934 Act, and other information filed by North Bay, including the Registration Statement, can be inspected and copied at the Public Reference Room of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain of its Regional Offices, including the Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, N.Y. 10048, and the Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission, Washington, D.C. 20549. Prior to becoming the wholly-owned subsidiary of North Bay, Vintage Bank was also subject to the requirements of the Exchange Act. Vintage Bank filed these reports and its proxy statements with the Board of Governors of the Federal Reserve System. These reports can be obtained at prescribed rates from the Public Reference Section of the Federal Reserve System, Washington, D.C. 20549. NO DEALER, SALESPERSON, AGENT OR OFFICER OF NORTH BAY OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NORTH BAY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN OFFER OF SUCH SECURITIES TO A PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF THE SECURITIES COVERED BY THIS PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. THESE SECURITIES MAY NOT BE USED AS COLLATERAL TO SECURE A LOAN FROM VINTAGE BANK OR FROM THE SOLANO BANK (PROPOSED) . Until ______________, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ii TABLE OF CONTENTS
Page ---- PROSPECTUS SUMMARY...............................................................................................1 NORTH BAY AND THE BANKS.................................................................................1 THE OFFERING............................................................................................1 SELECTED FINANCIAL AND OTHER DATA................................................................................2 RISK FACTORS.....................................................................................................4 MARKET INFORMATION...............................................................................................7 THE OFFERING.....................................................................................................8 PLAN OF DISTRIBUTION.............................................................................................8 HANDLING OF STOCK SUBSCRIPTION FUNDS.............................................................................9 FEDERAL INCOME TAX CONSEQUENCES.................................................................................11 USE OF PROCEEDS.................................................................................................13 DETERMINATION OF OFFERING PRICE.................................................................................14 CAPITALIZATION..................................................................................................15 Statistical Data................................................................................................16 Distribution of Average Assets, Liabilities, and Shareholders Equity; Interest Rates and Interest Differential..16 VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............19 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998...................................................................19 FORWARD LOOKING STATEMENTS......................................................................................19 OVERVIEW........................................................................................................19 NET INTEREST INCOME.............................................................................................19 PROVISION AND ALLOWANCE FOR LOAN LOSSES.........................................................................20 NON-INTEREST INCOME.............................................................................................20 GAIN ON SECURITIES..............................................................................................20 NON-INTEREST EXPENSE............................................................................................20 INCOME TAXES....................................................................................................21 BALANCE SHEET...................................................................................................21 LIQUIDITY AND CAPITAL ADEQUACY..................................................................................21 YEAR 2000 READINESS DISCLOSURE..................................................................................21 YEARS ENDED DECEMBER 31, 1998 ,1997 and 1996....................................................................24 OVERVIEW........................................................................................................24 SUMMARY OF EARNINGS.............................................................................................24 BUSINESS........................................................................................................29 TIME DEPOSITS...................................................................................................41 RETURN ON EQUITY AND ASSETS.....................................................................................41 COMPETITION.....................................................................................................43 SUPERVISION AND REGULATION......................................................................................44 MANAGEMENT......................................................................................................47 Directors.......................................................................................................47 Executive Officers..............................................................................................47 SECURITY OWNERSHIP OF MANAGEMENT................................................................................51 VINTAGE BANK....................................................................................................54 Summary Executive Compensation Table............................................................................54 OTHER INFORMATION REGARDING MANAGEMENT..........................................................................60 PRINCIPAL SHAREHOLDERS..........................................................................................63 LEGAL PROCEEDINGS...............................................................................................67 LEGAL MATTERS...................................................................................................67 EXPERTS.........................................................................................................67 INDEX TO FINANCIAL STATEMENTS...................................................................................68
iii PROSPECTUS SUMMARY The following provides a selective summary of the information contained in this prospectus and is qualified in its entirety by the information and financial statements appearing elsewhere in the prospectus. Potential purchasers are urged to read the entire prospectus carefully, and to give particular attention to the section entitled "RISK FACTORS" before making any decision to purchase any of the shares being offered for sale. NORTH BAY AND THE BANKS North Bay Bancorp. North Bay, headquartered in Napa, California, became the bank holding company of Vintage Bank on November 1, 1999 through a corporate reorganization. In the reorganization, Vintage Bank became the wholly-owned subsidiary of North Bay and the shareholders of Vintage Bank before the reorganization became shareholders of North Bay. Currently all operations of North Bay are conducted through Vintage Bank. Vintage Bank. Vintage Bank is a California corporation organized as a state chartered bank in 1984. It engages in commercial banking business in Napa County, from its main banking office located at 1500 Soscol Avenue in Napa, California and from its two branches located at 3271 Browns Valley Road and at 3626 Bel Aire Plaza, Napa, California. Vintage Bank is a member of the Federal Reserve System and its deposits are insured by the FDIC to the maximum extent permitted by law. As of September 30, 1999, Vintage Bank had total assets of $197.7 million, total loans of $117.2 million, and total deposits of $173.9 million. Solano Bank (Proposed). North Bay has filed an application with the California Department of Financial Institutions for permission to organize a new state chartered bank in Solano County, California. If approved, Solano Bank will be a member of the Federal Reserve System and headquartered in Fairfield, California with branches in Vacaville and Benicia, California. It will be a wholly-owned subsidiary of North Bay. THE OFFERING Class of Securities ....................... Common stock, no par value Common stock outstanding prior to this Offering .................... __________________ shares Number of Shares Available in this Offering ......................... __________________ shares Maximum Common stock to be outstanding upon completion of this Offering .......... _________________ shares Offering Price Per Share .................. $_______ Minimum Purchase .......................... ______ shares ($5,000) Maximum Purchase .......................... ______ shares ($100,000) Anticipated Use of Proceeds .............. The net proceeds of this offering will be utilized by North Bay to provide, in part, the initial capitalization of Solano Bank. Subscription Procedures ................... Delivery of an executed subscription application, IRS Form W-9 and the full subscription price to Vintage Bank as subscription agent prior to ________ __, 2000 or such later date as the Board of Directors may designate. Plan of Distribution ...................... Preference will be given to subscribers who are residents of Solano County or who have the potential to do business with, or to direct customers to, Solano Bank. See "Plan of Distribution." 1 SELECTED FINANCIAL AND OTHER DATA The following tables provide selective financial information for Vintage Bank as North Bay Bancorp did not commence operations until November 1, 1999. These tables should be read in conjunction with "Vintage Bank's MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and with the financial statements included elsewhere in this prospectus. The following table presents selected financial data of Vintage Bank for the nine month periods ended September 30, 1999 and 1998 and for the five years ended December 31, 1998.
(In 000's), except share and per share data Nine Months Ended September 30, Year ended December 31 ----------------------- -------------------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- ---------- ---------- STATEMENTS OF OPERATIONS DATA: Interest income $ 10,043 $ 8,667 $ 11,907 $ 10,085 $ 9,154 $ 8,309 $ 6,894 Interest expense 3,171 2,919 3,992 3,141 2,982 2,641 1,795 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income 6,872 5,748 7,915 6,944 6,172 5,668 5,099 Provision for loan losses 180 180 240 240 240 180 275 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 6,692 5,568 7,675 6,704 5,932 5,488 4,824 Noninterest income 1,286 990 1,397 1,443 776 320 485 Noninterest expense 4,688 4,022 5,660 5,050 3,989 3,648 3,365 Provision for income taxes 1,252 975 1,301 1,243 1,073 792 695 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 2,038 $ 1,561 $ 2,111 $ 1,854 $ 1,646 $$1,368 $ 1,249 ========== ========== ========== ========== ========== ========== ========== BASIC PER SHARE DATA: (1) Earnings per share $ 1.34 $ 1.04 $ 1.41 $ 1.30 $ 1.17 $ 1.00 $ 1.18 Average shares 1,518,641 1,502,787 1,496,266 1,429,785 1,405,051 1,365,101 1,054,698 outstanding DILUTED PER SHARE DATA: (1) Earnings per share $ 1.31 $ 1.01 $ 1.37 $ 1.26 $ 1.15 $ .98 $ 1.10 Average shares outstanding 1,572,118 1,545,898 1,542,776 1,475,895 1,429,041 1,388,945 1,128,318 BALANCE SHEET DATA: Net loans $ 115,285 $ 88,456 $ 94,775 $ 80,991 $ 70,780 $ 63,370 $ 50,094 Total assets 197,655 175,611 180,291 146,982 122,740 110,124 92,387 Total deposits 173,595 158,283 162,173 131,390 109,849 96,488 83,824 Shareholders' equity 17,786 16,265 16,910 14,486 12,116 10,458 8,045 (1) All per share amounts have been adjusted to reflect the 5% stock dividends declared February 22, 1994, February 27, 1995, January 22, 1996, January 27, 1997, January 26, 1998 and January 28, 1999 as well as a two-for-one stock split effective October 1, 1997.
2 Who Can Help Answer Your Questions If you have questions about the Offering, you should contact: North Bay Bancorp 1500 SOSCOL AVENUE NAPA, CALIFORNIA 94559 Attention: Terry L. Robinson, President and Chief Executive Officer (707) 258-3969 or Solano Bank (Proposed) 1300 Oliver Road, Suite 180 Fairfield, California 94520 Attention: Glen C. Terry, Senior Vice President (707) 423-2053 3 RISK FACTORS Risks Related to the Offering Limited Trading Market. There has been limited trading in North Bay's common stock. Additionally, while North Bay's common stock is quoted on the OTC Bulletin Board, it is not listed on any exchange or on NASDAQ. While North Bay's common stock will not be subject to any specific restrictions on transfer, it is not anticipated that an active trading market in North Bay's common stock will develop as a result of this offering, and no assurance can be given that any active trading market will develop in the future. See "MARKET INFORMATION." Dividends. At the present time, the ability of North Bay to pay dividends is solely reliant on the receipt of dividends and fees from Vintage Bank. Similar to Vintage Bank's policy, the Board of Directors of North Bay adopted a policy of paying cash and stock dividends subject to the regulatory restrictions on payment of cash dividends, the earnings of North Bay, management's assessment of future capital needs, and other factors. No assurance can be given that North Bay will be able to pay cash dividends. See "DESCRIPTION OF CAPITAL STOCK - Dividends." Anti-Takeover Provisions. For a description of anti-takeover provisions of North Bay's Articles of Incorporation, see ?DESCRIPTION OF CAPITAL STOCK - Provisions of Articles of Incorporation.? These anti-takeover provisions may make North Bay a less attractive target for a takeover bid or merger, potentially depriving shareholders of an opportunity to sell their shares of common stock at a premium over prevailing market prices as a result of any such takeover bid or merger. Risk Related to Solano Bank No Prior Operating History. Solano Bank has not yet commenced operations and therefore has no prior operating history. It is anticipated that Solano Bank may incur operating losses during its early years. No assurance can be given as to the ultimate success of Solano Bank, or as to the return, if any, which North Bay may receive on its investment in Solano Bank. Risks Related to North Bay's and the Banks' Business and Operations Deterioration of Local Economic Conditions Could Hurt Profitability of Banks. The operations of Vintage Bank are primarily located in Napa County and surrounding areas. The operations of Solano Bank will primarily be located in Solano County. As a result of this geographic concentration, Vintage Bank's results depend, and Solano Bank's results will depend, largely upon economic conditions in these areas. Adverse local economic conditions in Napa and Solano counties may have a material adverse effect on the financial condition and results of operations of North Bay and the Banks. Financial Services Business is Highly Competitive Which Could Adversely Affect the Banks' Earnings and Profitability and the Stock Price of North Bay. The banking and financial services business in California, and in Vintage Bank's market area, and Solano Bank's proposed market area, is highly competitive. These banks compete, or will compete, for loans, deposits and customers for financial services with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than Vintage Bank or Solano Bank. There can be no assurance that Vintage Bank or Solano Bank will be able to compete effectively in their markets, and the results of operations of North Bay and the Banks could be materially and adversely affected if the nature or level of competition changes. See "COMPETITION." Loan and Lease Losses Could Hurt Banks' Operating Results. A significant source of risk for financial institutions like North Bay and the Banks, arises from the possibility that losses will be sustained because borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. North Bay and the Banks have adopted underwriting and credit monitoring procedures and credit policies, including establishment and review of the allowance for credit losses; tracking loan performance; and diversifying their credit portfolios. These policies and procedures, however, may not prevent unexpected losses which could materially adversely affect their results of operations. For information about Vintage Bank's loan loss experience, see "Description of Vintage Bank--Vintage Bank's Management's Discussion and Analysis of Financial Condition and Results of Operations--Summary of Loan Losses Experience." Deterioration of Real Estate Market Could Hurt Banks' Performance. At September 30, 1999, approximately 50% of Vintage' Bank's loans were secured by real estate. The ability of Vintage Bank to continue to originate real estate secured loans may be impaired by adverse changes in local and regional economic conditions in the real estate market, 4 increasinginterest rates, or by acts of nature, including earthquakes and flooding. Due to the concentration of real estate collateral, these events could have a material adverse impact on the value of the collateral resulting in losses to Vintage Bank. For information about Vintage Bank's real estate loans, see "VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--DISTRIBUTION OF LOANS" AND "--REAL ESTATE LOANS." Interest Rate Fluctuations Could Hurt Operating Results. The income of North Bay and Vintage Bank depends, and the income of Solano Bank will depend, to a great extent on "interest rate differentials" and the resulting net interest margins; that is, the difference between the interest rates earned on their interest-earning assets such as loans and investment securities, and the interest rates paid on their interest-bearing liabilities such as deposits and borrowings. These rates are highly sensitive to many factors which are beyond the Banks' control, including general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve. In addition, changes in monetary policy, including changes in interest rates, influence the origination of loans, the purchase of investments and the generation of deposits and affect the rates received on loans and investment securities and paid on deposits, which could have a material adverse effect on business, financial condition and results of operations. For a discussion of Vintage Bank's interest rate sensitivity, see "VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--REGULATORY MATTERS--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." Government Regulation and Legislation Could Hurt Business and Prospects of North Bay and the Banks. North Bay and Vintage Bank are, and Solano Bank will be, subject to extensive state and federal regulation, supervision and legislation which govern almost all aspects of their respective operations. Their businesses are particularly susceptible to the enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. These laws are subject to change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds and not for the protection of shareholders of bank holding companies or banks. North Bay cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on its business and prospects, but it could be material and adverse. For information about supervision and regulation of banks, bank holding companies and about recent legislation, see " SUPERVISION AND REGULATION." Environmental Liability Associated with Commercial Lending Could Result in Losses. In the course of business, Vintage Bank has acquired, and Vintage Bank and Solano Bank may in the future acquire, through foreclosure, properties securing loans they have originated or purchased which are in default. In commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, an affected bank might be required to remove these substances from the affected properties at its sole cost and expense. The cost of this removal could substantially exceed the value of affected properties. North Bay or the Banks, as the case may be, may not have adequate remedies against the prior owner or other responsible parties or could find it difficult or impossible to sell the affected properties. This could have a material adverse effect on North Bay's and the Banks' business, financial condition and operating results. Banks Rely Heavily on Technology and Computer Systems and Computer Failure Could Result in Loss of Business and Adversely Affect the Stock Price of North Bay. Advances and changes in technology can significantly impact the business and operations of North Bay and the Banks. They may face many challenges including the increased demand for providing computer access to bank accounts and the systems to perform banking transactions electronically. North Bay's and each of the Bank's ability to compete depends on their ability to continue to adapt technology on a timely and cost-effective basis to meet these demands. In addition, the businesses and operations of North Bay and the Banks are susceptible to negative impacts from computer system failures, communication and energy disruption, and unethical individuals with the technological ability to cause disruptions or failures of their respective data processing systems. Many computer programs were designed and developed utilizing only two digits in the date field, which means those computers are unable to recognize the year 2000 and the following years. This year 2000 issue creates risks for North Bay and the Banks from unforeseen or unanticipated problems in their respective internal computer systems as well as from computer systems of the Federal Reserve Bank of San Francisco, correspondent banks, customers and vendors. Failures of these systems or untimely corrections could have a material adverse impact on North Bay's and each of the Bank's ability to conduct their businesses and on their results of operations. For a discussion of Vintage Bank's Year 2000 readiness, see "VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--REGULATORY MATTERS--YEAR 2000 COMPLIANCE." 5 Forward-Looking Statements We have made forward-looking statements in this prospectus, including statements containing the words "believes," "anticipates," "intends," "expects," "considers" and words of similar import. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results of North Bay or the Banks to be materially different from the future results expressed or implied by forward-looking statements. These factors include, among others, the factors discussed in the section entitled "Risk Factors" on page __ of this prospectus. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Potential investors should not rely heavily on the forward-looking statements. ------------------------ You should rely only on the information in this prospectus or other information referred to in this document. North Bay has not authorized anyone to provide you with other or different information. This prospectus is dated January __, 2000. You should not assume that the information contained in this prospectus is accurate as of any date other than that date, and neither the distribution of this prospectus nor the issuance of shares of North Bay common stock in the offering shall create any implication to the contrary. 6 MARKET INFORMATION On November 1, 1999, North Bay's common stock began trading over-the-counter on the OTC "Bulletin Board" under the symbol NBAN. Prior to November 1, 1999, Vintage Bank's common stock was quoted on the OTC "Bulletin Board" under the symbol VTGB. The firm of Hoefer & Arnett serves as primary market maker in North Bay's stock. The following table (adjusted for the 1998 and 1999 stock dividends) summarizes the common stock high and low bid prices based upon transactions of which the Bank is aware: ---------------------------------------------------------- Quarter ended (1) High Low ---------------------------------------------------------- ---------------------------------------------------------- December 31, 1999 $ $ ---------------------------------------------------------- September 30, 1999 27.00 23.00 ---------------------------------------------------------- June 30, 1999 24.00 20.00 ---------------------------------------------------------- March 31, 1999 24.00 21.00 ---------------------------------------------------------- December 31, 1998 19.52 16.90 ---------------------------------------------------------- September 30, 1998 20.71 17.14 ---------------------------------------------------------- June 30, 1998 21.90 19.05 ---------------------------------------------------------- March 31, 1998 25.71 21.90 ---------------------------------------------------------- (1) Price information for 1998 and the first three quarters of 1999 reflect trades in Vintage Bank common stock. Information for the quarter ended December 31, 1999 includes trades in North Bay common stock commencing on November 2, 1999. The last sales price of North Bay common stock on or before January __, 2000, the last practicable date before printing of this prospectus, was $____, which reflects a sale that occurred on ________ __, 2000. There may be other transactions of which North Bay is not aware and accordingly, they are not reflected in the range of actual sales prices stated. Further, quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Additionally, since trading in North Bay's common stock is limited, the range of prices stated are not necessarily representative of prices which would result from a more active market. Over the counter market quotations reflect inter-dealer prices, without retail mark-up, mark down or commission and may not represent actual transactions. Vintage Bank paid cash dividends of $0.20 per share in 1998 and $0.20 in 1999. The holders of common stock of North Bay are entitled to receive cash dividends when and as declared by the Board of Directors, out of funds legally available for the payment of dividends North Bay is restricted in its ability to pay dividends to its shareholders as a matter of law. For a discussion of restrictions imposed by law, see "Payment of Dividends." As of January __, 2000, there were ______ holders of record of North Bay's common stock. 7 THE OFFERING North Bay is offering up to ___________ shares of its common stock, no par value at a cash purchase price of $_______ per share for an aggregate consideration of $5,000,000. See ?CAPITALIZATION.? Subscriptions will be accepted until 5:00 o'clock p.m., Pacific Time, _________ __, 2000 unless the expiration date is extended by the Board of Directors. North Bay reserves the right to extend the expiration date for four periods of up to thirty (30) days each without notice to subscribers. It is not contemplated that any person would be permitted to purchase more than _____ shares of the common stock being offered through this prospectus. However, depending upon the availability of shares and the relative value of a particular subscriber to Solano Bank, as determined by the Board of Directors of North Bay, the maximum may be increased. The officers and directors of North Bay, Vintage Bank and Solano Bank have indicated an intention to subscribe for ________ shares of the common stock offered in the offering or approximately ____% of the __________ shares of common stock being offered for sale in this offering. If all ________ shares are sold in this offering, the directors and officers of North Bay and its subsidiaries will own _____% of the outstanding shares of North Bay common stock. See "MANAGEMENT - Security Ownership of Management." North Bay is not obligated to obtain or accept subscriptions for the maximum number of shares being offered by this prospectus, and North Bay may, in its sole discretion, terminate this offering by accepting all or a portion of the subscriptions. No discounts or commissions will be paid in connection with the sale of the shares. The offering will be made by the officers and directors of North Bay, Vintage Bank, and the proposed directors of Solano Bank who will solicit subscriptions from prospective shareholders. No promotional stock (stock sold at a discount or for services or other non-cash consideration) will be issued to anyone, including officers and directors. Method of Subscription Applications for stock subscriptions can be made by completing and signing the enclosed Application for Subscription for common stock and mailing both copies of the Application, the enclosed IRS Form W-9, and the full subscription price to North Bay c/o Vintage Bank, 1500 Soscol Avenue, Napa California 94559. North Bay reserves the right to reject any Application in whole or in part. IMPORTANT: THE FULL SUBSCRIPTION PRICE FOR SHARES MUST BE INCLUDED WITH THE APPLICATION. THE PURCHASE PRICE MUST BE PAID IN UNITED STATES CURRENCY BY CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO "NORTH BAY BANCORP -STOCK SUBSCRIPTION ACCOUNT." FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE APPLICATION SHALL GIVE NORTH BAY THE RIGHT TO DISREGARD THE APPLICATION. In the event North Bay rejects all or a portion of a requested subscription, North Bay will refund to the applicant all or the appropriate portion of the amount remitted with the Application without interest or deduction. See "HANDLING OF STOCK SUBSCRIPTION FUNDS." North Bay will decide which Applications to accept and all appropriate refunds will be mailed no later than 30 days after the expiration of the offering or the extension period during which the application was received by North Bay, whichever is later. PLAN OF DISTRIBUTION North Bay is offering its common stock through its and Vintage Bank's officers and directors and the proposed directors of Solano Bank on a best efforts basis and will not seek the assistance of securities dealers in connection with this offering. In soliciting subscriptions North Bay intends to emphasize prospective shareholders who are residents of Solano County as well as a subscriber's potential to do business with, or to direct customers to, Solano Bank in order to establish a significant shareholder constituency in Solano County. Subject to limitations on the minimum and maximum numbers of shares that may be purchased in the offering and the right of North Bay to accept or reject subscriptions in its sole and absolute discretion, preference will be given to subscribers who are residents of Solano County or have the potential to do business with, or to direct customers to, Solano Bank. 8 HANDLING OF STOCK SUBSCRIPTION FUNDS All stock subscription funds are to be sent by the subscriber to North Bay. Upon receipt of the funds by North Bay, they will be placed in the subscription account, and the funds so deposited may be invested in short-term government obligations, short-term certificates of deposit of Vintage Bank, and in the Federal funds market. All questions concerning the timeliness, validity, form and eligibility of any subscription in the offering will be determined by North Bay, whose determination will be final and binding. North Bay, in its sole discretion, may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any rights or of any submitted subscription application. Applications will not be considered as received or accepted until all irregularities have been waived or cured within the time that North Bay determines, in its sole discretion. Neither North Bay nor the subscription agent will be under any duty to give notification of any defect or irregularity in connection with the submission of any subscription or incur any liability for failure to give such notification. North Bay reserves the right to reject any subscription if a subscription is not in accordance with the terms of the offering or not in proper form or if the acceptance of an offer or the issuance of the common stock to a subscriber could be deemed unlawful. See "Regulatory Limitation." All questions or requests for assistance concerning the method of exercising rights or subscribing for shares and requests for additional copies of this prospectus should be directed to: Terry L. Robinson, President and Chief Executive officer, North Bay Bancorp (707) 258-3969; or to Glen C. Terry, Senior Vice President of Vintage Bank and proposed president and chief executive officer of Solano Bank (707) 423-2053. Subscription Agent Subscription applications and payment of the subscription price must be delivered, whether by mail, hand or overnight courier, to the subscription agent at the following address: Vintage Bank North Bay Bancorp - Stock Subscription Account 1500 Soscol Avenue Napa, California 94559 Attn. Pansy Smith, Assistant Corporate Secretary The subscription agent's telephone number is (707) 258-3971 Delivery of Common Stock Certificates Certificates representing shares of common stock subscribed for (to the extent that North Bay has accepted such subscriptions) and issued pursuant to the offering shall be mailed as soon as practicable after expiration of the offering. Other Offering Information North Bay may, in its sole and absolute discretion, terminate this offering at any time, without delivering notice to any person. Early termination of the offering will not affect the status of subscriptions accepted by North Bay before termination. Additionally, North Bay reserves the right to cancel all or any portion of the offering at any time. In the event North Bay cancels the offering, North Bay will refund the entire amount remitted by subscribers. In the event this offering is terminated or canceled by North Bay, the expenses of the offering will be borne by North Bay. Regulatory Limitation North Bay will not be required to issue shares of common stock in the offering to any person who, in North Bay 's sole judgment and discretion, is required to obtain prior clearance, approval or nondisapproval from any state or federal bank regulatory authority to own or control shares of North Bay common stock unless, prior to the expiration of the offering, evidence of such clearance, approval or nondisapproval has been provided to North Bay. The Federal Change in Bank Control Act of 1978 prohibits a person or group of persons "acting in concert" from acquiring "control" of a bank holding company unless the Federal Reserve has been given 60 days' prior written notice of such proposed acquisition and within that time period the Federal Reserve has not issued a notice disapproving the proposed acquisition or 9 extending for up to another 30 days the period during which such a disapproval may be issued. An acquisition may be made prior to the expiration of the disapproval period if the Federal Reserve issues written notice of its intent not to disapprove the action. Under a rebuttable presumption established by the Federal Reserve the acquisition of more than 10% of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act (such as the North Bay common stock) would constitute the acquisition of control. Under the California Financial Code, no person shall, directly or indirectly, acquire control of a bank or a bank holding company unless the California Commissioner of Financial Institutions has approved such acquisition of control. A person would be considered to have acquired control of North Bay under this state law if that person, directly or indirectly, has the power: o to vote 25% or more of the voting power of North Bay; or o to direct or cause the direction of the management and policies of North Bay. For purposes of this law, a person who directly or indirectly owns or controls 10% or more of North Bay's common stock would be presumed to control North Bay. In addition, any "company" would be required to obtain the approval of the FRB under the Bank Holding Company Act of 1956, as amended, before acquiring 25% (5% in the case of an a company that is a bank holding company) or more of the outstanding common stock of, or such lesser number of shares as constitute control over North Bay. 10 FEDERAL INCOME TAX CONSEQUENCES The following is a brief description of federal income tax consequences which may be realized by persons acquiring shares of common stock. This discussion is only a summary and is not intended as a substitute for careful tax planning, particularly because the income tax consequences are complex and may not be the same for all holders of the shares of common stock. Shareholders should consult their own tax advisers as to the tax consequences to them of a purchase of the shares of common stock, including the applicability of state, local and other tax laws. Cash Distributions on the Shares Cash distributions paid on the shares of common stock will be taxable as ordinary dividend income to the extent of the company's current or accumulated earnings and profits. To the extent distributions exceed the holder's allocable share of North Bay's current or accumulated earnings and profits, the distributions will be treated as a return of capital, reducing the adjusted basis of the shares of common stock to the holder and increasing the amount of gain (or reducing the amount of loss) which may be realized by the holder upon sale or exchange of the shares. Any distribution which exceeds the sum of the dividend amount and the adjusted basis of the shares to the holder will be treated as capital gain, if the shares are held as a capital asset. In that case, if the shares are held by an individual shareholder for more than one year, the capital gain will be treated as a long-term capital gain eligible for favorable federal income tax treatment. Dividends deemed to have been paid out of earnings and profits will be eligible for the 70% dividends received deduction allowable to corporations under Section 243, subject to the 45-day or 90-day holding period requirement and debt financed portfolio stock limitations contained in Sections 246 and 246A. Corporate holders also should consider the application of the "extraordinary dividend" rules of Section 1059 as well as the possible reduction or elimination of the benefit of the dividends received deduction by the corporate alternative minimum tax. Under current law, an individual is subject to a maximum 39.6% federal income tax rate on ordinary income (including dividends), and a maximum 28% federal tax rate on long-term capital gains (gain from the sale of a capital asset held for more than one year). Generally, a corporation is subject to a maximum 35% federal income tax rate on all taxable income. Redemption Generally, a redemption by North Bay of the shares of common stock for cash will be taxable as a dividend to the extent of North Bay's current or accumulated earnings and profits unless the redemption o is "not essentially equivalent to a dividend" with respect to the stockholder (that is, unless the redemption results in a meaningful reduction of the stockholder's proportionate interest in North Bay), o is "substantially disproportionate" with respect to the stockholder, or o results in a "complete termination" of the stockholder's stock interest in North Bay. If a redemption is treated as a dividend, holders of the shares will recognize ordinary income in the amount of cash or the fair market value of property received, and any basis in the shares will be transferred to the holder's remaining holdings in North Bay. If the redemption is not treated as a dividend, the holder of the shares will recognize gain or loss based on the difference between the amount realized and the holder's tax basis in the shares redeemed. Provided that the shares are held as a capital asset, this gain or loss will be capital gain or loss (and will be long-term capital gain or loss if held for more than one year). Sale of the Shares If a holder sells its shares, the seller will realize a gain or loss equal to the difference between the amount realized on the sale and the seller's tax basis in the shares sold. If the shares are held as a capital asset, this gain or loss will be capital gain or loss. 11 Backup Withholding A holder of shares may be subject to federal backup withholding at the rate of 31% on dividends or the proceeds of a sale of the shares if o the shareholder fails to furnish a taxpayer identification number ("TIN") to the payor; o the IRS notifies North Bay that the TIN furnished by the shareholder is incorrect; o there has been a "notified shareholder under reporting;" or o there has been a failure of the shareholder to certify under penalty of perjury that the shareholder is not subject to withholding. If any one of these events occurs, North Bay may be required to withhold a tax equal to 31% from any dividend payment made with respect to the shares or, in certain cases, from the proceeds of a sale of the shares. Foreign Withholding If a holder of the shares is a foreign individual or foreign corporation not engaged in business in the U.S., such holder may be subject to a 30% withholding tax on any dividend received with respect to those shares. The withholding tax may be decreased if the holder qualifies for a reduced withholding rate on dividends under an applicable U.S. tax treaty. 12 USE OF PROCEEDS The net proceeds of the sale of this offering will be utilized by North Bay to invest in Solano Bank. Any excess proceeds not required to capitalize Solano Bank will be used for general corporate purposes and working capital. Such purposes would include, but not be limited to, the payment of operating expenses. North Bay's expenses in connection with this offering are anticipated to aggregate $________________, including legal fees, accounting fees, the fees of financial consultants and advisors, printing costs and mailing costs. 13 DETERMINATION OF OFFERING PRICE The subscription price for the shares of common stock was determined by management and approved by North Bay Board of Directors based upon information which they believed to be relevant, including an opinion from its financial advisors that the $_____ subscription price is fair to the existing holders of North Bay. Management and the Board also considered the recent trading history of the common stock, North Bay's and Vintage Bank's financial condition and earnings as well as the per share book value of the common stock. The primary objectives in establishing the subscription price were to maximize net proceeds obtainable from the offering and to enhance the success of the offering. See "MARKET INFORMATION." No assurance can be given that the market price of North Bay's common stock will not decline during the offering to a level below the subscription price or that a shareholder will be able to sell shares purchased in the offering at a price equal to or greater than the subscription price. Opinion of Financial Advisor [SUBJECT TO REVISION BY FINANCIAL ADVISOR AFTER DETERMINATION OF PRICE] North Bay's Board of Directors retained Hoefer & Arnett as its financial advisor to assist it in establishing the subscription price. Hoefer delivered its written opinion dated ________ __, ___ to North Bay that the subscription price is fair, from a financial point of view, to the shareholders of North Bay. North Bay did not impose any limitations on Hoefer with respect to its opinion. Hoefer is engaged in financial institution analysis and regularly conducts valuations of businesses, particularly financial institutions, and their securities in connection with stock offerings, mergers, acquisitions, negotiated underwritings and private placements, among other things. As part of its financial services activities, Hoefer is called upon to advise clients in mergers, acquisitions, valuations and various other business combinations and activities. North Bay selected Hoefer as its financial advisor because of its recognition as an expert in such matters. On ______ ____, ___, Hoefer delivered its oral opinion to North Bay's Board of Directors that the subscription price was fair, from a financial point of view, to the shareholders of North Bay. At the ________ __, ____ meeting of North Bay's Board of Directors, Hoefer delivered its written opinion, confirming its previous oral opinion. In rendering its opinion in connection with the offering, Hoefer relied upon information and materials provided by North Bay. In addition, Hoefer met with the directors and management of North Bay and reviewed other data relating to the economics for the relevant area and conducted tests of the market value of North Bay common stock. Hoefer also reviewed drafts of this prospectus, compared North Bay from a financial point of view with other selected companies in the financial services industry, and considered other information that it considered appropriate. Hoefer has not independently verified the information and documents provided by the directors and management of North Bay. Hoefer was paid a fee in the amount of $4,000 in connection with its advisory services to North Bay, including the preparation of its opinion and report. 14 CAPITALIZATION The following tables set forth the consolidated capitalization of North Bay at September 30, 1999 and the pro forma consolidated capitalization of North Bay at that date, as adjusted to give effect to the offering, assuming the sale of _____________ shares and net proceeds of $_________________ after deducting estimated costs of the offering of $_______.
Pro Forma Consolidated Capitalization ------------------------------------- September 30, 1999 (in 000's) Actual As adjusted for this ------ Offering -------- Contributed Capital - Preferred Stock: 500,000 Shares of Preferred Stock authorized, issued and outstanding - None Common Stock: 20,000,000 Shares of Common Stock authorized, no par value issued and outstanding: At September 30, 1999 - 1,533,992; _______________ if maximum number of shares sold in offering $ 12,294 $_____________ Retained earnings 6,171 _____________ Accumulated other comprehensive (loss) (679) _____________ --------- Total Shareholders? Equity $ 17,786 $_____________ ========= Book value per share $ 11.59 $_____________
15 Statistical Data The following statistical data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, and the financial statements and notes thereto included in Vintage Bank's 1998 Annual Report to Shareholders, which have been incorporated herein by reference. Distribution of Average Assets, Liabilities, and Shareholders Equity; Interest Rates and Interest Differential The following table sets forth average daily balances of assets, liabilities, and shareholders' equity during 1998 and 1997, along with total interest income earned and expense paid, and the average yields earned or rates paid thereon and the net interest margin for the years ended December 31, 1998 and 1997. Also shown is September 30, 1999, annualized. 16
Sept. 30, 1999, December 31, 1998 --------------- ----------------- Annualized Average Income/ Average Average Income/ Average ASSETS Balance Expense Yield/Rate Balance Expense Yield/Rate ----------------------------------------------------------------------------- Loans (1) (2) $ 105,663,517 $ 8,806,156 8.33% $ 89,057,414 $ 8,465,003 9.51% Investment securities: Taxable 48,909,725 3,226,533 6.60% 38,917,590 2,472,704 6.35% Non-taxable (3) 13,503,893 884,648 6.55% 10,056,956 655,165 6.51% ------------- ----------- ------------ ----------- TOTAL LOANS AND INVESTMENT SECURITIES 168,077,135 12,917,337 7.69% 138,031,960 11,592,872 8.40% Due from banks, time 137,407 7,548 5.49% 200,000 11,018 5.51% Federal funds sold 3,178,086 157,201 4.95% 12,355,606 461,039 3.73% ------------- ----------- ------------ ----------- TOTAL EARNING ASSETS 171,392,628 $13,082,086 7.63% 150,587,566 $12,064,929 8.01% ------------- ----------- ------------ ----------- Cash and due from banks 8,580,667 10,107,541 Allowance for loan losses (1,841,526) (1,639,488) Premises and equipment, net 2,806,241 2,837,042 Accrued interest receivable and other assets 5,697,478 5,280,858 ------------- ------------ TOTAL ASSETS $ 186,635,488 $167,173,519 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $ 58,740,273 $ 1,336,424 2.28% $ 48,570,740 $ 1,104,570 2.27% Savings 15,842,553 294,887 1.86% 13,572,370 246,590 1.82% Time 52,181,019 2,427,190 4.65% 50,422,099 2,640,666 5.24% ------------- ----------- ------------ ----------- 126,763,845 4,058,501 3.20% 112,565,209 3,991,826 3.55% Short-term borrowings 2,971,653 169,395 0.00% 0 0 0.00% TOTAL INTEREST BEARING LIABILITIES 129,735,498 $ 4,227,896 3.26% 112,565,209 $ 3,991,826 3.55% ------------- ----------- ------------ ----------- Noninterest bearing DDA 38,272,970 37,870,860 Accrued interest payable and other liabilities 989,746 1,100,279 Shareholders' equity 17,637,274 15,637,171 ------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 186,635,488 $167,173,519 ============= ============ NET INTEREST INCOME $ 8,854,190 $ 8,073,103 =========== =========== NET INTEREST INCOME TO AVERAGE EARNING ASSETS (Net Interest Margin (4)) 5.17% 5.36%
December 31, 1997 ----------------- Average Income/ Average ASSETS Balance Expense Yield/Rate --------------------------------------------- Loans (1)(2) $ 78,975,833 $ 7,537,434 9.54% Investment securities: Taxable 32,603,372 2,144,912 6.58% Non-taxable (3) 4,153,167 327,404 7.88% ------------- ------------- TOTAL LOANS AND INVESTMENT SECURITIES 115,732,372 10,009,750 8.65% Due from banks, time 200,000 11,443 5.72% Federal funds sold 3,232,170 142,480 4.41% ------------- ------------- TOTAL EARNING ASSETS 119,164,542 $ 10,163,673 8.53% ------------- ------------- Cash and due from banks 9,615,681 Allowance for loan losses (1,617,445) Premises and equipment, net 3,031,847 Accrued interest receivable and other assets 3,111,061 ------------- TOTAL ASSETS $ 133,305,686 ============= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing demand $ 32,836,482 $ 595,046 1.81% Savings 12,577,868 254,568 2.02% Time 43,766,802 2,265,651 5.18% ------------- ------------- 89,181,152 3,115,265 3.49% Short-term borrowings 942,133 26,240 2.79% TOTAL INTEREST BEARING LIABILITIES 90,123,285 $ 3,141,505 3.49% ------------- ------------- Noninterest bearing DDA 29,196,839 Accrued interest payable and other liabilities 904,053 Shareholders' equity 13,081,509 ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 133,305,686 ============= NET INTEREST INCOME $ 7,022,168 ============= NET INTEREST INCOME TO AVERAGE EARNING ASSETS (Net Interest Margin (4)) 5.89% 17 (1) Average loans include nonaccrual loans. (2) Loan interest income includes loan fee income of $699,540 in 1998 and $452,288 in 1997 and $708,697 for September 30, 1999, annualized. (3) Average yields shown are taxable-equivalent. On a non- taxable basis, 1998 interest income was $496,666 with an average yield of 4.94%; in 1997 non-taxable income was $249,000 and the average yield was 6.00% and in 1996 non-taxable income was $277,984 and the average yield was 6.00% and for the period of 1999, annualized non-taxable income was $685,607 and the average yield was 5.08% (4) Net interest margin is calculated by dividing net interest income by the average balance of total earning assets for the applicable year.
18 VINTAGE BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 FORWARD LOOKING STATEMENTS In addition to the historical information, this prospectus contains forward-looking statements. The reader of this prospectus should understand that all forward-looking statements are subject to various uncertainties and risks that could affect their outcome. Vintage Bank's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, fee and other noninterest income earned as well as other factors. This entire prospectus 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 Vintage Bank's business. Moreover, wherever phrases such as or similar to "in management's opinion" or, "management considers" are used, these 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 these statements are subject to the same risks and uncertainties noted above with respect to forward-looking statements. OVERVIEW Net income was $2,038,000 or $1.31 per share for the nine months ended September 30, 1999, compared with $1,561,000 or $1.01 per share for the nine months ended September 30, 1998. On an annualized basis, the 1999 results equated to a return of 1.44% on average assets and 15.5 % on average shareholders' equity. Total assets were $197,655,000 as of September 30, 1999; equating to a 13% growth in assets during the twelve months ended September 30, 1999. Assets have increased 10% since December 31, 1998. SUMMARY OF EARNINGS NET INTEREST INCOME 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 and borrowings. 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 for the nine months ended September 30, 1999 and September 30, 1998 was $6,872,000 and $5,748,000, respectively. These results equate to a 20% increase in net interest income before provision for the first nine months of 1999 compared to the first nine months of 1998. The increase in net interest income resulted primarily from increases in levels of total earning assets; this increase in earning assets was funded primarily by deposits that have lower effective rates than earning assets. Management does not expect a material change in Vintage Bank's net interest margin during the next twelve months as the result of a modest increase or decrease in general interest rates. Loan fee income, which is included in interest income, was $532,000 for the nine months ended September 30, 1999, compared with $499,000 for the nine months ended September 30, 1998. Analysis of Net Interest Income The following table presents information regarding yields on interest-earning assets, expense on interest-bearing liabilities, and net yields on interest-earning assets for the periods indicated: 19
Nine Months Ended (Dollars in 000's) September 30, Increase 1999 1998 (Decrease) Change ------------------------------------------------------------ Interest and fee income .......... 10,043 $ 8,667 $ 1,376 15.88% Interest expense................... 3,171 2,919 252 8.63% -------- -------- ------- --- Net interest income................ $ 6,872 $ 5,758 $ 1,124 19.55% ======== ======== ======= Average interest earning assets assets........................ $173,205 $144,143 $29,062 20.16% Average interest bearing abilities. liabilities................... $128,164 $107,501 $20,663 19.22% Average interest earning assets/ interest bearing liabilities.. 134.14% 134.09% 1.06% Average yields earned (1).......... 7.73% 8.02% (0.29)% Average rates paid (1)............. 3.30% 3.62% (0.32)% Net interest spread (1)............ 4.43% 4.40% 0.04% Net interest margin (1)............ 5.29% 5.32% (0.03)% (1) These ratios for the nine months ended September 30, 1999 and 1998 have been annualized.
PROVISION AND ALLOWANCE FOR LOAN LOSSES Vintage Bank maintains an allowance for loan losses at a level considered adequate to provide for losses that can be reasonably anticipated. The allowance is increased by the provision for loan losses and reduced by net charge-offs. The allowance for loan losses is based on estimates, and ultimate losses may vary from current estimates. These estimates are reviewed periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known. Vintage Bank makes credit reviews of the loan portfolio and considers current economic conditions, historical loan loss experience and other factors in determining the adequacy of the allowance balance. This evaluation establishes a specific allowance for all classified loans over $50,000 and establishes percentage allowance requirements for all other loans, according to the classification as determined by Vintage Bank's internal grading system. As of September 30, 1999 the allowance for loan losses of $1,940,000 represented 1.65% of loans outstanding. As of September 30, 1998, the allowance represented 1.88% of loans outstanding. For the nine months ended September 30, 1999 and September 30, 1998 the loan loss provision expense was $180,000. NON-INTEREST INCOME Non-interest income was $1,276,000 for the nine months ended September 30, 1999 compared with $936,000 for the nine months ended September 30, 1998, a 36% increase. The increase in non-interest income resulted primarily from an increase in the number of deposit accounts, transaction volumes and directly related service charges. GAIN ON SECURITIES Gains of $10,000 and $54,000 for the nine months ended September 30, 1999 and September 30, 1998, respectively, resulted from the sale of several available-for-sale securities. NON-INTEREST EXPENSE Non-interest expense was $4,688,000 for the nine months ended September 30, 1999 compared with $4,022,000 for the nine months ended September 30, 1998. The 17% increase in 1999 was primarily in salaries and employee benefit expense. Salaries and employee benefits expense for the nine months ended September 30, 1999 and 1998 was $2,558,000 and $2,188,000, respectively, a 17% increase. The increase in 1999 resulted from increased salary rates paid to Bank officers and employees, and an increase of approximately six full-time equivalent employees during the twelve months ended September 30, 1999 to a total of 79 full-time equivalent employees. Other expenses for the nine months ended September 30, 1999 and September 30, 1998 were $1,492,000 and $1,196,000, respectively, a 25% increase. The increase from last year is primarily due to costs associated with hiring consultants for bankwide sales training, costs associated with an 20 increased advertising campaign and additional legal costs associated with formation of a bank holding company. INCOME TAXES The provision for income taxes for the nine months ended September 30, 1999 was $1,252,000, compared with $975,000 for the nine months ended September 30, 1998. Both the 1999 and 1998 provisions reflect tax accruals at maximum rates for both federal and state income taxes, adjusted for the effect of Vintage Bank's investments in tax-exempt municipal securities. BALANCE SHEET Total assets as of September 30, 1999 were $197,655,000 compared with $175,611,000 as of September 30, 1998 and $180,291,000 at December 31, 1998 equating to a 13% increase during the twelve months ended September 30, 1999 and an increase of 10% for the nine months ended September 30, 1999. Total deposits as of September 30, 1999 were $173,595,000 compared with $158,283,000 as of September 30, 1998 and $163,381,000 at December 31, 1998, representing a 10% increase during the twelve months ended September 30, 1999 and an increase of 6% for the nine months ended September 30, 1999. Loans outstanding as of September 30, 1999 were $117,225,000 compared with $90,147,000 as of September 30, 1998 and $96,527,000, equating to a 30% increase during the twelve months ended September 30, 1999 and a 21% increase for the nine month ended September 30, 1999. LIQUIDITY AND CAPITAL ADEQUACY Vintage Bank's liquidity is determined by the level of assets (such as cash, Federal funds, and investments in marketable securities not pledged as security for public deposits) that are readily convertible to cash to meet customer withdrawals and borrowings. Management reviews Vintage Bank's liquidity position on a regular basis to ensure that it is adequate to meet projected loan funding and potential withdrawal of deposits. Vintage Bank has a comprehensive Asset/Liability Management and Liquidity Policy, which it uses to determine adequate liquidity. As of September 30, 1999 liquid assets were 36% of total assets, compared with 37% as of September 30, 1998. The Federal Deposit Insurance Corporation Improvement Act established ratios used to determine whether a bank is "Well Capitalized," "Adequately Capitalized," "Undercapitalized," "Significantly Undercapitalized," or "Critically Undercapitalized." A Well Capitalized bank has total 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 the following table indicates, Vintage Bank currently exceeds the regulatory capital minimum requirements and is also considered "Well Capitalized" according to regulatory guidelines. (Dollars in 000's) September 30, 1999 ----------------------------- Amount Ratio ----------------------------- Tier 1 capital................................ $ 18,465 12.57% Tier 1 capital minimum requirement............ 5,874 4.00% ----------- ----- Excess over minimum Tier 1 capital............ $ 12,591 8.57% =========== ===== Total capital................................. $ 20,302 13.82% Total capital minimum requirement 11,749 8.00% ----------- ----- Excess over minimum total capital............. $ 8,553 5.82% =========== ===== Risk-adjusted assets.......................... $ 146,861 =========== Leverage ratio................................ 9.52% Minimum leverage requirement.................. 4.00% ----- Excess over minimum leverage ratio............ 6.52% ===== Adjusted total assets......................... $ 197,655 =========== YEAR 2000 READINESS DISCLOSURE The "Year 2000 issue" relates to the fact that many computer programs use only two digits to represent a year, such as "98" to 21 represent "1998," which means that in the Year 2000 such programs could incorrectly treat the year 2000 as the year 1900. This issue has grown in importance as the use of computers and microchips has become more pervasive throughout the economy, and interdependencies between systems have multiplied. The issue must be recognized as a business problem, rather than simply a computer problem, because of the way its effects could ripple through the economy. Vintage Bank could be materially and adversely affected either directly or indirectly by the year 2000 issue. This could happen if any of its critical computer systems or equipment containing embedded logic fail, if the local infrastructure (electric power, phone system, or water system) fails, if its significant vendors are adversely impacted, or it its borrowers or depositors are adversely impacted by their internal systems or those of their customers or suppliers. Failure of Vintage Bank to complete testing and renovation of its critical systems on a timely basis could have a material adverse effect on Vintage Bank's financial condition and results of operations, as could Year 2000 problems faced by others with whom Vintage Bank does business. Federal banking regulators have responsibility for supervision and examination of banks to determine whether each institution has an effective plan for identifying, renovating, testing, and implementing solutions for Year 2000 processing and coordinating year 2000 processing capabilities with its customers, vendors and payment system partners. Bank examiners are also required to assess the soundness of a bank's internal controls and to identify whether further corrective action may be necessary to assure an appropriate level of attention to Year 2000 processing capabilities. Vintage Bank has a written plan to address its risks associated with the impact of the Year 2000. The plan directs Vintage Bank's Year 2000 compliance efforts under the framework of a five-step program mandated by the Federal Financial Institution Examinations Council. The FFIEC's five-step program consists of five phases: awareness, assessment, renovation, validation, and implementation. In the awareness phase, which Vintage Bank has completed, the Year 2000 problem is defined and executive level support for the necessary resources to prepare Vintage Bank for Year 2000 compliance is obtained. In the assessment phase, which Vintage Bank has also completed, the size and complexity of the problem and details of the effort necessary to address the Year 2000 issues are assessed. Although the awareness and assessment phases are completed, Vintage Bank continues to evaluate new issues as they arise. In the implementation phase changes to hardware and components are brought on line. The implementation phase is 100% completed. In the renovation phase, which Vintage Bank has substantially completed, the required incremental changes to hardware and software components are tested. In the validation phase, which Vintage Bank has also substantially completed, the hardware and software components are tested. Vintage Bank is utilizing both internal and external resources to identify, correct or reprogram and test its systems for Year 2000 compliance. Vintage Bank has identified 100 vendors and 68 software applications which management believes are material to Vintage Bank's operations. Based on information received from its vendors and testing results, in Management's opinion approximately 95% of such vendors are Year 2000 compliant as of September 30, 1999. Testing of the critical system applications for the core banking product provided by Vintage Bank's primary vendor was completed and the results verified during the first quarter of 1999. Testing of Vintage Bank's non-critical systems was substantially completed during the second quarter of 1999, and concluded in the third quarter of 1999. The core banking product includes software solutions for general ledger, accounts payable, automated clearing houses, certificates of deposit and individual retirement accounts, commercial, mortgage and installment loans, checking and savings accounts, proof of deposit applications and ancillary support products. Vintage Bank is also making efforts to ensure that its customers, particularly its significant customers, are aware of the Year 2000 problem. Vintage Bank has sent Year 2000 correspondence to its significant deposit and loan customers. A customer of Vintage Bank is deemed significant if the customer possesses any of the following characteristics: o Total indebtedness to Vintage Bank of $250,000 or more o The customer's business is dependent on the use of high technology and/or the electronic exchange of information o The customer's business is dependent on third party providers of data processing service or products o An average ledger deposit balance greater than $250,000 Vintage Bank has amended its credit authorization documentation to include consideration of the Year 2000 problem. Vintage Bank assesses its significant customer's Year 2000 readiness and assigns the customer an assessment of "low", "medium" or "high" risk. Risk evaluation of Vintage Bank's significant customers was substantially completed by December 31, 1998. Any depositor determined to have a high risk is scheduled for an evaluation by Vintage Bank every 90 days until the customer can be assigned a low risk assessment. The few depositors determined by Vintage Bank to have "medium" or " high" risk continue to be monitored. Because of the range of possible issues and large number of variables involved, it is impossible to quantify the total potential cost of Year 2000 problems or to determine Vintage Bank's worst-case scenario in the event Vintage Bank's Year 2000 remediation efforts or the efforts of those with whom it does business are not successful. In order to deal with the 22 uncertainty associated with the Year 2000 problem, Vintage Bank has developed a contingency plan to address the possibility that efforts to mitigate the Year 2000 risk are not successful either in whole or part. These plans include manual processing of information for critical information technology systems, utilities, and increased cash on hand. The contingency plans were completed during the second quarter of 1999 and substantially tested prior to September 30, 1999. As of September 30, 1999, Vintage Bank has incurred $45,771 in Year 2000 costs, which have been expensed as incurred. Year 2000-related costs have been funded from the continuing operations of Vintage Bank. Management expects that the outside cost from beginning to end to complete Year 2000 compliance will be approximately $50,000. This estimate includes the costs of consultants, customer awareness programs, contingency plans, and renovation of select software and hardware. The foregoing Year 2000 discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, including without limitation, anticipated costs, the dates by which Vintage Bank expects to substantially complete programming changes, remediation and testing of systems and the impact of redeployment of existing staff, are based on management's best current estimates, which were derived utilizing numerous assumptions about future events, including the continued availability of certain resources, representations received from third party service providers and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to identify and convert all relevant computer systems, results of Year 2000 testing, adequate resolution of Year 2000 issues by governmental agencies, business or other third parties who are service providers, suppliers, borrowers or customers of Vintage Bank, unanticipated systems costs, the need to replace hardware, the adequacy of and ability to implement contingency plans and similar uncertainties. The forward-looking statements made in the foregoing Year 2000 discussion speak only as of the date on which such statements are made, and Vintage Bank undertakes no obligation to update any forward-looking statements to reflect the occurrence on unanticipated events. Vintage Bank's disclosure and announcements herein concerning its Y2K planning and programs are intended to constitute Year 2000 Readiness Disclosures as defined in the Year 2000 Information and Readiness Disclosure Act (the "Act"). The Act provides certain protection from liability for certain public and private statements concerning an entity's Year 2000 readiness and the Year 2000 readiness product and services. 23 YEARS ENDED DECEMBER 31, 1998 ,1997 and 1996 OVERVIEW Vintage Bank reported net income of $2,110,736, or $1.37 per share, in 1998 compared with $1,854,076, or $1.26 per share, in 1997 and $1,646,443, or $1.15 per share, in 1996, equating to a return on average assets of 1.29%, 1.39% and 1.38% for 1998, 1997 and 1996, respectively. The return on average equity was 13.45% in 1998 compared with 14.17% and 14.65% in 1997 and 1996, respectively. The increase in net income during 1998 compared with 1997 resulted primarily from growth in net interest income. As of December 31, 1998, total assets were $180,290,550 compared with total assets of $146,982,232 and $122,739,505 at year end 1997 and 1996, respectively, representing a 23% increase in 1998 and a 20% increase in 1997. Deposits increased 23% in 1998 compared with a 20% increase in 1997. Loans, net of the allowance for loan losses, increased 17% in 1998 compared with a 14% increase in 1997. SUMMARY OF EARNINGS Net Interest Income Net interest income, (total interest income less total interest expense), was $7,914,604, $6,943,764 and $6,172,017, in 1998, 1997 and 1996, respectively, representing increases of 14% and 13% in 1998 and 1997, respectively. Net interest income is impacted by changes in the volume and mix of earning assets and interest-bearing liabilities, and changes in interest rates. The increase in net interest income in 1998 compared with 1997 was primarily the result of volume increases in loans and investments. The net interest margin (defined as net interest income divided by average earning assets) decreased slightly in 1998 as average yields on loans declined while rates paid on deposits remained relatively stable throughout 1998. Taxable-equivalent interest income increased $1,901,256 in 1998 compared with 1997. Increases in the volume of earning assets accounted for $2,241,994 of this increase, with a decrease of $340,738 attributable to lower rates. An increase of $923,454 in 1997 compared with 1996 consisted of a $1,266,823 increase due to volume growth and a decrease of $343,369 attributable to lower rates. Interest paid on interest-bearing liabilities increased $850,321 in 1998 compared with 1997. Increases in the volume of deposits and other borrowings accounted for $623,652 of this increase, with a $226,669 increase attributable to an increase in rates. Interest paid on interest-bearing liabilities increased $159,888 in 1997 compared with 1996; the effect of volume increases accounted for $197,756 offset by $37,868 attributable to a decrease in rates. The net interest margin, using taxable equivalent interest income, was 5.36% in 1998 compared with 5.89% in 1997. Interest rates were relatively stable throughout both years; the decrease in the net interest margin is the result of lower loan rates due to competitive pressures, along with deposit mix changes and a lower average loan-to-deposit ratio in 1998 compared to 1997. The net interest margin is expected to remain consistent during 1999 unless general rates increase or decrease significantly during the year. Since interest rates have been relatively stable for over two years, the Bank's interest margin should not be significantly impacted by the effects of any "lags" in adjusting rates during 1999 to reflect previous changes in general interest rates as loans and time deposits mature and renew. Assuming there are no dramatic changes in general interest rates or deposit mix, total net interest income is expected to increase during 1999 consistent with volumes of earning assets. Provision and Allowance for Loan Losses Vintage Bank maintains an allowance for loan losses at a level considered adequate to provide for probable losses inherent in the existing loan portfolio. The allowance is increased by provisions for loan losses and reduced by net charge-offs. The allowance for loan losses is based on estimates and ultimate losses may vary from current estimates. These estimates are reviewed periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known. Vintage Bank makes credit reviews of the loan portfolio and considers current economic conditions, 24 historical loan loss experience and other factors in determining the adequacy of the allowance balance. This evaluation establishes a specific allowance for all impaired loans over $50,000, and establishes percentage allowance requirements for all other loans, according to their classification as determined by Vintage Bank's internal grading system. As of December 31, 1998, the allowance for loan losses of $1,751,693 represented 1.81% of loans outstanding. This compares with an allowance balance of 1.86% and 2.04% of loans outstanding at year end 1997 and 1996, respectively. During 1998, 1997 and 1996, $240,000 was charged to expense each year for the provision for loan losses. Noninterest Income Noninterest income was $1,397,158 in 1998 compared with $1,443,473 in 1997 and $775,883 in 1996. Noninterest income for 1997 includes gains and losses on securities transactions of $414,629 and $19,377, respectively, including recoveries on securities previously charged off. Fee income from service charges on deposit accounts increased from the previous year 10% and 16% in years 1998 and 1997, respectively. Noninterest Expense Details of noninterest expense are as follows: (In 000's) 1998 1997 1996 ------ ------ ------ Salaries & Benefits $3,069 $2,636 $2,148 Occupancy 392 361 182 Equipment/Data Processing 450 474 391 Other 1,749 1,579 1,268 ------ ------ ------ Total $5,660 $5,050 $3,989 ====== ====== ====== Salaries and benefits expense increased 16% and 23% in 1998 and 1997, respectively, from the previous year. The increases were primarily due to increases in the number of full-time equivalent employees, which has increased from approximately 58 at year-end 1996 to 73 at year-end 1998. The proportionately large increase in personnel during 1997 reflects staffing required for the new Bel Aire Office, as well as the effects of an internal reorganization and relocation of functions intended to position Vintage Bank for future growth. No net increases in personnel are anticipated during 1999. The increase in occupancy expense during 1998 compared with 1997 was primarily in rent and depreciation. Occupancy expense in 1997 nearly doubled 1996 expense primarily due to the opening of the Bel Aire Office during the first quarter of 1997. Equipment and Data Processing expense decreased 5% in 1998 compared with 1997. The decrease was primarily due to the core banking system being fully depreciated by mid-year 1998. Equipment is depreciated over periods of 3 to 5 years. Purchases of all types of equipment during 1998 totaled approximately $145,000. Major anticipated equipment purchases during 1999 include equipment associated with electronic internet banking services, a new voice response system and miscellaneous equipment such as personal computers and software. Expenditures in these areas are anticipated to total approximately $250,000. All other anticipated expenditures for equipment during 1999, including routine purchases of vehicles and miscellaneous equipment, are expected to total less than $200,000. The financial impact of these capital expenditures, if all are made, will be to increase monthly depreciation by approximately $10,000. 25 The key components of other expense are as follows: (In 000's) 1998 1997 1996 ------ ------ ------ Business Promotion $ 274 $ 236 $ 191 Professional Services 350 321 235 ATM Expenses 109 85 74 Stationery & Supplies 172 159 126 Insurance 54 49 45 Other 790 729 597 ------ ------ ------ Total $1,749 $1,579 $1,268 ====== ====== ====== Business promotion expense increased in both 1998 and 1997 compared to the prior year primarily due to increases in advertising, customer relations expense and donations. The increase in 1998 includes increased promotions associated with the Bank's seeking deposits from customers of branches closed by competitors. Professional services increased in 1998 compared with 1997 due to fees for services provided by the firm hired to manage our investment portfolio beginning in the second quarter of 1996. These fees totaled $79,000 in 1998 compared with $72,000 and $35,000 in 1997 and 1996, respectively. Also, ATM expenses increased by approximately 28% and 15% in 1998 and 1997, respectively, reflecting costs associated with adding two additional ATM's in 1997 and additional expenses associated with the Y2K issue and other maintenance. Stationery and supplies expense increased 8% and 26% in 1998 and 1997, respectively, reflecting overall volume increases; 1997 expense was also higher due to costs associated with opening the Bel Aire Office and relocating functions to the new location. Insurance expenses have remained relatively constant for three years, reflecting the benefits of generally lower premiums resulting from an improving insurance market, offsetting the effects on premiums of the Bank's increasing size and volumes. Other expense increased approximately $61,000 in 1998 compared with 1997, primarily due to increased expenses in telephone, postage, courier services, conferences and other miscellaneous expenses. These expense increases were generally less than proportionate with our overall growth and volume increases. Management anticipates that total other expense will increase proportionately less than Vintage Bank's overall growth rate during 1999. In order to avoid risking any costly system failure as a result of hardware or software not being operational or compatible after December 31, 1999, Vintage Bank has devoted substantial resources to planning, converting, testing and documenting for Y2K compliance in all systems. During 1997, Management devoted significant personnel resources to addressing this issue, primarily in planning for Year 2000. Most of the "hard dollar" expenditures required to solve this problem were expensed during 1998. For 1999, Vintage Bank budgeted approximately $75,000 for non-recurring expenditures, in addition to the costs of internal human resources required to achieve Y2K compliance. Most of Vintage Bank's "mission critical" systems have been successfully tested. However, unanticipated problems could push actual costs substantially higher. Vintage Bank reported a provision for income taxes of $1,301,000, $1,243,000 and $1,073,000 for years 1998, 1997 and 1996, respectively. These provisions reflect accrual for taxes at the applicable rates for Federal and California State income taxes based upon reported pre-tax income, adjusted for the beneficial effect of Vintage Bank's investment in qualified municipal securities. Vintage Bank has not been subject to an alternative minimum tax. BALANCE SHEET Total assets as of December 31, 1998 were $180,290,550 compared with $146,982,232, and $122,739,505 as of year end 1997 and 1996, respectively, representing a 23% increase in 1998 and a 20% increase in 1997. Total deposits grew $30,783,007 to $162,173,206 in 1998, representing a 23% increase, compared with a 20% increase in 1997. Total loans, net of allowance for loan losses, grew $13,784,415 to $94,775,177 in 1998, representing a 17% increase; compared with a 14% increase in 1997. Investment securities increased from $39,566,991 at year-end 1997 to $62,018,042 in 1998, a 57% increase, compared with an increase of only 5% during 1997. Liquidity and Capital Adequacy Vintage Bank's liquidity is determined by the level of assets (such as cash, federal funds sold, and marketable securities) that are readily convertible to cash to meet customer withdrawal and borrowing needs. Vintage Bank's liquidity position is reviewed by management on a regular basis to verify that it is adequate to meet projected loan funding and potential withdrawal of deposits. Vintage Bank has a comprehensive Asset/Liability Management and Liquidity Policy which it 26 uses to determine adequate liquidity. Securities classified as "Held-to-Maturity" are reported at amortized cost, and "Available-for-Sale" securities are reported at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of accumulated other comprehensive income. As of December 31, 1998, "Held-to-Maturity" securities had an amortized cost of $13,512,384 and "Available-for-Sale" securities had a fair value of $48,505,658, with an unrealized gain, net of income taxes, of $385,106 reflected as a component of accumulated other comprehensive income in the shareholders' equity section of the Balance Sheet. At year end 1998 liquid assets represented 42% of total assets, as compared with 39% and 37% in liquid assets as of year end 1997 and 1996, respectively. The level of liquid assets at December 31, 1998 exceeds the liquidity required by Vintage Bank's liquidity policy. However, securities could be sold from the "Held-to-Maturity" category only in specific circumstances without requiring the entire portfolio to be reclassified as "Available-for-Sale" and recorded at fair value. Management expects to be able to meet the liquidity needs of the Bank during 1999 primarily through balancing loan growth with corresponding increases in deposits. Interest Rate Sensitivity The following table sets forth the repricing opportunities for rate-sensitive assets and rate-sensitive liabilities at December 31, 1998. Rate sensitivity analysis usually excludes noninterest-bearing demand deposits. Including these deposits, which totaled $39,469,756, would result in a significant shift in the gap position. Rate-sensitive assets and rate-sensitive liabilities are classified by the earliest possible repricing date or maturity, whichever comes first.
(In 000's) 3 Months Over 3 Mos. Over 1 Yr. Over 5 or Less To 1 Yr. To 5 Yrs. Years Total -------- -------- -------- -------- -------- Interest rate-sensitive assets: Loans, gross $ 42,315 $ 6,125 $ 21,961 $ 26,126 $ 96,527 Interest-bearing deposits in other banks 100 100 0 0 200 Investment securities 1,500 2,030 19,994 38,494 62,018 Federal funds sold 6,000 0 0 0 6,000 -------- -------- -------- -------- -------- Total 49,915 8,255 41,955 64,620 164,745 Interest rate-sensitive liabilities: Interest-bearing demand Deposits 54,501 0 0 0 54,501 Time deposits >$100,000 8,177 7,794 1,366 106 17,443 Other time deposits 15,717 16,001 4,500 0 36,218 Savings deposits 14,542 0 0 0 14,542 -------- -------- -------- -------- -------- Total 92,937 23,795 5,866 106 122,704 -------- -------- -------- -------- -------- Interest rate sensitivity gap ($43,022) ($15,540) $ 36,089 $ 64,514 $ 42,041 ======== ======== ======== ======== ======== Ratio of interest rate sensitivity to earning assets (26.11%) (9.43%) 21.91% 39.16%
This table indicates that Vintage Bank has a "negative" GAP for one year into the future, and a "positive" GAP beyond one year. The implication is that during the negative GAP "horizon" bank earnings will increase in a falling interest rate environment, as interest rates on interest-bearing liabilities reprice downward more rapidly than rates on earning assets; conversely, earnings would decline in a rising rate environment. This traditional analysis does not recognize or assume any "lag" in interest rate changes on earning assets and interest-bearing liabilities, and it assumes that all earning assets and interest-bearing liabilities reprice to the same absolute degree, regardless of the mix of earning assets and interest-bearing liabilities. Vintage Bank utilizes a simulation model to assist with asset/liability management that considers the effects of lags and different ranges of interest rate changes among various classes of earning assets and interest-bearing liabilities. Based on the model, Vintage Bank is free of material interest rate risk for the one-year horizon (i.e., the earnings will not change significantly with an increase or decrease in interest rates), as opposed to being liability-sensitive as indicated by this 27 table using traditional GAP analysis. Vintage Bank's capital ratios remained relatively steady during 1998 compared with 1997 levels. As of December 31, 1998 Vintage Bank's total risk-based capital ratio, tier I risk-based capital ratio and leverage ratio were 14.4%, 13.1% and 9.3%, respectively. These compare with ratios of 14.6%, 13.4% and 10.0% as of December 31, 1997. Vintage Bank projects average percentage increases in assets during the next few years to be similar to the return on average equity. Consequently, Vintage Bank is positioned to support projected growth while paying modest cash dividends without negatively impacting capital ratios. In January, 1999, Vintage Bank declared a 5% stock dividend and a $.20 per share cash dividend for shareholders of record as of March 1, 1999. The stock dividend affected Vintage Bank's capital and its capital ratios only to the extent that cash was distributed in lieu of fractional shares. Accordingly, the stock dividend did not materially impact Vintage Bank's overall capital. The cash dividend totaled approximately $290,000, equating to a reduction in Vintage Bank's leverage ratio of approximately .02%. DESCRIPTION OF OPERATIONS Vintage Bank is a California corporation organized as a state chartered bank in 1984. The bank engages in the commercial banking business in Napa County from its main banking office located at 1500 Soscol Avenue, Napa, California. Vintage Bank has two other business locations, one located in the Brown's Valley Shopping Center at 3271 Brown's Valley Road, Napa, California and one at 3626 Bel Aire Plaza, Napa, California. The bank has a remote ATM and night drop services at 629 Factory Stores Drive, Suite B, Napa California and at 6498 Washington Street, Yountville, California. Vintage Bank conducts a commercial banking business, offering a full range of commercial banking services to individuals, businesses and agricultural communities in Napa County. Vintage Bank emphasizes its retail commercial banking operations and accepts checking and savings deposits, issues drafts, sells traveler's checks and provides other customary banking services. 28 BUSINESS North Bay Bancorp North Bay Bancorp, headquartered in Napa, California, became the bank holding company of Vintage Bank on November 1, 1999 through a corporate reorganization. In the reorganization, Vintage Bank became the wholly-owned subsidiary of North Bay and the shareholders of Vintage became shareholders of North Bay. North Bay is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to the regulations of, and examination by, the Board of Governors of the Federal Reserve System. Currently all operations of North Bay are conducted through Vintage Bank. Subject to receipt of regulatory approval and the completion of this offering, North Bay intends to acquire 100% of the outstanding shares of Solano Bank, a proposed California chartered banking corporation to be headquartered in Fairfield, California. Solano Bank (Proposed) North Bay has filed an application with the California Department of Financial Institutions for permission to organize a new state chartered bank in Solano County, California. If approved, Solano Bank will be a member of the Federal Reserve System headquartered in Fairfield, California with branches in Vacaville and Benicia, California. It will be a wholly-owned subsidiary of North Bay. Bank Organization On December __, 1999 an Application for Permission to Organize Solano Bank was filed with the California Commissioner of Financial Institutions. The Commissioner approved the Application on _____________, after completing an investigation to ascertain the matters required by law, including that (a) the proposed bank would promote the public convenience and advantage; (b) the proposed capital structure is adequate; and (c) the conditions in Solano County , along with the experience, ability and standing of the proposed directors and officers, afford a reasonable promise of successful operations. This determination by the Commissioner does not constitute a representation or guarantee by the Commissioner that Solano Bank will be successful. On __________, Solano Bank was incorporated under the laws of the State of California. Since that time, the directors of Solano Bank have been in the process of completing the various steps required to organize Solano Bank and to prepare for it to commence operations during the second quarter of 2000, or as soon thereafter as is practicable. Final licensing of Solano Bank to commence operations is dependent upon compliance with certain conditions and procedures under California law, including completion of the sale of at least _________ shares of the common stock offered for sale in this offering, Solano Bank being granted membership in the Federal Reserve System and obtaining federal deposit insurance. An application for membership in the Federal Reserve System was filed with the Federal Reserve Bank of San Francisco on ____________. An Application for Federal Deposit Insurance was filed with the Federal Deposit Insurance Corporation on _____________. Business of Solano Bank General As of the date of this prospectus, Solano Bank has not conducted or been authorized to conduct a banking business. Upon issuance of a license to conduct a banking business by the Commissioner, Solano Bank will engage in the general commercial banking business, and will accept checking and savings deposits, make commercial, real estate, auto and other installment and term loans, issue drafts, sell travelers' checks and provide other customary banking services, including note collection and safe deposit box rental. Solano Bank anticipates attracting the majority of its loan and deposit business from the residents and numerous small to medium sized businesses and professional firms located in Fairfield, Vacaville, and Benicia, California and nearby communities within Solano County. Solano Bank does not intend to offer international banking or trust services initially or for the foreseeable future, but it will attempt to make such services available to Solano Bank's customers through correspondent institutions. The deposits of Solano Bank will be insured by the FDIC up to applicable limits. Solano Bank will be a member of the Federal Reserve System. Management intends that Solano Bank will provide the highest possible level of personalized service to residents and a full range of banking services for businesses and professional firms located in Fairfield, Vacaville, and Benicia and nearby communities within Solano County. Solano Bank will offer a wide range of deposit accounts including "Money Market Deposit" accounts which require minimum balances and frequency of withdrawal limitations. Other accounts offered by Solano Bank will include certificates of deposit of up to 60 months duration, Individual Retirement Accounts and 29 401(k) an SERP Plans. It is anticipated that Solano Bank will engage in a full range of lending activities, including commercial, consumer/installment and real estate construction loans. It is intended that Solano Bank will direct its commercial lending principally toward businesses whose demands for credit will fall within Solano Bank's lending limit. In the event there are customers whose commercial loan demands exceed Solano Bank 's lending limits, Solano Bank will seek to arrange for such loans on a participation basis with other financial institutions, including Vintage Bank. Solano Bank will offer a variety of consumer loans, including automobile and home equity loans. Solano Bank also anticipates making commercial real estate loans and commercial lines of credit. Solano Bank further intends to provide some specialized services to its customers. These services will include automated teller machines, courier deposit services to key locations or customers throughout Solano Bank's service area, Small Business Administration loans and extended lobby hours. Solano Bank reserves the right to change its business plan at any time and no assurance can be given that, if Solano Bank's proposed business plan is followed, it will prove successful. Premises Solano Bank will operate out of its headquarters office in Fairfield, California and from branches located in Vacaville and Benicia, California. The headquarters office will be located at __________ ________ Street, Fairfield, California. The proposed lease for the building provides for about ________ square feet at a lease cost of $______ per month. The initial lease will be for a period of ___ (_) years , with __ __ (_) year options to extend. Leasehold improvements are not intended to exceed $_______. The Vacaville branch will be located at 403 Davis Street, Vacaville, California. The proposed lease for the building provides for about 5,000 square feet at a lease cost of $5,210 per month. The initial lease will be for a period of five (5) years , with three five (5) year options to extend. Leasehold improvements are not intended to exceed $_______ The Benicia branch will be located at 1395 E. 2nd Street, Benicia, California. The proposed lease for the building provides for about 2,000 square feet at a lease cost of $2,980 per month. The initial lease will be for a period of five (5) years , with three five (5) year options to extend. Leasehold improvements are not intended to exceed $_______ Capital Accounts The initial capitalization of Solano Bank will be $9,000,000 all of which will be provided by North Bay. North Bay's investment will consist of $3,000,000 from funds dividended to North Bay by Vintage Bank and the net proceeds of this offering. The balance will come from financing to be arranged by North Bay from outside sources. After North Bay's investment, Solano Bank will establish accounts for contributed capital and retained earnings. The following chart shows Solano Bank's initial capitalization, assuming organizational expenses to be incurred by Solano Bank do not exceed approximately $_______ and all organizational expenses are charged against Solano Bank's retained earnings account: 30 Contributed Capital - 20,000,000 Shares of Common stock $9,000,000 authorized, no par value, ____________ issued 500,000 Shares of Preferred Stock authorized, no shares issued or outstanding (Accumulated deficit) $ Total Shareholders? Equity $ (1) Does not reflect gain or loss from investment of stock sale proceeds held in the impound account. Vintage Bank Vintage Bank is a California corporation organized as a state chartered bank in 1984. Vintage Bank engages in commercial banking business in Napa County, from its main banking office located at 1500 Soscol Avenue in Napa, California. Vintage Bank has two branches, one located at 3271 Browns Valley Road, Napa, California and the other at 3626 Bel Aire Plaza, Napa, California. Automated teller machines are located at all offices, at the Napa Premium Outlets on Freeway Drive in Napa, and at Ranch Market Too in Yountville, providing 24 hour service. Vintage Bank is a member of the STAR, Interlink and PLUS ATM networks, providing customers with access to Point of Sale and ATM service world-wide. Vintage Bank is a member of the Federal Reserve System. The deposits of each depositor of Vintage Bank are insured by the Federal Deposit Insurance Corporation up to the maximum allowed by law. Vintage Bank offers a full range of commercial banking services to individuals and the business and agricultural communities in Napa County. Vintage Bank emphasizes retail commercial banking operations. Vintage Bank accepts checking and savings deposits, makes consumer, commercial, construction and real estate loans, and provides other customary banking services. Vintage Bank does not offer trust services and does not plan to do so in the near future. There have been no material changes in services offered by Vintage Bank during the past fiscal year. Commencing in early 1993, Vintage Bank made annuities and mutual funds available to its customers through an unaffiliated corporation, Protective Financial and Insurance Services, Inc. These products are currently being offered through Protective Financial and one of its affiliates, ProEquities, Inc. Under a contractual arrangement, a licensed bank employee appointed and supervised by Protective Financial and ProEquities handles all annuity and mutual fund sales. At this time, Vintage Bank does not offer internet banking; however, it is currently testing an internet banking product which it intends to offer to its customers in early 2000. The system will support account inquiries, transfers between accounts, and automatic reconciliation and bill payment services. Lending Activities Vintage Bank concentrates its lending activities in commercial, installment, construction, and real estate loans made primarily to businesses and individuals located in Napa County. At December 31, 1998, Vintage Bank had total loans outstanding of $96,526,870 resulting in a loan-to-deposit ratio of 59.5%. At September 30, 1999, total loans outstanding were $117,224,456 resulting in a loan to deposit ratio of 67.5%. As of September 30, 1999, Vintage Bank's loan limits to individual customers were $2,876,281 for unsecured loans and $4,793,802 for unsecured and secured loans combined. As of December 31, 1998, Vintage Bank's lending limits were $2,799,259 for unsecured loans and $4,665,431 for unsecured and secured loans combined. For customers desiring loans in excess of Vintage Bank's lending limits, Vintage Bank may loan on a participation basis with another bank taking the amount of the loan in excess of Vintage Bank's lending limits. At September 30, 1999, Vintage Bank's commercial loans outstanding totaled $19,132,280 (16.3% of total loans), real estate-secured commercial loans totaled $11,250,476 (9.6% of total loans), construction loans totaled $8,318,628 (7.1% of the total loans), real estate loans totaled $58,041,316 (49.5% of total loans), and installment loans totaled $20,481,756 (17.5% of total loans). At December 31, 1998, commercial loans outstanding totaled $14,410,117 (14.9%) of total loans), real estate-secured commercial loans totaled $6,062,585 (6.3% of total loans), construction loans totaled $5,950,207 (6.2% of total loans), real estate loans totaled $51,643,406 (53.5% of total loans) and installment loans totaled $18,460,555 (19.1% of total loans). At December 31, 1997, commercial loans outstanding totaled $16,458,361 (19.9% of total loans), real estate-secured commercial loans totaled $9,610,793 (11.7% of total loans), construction loans totaled $6,446,381 (7.8% of the total loans), real estate loans totaled $34,089,199 (41.3% of total loans), and installment loans totaled $15,918,156 (19.3% of total loans). 31 As of September 30, 1999, the total of undisbursed loans and similar commitments was $38,941,000 as contrasted with $29,548,000 as of December 31, 1998 and $23,549,000 as of December 31, 1997. Within the current year Vintage Bank expects all but approximately $1,629,000 of its undisbursed loans and similar commitments to be exercised. Vintage Bank takes real estate, listed securities, savings and time deposits, automobiles, machinery and equipment, inventory and accounts receivable as collateral for loans. The interest rates charged for the various loans made by Vintage Bank vary with the degree of risk and the size and maturity of the loans involved and are generally affected by competition and by current money market rates. Commercial Loans Vintage Bank makes commercial loans primarily to professionals, individuals and businesses in the City of Napa. Vintage Bank offers a variety of commercial lending products, including revolving lines of credit, working capital loans, equipment financing and issuance of letters of credit. Typically, lines of credit have a floating rate of interest based on Vintage Bank's Base Rate and are for a term of one year or less. Working capital and equipment loans have a floating or a fixed rate typically with a term of five years or less. Approximately 63% of Vintage Bank's commercial loans are unsecured or secured by personal property and, therefore, represent a higher risk of ultimate loss than loans secured by real estate. However, as a result of the lending policies and procedures implemented by Vintage Bank, management believes it has adequate commercial loan underwriting and review procedures in place to manage the risks inherent in commercial lending. In addition, commercial loans not secured by real estate typically require higher quality credit characteristics to meet underwriting requirements. The remaining 37% of Vintage Bank's commercial loans are secured by real estate. Real Estate Loans Real estate loans consist of loans secured by deeds of trust on residential and commercial properties. The purpose of these loans is to purchase real estate or refinance an existing real estate loan, as compared with real estate secured commercial loans, which have a commercial purpose unrelated to the purchase or refinance of the real estate taken as collateral. Vintage Bank's real estate loans bear interest at rates ranging from 6.00% to 12.00% and have maturities of thirty years or less. Vintage Bank established a Mortgage Loan Department in 1987 for the purpose of originating and servicing residential mortgage loans. Most of the residential mortgage loans originated by Vintage Bank's Mortgage Loan Department are sold to institutional investors according to their guidelines. Servicing of these loans is not retained by Vintage Bank, but Vintage Bank receives a loan fee. Prior to 1995, Vintage Bank sold the major portion of its residential real estate loans to the Federal Home Loan Mortgage Corporation commonly referred to as Freddie Mac with servicing retained by Vintage Bank. No loans were sold to Freddie Mac in 1998 or 1997. As of September 30, 1999, Vintage Bank's residential mortgage loan portfolio was $18,847,726 of which $7,060,141 constitutes loans sold to Freddie Mac and serviced by Vintage Bank. As of December 31, 1998, Vintage Bank's residential mortgage loan portfolio was $19,688,857 of which $8,204,694 constituted loans sold to Freddie Mac and serviced by Vintage Bank. Real Estate Construction Loans Vintage Bank makes loans to finance the construction of commercial, industrial and residential projects and to finance land development. The majority of Vintage Bank's construction loans were made to finance the construction of residential projects. Vintage Bank's construction loans typically have maturities of less than one year, have a floating rate of interest based on Vintage Bank's base rate and are secured by first deeds of trust. Generally, Vintage Bank does not extend credit in an amount greater than 50% of the appraised value of the real estate securing land and land development loans, or in an amount greater than 70% of the appraised value of the real estate securing non-owner occupied residential construction loans and commercial construction loans, or 75% of the appraised value in the case of owner occupied residential construction loans. Commercial loans secured by real estate normally comply with these same guidelines. Historically, Vintage Bank has maintained a significant percentage of its loans in real estate construction loans. As of September 30, 1999, 7.1% of the total loan portfolio was represented by construction and land development loans, compared with 6.3% as of December 31, 1998 and 7.8% as of December 31, 1997 and higher concentrations in the previous three years. This decline in concentration reflects relatively low residential construction activity in Vintage Bank's market area. Should demand for new residences and residential construction activity in Vintage Bank's market area increase, as many predict, management expects the percentage of loans represented by construction and land development loans to increase significantly. 32 Installment Loans Installment loans are made to individuals for household, family and other personal expenditures. These loans typically have fixed rates and have maturities of five years or less. Lending Policies and Procedures Vintage Bank's lending policies and procedures are established by senior management of Vintage Bank and are approved by Vintage Bank's Board of Directors. Vintage Bank's Board of Directors has established internal procedures which limit loan approval authority of its loan officers. The Board of Directors has delegated some lending authority to executive and loan officers and an internal loan committee consisting of two executive officers and selected loan officers. The Directors' Loan Committee must approve all new loans and loan renewals in excess of specified amounts. This includes any loan in excess of $300,000 if secured by a residential first deed of trust or $150,000 if secured by a commercial first deed of trust, $200,000 if secured by a second deed of trust, $100,000 if secured by readily marketable securities and $50,000 if unsecured or secured by equipment, receivables, inventory, or other personal property. Further, any loan not substantially conforming to Vintage Bank's written loan policy must be approved by the Directors' Loan Committee. Loans to directors and executive officers of Vintage Bank or their affiliates must be approved in all instances by a majority of the Board of Directors. In accordance with law, directors and officers are not permitted to participate in the discussion of or to vote on loans made to them or their related interests. In addition, loans to directors and officers must be made on substantially the same terms, including interest rates and collateral requirements, as those prevailing for comparable transactions with other nonaffiliated persons at the time each loan was made, subject to the limitations and other provisions in California and Federal law. These loans also must not involve more than the normal risk of collectibility or present other unfavorable features. Deposits Napa County south of Oak Knoll Avenue constitutes Vintage Bank's primary service area and most of Vintage Bank's deposits are attracted from the Napa area. No material portion of Vintage Bank's deposits has been obtained from a single person or a few persons, the loss of any one or more of which have a material effect on the business of Vintage Bank. Total deposits as of September 30, 1999 were $173,595,824. Total deposits as of December 31, 1998 were $163,380,519. Vintage Bank offers a courier service in the North Napa County area, including Yountville and St. Helena and throughout the City of Napa and Southern Napa County. Management anticipates that this courier service will increase deposits from north of Vintage Bank's current primary market area. Business Hours In order to attract loan and deposit business, Vintage Bank maintains lobby hours at its Main Office between 9:00 a.m. and 5:00 p.m. Monday through Thursday, between 9:00 a.m. and 6:00 p.m. on Friday, and between 9:00 a.m. and 1:00 p.m. on Saturday. Drive-up hours are between 8:00 a.m. and 6:00 p.m. Monday through Friday, and between 9:00 a.m. and 1:00 p.m. on Saturday. Both branch offices are open between 9:00 a.m. and 5:00 p.m. Monday through Thursday, between 9:00 a.m. and 6:00 p.m. on Friday, and between 9:00 a.m. and 1:00 p.m. on Saturday. Employees At September 30, 1999, Vintage Bank employed ninety (90) persons, nineteen (19) of whom are part-time employees, including six (6) executive officers and eighteen (18) other officers. At December 31, 1998, Vintage Bank employed eighty seven (87) persons, eighteen (18) of whom are part-time employees, including five (5) executive officers and sixteen (16) other officers. None of Vintage Bank's employees are presently represented by a union or covered under a collective bargaining agreement. Management of Vintage Bank believes its employee relations are excellent. 33 The following table sets forth a summary of the changes in interest earned and interest paid in September 30, 1999 over 1998 and December 31, 1998 1998 over 1997 and December 31, 1997 over 1996 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.
September 30, 1999 Over 1998 (annualized) 1998 over 1997 1997 Over 1996 ----------------------------------------- --------------- -------------- Volume Rate Total Volume Rate Total Volume Rate Total -------------------------------------------------------------------------------------------------------- Increase (Decrease) In Interest and Fee Income Time Deposits With Other Financial Institutions ($3,444) ($26) ($3,470) $0 $0 $0 ($425) ($271) ($696) Investment Securities: Taxable 633,064 120,765 753,829 378,506 415,865 (88,073) 327,792 81,119 408,911 Non-Taxable (1) 223,938 5,545 229,483 (37,715) 465,084 (137,323) 327,761 550 328,311 Federal Funds Sold (342,496) 38,658 (303,838) (427,477) 402,402 (83,843) 318,559 (33,027) 285,532 Loans 1,583,597 (1,242,444) 341,153 1,353,509 958,643 (31,074) 927,569 (391,740) 535,829 -------------------------------------------------------------------------------------------------------- Total Interest and Fee Income 2,094,659 (1,077,502) 1,017,157 1,266,823 2,241,994 (340,738) 1,901,256 (343,369) 1,557,887 -------------------------------------------------------------------------------------------------------- Increase (Decrease) In Interest Expense Deposits: Interest Bearing Transaction Accounts 228,834 3,020 231,854 58,580 284,084 225,440 509,524 (15,713) 493,811 Savings 41,744 6,553 48,297 22,458 19,594 (27,572) (7,978) (10,825) (18,803) Time Deposits 93,619 (307,095) (213,476) 181,737 346,214 28,801 375,015 16,037 391,052 -------------------------------------------------------------------------------------------------------- Total Deposits 364,197 (297,522) 66,675 262,775 649,892 226,669 876,561 (10,501) 866,060 Short-term Borrowings 0 169,395 169,395 (65,019) (26,240) 0 (26,240) (27,367) (53,607) -------------------------------------------------------------------------------------------------------- Total Interest Expense 364,197 (128,127) 236,070 197,756 623,652 226,669 850,321 (37,868) 812,453 -------------------------------------------------------------------------------------------------------- Net Interest Income $1,730,462 ($949,375) $781,087 $1,069,067 $1,618,342 ($567,407) $1,050,935 ($305,501) $745,434 ======================================================================================================== (1) The interest earned is taxable-equivalent. On a non-taxable basis, 1998 interest income was $248,666 more than in 1997. In 1997, on-taxable interest income was $28,984 less than in 1996. Through September 30, 1999, on an annualized basis, non-taxable interest income was $188,94 more than for the same period in 1998..
Investment Securities The following tables show the book value of investment securities as of September 30, 1999 and December 31, 1998 and 1997.
Book Value as of September 30, 1999 -------------------------------------- Held to Maturity Available-for-Sale ---------------- ------------------ Securities of the U. S. Treasury and Government Agencies $ 0 $11,498,056 Mortgage Backed Securities 0 21,063,101 Equity Securities 0 857,000 Municipal Securities 13,389,964 12,546,014 Corporate Debt Securities 0 11,986,000 ----------- ----------- $13,389,964 $57,950,171 =========== ===========
34
Book Value as of December 31, 1998 --------------------------------------- Held to Maturity Available-for-Sale ---------------- ------------------ Securities of the U. S. Treasury and Government Agencies $ 0 $11,703,432 Mortgage Backed Securities 0 23,572,792 Equity Securities 0 777,200 Municipal Securities 13,512,384 0 Corporate Debt Securities 0 12,452,234 ----------- ----------- $13,512,384 $48,505,658 =========== ===========
Book Value as of December 31, 1997 --------------------------------------- Held to Maturity Available-for-Sale ---------------- ------------------ Securities of the U. S. Treasury and Government Agencies $ 0 $7,588,574 Mortgage Backed Securities 0 18,536,012 Equity Securities 0 688,400 Municipal Securities 4,017,714 0 Corporate Debt Securities 0 8,736,291 ---------- ----------- $4,017,714 $35,549,277 ========== ===========
35 The following table is a summary of the maturities and weighted average yields of investment securities as of September 30, 1999 and December 31, 1998
MATURITY AND WEIGHTED AVERAGE YIELD OF INVESTMENT SECURITIES AS OF SEPTEMBER 30, 1999 AFTER ONE AFTER FIVE IN ONE YEAR THROUGH THROUGH AFTER OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL ------------------------------------------------------------------------------------------------ AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AVAILABLE FOR SALE SECURITIES: Securities of the US Treasury and other US Government Agencies $4,019,770 6.29% $ 7,478,286 5.26% $0 0.00% $0 0.00% $11,498,056 5.62% Mortgage-Backed Securities (2) 0 0.00% 1,031,750 6.70% 296,034 6.66% 19,735,317 6.56% 21,063,101 6.57% Equity Securities 0 0.00% 0 0.00% 0 0.00% 857,000 5.65% 857,000 5.65% Municipal Securities (1) 132,055 9.18% 1,501,273 7.73% 4,912,712 6.48% 5,999,974 6.64% 12,546,014 6.73% Corporate Debt Securities 2,071,574 6.78% 5,061,583 5.98% 1,972,040 6.01% 2,880,803 6.56% 11,986,000 6.26% ---------- ----- ----------- ----- --------- ----- --------- ----- ----------- ------ TOTAL $6,223,399 6.51% $15,072,892 5.85% $7,180,786 6.36% $29,473,094 6.55% $57,950,171 6.33% HELD TO MATURITY SECURITIES: Municipal Securities (1) $0 0.00% $0 0.00% $0 6.56% $1,389,964 8.58% $1,389,964 8.58% -- ----- -- ----- -- ----- ---------- ----- ----------- ------ TOTAL $0 0.00% $0 7.75% $0 8.74% $1,389,964 7.55% $1,389,964 8.58%
36
MATURITY AND WEIGHTED AVERAGE YIELD OF INVESTMENT SECURITIES AS OF DECEMBER 31, 1998 AFTER ONE AFTER FIVE IN ONE YEAR THROUGH THROUGH AFTER OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL ------------------------------------------------------------------------------------------------ AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AVAILABLE FOR SALE SECURITIES: Securities of the US Treasury and otherUS Government Agencies $2,029,688 6.31% $ 9,673,744 5.79% $0 0.00% $0 0.00% $11,703,432 5.88% Mortgage-Backed Securities (2) 0 0.00% 1,627,649 6.74% 666,154 6.41% 21,278,989 6.64% 23,572,792 6.64% Equity Securities 0 0.00% 0 0.00% 0 0.00% 777,200 5.66% 777,200 5.66% Corporate Debt Securities 1,499,700 5.29% 6,364,305 6.29% 1,034,590 6.19% 3,553,639 6.61% 12,452,234 6.25% ---------- ----- ----------- ----- --------- ----- --------- ----- ----------- ------ TOTAL $3,529,388 5.88% $17,665,698 6.06% $1,700,744 6.28% $25,609,828 6.61% $48,505,658 6.34% HELD TO MATURITY SECURITIES: Municipal Securities (1) $0 0.00% $ 1,513,655 8.13% $4,839,580 6.56% $7,159,149 6.67% $13,512,384 6.79% -- ----- ----------- ----- ---------- ----- ---------- ----- ------------ ----- TOTAL $0 0.00% $ 1,513,655 7.75% $4,839,580 8.74% $7,159,149 7.55% $13,512,384 6.79% (1) Yields shown are taxable-equivalent. (2) The maturity of mortgage-backed securities are based on contractual maturity. The average expected life is approximately four and one half years.
37 LOAN PORTFOLIO Composition of Loans The following table shows the composition of loans as of September 30, 1999 and December 31, 1998 and 1997.
September 30, 1999 1998 1997 --------------------------------------------------- Commercial Loans $ 19,132,280 $ 14,410,117 $ 16,458,361 Commercial Loans Secured by Real Estate 11,250,476 6,062,585 9,610,793 Installment Loans 20,481,756 18,460,555 15,918,156 Real Estate Loans 58,041,316 51,643,406 34,089,199 Construction Loans 8,318,628 5,950,207 6,446,381 --------------------------------------------------- 117,224,456 96,526,870 82,522,890 Less - Allowance for Loan Losses 1,939,818 1,751,693 1,532,128 --------------------------------------------------- $115,284,638 $ 94,775,177 $ 80,990,762 ===================================================
Maturity, Distribution, and Interest Rate Sensitivity of Loans The following table shows maturity distribution of loans and sensitivity to changes in interest rates as of December 31, 1998.
AFTER ONE IN ONE YEAR OR THROUGH AFTER LESS FIVE YEARS FIVE YEARS TOTAL ---------------------------------------------------------------- Commercial (Including Real Estate Secured) $ 7,858,123 $ 8,937,976 $ 3,676,603 $ 20,472,702 Installment 14,621,340 2,859,787 979,428 18,460,555 Real Estate 4,743,037 16,997,897 29,902,472 51,643,406 Construction 3,938,274 629,543 1,382,390 5,950,207 ---------------------------------------------------------------- $ 31,160,774 $ 29,425,203 $ 35,940,893 $ 96,526,870 =============================================================== Sensitivity To Changes in Interest Rates: Loans With Fixed Interest Rates $ 9,163,727 $ 21,961,090 $ 26,125,581 $ 57,250,398 Loans With Floating Interest Rates 21,997,048 7,464,113 9,815,311 39,276,472 ---------------------------------------------------------------- $ 31,160,775 $ 29,425,203 $ 35,940,892 $ 96,526,870 =============================================================== The following table shows maturity sensitivity to changes in interest rates as of September 30, 1999 Loans With Fixed Interest Rates $ 7,276,100 $ 25,717,400 $ 37,249,062 $ 70,242,562 Loans With Floating Interest Rates 43,928,813 3,053,081 0 46,981,894 ---------------------------------------------------------------- $ 51,204,913 $ 28,770,481 $ 37,249,062 $117,224,456 ===============================================================
38 Nonaccrual, Past Due and Restructured Loans Nonaccrual loans were $12,648 as of September 30, 1999 and $88,694 and $466,051 as of year-end 1998 and 1997 respectively. Vintage Bank held no OREO at September 30, 1999 or at year-end 1998 or 1997. Loans are placed on a nonaccrual basis and any accrued but unpaid interest income is reversed and charged against income when interest or principal is 90 days or more past due, except when loans are well secured and in the process of collection. There were no loans accruing interest 90 days past due as of September 30, 1999 or December 31, 1998 or 1997. Vintage Bank believes its procedures for administering and reviewing its loan portfolio are effective in identifying loans where significant repayment problems exist. There are no loans upon which principal and interest payments were current at September 30, 1999 and with respect to which serious doubt existed as to the ability of the borrower to comply with the present loan payment terms. 39 Summary of Loan Loss Experience The following table provides a summary of Vintage Bank's loan loss experience as of September 30, 1999 and December 31, 1998 and 1997.
December 31, September 30, 1999 1998 1997 ------------------ ---- ---- Average loans for the period $ 105,663,517 $ 89,057,414 $ 78,975,833 Loans outstanding at end of period 117,224,456 96,526,870 82,522,890 Allowance for Loan Losses Balance, beginning of period 1,751,693 1,532,128 1,474,437 Less loans charged off: Real Estate loans -0- 7,300 155,079 Commercial loans -0- 38,030 35.806 Installment loans 11,194 13,880 5,018 ------------- ------------- ------------- Total loans charged off 11,194 59,210 195,903 Recoveries: Real Estate loans -0- 700 800 Commercial loans 6,617 36,592 12,365 Installment loans 12,702 1,483 429 ------------- ------------- ------------- Total recoveries 19,319 38,775 13,594 Net loans charged off (8,125) 20,435 182,309 (recovered) Provision for loan losses 180,000 240,000 240,000 ------------- ------------- ------------- Balance, end of period $ 1,939,818 $ 1,751,693 $ 1,532,128 ============= ============= ============= Net loans charged off to average loans by types: Real Estate loans -0- .007% .195% Commercial loans -0- .002% .030% Installment loans .055% .014% .006% Net losses to average loans outstanding .011% .023% .231%
In evaluating the allowance for loan losses, Vintage Bank considers such factors as: o historical loan loss experience, o the projected size and composition of the loan portfolio, o other economic conditions and their impact on specific industries and individual borrowers, evaluation of the collateral for secured loans, and o levels of loans classified by bank regulators and Vintage Bank's internal classification system. Loans are charged to the allowance for loan losses when the loans are deemed uncollectible within a reasonable time period. It is the policy of management to make additions to the allowance for loan losses so that it remains adequate to cover all anticipated loan charge-offs that exist in the portfolio at that time. Vintage Bank does not make an allocation of the allowance for loan losses by type of loan in the portfolio. 40 TIME DEPOSITS The following table sets forth the maturity of time certificates of deposit of $100,000 or more at September 30, 1999 and December 31, 1998 and 1997.
December 31, ------------ September 30, 1999 1998 1997 ------------------ ---- ---- 3 Months or Less $ 6,116,239 32% $ 8,177,036 46.9% $ 7,258,193 49.2% Over 3 through 6 Months 9,613,138 50% 5,514,648 31.6% 4,330,679 29.3% Over 6 Months through 12 Months 2,031,606 11% 2,279,043 13.1% 1,930,251 13.1% Over 12 Months 1,382,683 7% 1.472,686 8.4% 1,246,253 8.4% ----------- ----- ----------- ----- ----------- ----- $19,143,666 100% $17,443,413 100% $14,765,376 100% =========== ===== =========== ===== =========== =====
SHORT TERM BORROWINGS As of September 30, 1999, Vintage Bank has borrowed funds from the Federal Home Loan Bank of San Francisco on the following terms;: Borrowings Rate Due $2,900,000 5.46% January 18, 2000 2,100,000 5.50% January 18, 2000 RETURN ON EQUITY AND ASSETS The following sets forth key ratios for the periods ending September 30, 1999 and December 31, 1998 and 1997. September 30, December 31, ------------- ------------ 1999 (1) 1998 1997 -------- ---- ---- Net Income as a Percentage of Average Assets 1.44% 1.29% 1.39% Net Income as a Percentage of Average Equity 15.50% 13.45% 14.17% Average Equity as a Percentage of Average Assets 9.45% 9.59% 9.81% Dividends Declared Per Share as a Percentage of Net Income Per share 0% 14.18% 14.71% (1) Annualized Properties Vintage Bank's main office is located in a two-story building at 1500 Soscol Avenue, Napa, California. The real property on which the building is located was acquired by Vintage Bank in 1988, and construction of the building was completed in 1989. In 1993 an additional 2,500 square feet of previously unoccupied space in the Main Office was remodeled, thereby increasing usable space from approximately 7,500 to 10,000 square feet. The real property 41 and all improvements at the Main Office are owned by Vintage Bank. In January, 1996 Vintage Bank purchased approximately 11,000 square feet of land adjacent to the Main Office to facilitate expansion of Vintage Bank's motor banking facility. The land was purchased at a cost of $87,375. The expanded autobanking facility was completed in June, 1996 at a cost of $345,000 including related equipment purchases. Vintage Bank leases the premises for its Browns Valley Office, consisting of approximately 2,000 square feet, located at 3271 Browns Valley Road, Napa, California. The lease commenced on October 22, 1990 for a term of five years, with three successive options to renew for five years each. To exercise an option, the lease requires three months prior notice of the bank's intent to renew. The lease was renewed for an additional five years in October, 1995. Rent is subject to adjustment in accordance with increases in the Consumer Price Index. Effective January 1, 1996, the lease rate was $3,207 per month. By the terms of the lease Vintage Bank is required to (i) maintain and repair the leased premises, (ii) maintain combined single limit, bodily injury and property damage insurance, and (iii) pay its prorata share of real property taxes and common area maintenance expenses. Vintage Bank leases the premises for its Bel Aire Shopping Center Office, consisting of approximately 5,850 square feet, located at 3626 Bel Aire Plaza, Napa, California. The lease term commenced on January 1, 1997, for a term of ten years, with two successive options to renew for five years each upon at least 180 days' notice. Monthly rental was fixed at $5,850 per month for the first year of the term of the lease. Thereafter rent is subject to adjustment in accordance with a schedule for the second through the sixth year on the terms set forth in the lease and thereafter in accordance with increases in the Consumer Price Index. By the terms of the lease Vintage Bank is required to: o maintain and repair the leased premises; o pay for all utilities used; o maintain public liability insurance; o pay its prorata share of common area maintenance; and o pay its prorata share of all real property taxes assessed against the shopping center. Effective April 1, 1995, Vintage Bank entered into a five year license agreement with Chelsea GCA Realty Partnership, L.P., a Delaware limited partnership, for the installation and operation of an automatic teller machine (ATM) and a vaulted deposit drop box at the Napa Factory Outlet Stores. Vintage Bank pays a monthly license fee equal to the greater of $200 per month or one hundred dollars ($100) for each set of one thousand (1,000) ATM transactions. Vintage also maintains a loan production office at 1300 Oliver Road, Suite 180, Fairfield, California. Vintage Bank owns certain leasehold improvements and furniture, fixtures and equipment located at its offices, all of which are used in the banking business. Legal Proceedings Vintage Bank is not a party to, nor is any of its property the subject of, any material pending legal proceedings other than ordinary, routine litigation incidental to Vintage Bank's business, nor are any of such proceedings known to be contemplated by government authority. No director, officer, affiliate, more than 5% shareholder of Vintage Bank or any associate of these persons is a party adverse to Vintage Bank or has a material interest adverse to Vintage Bank in any material legal proceeding. 42 COMPETITION As of December 31, 1998, the Napa area contained twenty six (26) competitive banking offices (including Vintage Bank), four (4) offices of savings banks and savings and loan associations and five (5) offices of credit unions. As of December 31, 1998, Fairfield contained _______ (__) competitive banking, _____(_) offices of savings banks and savings and loan associations and ____ (_) offices of credit unions; Vacaville contained _______ (__) competitive banking, _____(_) offices of savings banks and savings and loan associations and ____ (_) offices of credit unions; and Benicia contained _______ (__) competitive banking, _____(_) offices of savings banks and savings and loan associations and ____ (_) offices of credit unions;. Vintage Bank relies, and Solano Bank will rely, substantially on local promotional activity, personal contacts by its officers, directors and employees, referrals by its customers and shareholders, personalized service and its reputation in the communities it serves to compete effectively. The banking business in California, including Vintage Bank's primary service area, and Solano Bank's proposed primary service area, is highly competitive with respect to both loans and deposits and is dominated by major banks with billions of dollars in deposits and extensive branch systems over a wide geographic area within California. These major banks offer certain services (such as trust, investment, interstate and international bank services) which Vintage Bank does not, and Solano Bank will not, offer directly. By virtue of their higher total capitalization, the major banks have substantially higher lending limits than Vintage Bank has and Solano Bank will have. Further, Vintage Bank competes directly with one other community bank, Napa National Bank. On November 19. 1999, Napa National announced its acquisition, by Wells Fargo Bank to be completed during the first quarter of 2000, subject to satisfaction of conditions. A sale of Napa Valley Bank to WestAmerica Bancorp, consummated in 1993, contributed to Vintage Bank's growth in 1993 and 1994. Vintage Bank's broad community ownership, low employee turnover and emphasis on personalized and prompt service contributed to Vintage Bank's deposit growth in 1998 and these attributes are expected to support continued growth of Vintage Bank. Vintage Bank competes, and Solano Bank will compete, directly with respect to loan business with other commercial banks, savings and loan associations and other financial institutions, including finance companies, insurance companies, mortgage companies, pension funds, credit unions and other consumer and commercial lenders doing business in Napa County. As of December 31, 1998, Vintage Bank held an estimated ___% of the total bank deposits in its primary market. From time to time, legislation is proposed or enacted which has the effect of increasing the cost of doing business, limiting permissible activities or affecting the competitive balance between banks and other financial institutions. The recent enactment of interstate banking in California and the more recent elimination of statutory barriers separating the banking, insurance and securities industries provide further competition for North Bay, Vintage Bank and Solano Bank. It is difficult to predict the competitive impact these and other changes in legislation will have on commercial banking in general or on the businesses of North Bay and the Banks in particular. See "Supervision and Regulation." 43 SUPERVISION AND REGULATION North Bay North Bay, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956, as amended, and is registered with and subject to the supervision of the Board of Governors of the Federal Reserve System. It is the policy of the Federal Reserve that each bank holding company serve as a source of financial and managerial strength to its subsidiary banks. The Federal Reserve has the authority to examine North Bay and the Banks. The Bank Holding Company Act requires North Bay to obtain the prior approval of the Federal Reserve before acquisition of all or substantially all of the assets of any bank or ownership or control of the voting shares of any bank if, after giving effect to such acquisition, North Bay would own or control, directly or indirectly, more than 5% of the voting shares of such bank. However, recent amendments to the Bank Holding Company Act expand the circumstances under which a bank holding company may acquire control of or all or substantially all of the assets of a bank located outside the State of California. North Bay may not engage in any business other than managing or controlling banks or furnishing services to its subsidiaries, with the exception of certain activities which, in the opinion of the Federal Reserve, are so closely related to banking or to managing or controlling banks as to be incidental to banking. North Bay is also generally prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company unless that company is engaged in such activities and unless the Federal Reserve approves the acquisition. North Bay and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or provision of services. For example, with certain exceptions, the Banks may not condition an extension of credit on a customer obtaining other services provided by it, North Bay or any other subsidiary, or on a promise by the customer not to obtain other services from a competitor. In addition, federal law imposes certain restrictions on transactions between the Banks and their affiliates. As affiliates, the Banks and North Bay are subject, with certain exceptions, to the provisions of federal law imposing limitations on and requiring collateral for loans by the Bank to any affiliate. The Banks As a California state-licensed bank, Vintage Bank is subject, and Solano Bank will be subject, to regulation, supervision and periodic examination by the California Department of Financial Institutions. Vintage Bank also is, and Solano bank will be, a member of the Federal Reserve System. Member banks are subject to regulation, supervision and periodic examination by the Board of Governors of the Federal Reserve System. Vintage Bank's deposits are, and Solano Bank's deposits will be, insured by the Federal Deposit Insurance Corporation to the maximum amount permitted by law, which is currently $100,000 per depositor in most cases. Insured banks are subject to FDIC regulations applicable to all insured institutions. The regulations of these state and federal bank regulatory agencies govern most aspects of each of the Bank's businesses and operations, including but not limited to, the scope of its business, its investments, its reserves against deposits, the nature and amount of any collateral for loans, the timing of availability of deposited funds, the issuance of securities, the payment of dividends, bank expansion and bank activities, including real estate development and insurance activities, and the maximum rates of interest allowed on certain deposits. The Banks are also subject to the requirements and restrictions of various consumer laws and regulations. Payment of Dividends North Bay The shareholders of North Bay are entitled to receive dividends when and as declared by its Board of Directors, out of funds legally available, subject to the dividends preference, if any, on preferred shares that may be outstanding and also subject to the restrictions of the California Corporations Code. At September 30, 1999, North Bay had no outstanding shares of preferred stock. 44 The principal sources of cash revenue to North Bay will be dividends and management fees received from Vintage Bank and Solano Bank. The Banks' ability to make dividend payments to North Bay is subject to state and federal regulatory restrictions. The Banks Under state law, the Board of Directors of a California state chartered bank may declare a cash dividend, subject to the restriction that the amount available for the payment of cash dividends is limited to the lesser of the bank's retained earnings, or the bank's net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the Commissioner of Financial Institutions, to the greater of the retained earnings of the bank, the net income of the bank for its last fiscal year or the net income of the bank for its current fiscal year. Federal Reserve regulations also govern the payment of dividends by a state member bank. Under Federal Reserve regulations, dividends may not be paid unless both capital and earnings limitations have been met. First, no dividend may be paid if it would result in a withdrawal of capital or exceed the member bank's net profits then on hand, after deducting its losses and bad debts. Exceptions to this limitation are available only upon the prior approval of the Federal Reserve and the approval of two-thirds of the member bank's shareholders. Second, a state member bank may not pay a dividend without the prior written approval of the Federal Reserve if the total of all dividends declared in one year exceeds the total of net profits for that year plus the preceding two calendar years, less any required transfers to surplus under state or federal law. The Federal Reserve has broad authority to prohibit a bank from engaging in banking practices which it considers to be unsafe or unsound. It is possible, depending upon the financial condition of the bank in question and other factors, that the Federal Reserve may assert that the payment of dividends or other payments by a member bank is considered an unsafe or unsound banking practice and therefore, implement corrective action to address such a practice. Accordingly, the future payment of cash dividends by Vintage Bank or Solano Bank to North Bay will generally depend not only on the Banks' earnings during any fiscal period but also on the Banks' meeting certain capital requirements and the maintenance of adequate allowances for loan and lease losses. Impact of Monetary Policies The earnings and growth of Vintage Bank and Solano Bank are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment. The earnings of the Banks are affected not only by general economic conditions but also by the monetary and fiscal policies of the United States and federal agencies, particularly the Federal Reserve. The Federal Reserve can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in United States Government securities and by its control of the discount rates applicable to borrowings by banks from the Federal Reserve System. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and affect the interest rates charged on loans and paid on deposits. As demonstrated recently by the Federal Reserve's actions regarding interest rates, its policies have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future. The nature and timing of any future changes in monetary policies are not predictable. Recent and Proposed Legislation The operations of North Bay and the Banks are subject to extensive regulation by federal, state, and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of their respective operations. North Bay believes that it is in substantial compliance in all material respects with applicable federal, state, and local laws, rules and regulations. Because the business of North Bay and the Banks is highly regulated, the laws, rules and regulations applicable to each of them are subject to regular modification and change. 45 From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory agencies. Most recently, President Clinton signed into law the Gramm-Leach-Bliley Act. This legislation eliminates many of the barriers that have separated the insurance, securities and banking industries since the Great Depression. As a result, these three industries may more freely compete with each other. The likelihood of any major change and the impact such change may have on North Bay and the Banks is impossible to predict. 46 MANAGEMENT Directors The Bylaws of North Bay authorize not less than six (6) nor more than eleven (11) directors with the exact number within that range to be fixed by resolution of the Board of Directors. The number of directors of North Bay has been fixed at eight (8) and the following persons currently serve as directors: David B. Gaw Conrad W. Hewitt Harlan R. Kurtz Richard S. Long Thomas H. Lowenstein Thomas F. Malloy Terry L. Robinson James E. Tidgewell Each director was elected to serve as a director of North Bay until the year 2000 annual meeting of shareholders of North Bay and until his successor is elected and qualified. Executive Officers The following officers of Vintage Bank have been appointed as the initial officers of North Bay:
Position Held Position Held Name With Vintage Bank with North Bay - ---- ----------------- -------------- Thomas F. Malloy....................... Chairman of the Board Chairman of the Board Terry L. Robinson...................... President, Chief Executive President and Chief Executive Officer Officer Kathi Metro........................ Executive Vice President and Executive Vice President and Credit Senior Loan Officer Administrator Lee-Ann Almeida.................. Vice President and Chief Vice President and Chief Financial Financial Officer Officer Wyman G. Smith III..................... Corporate Secretary Corporate Secretary
Information is provided below regarding the individual directors and executive officers of North Bay and Vintage Bank, each of whom serves on an annual basis. Executive officers must be selected by the Board of Directors annually as required by the bylaws of North Bay. As used throughout the prospectus, the term "Executive Officer" means the President, Executive Vice President/Senior Loan Officer, Executive Vice President/Credit Administrator, Vice President/Loan Officer, Vice President/Operations, Vice President/Chief Financial Officer and Vice President/Marketing. The ages stated are as of December 31, 1999. Lee-Ann Almeida, age 35, is Vice President and Chief Financial Officer of North Bay and Vintage Bank and has been employed by the Bank since 1987. Prior to becoming employed by the Bank, Ms. Almeida served as Operations Manager for Lamorinda National Bank. Ms. Almeida is past treasurer of the Napa Valley D.A.R.E. Foundation and a member of the board of directors of the Banker Executive Council of Northern California and of the Napa Valley Safe School Foundation. Sandra H. Funseth, age 58, has served as a Director of Vintage Bank and has devoted a substantial amount of her time serving on the Bank's Marketing Committee. Mrs. Funseth has served as Chairwoman of Pro Hospitality for 47 the Transamerica Seniors Tournament, held at Silverado Country Club & Resort, since October of 1990. Mrs. Funseth is Treasurer for the Napa Yacht Club Women's Alliance and Port Captain of the Napa Valley Yacht Club. David B. Gaw, age 54, has served as a Director of Vintage Bank since 1984 and served as Chairman of the Board of Directors from 1992 to 1994. He is also Chairman of the Board of Directors and Director of North Bay. Mr. Gaw has been engaged in the practice of law in Napa and Solano Counties for more than twenty-seven years and is one of the founding members of Gaw, Van Male, Smith, Myers & Miroglio, a professional law corporation with offices in Napa, Fairfield, Vacaville and Redlands. Mr. Gaw is certified by the California State Board of Legal Specialization in Probate, Estate Planning, and Trust Law, and a Certified Elder Law Attorney by the National Elder Law Foundation. Mr. Gaw has served as President of the Napa County Bar Association. He is a member of The Queen of the Valley Hospital Foundation Board of Trustees, and is a member of both North Bay Hospital Foundation and the Solano Community Foundation's Board of Directors. Vintage Bank has retained the legal services of Mr. Gaw's law firm since the Bank's organization and expects to retain the firm's service in 2000. Houghton Gifford, M.D., age 79, has served as a Director of Vintage Bank since 1984 and served as Chairman of the Board of Directors from 1995 to 1997. He presently is retired after practicing medicine in Napa for more than forty years and law for approximately twenty years. Dr. Gifford is Past President of the Napa County Democratic Caucus and is a Past Treasurer of the Napa Chamber of Commerce and Napa County Bar Association. He formerly served as a director of the Community Foundation of the Napa Valley. Dr. Gifford will retire as a Vintage Bank director at the 2000 annual meeting of shareholders. Conrad W. Hewitt, age 63, is a consultant and joined the Board of North Bay in November, 1999. He is a member of the Board of Directors of Global Intermodal Systems, Inc., Chairman of the Audit Committee; and member of the Compensation Committee, ADPC, Inc., Renaissance Inc., Chairman of the Audit Committee; Crazy Shirts, Inc., Chairman of the Audit Committee and member of the Compensation Committee; Golden Gate University, Chairman of the Finance and Operations Committee and a member of the Executive Committee and the San Francisco Council, Boy Scouts of America, Chairman of the Audit Committee and a member of the Executive Committee. Also, he is an advisory director for Compensation Resource Group, Inc. and Private Capital Corporation. Mr. Hewitt served as Superintendent of Banks and Commissioner, Department of Financial Institutions, State of California from 1995 to 1998. Prior to 1995, Mr. Hewitt was the Managing Partner, North Bay Area, Ernst & Young and was employed by Ernst & Young for thirty-three years until his retirement. Mr. Hewitt is a Certified Public Accountant. Mr. Hewitt received a B.S. in Finance and Economics from the University of Illinois and did post-graduate work at the University of Southern California. William L. Kastner, age 58, has served as a Director of Vintage Bank since 1984 and served as Chairman of the Board of Directors from 1989 to 1991. He is the owner of Kastner Pontiac-Olds-GMC-Honda, an automobile dealership in Napa, serves as the secretary-treasurer of the North State G.M.C. Truck Dealers Association and is a member and secretary of the Board of Trustees of Tulocay Cemetery Association. Harlan Kurtz, age 68, is a Director of North Bay and has served as a Director of Vintage Bank since 1988 and has devoted a substantial amount of his time serving as Chairperson of the Bank's Site Committee. He is a general contractor and President of K-H Development Corporation. Richard S. Long, is President and Chief Executive Officer of Regulus. Mr. Long has over twenty five years of entrepreneurial and executive management experience. Regulus is a remittance processor for major banks and corporations with over twenty locations in the United States and Canada. In 1998 Mr. Long sold his company, Quantum Information Corporation, to Regulus. Quantum, which has now been merged into Regulus, is an information distribution management company that outsources the processing, printing and distribution, of time critical financial documents. Prior to Quantum, Mr. Long spent seventeen years in the industrial gas and equipment business. Starting in sales and moving through management to CEO and owner of Bayox, Inc., he sold this business to Union Carbide Corporation in 1983. Mr. Long then bought out the investment group that started Boboli and subsequently sold the United States and Canadian segments of this business to General Foods in 1998. The international segment of this business was sold in 1995. 48 Thomas H. Lowenstein, age 56, is Vice-Chairman of the Board of Directors of North Bay and Vintage Bank and has served as a Director of the Bank since 1988. He is President of North Bay Plywood, a company engaged in the manufacture and sale of building materials. Mr. Lowenstein has been active in the affairs of St. Apollinaris School, Product Services Incorporated (PSI) and the Justin High Foundation, having served on the boards of St. Apollinaris School and PSI and as a Past President of St. Apollinaris School Board. Joen M. McDaniel, age 40, is Vice President of Retail Operations of Vintage Bank and has been employed by Vintage Bank since 1988. She is currently Board President of the Boys and Girls Club and a member of the Santa Rosa Diocesan Education Board. Prior to her employment by Vintage Bank, Ms. McDaniel was Assistant Vice President and Branch Manager of Independent Savings and Loan. Thomas F. Malloy, age 56, is Chairman of the Board of Directors of North Bay and Vintage Bank and has served as a Director of the Bank since 1984. He is an insurance broker and a Member in Malloy Imrie & Vasconi Insurance Services LLC with offices in Napa and St. Helena. Mr. Malloy is a member and Past President of the Napa County Independent Insurance Agents Association and Past President of the Napa Active 20-30 Club. Kathi Metro, age 44, is the Executive Vice President and Credit Administrator of North Bay and Executive Vice President and Senior Loan Officer of Vintage Bank and has been employed by the Bank since 1985. Prior to becoming employed by the Bank, Ms. Metro was an Assistant Vice President and Branch Manager of Napa Valley Bank. She is an alumnus of Leadership Napa Valley and is a former member of the Leadership Napa Valley Foundation Committee. In addition, Ms. Metro is a former Director of C.O.P.E. and former member of the Napa County Commission on the status of Women and the Professional Business Services Committee of the Napa Chamber of Commerce. She is currently a member of the North Napa Rotary Club and the Board of Directors of the Napa Valley College Foundation and former member of the Board of Directors of Napa Valley Economic Development Corporation. Andrew Nicks, M.D., age 56, was appointed a Director of Vintage Bank effective December 1, 1999. He is currently Chief of Diagnostic Radiology at Queen of the Valley Hospital in Napa, California and has been in practice there since 1976. Prior to 1976, he was employed at Letterman Army Hospital, Presidio, San Francisco, California as Chief of Diagnostic Radiology. Dr. Nicks is President and CEO of the Northern California Imaging and Oncology and President of the Radiology Group of Napa. He is a member of the American College of Radiology, Radiological Society of North America and the Society of Cardiovascular and Interventional Radiology. He has been an active volunteer for various fund raiser events for the past twenty-three years, including Queen of the Valley Hospital Foundation, Justin-Sienna High School, and PGA Seniors Gold Tournament. Mark C. Richmond, age 36, is Vice President of Marketing for Vintage Bank and has been employed by the Bank since January 17, 1995. From December of 1992 until becoming employed by the Bank, Mr. Richmond served as a managing partner for Protective Financial Insurance Services, Inc. His experience in the banking industry comes from sales and management responsibilities with both community banks and statewide financial institutions. Mr. Richmond has worked with Union Federal Savings, Santa Barbara Savings, American Savings Bank and WestAmerica Bank. Terry L. Robinson, age 52, is President and Chief Executive Officer of North Bay and Vintage Bank, as well as a Director, and has been employed by the Bank since 1988. Mr. Robinson recently concluded his term as president of the Western Independent Bankers. Prior to joining the Bank, Mr. Robinson served as Executive Vice President and a member of the Board of Directors of American Bank of Commerce in Boise, Idaho. Mr. Robinson is a Past President of the Napa Valley Symphony Association, a Trustee of the Queen of the Valley Hospital Foundation, a member of the board of directors of the Community Foundation of the Napa Valley, is a member of the Napa Rotary Club and currently serves as co-chair of the Napa Boys and Girls Club capital campaign. Mr. Robinson holds a B.S. of Business in Accounting from the University of Idaho and a M.B.A. in finance from U.C. Berkeley. Carolyn D. Sherwood, age 55, has served as a Director of Vintage Bank since 1988. She is a real estate broker and part owner of Coldwell Banker - Brokers of the Valley, a Napa real estate brokerage company. Mrs. Sherwood is a member of the Napa County Board of Realtors, the California Association of Realtors and National Association of Realtors. 49 Glen C. Terry, age 48, is the Senior Vice President and Solano Region Manager of Vintage Bank and has been employed by the Bank since 1999. Prior to being employed by the Bank, Mr. Terry was President of the Solano Region of Sierra West Bank, President & CEO of Napa Valley Bank, and previously held other positions at WestAmerica Bank. Mr. Terry has also worked with First Interstate Bank and Zions First National Bank. Mr. Terry is an alumnus of Leadership Santa Rosa, has served on the Santa Rosa Design Review Board, the Santa Rosa Chamber of Commerce, the Napa Chamber of Commerce, Clinic Ole, and is a member of the Vacaville Noon Rotary Club. Mr. Terry received a B.S. in Political Science from Utah State University and an M.B.A. from the University of Utah. James E. Tidgewell, age 53, a Director of North Bay and Vintage Bank, has served as a Director of the Bank since 1988. He is a certified public accountant and partner in the accounting firm of G & J Seiberlich & Co LLP, with which he has been associated since 1975. Mr. Tidgewell received a B.S. degree in accounting from the University of Notre Dame in 1968 and thereafter spent approximately five years as an accountant with Price Waterhouse & Co. Mr. Tidgewell is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. He is a Past President of the Napa Active 20-30 Club, a member of the Napa Rotary Club and a member and president of The Queen of the Valley Hospital Foundation Board of Trustees. 50 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth information as of December 31, 1999, pertaining to beneficial ownership of North Bay's common stock by directors and the executive officers listed in the Summary Executive Compensation Table set forth hereinafter, as well as with respect to all directors and executive officers as a group. The information contained in this table has been obtained from North Bay's records or from information furnished directly by the individuals to North Bay. The numbers in the column entitled "Amount Held" reflect stock dividends paid through March 22, 1999.1 The table should be read with the understanding that more than one person may be the beneficial owner of, or possess certain attributes of beneficial ownership with respect to, the same shares.
Number of Shares Name Nature of Position Beneficially Owned Ownership Percent2 - ------------------------------------------------------------------------------------------------------------------ Sandra H. Funseth Director of Vintage Bank 57,470 3 3.74% David B. Gaw Director of North Bay 15,652 4 1.02% and Vintage Bank Houghton Gifford, M.D. Director of Vintage Bank 109,127 5 7.10% Conrad W. Hewitt Director of North Bay 200 6, 9 0.01% William L. Kastner Director of Vintage Bank 62,878 6, 7 4.09% - ---------------------- 1 Upon the payment of a stock dividend, all unexercised stock options are automatically adjusted so that the aggregate purchase price and the fractional proportion of outstanding stock represented by the options remain unchanged. 2 In computing the percentage of outstanding Common Stock owned beneficially by each director, the number of shares beneficially owned has been divided by the number of outstanding shares on the Record Date after (i) giving effect to stock dividends paid through March 22, 1999, and (ii) assuming options exercisable by the director within 60 days have been exercised. 3 Included in the total for Mrs. Funseth are 30,122 shares held in the name of the Funseth Family Trust dated September 8, 1992, of which Mrs. Funseth is trustee; 1,491 shares held as custodian for minors under the California Uniform Transfer to Minors Act; and 1,323 shares as to which Mrs. Funseth holds an option exercisable on May 1, 1999. 4 Included in the total for Mr. Gaw are 144 shares as custodian for minors under the California Uniform Transfers to Minors Act. 5 Included in the total for Dr. Gifford are 614 shares held as custodian for a minor under the California Uniform Transfers to Minors Act; 107,190 shares held in the name of the Gifford Family Trust dated April 8, 1985, of which Dr. Gifford is trustee; and 1,323 shares as to which Dr. Gifford holds an option exercisable on May 1, 1999. 6 Pursuant to California law, personal property held in the name of a married person may be community property as to which either spouse has the power and ability to manage and control in its entirety. 7 Included in the total for Mr. Kastner are 39,321 shares held in the name of the Kastner Family Trust dated September 21, 1988, of which he is a trustee and as to which he has shared voting power; 19,141 shares held in the name of the Kastner Pontiac Olds GMC Retirement Plan Trust, of which Mr. Kastner is a trustee and as to which he has shared voting power; and 1,323 shares as to which Mr. Kastner holds an option exercisable on May 1, 1999.
51
Number of Shares Name Nature of Position Beneficially Owned Ownership Percent2 - ------------------------------------------------------------------------------------------------------------------ Sandra H. Funseth Harlan R. Kurtz Director of North Bay 32,203 6, 8 2.09% and Vintage Bank Richard S. Long Director of North Bay 9 Thomas H. Lowenstein Director of North Bay 22,877 6, 10 1.49% and Vintage Bank Thomas F. Malloy Chairman of the Board of 46,695 6, 11 3.04% North Bay and Vintage Bank Kathi Metro Executive V.P. of North 12,280 6, 12 .80% Bay and Vintage Bank Andrew Nicks, M.D. Director of Vintage Bank 9 Terry L. Robinson Director, CEO of North 84,398 6, 13 5.49% Bay and Vintage Bank Carolyn D. Sherwood Director of Vintage Bank 17,314 6, 14 1.13% - ----------------------------- 8 Included in the total for Mr. Kurtz are 28,358 shares held in the name of the Kurtz Family Trust dated February 25, 1992, of which Mr. Kurtz is trustee; 2,522 shares are held as custodian for minors under the California Uniform Transfers to Minors Act; and 1,323 shares as to which Mr. Kurtz holds an option exercisable on May 1, 1999. 9 Messrs. Hewitt, Long, and Nicks intend to purchase at least 2,000 shares each in the offering. 10 Included in the total for Mr. Lowenstein are 18,463 shares held in the name of the Lowenstein Family Trust dated October 8, 1992, of which he is a trustee and as to which he has shared voting power; 3,091 shares held in the name of North Bay Plywood Profit Sharing Trust, of which he is a trustee and as to which he has shared voting power and 1,323 shares as to which Mr. Lowenstein holds an option exercisable on May 1, 1999. 11 Included in the total for Mr. Malloy are 32,908 shares held in the name of the Malloy Family Trust dated August 31, 1990 and 12,244 shares held in the name of the Malloy Imbrie & Vasconi Insurances Services LLP 401(k) Profit Sharing Plan of which he is not a trustee but as to which he may indirectly have shared voting power. 12 Included in the total for Ms. Metro are 2,205 shares as to which Ms. Metro holds an exercisable option. 13 Included in the total for Mr. Robinson are 46,335 shares held in the name of the Robinson Family Trust dated January 24, 1994, of which he is a trustee and as to which he has shared voting power and 31,019 shares held in the name of Snake River Honey Co., Inc., of which he is the sole stockholder and director. 14 Included in the total for Mrs. Sherwood are 1,323 shares as to which Mrs. Sherwood holds an option exercisable on May 1, 1999. 15 Included in the total for Mr. Tidgewell are 1,323 shares as to which Mr. Tidgewell holds an option exercisable on May 1, 1999. 16 In computing the percentage of outstanding Common Stock owned beneficially by all current Executive Officers and Directors as a group, it is assumed that those options granted to any member of the group which are exercisable within 60 days have been exercised and that, therefore, the total number of outstanding shares of the class has been increased by 14,112, the number of shares subject to such exercisable options by all members of the group.
52
Number of Shares Name Nature of Position Beneficially Owned Ownership Percent2 - ------------------------------------------------------------------------------------------------------------------ James E. Tidgewell Director of North Bay 11,142 6, 15 0.72% and Vintage Bank All Current Executive Officers and Directors as a group (total of 14) 472,236 30.73%16
Executive Compensation Summary Executive Compensation Table The following table provides a summary of the compensation paid during each of Vintage Bank's last three completed fiscal years for services rendered in all capacities to Terry Robinson, the President and Chief Executive Officer of the Bank and to Kathi Metro, the only other executive officer of Vintage Bank whose annual compensation exceeded $100,000 during 1998. 53
VINTAGE BANK Summary Executive Compensation Table ==================================================================================================================== Name and Annual Compensation Long Term principal Compensation All Other position Year Compensation ($) ======================================================= Salary Bonus Other Awards: ($) ($) Annual Securities Compensation Underlying ($) Options (#) - -------------------------------------------------------------------------------------------------------------------- Terry Robinson, 1998 164,333 47,000 -0- 363,396 President and CEO 1997 156,292 39,569 -0- 346,644 1996 147,375 33,403 -0- 326,891 ==================================================================================================================== Kathi Metro, 1998 86,989 24,760 -0- 6,307 Senior Vice 1997 83,500 19,622 -0- 5,250 6,054 President 1996 77,417 18,000 -0- 5,032 ====================================================================================================================
The value of perquisites and other personal benefits are disclosed in other annual compensation if they exceed, in the aggregate, the lesser of $50,000 or 10% of salary and bonus. No amounts are reported in this column for Mr. Robinson or Ms. Metro since the value of perquisites and other personal benefits did not exceed the reporting threshold. All Other Compensation for each year includes contributions to Vintage Bank's Profit Sharing and Salary Deferral 401(k) Plan. Contributions to the Bank's 401(k) Plan for Mr. Robinson were $11,914 in 1998, $11,332 in 1997, and $9,579 in 1996. Contributions to the Bank's 401(k) Plan for Ms. Metro were $6,307 in 1998, $6,054 in 1997, and $5,032 in 1996. All Other Compensation for each year also includes the full amount of Vintage Bank's share of life insurance premiums paid pursuant to a split dollar life insurance plan and agreement with Mr. Robinson. By the terms of the Split Dollar Agreement dated November 21, 1994, Vintage Bank has agreed to pay $23,312 of the policy's total annual premium of $24,922 for a period of ten years. On the tenth anniversary of the Split Dollar Agreement, or sooner on the occurrence of certain other events, Mr. Robinson is required to repay the total amount of premiums paid by the bank pursuant to the Agreement. In order to secure repayment of the total amount of premiums paid by Vintage Bank, the policy has been collaterally assigned to the bank. All Other Compensation for each year also includes amounts that would be payable on account of corporate changes specified in Mr. Robinson's employment agreement as described in the section of this prospectus entitled "Termination of Employment and Change of Control Arrangements." The amount payable to Mr. Robinson ranges from o one year's base salary or the remainder of his base salary under his Employment Agreement if less than one year remains in the case of a corporate change approved by a majority of those directors who are unaffiliated with the person initiating the corporate change to o two year's base salary in the case of a multistep corporate change not approved by a majority of the those directors unaffiliated with the person initiating the corporate change. 54 The maximum amount payable under Mr. Robinson's current employment agreement in connection with any corporate change is two years' base salary which for the years 1996, 1997 and 1998 was $294,000.00, $312,000.00 and $328,000 respectively. Director fees for 1996 and 1997 in the amount of $5,400 and for 1998 in the amount of $5,800 were deferred by Mr. Robinson pursuant to the Deferred Fee Plan described in the section of this prospectus entitled "Compensation of Directors" and are not included in All Other Compensation for the years 1996, 1997 and 1998. All Other Compensation for 1998 includes $170 which is the taxable benefit of Mr. Robinson's benefits under the Director Supplemental Retirement Program described in the section of this prospectus entitled "Compensation of Directors." 55 Option Grants in Last Fiscal Year There were no transactions in 1998 which require disclosure in a table for option grants in the fiscal year ending December 31, 1998. Effective March 1, 1999, contemporaneous with Mr. Robinson's new five (5) year Employment Agreement described below under "Termination of Employment and Change of Control Arrangements," Mr. Robinson was granted an option to purchase 10,000 shares of the Vintage Bank's common stock at an initial exercise price of $22.00 per share. As a result of North Bay becoming the bank holding company for Vintage Bank, these options were assumed by North Bay. This option vests and becomes exercisable in five (5) equal annual installments at the first, second, third, fourth, and fifth anniversaries of the date of grant. Accordingly, the first installment will become exercisable March 1, 2000. Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values
============================================================================================================== Shares Value Number of Value of unexercised Name acquired on realized Securities in-the-money exercise (#) ($) underlying options at Fiscal unexercised Year End options at exercisable/ Fiscal Year-end (#) unexercisable exercisable/ unexercisable - -------------------------------------------------------------------------------------------------------------- Terry Robinson, None None Exercisable for 5,834 Exercisable $128,348 President and CEO Unexercisable for 1,459 Unexercisable $32,098 - -------------------------------------------------------------------------------------------------------------- Kathi Metro, None None Exercisable for 1,050 Exercisable $23,100 Senior Vice Unexercisable for 4,200 Unexercisable $92,400 President ==============================================================================================================
For purposes of calculating the value of unexercised stock options as of December 31, 1998, it is assumed that the fair market value of the shares as of December 31, 1998, was $22.00 per share. While the Board of Directors believes this to be a fair value, it is not necessarily indicative of the price at which shares may be bought or sold, since there is no established public trading market for the shares. Long Term Incentive Plans - Awards in Last Fiscal Year There were no transactions in 1998 which require disclosure in a table for long-term incentive plan awards. Termination of Employment and Change of Control Arrangements Effective March 1, 1999, Vintage Bank entered into a new five (5) year Employment Agreement with Mr. Robinson as President and Chief Executive Officer of the bank. The Agreement provides that in the event of a termination by the bank without cause, Mr. Robinson must be paid severance pay equal to six months' base salary. In the event of certain specified corporate changes, including a merger, sale, transfer of Vintage Bank's assets or an effective change in control of the bank, the bank may assign the Agreement to any successor entity, continue the Agreement or terminate the Agreement, provided that if the bank assigns or continues the Agreement, Mr. Robinson may either consent to such assignment or continuance or may elect to terminate the Agreement. If the Agreement is terminated by either party in connection with a corporate change meeting certain requirements, including approval by a majority of those directors who are unaffiliated with the person initiating the corporate change, Mr. Robinson must be paid severance pay equal to one year's base salary or equal to the remainder of his base salary under the Agreement if less than one year remains. If the Agreement is terminated in connection with any other corporate change, Mr. Robinson must be paid severance pay equal to two years' base salary. Upon certain changes in control of Vintage Bank, any outstanding stock options granted under North Bay's Stock Option Plan become immediately exercisable. 56 Upon certain changes in control of Vintage Bank, director's fees deferred pursuant to the Deferred Fee Plan described in the section of this proxy statement entitled "Compensation of Directors," including accrued interest, are paid to the participating directors in a lump sum. Compensation of Directors Directors Fees The Board of Directors of North Bay has adopted a plan for the payment of fees to directors for attendance at meetings of the Board, meetings of the Board of Directors of Vintage Bank or Solano Bank of which they are members, and committees of which they are members. In accordance with that plan, directors of North Bay are eligible to be paid a monthly fee of $800 for attendance at regular Board meetings and meetings of the committees on which they sit; provided, however, that Directors of North Bay also serving as directors of Vintage Bank are eligible to be paid an aggregate monthly fee of $1,200 for attendance at regular Board meetings and meetings of the committees on which they sit. Directors serving only on the Board of Directors of Vintage Bank are eligible to be paid a monthly fee of $1,100 for attendance at regular monthly Board meetings and meetings of committees on which they sit. Persons who will be serving only on the Board of Directors of Solano Bank will initially not be eligible to paid a monthly fee for attendance at regular Board meetings or meetings of committees on which they sit. In all instances, the payment of fees to directors is subject to reduction for failure to attend the minimum number of meetings of the board and committees as specified in the plan. Director Stock Options It is intended that each person serving on the Board of Directors of Solano Bank, with the exception of persons also serving on North Bay Board of Directors, will be granted options to purchase 6,000 shares of North Bay's common stock pursuant to North Bay Stock Option Plan (formerly Vintage Bank Amended and Restated 1993 Stock Option Plan). In December 1999, Messrs. Long and Hewitt, newly elected non-employee directors of North Bay, and Dr. Nicks, a newly elected non-employee director of Vintage Bank, were granted options to purchase 6,000 shares of North Bay's common stock pursuant to North Bay Stock Option Plan at a price of $_____ per share. These options become vested and exercisable in five equal installments at the first, second, third, fourth and fifth anniversaries of the date of the grant. The first installment will become exercisable on November 15, 2000. In 1997, each non-employee director of Vintage Bank (which includes all of the directors except for Mr. Robinson) was granted an option to purchase an additional 3,000 shares of the Bank's common stock, pursuant to the Amended and Restated 1993 Stock Option Plan approved at the 1998 Annual Shareholders Meeting on April 29, 1998. These options become vested and exercisable in five equal installments at the second, third, fourth, fifth and sixth anniversaries of the date of grant. Accordingly, the first installment became exercisable on May 1, 1999. The number of shares subject to purchase pursuant to each non-employee director's option is subject to adjustment upon the occurrence of any changes in capitalization of North Bay including stock splits and stock dividends. After giving effect to the stock split effective October 1, 1997, and stock dividends paid through March 22, 1999, the aggregate number of shares subject to each such director's option is 6,615, and the effective price per share is $14.059 Directors' Deferred Fee Plan In August 1995, Vintage Bank established a Deferred Fee Plan for the directors of Vintage Bank including Mr. Robinson. The deferral program, provides for deferral, at the election of each director, of up to $10,000 of annual director fees from Vintage Bank. The deferral program commences at the time the director elects to participate and continues for a period which continues until the director completes ten years of service and attains retirement age. At the end of the deferral program or earlier in the event of disability, the deferred compensation, including accrued interest, is paid to the director in a lump sum or periodic payments over a specified period of time as selected by the director upon enrollment in the plan. If the director terminates his or her relationship with Vintage Bank during the plan period for reasons other than death or disability, all amounts deferred, including accrued interest, will be paid in the manner selected by the director but accrued interest on the deferred compensation shall be calculated at an interest rate that is two-hundred basis points lower than the rate established by Vintage Bank's Board of Directors in accordance with the plan. 57 In the event of death while a member of the Board of Directors, the director's beneficiary will receive an amount that would have been paid to the director had he or she remained in the program and attained his or her specified retirement age. In 1995 Vintage Bank paid an aggregate single premium of $1,040,000 to purchase life insurance policies on each director participating in the plan to fund the death benefit. Vintage Banks owns and is the beneficiary of the policies and earns a rate of return on the invested premiums which is reflected by an increase to the cash value of the policies. The directors participating in the deferred program have no rights in the policies. Management of Vintage Bank believes that the premium investment, after consideration of the non-taxable nature of earnings on certain insurance investments, produces a higher return than other taxable investments made in the normal course of business. Therefore, the net cost of this deferred compensation program to Vintage Bank is believed to be nominal. Director Supplemental Retirement Program Effective January 1, 1999, Vintage Bank established a Director Supplemental Retirement Program for the directors of Vintage Bank including Mr. Robinson and Vintage Bank's corporate secretary, Wyman G. Smith. Under the program and a retirement policy adopted by Vintage Bank's Board of Directors, non-employee directors attaining age sixty-five are no longer eligible for re-election to the Board of Directors. Upon attaining retirement age and provided the participant has served on Vintage Bank's Board of Directors or as an officer of Vintage Bank for not less than ten years, participants are entitled to receive the balance in a pre-retirement liability reserve account established by Vintage Bank under the program in annual installments commencing thirty days following their retirement. In order to fund its liability under the program and minimize the impact of the program on Vintage Bank's earnings, in 1998 Vintage Bank paid an aggregate single premium of $2,462,000 to purchase life insurance policies to fund the retirement and death benefits. Vintage Bank owns and is the beneficiary of the policies and earns a rate of return on the invested premiums which is reflected by an increase to the cash value of the policies. The directors participating in the program have no rights in the policies other than an endorsement for a portion of the death benefit. Amounts credited to and the balance in a participant's pre-retirement account are based on the excess of the earnings on the life insurance policy over the opportunity costs on the premiums paid by the bank. Opportunity cost consist of the lost earnings, after tax, which would have been earned by Vintage Bank had it invested the funds used to pay premiums for the life insurance policies. The program returns this cost to Vintage Bank before any amount is credited to a participant's pre-retirement account or post retirement benefit. In addition, after retirement, participants are entitled, until the participant's death, to receive the annual earnings on the life insurance policy in excess of the opportunity costs. In some instances life insurance policies have not been purchased on participants. These participants are provided a defined retirement benefit of $8,500 per year which is substantially equivalent to the expected benefit for participants whose pre-retirement account balance is tied to a life insurance policy. Amounts credited to a participant's pre-retirement account in these cases is determined in accordance with generally accepted accounting principles. Participants with less than five (5) years of service on the Board of Directors or to Vintage Bank are not eligible to participate in the program. Participants who served for more than five years, but less than ten years, are entitled to receive a percentage of post retirement benefits determined by multiplying twenty percent (20%) times years of service in excess of five years. The program also provides that a deceased participant's named beneficiaries shall receive a death benefit equal to the then unpaid balance of his or her pre-retirement account, as well as that portion of the death benefit on his or her the life insurance policy in excess of the cash value of the policy. On the death of a participant Vintage Bank receives a tax-free death benefit sufficient to fully recover all premiums paid on the deceased participant's specific life insurance policy. 58 Management believes that the premium investment, after consideration of the non-taxable nature of earnings on certain insurance investments, produces a higher return than other taxable investments made in the normal course of business. Therefore, the net cost of the program to Vintage Bank is believed to be nominal. Directors Houghton Gifford, M.D. and Harlan R. Kurtz are more than sixty-five years of age. The retirement policy of Vintage Bank's Board of Directors provides that Director Gifford will first become ineligible for re-election as director in 2000, and Director Kurtz in 2001. The retirement policy of the Board of Directors is subject to exceptions and amendment. 59 OTHER INFORMATION REGARDING MANAGEMENT Management Indebtedness Certain provisions of the California Financial Code and federal regulations enable state chartered banks to make loans to officers, directors and employees up to certain specified limits. From time to time Vintage Bank has made loans to such persons in the ordinary course of business. These loans were made on substantially the same terms, including interest rates and collateral requirements, as those prevailing for comparable transactions with other nonaffiliated persons at the time each loan was made, subject to the limitations and other provisions in California and Federal law. These loans do not involve more than the normal risk of collectibility or present other unfavorable features. Certain Business Relationships Mr. Gaw, a Director of North Bay and Vintage Bank, is a member and shareholder of the law firm of Gaw, Van Male, Smith, Myers & Miroglio, a professional law corporation which Vintage Bank has retained since its organization in 1985 and proposes to retain for specific matters during 2000. 60 Solano Bank Officers and Directors The following chart shows the proposed officers and directors of Solano Bank, their ages, and their relationships to Solano Bank. Relationship Name to Solano Age - ---- --------- --- Thomas N. Gavin Proposed Director 47 David B. Gaw Proposed Director 54 Fred J. Hearn Proposed Director 46 Michael D. O'Brien Proposed Director 47 Terry L. Robinson Proposed Director 52 Kenneth B. Ross Proposed Director 40 Denise Suihkonen Proposed Director 42 Glen C. Terry Proposed President, CEO and Director 48 Kathi Metro Proposed Chief Credit Officer 44 Lee-Ann Almeida Proposed Chief Financial Officer 36 Thomas N. Gavin, Fred J. Hearn, Michael D. O'Brien, Kenneth Ross and Denise Suihkonen have each agreed to invest $50,000 in the offering. For information concerning the stock ownership of David B. Gaw, Terry L. Robinson, Glen C. Terry, Kathi Metro and Lee-Ann Almeida see "SECURITY OWNERSHIP OF MANAGEMENT." - ------------------------------------------------------- Background and Business Experience of Officers and Directors Thomas N. Gavin is the owner of Gavin and Associates, a benefit planning company started in 1995. He is also an insurance agent for New York Life, where he has been affiliated for over twenty five years. Mr. Gavin earned his Associate of Arts degree from Solano Community College and a B.A. in sociology from the University of California at Davis. He completed his insurance agent education and was awarded his CLU from American College. Mr. Gavin has been active in professional and local civic and social organizations, including the Benicia Rotary Club (President 1994-1995), the Benicia Chamber of Commerce (President 1987); St. Patrick -St. Vincent High School Board of Regents (President 1996); and the Benicia Mainstreet Program Board of Directors (President 1988). He is also a member of the Sutter-Solano Hospital Foundation Board and the Board of Directors for St. Dominic's Church in Benicia, where he has also coached basketball and softball for PAL. Fred J. Hearn is President of Hearn Pacific Construction, a real estate general contracting company headquartered in Vacaville for more than twenty five years. Mr. Hearn is an active member of both the Fairfield and Vacaville 61 Chambers of Commerce, the Solano Commercial Brokers, and the Solano Economic Development Corporation. He has also served on the Notre Dame Parochial School Board as secretary and vice president for two terms and as a member of the Green Valley Country Club where he served on the Building and Grounds Committee. Mr. Hearn helped organize the Vacaville Homeless Shelter and presently serves on the Vacaville Chamber of Commerce Economic Development Committee. Michael D. O'Brien is the President and operator of O'Brien Builders, a full-service commercial construction company located in Vacaville since 1989. Mr. O'Brien graduated from St. Mary's College in Moraga with a B.A. degree in political science. He holds a general contractor license B classification and also has completed a variety of construction management courses from both U.C. Berkeley Extension and Diablo Valley College. Mr. O'Brien is a member of the Fairfield-Suisun Chamber of Commerce, a member of the Solano Economic Development Corporation, a member of the Vallejo Chamber of Commerce, and a volunteer for Advocates for the Arts located in Fairfield. He has also been a coach for the Fairfield-Suisun Youth Soccer League and the Cordelia Tri-Valley Little League. Kenneth B. Ross is the owner of Team Chevrolet-Oldsmobile-Hyundai, a automobile dealership located in Vallejo. Mr. Ross has twenty-two years experience in the automotive industry. Mr. Ross completed various business and law classes at Consannes River College and Sacramento City College. He is a graduate of General Motors College located in Warren, Michigan. Mr. Ross is a member of the Vallejo Chamber of Commerce and the Chevrolet National Dealer Council. Previously he has served as a Director of the Hyundai National Dealer Council and as a Mentor on the Napa Academic Mentor Program. Denise C. Suihkonen has been a partner in the firm of Suihkonen Certified Public Accountants & Consultants, LLP, located in Vacaville, since 1997. Prior to 1997, she worked as an accountant for Christensen/Suihkonen CPAs, also in Vacaville. Ms. Suihkonen graduated from California State University of Sacramento with a B.S. degree in business administration/accounting and earned her certified public accountant's license in 1989. Currently, Ms. Suihkonen is a Housing and Redevelopment Commissioner for the City of Vacaville; a member of the Board of Directors of the Police Activities League of Vacaville; and Treasurer for Vacaville Ballet Theatre and "On Stage Vacaville," a non-profit organization supporting the Vacaville Performing Arts Theatre. In addition she is a member of the American Institute of Certified Public Accountants; the California Society of Certified Public Accountants; and the Soroptimist International of Vacaville, where she served as President from 1991-1992. Ms. Suihkonen also served as the Treasurer for the Alamo Elementary School P.T.A. from 1994 to 1996. For biographical information about David B. Gaw, Terry L. Robinson, Glen C. Terry, and Kathi Metro, and Lee-Ann Almeida, see "MANAGEMENT -Directors and - -Executive Officers." 62 PRINCIPAL SHAREHOLDERS As of December 31, 1999, the following persons were known by North Bay to beneficially own more than five percent (5%) of North Bay's outstanding common stock:
- ----------------------------------------------------------------------------------------------------------------- Relationship No. of Shares Percent of Class(1) Name and Address with North Bay or Vintage Beneficially Owned Beneficially Owned Bank - ----------------------------------------------------------------------------------------------------------------- Houghton Gifford, M.D. Director, Vintage Bank 109,127(2) 7.10% 3219 Vichy Avenue Napa, CA 94558 - ----------------------------------------------------------------------------------------------------------------- Terry L. Robinson Director and CEO, 84,398(3) 5.49% 1500 Soscol Avenue North Bay and Vintage Bank Napa, CA 94559 - ----------------------------------------------------------------------------------------------------------------- (1) In computing the percentage of outstanding Common Stock owned beneficially, the number of shares beneficially owned has been divided by the number of outstanding shares on December 31, 1999, assuming options exercisable by the named person within 60 days have been exercised. (2) See the footnote references set forth below under Security Ownership of Management for information regarding the nature of Dr. Gifford's beneficial ownership. (3) See the footnote references set forth below under Security Ownership of Management for information regarding the nature of Mr. Robinson's beneficial ownership.
63 DESCRIPTION OF SECURITIES General North Bay currently has an authorized capitalization of 10,000,000 shares of common stock and 500,000 shares of preferred stock. Of these authorized capital shares, 1,536,568 shares of common stock and no shares of preferred stock are currently issued and outstanding. An additional 337,211 shares of North Bay's common stock is reserved for issuance pursuant to North Bay Bancorp's Stock Option Plan. Common Stock The balance of North Bay 's authorized common stock will be available to be issued when and as the Board of Directors of North Bay determines it advisable to do so. Common shares could be issued for the purpose of raising additional capital, in connection with acquisitions or formation of other businesses, or for other appropriate purposes. The Board of Directors of North Bay has the authority to issue common shares to the extent of the present number of authorized unissued shares, without obtaining the approval of existing holders of common shares. If additional shares of North Bay 's Common Stock were to be issued, the existing holders of North Bay shares would own a proportionately smaller portion of the total number of issued and outstanding common shares. Dividend Rights The shareholders of North Bay are entitled to receive dividends when and as declared by its Board of Directors out of funds legally available, subject to the restrictions set forth in the California General Corporation Law. The Corporation Law provides that a corporation may make a distribution to its shareholders if the corporation's retained earnings equal at least the amount of the proposed distribution. The Corporation Law further provides that, in the event that sufficient retained earnings are not available for the proposed distribution, a corporation may nevertheless make a distribution to its shareholders if it meets two conditions, which generally stated are as follows: o the corporation's assets equal at least 1 1/4 times its liabilities, and o the corporation's current assets equal at least its current liabilities or, if the average of the corporation's earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the corporation's interest expense for such fiscal years, then the corporation's current assets must equal at least 1 1/4 times its current liabilities. Vintage Bank has in the past paid cash and stock dividends on its common stock. It is contemplated that North Bay will follow Vintage Bank's policy of paying cash and stock dividends subject to the restrictions on payment of cash dividends as described above, the earnings of North Bay, management's assessment of the future capital needs, and other factors. Initially, the funds for payment of dividends and expenses of North Bay are expected to be obtained from dividends paid by Vintage Bank. Voting Rights All voting rights with respect to North Bay are vested in the holders of North Bay 's common stock. Holders of North Bay common stock are entitled to one vote for each share held except that in the election of directors each shareholder has cumulative voting rights and is entitled to as many votes as shall equal the number of shares held by such shareholder multiplied by the number of directors to be elected and such shareholder may cast all his or her votes for a single candidate or distribute such votes among any or all of the candidates he or she chooses. However, no shareholder shall be entitled to cumulate votes (in other words, cast for any candidate a number of votes greater than the number of shares of stock held by such shareholder) unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. 64 Preemptive Rights Shareholders of North Bay common stock have no preemptive rights. Also there no applicable conversion rights, redemption rights or sinking fund provisions. Liquidation Rights Upon liquidation of North Bay the shareholders of North Bay 's common stock have the right to receive their pro rata portion of the assets of the Bank distributable to shareholders. This is subject, however, to the preferential rights, if any, of the holders of any outstanding senior securities. Presently there are no senior securities outstanding. Preferred Stock North Bay is authorized to issue 500,000 shares of preferred stock. The Board of Directors has the authority to establish preferred stock in one or more series and to fix the dividend rights (including sinking fund provisions), redemption price or prices, and liquidation preferences, and the number of shares constituting any series or the designation of such series. Holders of preferred stock will not be held individually responsible, as such holders, for any debts, contracts or engagements of North Bay, and will not be liable for assessments to correct impairments of the contributed capital of North Bay. Holders of preferred stock, when and if issued, may become senior to holders of common stock as to dividend, voting, liquidation or other rights. The Board of Directors has no present intention to issue shares of preferred stock. Provisions of Articles of Incorporation Certain provisions of the Articles and the Bylaws of North Bay may have the effect of delaying, deferring or preventing a change in control of North Bay in certain circumstances. Certain of these provisions, which do not contemplate a specific or particular attempt to gain control of North Bay, are described below. The Articles of Incorporation and the Bylaws are available upon request of North Bay. The following discussion is qualified in its entirety by the specific provisions of each. Consideration of Factors Other Than Price North Bay ?s Articles of Incorporation provide that, in connection with the exercise of its judgment in determining what is in the best interest of North Bay and of the shareholders, when evaluating a "Business Combination or a proposal by another person or persons to make a business combination or a tender or exchange offer, the Board of Directors of North Bay shall, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it may deem relevant: o The social and economic effects of the transaction on North Bay and its subsidiaries, employees, depositors, loan and other customers, creditors, and other elements of the communities in which North Bay and its subsidiaries operate or are located; o The business and financial condition and earning prospects of the acquiring person or persons, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition and other likely financial obligations of the acquiring person or persons, and the possible effect of such condition upon North Bay and its subsidiaries and the other elements of the communities in which North Bay and its subsidiaries operate or are located; o The competence, experience and integrity of the acquiring person or persons and its or their management; o Whether the proposed transaction might violate federal or state law; and o Not only the consideration being offered in a proposed transaction and related to the current market price for the outstanding capital stock of North Bay but also to the market price for the capital stock of 65 North Bay over a period of years, the estimated price that might be achieved in a negotiated sale of North Bay as a whole or in part, and North Bay's future value as an independent entity. This provision could, under certain circumstances, permit the Board of Directors to disapprove a tender offer or other business combination transaction that might otherwise be beneficial to the shareholders of North Bay, particularly if such a transaction would have a strong adverse impact on the employees of North Bay or the communities in which North Bay has operations. Issuance of Additional Securities The Articles of Incorporation permit the Board of Directors to issue shares of preferred stock without the prior approval of the holders of North Bay common stock. The issuance of preferred stock or such other securities as permitted by the Articles of Incorporation at some future date may have the effect of delaying, deferring or preventing a change in control of North Bay. Approval of Certain Business Combinations The Articles of Incorporation provide that certain business combinations must be approved by holders of 66-2/3% of the outstanding shares of North Bay common stock, unless approved by a majority of disinterested directors, certain minimum price requirements are met, or state regulatory authorities having jurisdiction over the matter have approved the fairness of the proposed transaction. This provision can only be amended or repealed by the affirmative vote of the holders of 66-2/3% of the outstanding shares of North Bay common stock. Restrictions on Resales by Affiliates North Bay's common stock issuable in this offering has been registered under the Securities Act of 1933, as amended, but this registration does not cover resales of shares acquired by any North Bay shareholder who is deemed to be an "affiliate" of North Bay, that is one who directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with North Bay. Affiliates may not sell the shares except pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. 66 LEGAL PROCEEDINGS In the normal course of its banking business, either North Bay or Vintage Bank occasionally could be made a party to actions seeking to recover damages from North Bay or Vintage Bank. As of the date of this prospectus, neither North Bay nor Vintage Bank is a defendant in any material litigation. LEGAL MATTERS The validity of the shares being offered has been reviewed for North Bay by Lillick & Charles LLP, Two Embarcadero Center, Suite 2700, San Francisco, California 94111. However, subscribers should not construe such review as constituting an opinion as to the merits of the offering. EXPERTS The audited balance sheets of Vintage Bank as of December 31, 1998 and 1997 and the related statements of income, changes in shareholders' equity and cash flows for each of the three years ended December 31, 1998 included in this prospectus and elsewhere in the Form SB-2 registration statement have been audited by Arthur Anderson LLP, independent public accountants, as indicated in their report (dated February 23, 1999) with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. 67 INDEX TO FINANCIAL STATEMENTS Financial Statements Interim Financial Statements (i) Balance Sheets, September 30, 1999 and 1998............................70 (ii) Income Statements for the nine months ended September 30, 1999 and 1998......................................71 (iii) Statements of Cash Flows for the nine months ended September 30, 1999 and 1998....................................72 (iv) Notes to Interim Financial Statements..................................73 Audited Financial Statements (i) Balance Sheets, December 31, 1998 and 1997.............................75 (ii) Income Statements for the years ended December 31, 1998, 1997 and 1996................................76 (iii) Statements of Changes in Shareholders' Equity for the years ended December 31, 1998 and 1997.........................................................77 (iv) Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................................78 (v) Notes to Financial Statements..........................................79 (vi) Report of Independent Public Accountants............................................................91 Schedules Schedules have been omitted as inapplicable or because the information required is included in the financial statements or notes thereto. 68 Interim Financial Statements Vintage Bank - Balance Sheets
September 30, September 30, Assets 1999 1998 (Unaudited) (Unaudited) ------------- ------------- Cash and due from banks $ 8,418,000 $ 7,936,000 Federal funds sold 5,000,000 13,000,000 Time deposits with other financial institutions 100,000 200,000 Held-to-maturity investment securities (market value of $1,390,000 at September 30, 1999, and $13,071,000 at September 30, 1998) 1,390,000 12,721,000 Available-for-sale investment securities 57,950,000 44,707,000 Loans, net of allowance for loan losses of $1,940,000 at September 30, 1999 and $1,691,000, at September 30, 1998 115,285,000 88,456,000 Bank premises and equipment, net 2,813,000 2,777,000 Accrued interest receivable and other assets 6,699,000 5,814,000 ------------- ------------- Total assets $ 197,655,000 $ 175,611,000 ============= ============= Liabilities and Shareholders' Equity Deposits Demand $ 39,971,000 $ 41,469,000 Interest bearing 59,324,000 64,190,000 Time and saving 74,300,000 52,624,000 ------------- ------------- Total deposits 173,595,000 158,283,000 Short term borrowings 5,000,000 0 ------------- ------------- Accrued interest payable and other liabilities 1,274,000 1,063,000 ------------- ------------- Total liabilities 179,869,000 159,346,000 ------------- ------------- Shareholders' equity Preferred stock - no par value: Authorized, 500,000 shares; Issued and outstanding - none Common stock - no par value: Authorized, 2,000,000 shares; Issued and outstanding - 1,533,922 shares at September 30, 1999, and 1,437,491 shares at September 30, 1998 12,294,000 10,523,000 Retained earnings 6,171,000 5,215,000 Accumulated other comprehensive (loss) income (679,000) 527,000 ------------- ------------- Total shareholders' equity 17,786,000 16,265,000 Total liabilities and shareholders' equity $ 197,655,000 $ 175,611,000 ============= ============= The accompanying notes are an integral part of these statements
69 Vintage Bank Income Statements ------------------------------ September 30, September 30, 1999 1998 ----------- ----------- (Unaudited) (Unaudited) Interest Income Loans (including fees) $ 7,136,000 $ 6,234,000 Federal funds sold 118,000 345,000 Investment securities 2,789,000 2,088,000 ----------- ----------- Total Interest income 10,043,000 8,667,000 Interest Expense 3,171,000 2,919,000 ----------- ----------- Net interest income 6,872,000 5,748,000 Provision for loan losses 180,000 180,000 ----------- ----------- Net interest income after provision for loan losses 6,692,000 5,568,000 Non interest income 1,276,000 936,000 Gains on securities transactions, net 10,000 54,000 Non interest expenses Salaries and employee benefits 2,558,000 2,188,000 Occupancy 289,000 288,000 Equipment 349,000 350,000 Other 1,492,000 1,196,000 ----------- ----------- Total non interest expense 4,688,000 4,022,000 ----------- ----------- Income before provision for income taxes 3,290,000 2,536,000 Provision for income taxes 1,252,000 975,000 ----------- ----------- Net income $ 2,038,000 $ 1,561,000 =========== =========== Basic earnings per common share: $ 1.34 $ 1.04 =========== =========== Diluted earnings per common share: $ 1.31 $ 1.01 =========== =========== The accompanying notes are an integral part of these statements 70
Vintage Bank Statement of Cash Flows For The Nine Months Ended September 30, (In 000's) (Unaudited) (Unaudited) 1999 1998 -------- -------- Cash Flows From Operating Activities: Net income $ 2,038 $ 1,561 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 260 297 Provision for loan losses 180 180 Amortization of deferred loan fees (191) (119) Premium (discount accretion), net (12) (53) Net (gain) on investment securities (10) (54) Gain on sale of assets (15) 0 Changes in: Interest receivable and other assets 219 (347) Interest payable and other liabilities 67 (43) -------- -------- Total adjustments 498 (139) -------- -------- Net cash provided by operating activities 2,536 1,422 -------- -------- Cash Flows From Investing Activities: Investment securities held-to-maturity: Proceeds from maturities and principal payments 10 385 Purchases (1,400) (9,093) Investment securities available for sale: Proceeds from maturities and principal payments 13,466 14,406 Proceeds from sales 1,005 2,826 Purchases (12,202) (25,899) Net sale of time deposits with other financial institutions 100 0 Net increase in loans (20,499) (7,526) Sale of capital assets 21 7 Capital expenditures (345) (98) -------- -------- Net cash used in investing activities (19,844) (24,992) -------- -------- Cash Flows From Financing Activities: Net increase in deposits 11,422 26,893 Issuance of notes payable 5,000 0 Stock options exercised 199 273 Dividends paid (297) (281) -------- -------- Net cash provided by financing activities 16,324 26,885 -------- -------- Net increase (decrease) in cash and cash equivalents (984) 3,315 Cash and cash equivalents at beginning of year 14,402 17,621 -------- -------- Cash and cash equivalents at end of period $ 13,418 $ 20,936 ======== ======== Supplemental Disclosures of Cash Flow Information: Interest paid $ 3,168 $ 2,894 Income taxes paid $ 830 $ 838 The accompanying notes are an integral part of these statements
71 VINTAGE BANK Notes to Interim Financial Statements (Unaudited) September 30, 1999 and 1998 NOTE 1 - Basis of Presentation The accompanying financial statements 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. 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, management believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the nine months ended September 30, 1999 and 1998 are not necessarily indicative of results for the full year. It is suggested that these interim financial statements be read in conjunction with the financial statements for the years ended December 31, 1998, 1997 and 1996 and as of December 31, 1998 and 1997 included elsewhere in this prospectus. NOTE 2 - Commitments The Bank has outstanding standby Letters of Credit of approximately $1,629,000, undisbursed real estate and construction loans of approximately $19,829,000, and undisbursed commercial and consumer lines of credit of approximately $17,438,000, as of September 30, 1999. NOTE 3 - Earnings Per Common Share The Bank declared 5% stock dividends on January 26, 1998 and January 28, 1999. As a result of the stock dividends the number of common shares outstanding and earnings per share data was adjusted retroactively for all periods presented. The following table reconciles the numerator and denominator of the basic and diluted earnings per share computations:
Weighted Average Per-Share Net Income Shares Amount ---------- ------ ------ For the nine months ended September 30, 1999 -------------------------------------------- Basic earnings per share $2,038,000 1,518,641 $1.34 Stock options 53,477 Diluted earnings per share 1,572,118 $1.31 For the nine months ended September 30, 1998 -------------------------------------------- Basic earnings per share $1,561,000 1,502,787 $1.04 Stock options 43,111 Diluted earnings per share 1,545,898 $1.01
NOTE 4 - Comprehensive Income As of January 1, 1998, Vintage Bank adopted FASB Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS 130). This Statement established standards for the reporting and display of comprehensive income and its components in the financial statements. For the Bank, comprehensive income includes net income reported on the statement of income and changes in the fair value of its available-for-sale investments reported as a component of shareholders' equity. The following table presents net income adjusted by the change in unrealized gains or losses on the available-for-sale investments as a component of comprehensive income (in thousands). 72 Nine months ended September 30, 1999 1998 ------------------------------------- Net income $2,038 $1,561 Net change in unrealized gains on available-for-sale investments net of tax (1,064) 226 ------- ------ Comprehensive income $974 $1,787 ====== ====== NOTE 5 - Segment Reporting Effective January 1, 1998, the Bank adopted Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information, (SFAS 131). This Statement establishes standards for the reporting and display of information about operating segments and related disclosures. The Bank's only operating segment consists of its traditional community banking activities provided through its branches. Community banking activities include the Bank's commercial and retail lending, deposit gathering and investment and liquidity management activities. As permitted under the Statement, the Bank has aggregated the results of the branches into a single reportable segment. The combined results are reflected in the financial statements. ACCOUNTING AND REPORTING CHANGES In 1998, the Financial Accounting Standards Board issued SFAS NO. 133, Accounting for Derivative Instruments and Hedging Activities (*SFAS 133). The statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statements of financial position and measure those instruments at fair value. Effective July 1, 1999, the Bank adopted SFAS NO. 133, Accounting for Derivative Instruments and Hedging Activities. The adoption of SFAS 133 did not materially impact the financial position or results of operations. The Bank does not currently utilize derivative instruments in its operations, and does not engage in hedging activities. Under the provisions of SFAS NO. 133, and in connection with the adoption of SFAS 133, the Bank reclassified investment securities carried at $13,506,000 with a market value of $13,242,000 from the held to maturity classification to the available for sale classification. As a result of this transfer, an unrealized loss of $155,000, net of tax, was recognized in accumulated other comprehensive income as a cumulative effect of change in accounting principle. 73 Audited Financial Statements
======================================================================================================== BALANCE SHEETS ======================================================================================================== December 31, 1998 and 1997 1998 1997 ------------ ------------ ASSETS CASH AND DUE FROM BANKS $ 8,401,566 $ 12,621,181 FEDERAL FUNDS SOLD 6,000,000 5,000,000 ------------ ------------ Cash and cash equivalents 14,401,566 17,621,181 TIME DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS 200,000 200,000 INVESTMENT SECURITIES: Held-to-maturity (fair value of $13,756,772 in 1998 and $4,175,745 in 1997) 13,512,384 4,017,714 Available-for-sale 48,505,658 35,549,277 ------------ ------------ TOTAL INVESTMENT SECURITIES 62,018,042 39,566,991 LOANS, net of allowance for loan losses of $1,751,693 in 1998 and $1,532,128 in 1997 94,775,177 80,990,762 BANK PREMISES AND EQUIPMENT, net 2,733,834 2,976,018 INTEREST RECEIVABLE AND OTHER ASSETS 6,161,931 5,627,280 ------------ ------------ Total assets $180,290,550 $146,982,232 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS: Demand $ 39,469,756 $ 33,203,445 Interest-bearing transaction 54,500,653 37,353,837 Time and savings 68,202,797 60,832,917 ------------ ------------ Total deposits 162,173,206 131,390,199 INTEREST PAYABLE AND OTHER LIABILITIES 1,207,313 1,106,151 ------------ ------------ Total liabilities 163,380,519 132,496,350 COMMITMENTS AND CONTINGENT LIABILITIES (Note 5) SHAREHOLDERS' EQUITY: Preferred stock, no par value - Authorized 1,000,000 shares Issued and outstanding - None Common stock, no par value - Authorized 2,000,000 shares Issued and outstanding - 1,437,491 shares in 1998 and 1,326,857 shares in 1997 11,003,574 8,824,139 Retained earnings 5,521,351 5,360,816 Accumulated other comprehensive income 385,106 300,927 ------------ ------------ Total shareholders' equity 16,910,031 14,485,882 Total liabilities and shareholders' equity $180,290,550 $146,982,232 ============ ============ The accompanying notes are an integral part of these statements.
74
======================================================================================================== INCOME STATEMENTS ======================================================================================================== For the Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996 -------------- --------------- --------------- INTEREST INCOME: Interest and fees on loans $8,465,003 $7,537,434 $6,575,665 Interest on federal funds sold 461,039 142,480 602,984 Interest on investment securities 2,472,704 2,144,912 1,685,287 Interest on tax exempt investment securities 496,666 249,000 277,984 Interest on time deposits with other financial institutions 11,018 11,443 11,714 -------------- --------------- --------------- Total interest income 11,906,430 10,085,269 9,153,634 -------------- --------------- --------------- INTEREST EXPENSE: Interest on interest-bearing transaction deposits 1,104,570 595,046 552,179 Interest on time and savings deposits 2,886,573 2,520,219 2,310,812 Interest on short term borrowings 683 26,240 118,626 -------------- --------------- --------------- Total interest expense 3,991,826 3,141,505 2,981,617 -------------- --------------- --------------- Net interest income 7,914,604 6,943,764 6,172,017 PROVISION FOR LOAN LOSSES 240,000 240,000 240,000 -------------- --------------- --------------- Net interest income after provision for loan losses 7,674,604 6,703,764 5,932,017 NONINTEREST INCOME: Service charges on deposit accounts 743,291 674,219 582,343 Gain (loss) on securities transactions, net 65,278 395,252 (63,348) Gain (loss) on sale of other real estate owned (2,512) 24,180 0 Other 591,101 349,822 256,888 -------------- --------------- --------------- Total noninterest income 1,397,158 1,443,473 775,883 -------------- --------------- --------------- NONINTEREST EXPENSE: Salaries and related benefits 3,068,958 2,636,617 2,147,691 Occupancy 392,357 360,744 181,568 Equipment 450,118 474,141 391,463 Other 1,748,593 1,578,659 1,267,735 -------------- --------------- --------------- Total noninterest expense 5,660,026 5,050,161 3,988,457 -------------- --------------- --------------- Income before provision for income taxes 3,411,736 3,097,076 2,719,443 PROVISION FOR INCOME TAXES 1,301,000 1,243,000 1,073,000 -------------- --------------- --------------- NET INCOME $2,110,736 $1,854,076 $1,646,443 ============== =============== =============== BASIC EARNINGS PER SHARE: $1.41 $1.30 $1.17 DILUTED EARNINGS PER SHARE: $1.37 $1.26 $1.15 The accompanying notes are an integral part of these statements.
75
==================================================================================================================================== STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ==================================================================================================================================== For the Years Ended December 31, 1998, 1997 and 1996 Accumulated Other Total Common Retained Comprehensive Shareholders' Comprehensive Stock Earnings Income Equity Income ----- -------- ------ ------ ------ BALANCE, DECEMBER 31, 1995 $6,726,026 $3,698,372 $33,960 $10,458,358 Stock dividend 530,968 (537,373) (6,405) Cash dividend (203,332) (203,332) Comprehensive income: Net income 1,646,443 1,646,443 1,646,443 Other comprehensive income, net of tax: Change in net unrealized gains on available-for-sale securities, net of tax of $53,575 net of reclassification adjustment (Note 17) 74,748 ---------- Total other comprehensive income 74,748 74,748 74,748 ---------- Comprehensive income 1,721,191 Stock options exercised 146,316 146,316 ---------- --------- ------- ---------- BALANCE, DECEMBER 31, 1996 7,403,310 4,604,110 108,708 12,116,128 Stock dividend 872,871 (883,992) (11,121) Cash dividend (213,378) (213,378) Comprehensive income: Net income 1,854,076 1,854,076 1,854,076 Other comprehensive income, net of tax: Change in net unrealized gains on available-for-sale securities, net of tax of $137,771 net of reclassification adjustment (Note 17) 192,219 ---------- Total other comprehensive income 192,219 192,219 192,219 ---------- Comprehensive income 2,046,295 Stock options exercised 547,958 547,958 ---------- --------- ------- ---------- BALANCE, DECEMBER 31, 1997 8,824,139 5,360,816 300,927 14,485,882 Stock dividend 1,669,700 (1,681,208) (11,508) Cash dividend (268,993) (268,993) Comprehensive income: Net income 2,110,736 2,110,736 2,110,736 Other comprehensive income, net of tax: Change in net unrealized gains on available-for-sale securities, net of tax of $60,334 net of reclassification adjustment (Note 17) 84,179 ---------- Total other comprehensive income 84,179 84,179 84,179 ---------- Comprehensive income 2,194,915 ========== Stock options exercised 509,735 509,735 ---------- --------- ------- ---------- BALANCE, DECEMBER 31, 1998 $11,003,574 $5,521,351 $385,106 $16,910,031
76
======================================================================================================= STATEMENTS OF CASH FLOWS ======================================================================================================= For the Years Ended December 31, 1998, 1997 and (In 000's) 1996 (In 000's) 1998 1997 1996 -------- -------- -------- Cash Flows From Operating Activities: Net income $ 2,111 $ 1,854 $ 1,646 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 388 404 308 Provision for loan losses 240 240 240 Amortization of deferred loan fees (161) (149) (187) Amortization (accretion) of investment securities premiums (discounts), net (60) (14) 57 Provision for deferred income taxes 0 47 (11) Loss (gain) on sale of OREO 3 (24) 0 Loss (gain) on sale or retirement of capital assets 0 0 11 Net loss (gain) on securities transactions (65) (395) 63 Changes in: Interest receivable and other assets (595) (2,875) (524) Interest payable and other liabilities 102 332 96 -------- -------- -------- Total adjustments (148) (2,434) 53 -------- -------- -------- Net cash provided (used) by operating activities 1,963 (580) 1,699 -------- -------- -------- Cash Flows From Investing Activities: Investment securities held to maturity: Proceeds from maturities and principal payments 540 1,530 1,744 Purchases (10,043) (749) (700) Investment securities available for sale: Proceeds from maturities and principal payments 17,786 2,348 5,210 Proceeds from sales and recoveries 4,341 4,411 14,798 Purchases (34,809) (8,849) (29,904) Net increase in loans (13,874) (10,302) (8,174) Proceeds from sale of OREO 11 366 369 Capital expenditures (146) (702) (631) -------- -------- -------- Net cash used in investing activities (36,194) (11,947) (17,288) -------- -------- -------- Cash Flows From Financing Activities: Net increase in deposits 30,783 21,541 13,361 Payments of notes payable 0 0 (2,500) Stock options exercised 510 548 146 Dividends (281) (224) (210) -------- -------- -------- Net cash provided by financing activities 31,012 21,865 10,797 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (3,219) 9,338 (4,792) Cash and cash equivalents at beginning of year 17,621 8,283 13,075 -------- -------- -------- Cash and cash equivalents at end of year $ 14,402 $ 17,621 $ 8,283 ======== ======== ======== Supplemental Disclosures of Cash Flow Information: Interest paid $ 3,984 $ 2,987 $ 2,967 Income taxes paid $ 1,254 $ 1,232 $ 1,217 Supplemental Disclosures of Noncash Investing and Financing Activities: Transfer of loan to other real estate owned $ 0 $ 0 $ 711 Retirements of fixed assets $ 0 $ 0 $ 34
77 ================================================================================ NOTES TO FINANCIAL STATEMENTS ================================================================================ December 31, 1998, 1997 and 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Vintage Bank (the "Bank") is a California state chartered bank. The Bank operates three branches in the California County of Napa. The Bank offers a full range of commercial banking services to individuals and the business and agricultural communities of Napa County. Most of the Bank's customers are retail customers and small to medium-sized businesses. The accounting and reporting policies of the Bank conform with generally accepted accounting principles and general practice within the banking industry. The more significant accounting and reporting policies are discussed below. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment securities Investments in debt and equity securities are classified as "held-to-maturity" or "available-for-sale". Investments classified as held-to-maturity are those which the Bank has the ability and the intent to hold until maturity, and are reported at cost, adjusted for the amortization or accretion of premiums or discounts. 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 included in shareholders' equity. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses are computed on the specific identification method. Securities deemed permanently impaired are written down in the period such a determination is made. Loans Loans are stated at the principal amount outstanding, net of unearned income. Nonrefundable loan origination fees and loan origination costs are deferred and amortized into income over the contractual life of the loan. Interest income is accrued on a simple interest basis. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. The Bank's policy is to place loans on nonaccrual status when management believes that the borrower's financial condition, after giving consideration to economic and business conditions and collection efforts, is such that the presumption of collectibility of interest no longer is prudent. In determining income recognition on loans, generally no interest is recognized with respect to loans on which a default of interest or principal has occurred for a period of 90 days or more. Allowance for loan losses The Bank maintains an allowance for loan losses at a level considered adequate to provide for probable losses inherent in the existing loan portfolio. The allowance is increased by provisions for loan losses and reduced by net charge-offs. The allowance for loan losses is based on estimates and ultimate losses may vary from current estimates. These estimates are reviewed periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known. The Bank makes credit reviews of the loan portfolio and considers current economic conditions, historical loan loss experience and other factors in determining the adequacy of the allowance balance. The Bank defines a loan as impaired when it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's original effective interest rate or based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. Other real estate owned Other real estate owned represents real estate acquired through foreclosure and is carried at the lower of cost or fair value, less estimated selling costs. Bank premises and equipment Bank premises, leasehold improvements, furniture, fixtures and equipment are carried at cost, net of accumulated depreciation and amortization, which are calculated on a straight-line basis over 78 the estimated useful life of the property or the term of the lease (if less). Bank premises are depreciated over forty years, furniture and fixtures are depreciated over five to fifteen years, and equipment is generally depreciated over three to five years. Income taxes For financial reporting purposes, the Bank records a provision for income taxes using the liability method of accounting. A deferred tax liability or asset is recorded for all temporary differences between financial and tax reporting. Deferred tax expense or benefit results from the net change during the year of the deferred tax assets and liabilities. The measurement of tax assets and liabilities is based on the provisions of enacted tax laws. Statements of cash flows The Bank defines cash and due from banks and federal funds sold as cash and cash equivalents for the statements of cash flows. Stock-based compensation The Bank uses the intrinsic value method to account for its stock option plans (in accordance with the provisions of Accounting Principles Board Opinion No. 25). 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, Accounting for Stock-Based Compensation (SFAS 123) permits companies to continue using the intrinsic value method to account for stock option plans. 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 Bank has elected to continue to use the intrinsic value method and the pro forma disclosures required by SFAS 123 using the fair value method and are included in Note 12. Earnings per common share In 1997, the Bank adopted SFAS No. 128, "Earnings Per Share", which establishes standards for computing and presenting earnings per share (EPS). It replaced the presentation of primary and fully diluted EPS with a presentation of basic and diluted EPS. It also requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The implementation of this statement had no effect on Vintage Bank's reported financial position or net income. As a result of adopting SFAS No. 128, earnings per share data for all prior periods has been restated. Segment reporting Effective January 1, 1998, the Bank adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," (SFAS 131). This Statement establishes standards for the reporting and display of information about operating segments and related disclosures. The Bank's only operating segments consist of its traditional community banking activities provided through its branches. Community banking activities include the Bank's commercial and retail lending, deposit gathering and investment and liquidity management activities. As permitted under the Statement, the Bank has aggregated the results of the branches into a single reportable segment. The combined results are reflected in the financial statements. Future financial accounting standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedged accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedge item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement 133 is effective for fiscal years beginning after June 15, 1999 and the Bank plans to adopt its provisions effective January 1, 2000. While the Bank does not currently utilize any traditional derivative instruments (options, swaps, forwards, etc.) in its business, certain of its loans and other financial instruments may have embedded derivatives such as call or put features that would be required to be accounted for differently under this Statement as compared to current accounting principles. The Bank has not yet quantified the impacts, if any, of adopting Statement 133 on its financial statements. 79 (2) INVESTMENT SECURITIES The amortized cost and approximate fair value of investment securities at December 31, 1998 are as follows:
Gross Gross Amortized Unrealized Unrealized Approximate Cost Gains Losses Fair Value ----------- ----------- ----------- ----------- Held-to-maturity: Municipal securities $13,512,384 $ 289,032 $ 44,644 $13,756,772 =========== =========== =========== =========== Available-for-sale: Equity securities $ 777,200 $ 0 $ 0 $ 777,200 Securities of the US Treasury and other government agencies 11,531,766 172,189 523 11,703,432 Corporate debt securities 12,272,305 179,936 7 12,452,234 Mortgage-backed securities 23,265,298 340,384 32,890 23,572,792 ----------- ----------- ----------- ----------- $47,846,569 $ 692,509 $ 33,420 $48,505,658 =========== =========== =========== =========== The amortized cost and approximate fair value of investment securities at December 31, 1997 are as follows: Gross Gross Amortized Unrealized Unrealized Approximate Cost Gains Losses Fair Value ----------- ----------- ----------- ----------- Held-to-maturity: Municipal securities $ 4,017,714 $ 158,031 $ 0 $ 4,175,745 =========== =========== =========== =========== Available-for-sale: Equity securities $ 688,400 $ 0 $ 0 $ 688,400 Securities of the US Treasury and other government agencies 7,508,676 79,898 0 7,588,574 Corporate debt securities 8,650,197 86,097 3 8,736,291 Mortgage-backed securities 18,186,983 361,497 12,468 18,536,012 ----------- ----------- ----------- ----------- $35,034,256 $ 527,492 $ 12,471 $35,549,277 =========== =========== =========== =========== The following table shows the amortized cost and estimated fair value of investment securities by contractual maturity at December 31, 1998: Gross Gross Amortized Unrealized Unrealized Approximate Cost Gains Losses Fair Value ----------- ----------- ----------- ----------- Within one year $ 0 $ 0 $ 3,509,873 $ 3,529,389 After one but within five years 1,513,655 1,578,949 15,762,676 16,038,049 After five but within ten years 4,839,580 4,911,695 1,022,083 1,034,590 Over ten years 7,159,149 7,266,128 3,509,439 3,553,639 Equity securities 0 0 777,200 777,200 Mortgage-backed securities 0 0 23,265,298 23,572,791 ----------- ----------- ----------- ----------- Total $13,512,384 $13,756,772 $47,846,569 $48,505,658 =========== =========== =========== ===========
As of December 31, 1998 and 1997 securities carried at $2,067,813 and $2,028,125, respectively, were pledged to secure public and other deposits as required by law. Total proceeds from the sale of securities available for sale during 1998 were $4,327,823. Gross gains of $52,600 were realized on those sales. The Bank also recovered $12,678 on previously charged off securities. Total proceeds from the sale of securities available for sale during 1997 were $4,003,516. Gross gains of $7,699 and gross losses of $19,377 were realized on those sales. The Bank also recovered $406,930 on previously charged off securities. 80 (3) LOANS AND ALLOWANCE FOR LOAN LOSSES At December 31, 1998 and 1997, the loan portfolio consisted of the following, net of deferred loan fees of $439,302 and $289,570 respectively: 1998 1997 ----------- ----------- Real estate loans $51,643,406 $34,089,199 Installment loans 18,460,555 15,918,156 Construction loans 5,950,207 6,446,381 Commercial loans secured by real estate 6,062,585 9,610,793 Commercial loans 14,410,117 16,458,361 ----------- ----------- 96,526,870 82,522,890 Less allowance for loan losses 1,751,693 1,532,128 ----------- ----------- $94,775,177 $80,990,762 =========== =========== Nonaccrual loans were $88,694 at December 31, 1998 and $466,051 at December 31, 1997. As a result of being placed on nonaccrual status, approximately $65,905 and $20,595 in interest income was foregone during 1997 and 1996, respectively. There was no interest foregone during 1998. As of December 31, 1998 and 1997, there were no loans 90 days or more past due but still accruing interest. Changes in the allowance for loan losses are as follows:
1998 1997 1996 ----------- ----------- ----------- Balance, beginning of year $ 1,532,128 $ 1,474,437 $ 1,326,186 Provision for loan losses 240,000 240,000 240,000 Loans charged off (59,210) (195,903) (127,519) Recoveries of loans previously charged off 38,775 13,594 35,770 ----------- ----------- ----------- Balance, end of year $ 1,751,693 $ 1,532,128 $ 1,474,437 =========== =========== ===========
As of December 31, 1998 and 1997, the Bank's recorded investment in impaired loans was $1,174,054 and $2,146,434, respectively, and the related valuation allowance as of those dates was $120,000 and $140,000. This valuation allowance is included in the allowance for loan losses on the balance sheet. The average record investment in impaired loans was $1,660,000, $1,906,000 and $1,742,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful in which case payments received are recorded as reductions of principal. The Bank recognized interest income on impaired loans of $106,379, $202,262 and $136,974 in 1998, 1997 and 1996, respectively. 81 (4) BANK PREMISES AND EQUIPMENT Bank premises and equipment at December 31, 1998 and 1997 consisted of the following:
Accumulated Net Depreciation Book Cost & Amortization Value ---------- -------------- ---------- 1998 Land $ 706,277 $ 0 $ 706,277 Bank premises 1,611,508 337,419 1,274,089 Furniture, fixtures and equipment 2,368,523 1,838,755 529,768 Leasehold improvements 312,335 88,635 223,700 ---------- ---------- ---------- $4,998,643 $2,264,809 $2,733,834 ========== ========== ========== 1997 Land $ 706,277 $ 0 $ 706,277 Bank premises 1,598,570 290,336 1,308,234 Furniture, fixtures and equipment 2,243,332 1,531,282 712,050 Leasehold improvements 304,016 54,559 249,457 ---------- ---------- ---------- $4,852,195 $1,876,177 $2,976,018 ========== ========== ==========
Depreciation and amortization expense, included in occupancy expense and equipment expense, was $388,632, $403,593 and $307,621 in 1998, 1997 and 1996, respectively. (5) COMMITMENTS AND CONTINGENCIES The Bank leases the premises for its Brown's Valley and Bel Aire Offices. Total rent was $128,043, $113,271 and $38,489 in 1998, 1997 and 1996, respectively, and is included in occupancy and equipment expenses. The total commitments under non-cancelable leases are as follows: Year Total ---- ----- 1999 $119,849 2000 119,568 2001 94,092 2002 100,716 2003 100,716 Thereafter 302,148 -------- Total $837,089 ======== (6) TIME DEPOSITS AND INTEREST ON TIME DEPOSITS Time certificates of deposit in denominations of $100,000 or more totaled $17,443,413 and $14,765,376 at December 31, 1998 and 1997, respectively. Interest expense on these deposits was $831,094, $717,442 and $624,560 for 1998, 1997 and 1996, respectively. At December 31, 1998, the scheduled maturities of CD's are as follows: Year Total ---- ----- 1999 $47,689,225 2000 4,071,499 2001 870,824 2002 390,191 2003 639,864 ----------- $53,661,603 =========== 82 (7) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Bank makes commitments to extend credit in the normal course of business to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank is exposed to credit loss, in the event of nonperformance by the borrower, in the contract amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments and evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank is based on management's credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, plant and equipment and real property. The Bank also issues standby letters of credit which are conditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support construction bonds, private borrowing arrangements and similar transactions. Most of these guarantees are short-term commitments expiring in decreasing amounts through 1999 and are not expected to be drawn upon. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral as deemed necessary, as described above. The contract amounts of commitments not reflected on the Balance Sheet at December 31, 1998 were as follows: Contract Amounts ---------------- Loan Commitments $27,964,000 Standby Letters of Credit $ 1,584,000 (8) CONCENTRATIONS OF CREDIT RISKS The majority of the Bank's loan activity is with customers located in Napa County, California. Although the Bank has a diversified loan portfolio, a large portion of its loans is for construction of residences, and many of the Bank's commercial loans are secured by real estate in Napa County. Approximately 82% of the Bank's loans are secured by real estate. This concentration is presented below: (In 000's) As of December 31, 1998 ----------------- Construction/Land Development: Land Development $ 1,640 Owner Occupied Residential 3,733 Non-owner Occupied Residential 440 Commercial 137 Real Estate 51,643 Commercial - Real Estate Secured 6,063 Installment - Real Estate Secured 15,244 ------- Total $78,900 ======= (9) INCOME TAXES The provision for (benefits from) federal and state income taxes for the years ended December 31, 1998, 1997 and 1996 consisted of: 1998 1997 1996 ----------- ----------- ----------- Current Federal $ 926,000 $ 873,000 $ 776,600 State 381,000 323,000 307,100 ----------- ----------- ----------- 1,307,000 1,196,000 1,083,700 Deferred Federal (1,000) 31,500 (26,600) State (5,000) 15,500 15,900 ----------- ----------- ----------- $ (6,000) 47,000 $ (10,700) ----------- ----------- ----------- Total $ 1,301,000 $ 1,243,000 $ 1,073,000 =========== =========== =========== 83 Deferred tax assets and liabilities result from differences in the timing of the recognition of certain income and expense items for tax and financial accounting purposes. The sources of these differences and the amount of each are as follows as of December 31, 1998 and 1997: 1998 1997 -------- -------- Deferred Tax Assets: Tax loan loss provision less than book $674,000 $642,200 Other 171,000 139,700 -------- -------- $845,000 $781,900 ======== Deferred Tax Liabilities: Tax benefit on unrealized securities gains $274,000 $214,100 Cumulative difference between cash and accrual basis reporting 0 Accumulated accretion 36,000 24,800 Tax depreciation more than book 60,000 31,600 Federal tax benefits on state taxes due 65,000 45,800 Other 230,000 233,800 -------- -------- 665,000 550,100 -------- -------- Net Deferred Tax Asset $180,000 $231,800 ======== ======== The Bank had no valuation allowance as of December 31, 1998 or 1997. The total tax differs from the federal statutory rate of 34% because of the following:
1998 1997 1996 ---- ---- ---- Amount Rate Amount Rate Amount Rate ----------- ----- ----------- ----- ----------- ----- Tax provision at statutory rate $ 1,160,000 34% $ 1,053,000 34% $ 924,600 34% Interest on obligations of states and political subdivisions exempt from federal taxation (154,000) (3%) (77,000) (3%) (87,600) (3%) State franchise taxes 245,000 7% 221,500 7% 194,400 7% Other, net 50,000 2% 45,500 2% 41,600 2% ----------- ----- ----------- ----- ----------- ----- $ 1,301,000 40% $ 1,243,000 40% $ 1,073,000 40% =========== ===== =========== ===== =========== =====
(10) DIVIDEND RESTRICTIONS The Bank is regulated by the Board of Governors of the Federal Reserve System and by the State of California Department of Financial Institutions. Federal Reserve Board regulations prohibit cash dividends, except under limited circumstances, if the distribution would result in a withdrawal of capital or exceed the Bank's net profits then on hand, after deducting its losses and bad debts. Furthermore, cash dividends cannot be paid without the prior written approval of the Federal Reserve Board if the total of all dividends declared in one year exceeds the total of net profits for that year plus the preceding two calendar years, less any required transfers to surplus under state or federal law. California banking laws limit cash dividends to the lesser of retained earnings or net income for the last three years, net of the amount of any other distribution made to shareholders during such period. As of December 31, 1998, the Bank had retained earnings of $5,521,351 eligible for dividends. 84 (11) SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE The Bank declared 5% stock dividends on January 22, 1996, January 27, 1997, January 26, 1998 and January 28, 1999. As a result of the stock dividends and stock split, the number of common shares outstanding and earnings per share data was adjusted retroactively for all periods presented. The following table reconciles the numerator and denominator of the Basic and Diluted earnings per share computations:
Weighted Average Per-Share Net Income Shares Amount ---------- ------ ------ For the year ended 1998 ----------------------- Basic earnings per share $2,110,736 1,496,266 $1.41 Stock options 46,510 Diluted earnings per share 1,542,776 $1.37 For the year ended 1997 ----------------------- Basic earnings per share $1,854,076 1,429,785 $1.30 Stock options 46,110 Diluted earnings per share 1,475,895 $1.26 For the year ended 1996 ----------------------- Basic earnings per share $1,646,443 1,405,051 $1.17 Stock options 23,990 Diluted earnings per share 1,429,041 $1.15
(12) STOCK OPTION PLAN The Bank has a stock option plan. The Bank may grant up to 337,211 options under the plan. The Bank has granted 271,757 options through December 31, 1998. The option exercise price equals the stock's market price on the date of grant. The options become exercisable over five years and expire in five to ten years. A summary of the status of the Company's stock option plan at December 31, 1998, 1997 and 1996 and stock option activity during the years then ended is presented in the table below:
1998 1997 1996 ---- ---- ---- Weighted Weighted Weighted Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding at beginning of year 210,111 $11.14 135,256 $ 6.26 163,787 $5.44 Granted 4,200 $19.88 132,300 $14.16 12,733 $7.99 Exercised (46,273) $ 6.24 (52,213) $ 5.82 (41,264) $3.54 Cancelled 0 $ 0 (5,232) $ 6.47 0 $0 Outstanding at end of year 168,038 $12.96 210,111 $11.14 135,256 $6.26 Exercisable at end of year 30,827 $ 9.56 44,136 $ 6.13 70,450 $6.07 Weighted-average fair value of options granted- during the year -- $ 6.97 -- $ 5.81 -- $2.84
85 The following table summarizes information about stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable Range Number Weighted-Average Weighted-Average Number Exercisable Weighted. of Outstanding Remaining Exercise at -Average Exercise Prices at 12/31/98 Contractual Life Price 12/31/98 Exercise Price --------------- ----------- ---------------- ----- -------- -------------- $ 6.46 to $7.90 31,958 1.00 $7.00 19,340 $6.74 $14.06 to $19.88 136,080 3.99 $14.36 11,487 $14.29 ------- 168,038
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1998, 1997 and 1996, respectively: risk-free interest rate of 4.62% for options issued in 1998, 6.33% and 6.65% for options issued in 1997 and 5.24% for options issued in 1996; expected dividend yields of .94%, 1.01% and 1.81%; expected lives of 6 years and expected volatility of 30.85%. The Bank accounts for stock options under APB Opinion No. 25. Had the Bank used the fair value based method prescribed by SFAS No. 123, the Bank's net income and earnings per share amounts would have been reduced to the pro forma amounts indicated below: 1998 1997 1996 ---- ---- ---- Net Income: As Reported $2,110,736 $1,854,076 $1,646,443 Pro Forma $1,984,791 $1,733,004 $1,641,237 Earnings Per Share: As Reported: Basic $1.41 $1.30 $1.17 Diluted $1.37 $1.26 $1.15 Pro Forma: Basic $1.33 $1.27 $1.23 Diluted $1.29 $1.23 $1.21 (13) RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bank makes loans to directors, officers and principal shareholders on substantially the same terms, including interest rates and collateral, as those for comparable transactions with unaffiliated persons. An analysis of net loans to related parties for the year ended December 31, 1998 is as follows: (In 000's) Balance at beginning of year $4,032 Additions 1,610 Repayments (1,537) ------- Balance at end of year $4,105 Total undisbursed commitments as of December 31, 1998 were $704,254. A law firm in which one of the Bank's directors and one of its officers are principals serves as the Bank's general counsel. During 1998, 1997 and 1996 fees of $38,000, $31,000 and $26,000, respectively, were paid to this firm. 86 (14) RESTRICTIONS The Bank is required to maintain reserves with the Federal Reserve Bank equal to a percentage of its reservable deposits. Reserve balances that were required by the Federal Reserve Bank were $1,506,000 and $1,072,000 for December 31, 1998 and 1997, respectively. (15) RETIREMENT PLANS The Bank has a Profit Sharing and Salary Deferral 401(K) Plan to enable its employees to share in the Bank's profits and to defer receipt of a portion of their salaries. Employees can defer up to 15% of their base pay, up to the maximum amount allowed by the Internal Revenue Code. In addition, the Bank makes discretionary contributions to the profit sharing account and the 401(K) account, which are determined by the Board of Directors each year. Amounts charged to operating expenses under this plan were $120,000, $109,000 and $88,000 for the years ended December 31, 1998, 1997 and 1996, respectively. During 1998, the Bank implemented a Director's Supplemental Retirement Program. The Program contains a non-qualified defined benefit plan and a non-qualified defined contribution plan. Directors and select officers designated by the Board of Directors of the Bank are covered by one or the other of these plans. The plans are unfunded, however the Bank has purchased insurance on the lives of the participants and intends to use the cash values of these policies ($2,540,456 at December 31, 1998) to pay the retirement obligations. (16) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and fair values of the Bank's financial instruments at December 31, 1998 and 1997: Carrying Fair Carrying Fair Amounts Value Amounts Value -------- -------- -------- -------- (In 000's) 1998 1997 -------------------------- ---------------------------- Financial Assets: Cash and cash equivalents $ 14,402 $ 14,402 $ 17,621 $ 17,621 Time deposits with other financial institutions 200 200 200 200 Investment securities 62,018 62,262 39,567 39,725 Loans, net 94,775 95,828 80,991 81,542 Accrued interest receivable 1,335 1,335 951 951 Financial Liabilities: Deposits $162,173 $162,385 $131,390 $131,507 Accrued interest payable 509 509 501 501
SFAS No. 107, Disclosures about Fair Value of Financial Instruments - SFAS No. 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents - Cash and cash equivalents are valued at their carrying amounts because of the short-term nature of these instruments. Investment Securities - Investment securities are valued at quoted market prices. See Note 2 for further analysis. Loans - Loans with variable interest rates are valued at the current carrying value, because these loans are regularly adjusted to market rates. The fair value of fixed rate loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. The fair value of impaired loans is stated net of the related valuation allowance, if any. 87 Accrued interest receivable - The balance approximates its fair value. Accrued interest payable - The balance approximates its fair value. Deposits, time deposits with other banks - The fair value of demand deposits, savings accounts and interest-bearing transaction accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the contractual cash flows at current rates offered for similar instruments with the same remaining maturities. (17) COMPREHENSIVE INCOME As of January 1, 1998, the Bank adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS 130). This Statement established standards for the reporting and display of comprehensive income and its components in the financial statements. For the Bank, comprehensive income includes net income reported on the statement of income and changes in the fair value of its available-for-sale investments reported as a component of Stockholders' Equity. The changes in the components of other comprehensive income for the years ended December 31 1998, 1997 and 1996 are reported as follows:
1998 1997 1996 ---- ---- ---- Holding gain arising during the period, net of tax $122,321 $421,412 $37,734 Reclassification adjustment for net realized gains on securities available-for-sale included in net income during the year, net of tax expenses of $27,136, $163,059 and tax benefits of $26,334, respectively (38,142) (229,193) 37,014 ---------- ---------- ------ Net gain recognized in other comprehensive income $84,179 $192,219 $74,748
(18) REGULATORY MATTERS The Bank is subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory--and possible additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1998, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1998, the most recent notification from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There were no conditions or events since that notification that management believes have changed the institution's category. 88 The Bank's actual capital amounts and ratios are also presented in the table below:
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions ---------------- ------------------- ------------------ (In 000's) Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of December 31, 1998: Total Capital (to Risk Weighted Assets) $18,100 14.39% $10,065 >8.0% $12,581 >10.0% - - Tier I Capital (to Risk Weighted Assets) 16,525 13.14% 5,032 >4.0% 7,548 >6.0% - - Tier I Capital (to Average Assets) 16,525 9.29% 7,114 >4.0% 8,892 >5.0% - - As of December 31, 1997: Total Capital (to Risk Weighted Assets) $15,513 14.63% $8,485 >8.0% $10,607 >10.0% - - Tier I Capital (to Risk Weighted Assets) 14,185 13.37% 4,243 >4.0% 6,364 >6.0% - - Tier I Capital (to Average Assets) 14,185 10.01% 5,666 >4.0% 7,083 >5.0% - -
89 ================================================================================ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ================================================================================ To the Shareholders and Board of Directors of Vintage Bank: We have audited the accompanying balance sheets of Vintage Bank (a California state-chartered Bank) as of December 31, 1998 and 1997 and the related statements of income, changes in shareholders' equity and cash flows for each of the three years ended December 31, 1998. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vintage Bank as of December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the three years ended December 31, 1998 in conformity with generally accepted accounting principles. San Francisco, California February 23, 1999 90 PART II Item 24. Indemnification of Directors and Officers Section 317 of the California Corporations Code authorizes a court to award, or a corporation's board of Directors to grant, indemnity to directors, officers, employees and other agents of the corporation in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933 as amended. Article VI. of the Articles of Incorporation of North Bay Bancorp provides for indemnification of agents including directors, officers and employees, through bylaws, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code. Article V. of North Bay's Articles further provides for the elimination of director liability for monetary damages to the maximum extent allowed by California law Section 48 of North Bay's Bylaws provides that North Bay shall indemnify its "agents", as defined in Section 317 of the California Corporations Code, to the full extent permitted by said Section, as amended from time to time, or as permitted by any successor statute to said Section. North Bay maintains insurance covering its directors, officers and employees against any liability asserted against any of them and incurred by any of them, whether or not North Bay would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of North Bay's Bylaws. Item 25. Other Expenses of Issuance and Distribution (1). All expenses of the Offering will be borne by North Bay. The following table sets forth an itemized estimate of such expenses: - -------------------------------------------------------------------------------- Registration Filing Fees $1,390 - -------------------------------------------------------------------------------- Financial Advisor 4,000 - -------------------------------------------------------------------------------- Transfer Agent Fees and Expenses 5,000 - -------------------------------------------------------------------------------- Blue Sky Filing Fees and Expenses 2,500 - -------------------------------------------------------------------------------- Printing and Engraving 25,000 - -------------------------------------------------------------------------------- Legal Fees and Expenses 75,000 - -------------------------------------------------------------------------------- Accounting Fees and Expenses 10,000 - -------------------------------------------------------------------------------- Miscellaneous 5,000 - -------------------------------------------------------------------------------- Total $112,890 - -------------------------------------------------------------------------------- (1) All expenses listed in the chart are estimates and subject to change prior to effectiveness. Item 26. Recent Sales of Unregistered Securities. On November 1, 1999, Vintage Merger Co. (a wholly-owned subsidiary of Registrant), merged with and into The Vintage Bank resulting in the shareholders of the Bank becoming the shareholders of the Registrant, and further resulting in the Bank becoming the wholly-owned subsidiary of the Registrant. The reorganization took place in accordance with a Plan of Reorganization and Merger Agreement entered into as of July 30, 1999 by and among Registrant, the Bank and Merger Co. Pursuant to the Plan of Reorganization each share of the Bank's outstanding Common Stock was converted into one share of Bancorp's Common Stock, resulting in the issuance of 1,536,568 shares of the Registrant's common stock. Shares of Registrant's common stock issued in consideration of the reorganization were issued pursuant to exemption from registration provided by Section 3(a)(12) of the Securities Act of 1933, as amended. Item 27. Exhibits 2.1 Plan of Reorganization and Merger Agreement entered into as of July 30, 1999 by and among The Vintage Bank, Vintage Merger Co. and North Bay Bancorp. (1) 3.1 Articles of Incorporation of Registrant. 3.2 Bylaws as amended of Registrant. 5.1 Opinion re: legality. 10.1 North Bay Bancorp Stock Option Plan 10.2 Employment Agreement with Terry L. Robinson 11. Statement re: computation of per share earnings is included in Note 1 to the financial statements to the prospectus included in Part I of this Registration Statement. 21. Subsidiaries of Registrant are: The Vintage Bank, a California banking corporation. 23.1 Consent of Counsel is included with the opinion re: legality as Exhibit 5.1 to the Registration Statement. 23.2 Consent of Arthur Andersen LLP as as independent public accountants for North Bay Bancorp and The Vintage Bank. 23.3 Consent of the Hoefer & Arnett as financial advisor to North Bay Bancorp.* 24. Power of Attorney 27. Financial Data Schedule 99.1 Opinion of Hoefer &Arnett dated __________ __, 2000 as financial advisor to North Bay Bancorp is attached as Exhibit I to the prospectus contained in Part I of this Registration Statement. * 99.2 Stock Subscription Application* * To be filed by amendment (1) Attached as Exhibit 7(c)(2) to North Bay Bancorp's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 29, 1999, and incorporated herein by reference. Item 28. Undertakings The undersigned Registrant hereby undertakes to: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value ofsecurities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) (ss.230.424(b) if, in the aggregate, the changes in the volume and represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus with is part of the registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Napa, State of California, on December 20, 1999. NORTH BAY BANCORP /s/ Terry L. Robinson ---------------------------------- By: Terry L. Robinson, President & Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
/s/ Terry L. Robinson , Director, December 20, 1999 - -------------------------------- Principal Executive Officer Terry L. Robinson /s/ David B. Gaw , Director December 20, 1999 - -------------------------------- David B. Gaw /s/ Conrad W. Hewitt , Director December 20, 1999 - -------------------------------- Conrad W. Hewitt /s/ Harlan R. Kurtz , Director December 20, 1999 - -------------------------------- Harlan R. Kurtz /s/ Richard S. Long , Director December 20, 1999 - -------------------------------- December 20, 1999 Richard S. Long /s/ Thomas H. Lowenstein , Director December 20, 1999 - -------------------------------- 20, 1999 Thomas H. Lowenstein /s/ Thomas F. Malloy , Director December 20, 1999 - -------------------------------- December 20, 1999 Thomas F. Malloy /s/ James Tidgewell , Director December 20, 1999 - -------------------------------- December 20, 1999 James Tidgewell /s/ Lee-Ann Almeida , Principal Financial Officer December 20, 1999 - -------------------------------- Lee-Ann Almeida
EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 Plan of Reorganization and Merger Agreement entered into as of July 30, 1999 by and among The Vintage Bank, Vintage Merger Co. and North Bay Bancorp. (1) 3.1 Articles of Incorporation of Registrant. 3.2 Bylaws as amended of Registrant. 5.1 Opinion re: legality. 10.1 North Bay Bancorp Stock Option Plan 10.2 Employment Agreement with Terry L. Robinson 11. Statement re: computation of per share earnings is included in Note 1 to the financial statements to the prospectus included in Part I of this Registration Statement. 22. Subsidiaries of Registrant are: The Vintage Bank, a California banking corporation. 23.1 Consent of Counsel is included with the opinion re: legality as Exhibit 5.1 to the Registration Statement. 23.2 Consent of Arthur Andersen LLP as independent public accountants for North Bay Bancorp and The Vintage Bank. 23.4 Consent of the Hoefer & Arnett as financial advisor to North Bay Bancorp.* 25. Power of Attorney 27. Financial Data Schedule 99.1 Opinion of Hoefer & Arnett dated __________ __, 2000 as financial advisor to North Bay Bancorp is attached as Exhibit I to the prospectus contained in Part I of this Registration Statement.* 99.2.1 Stock Subscription Application* *To be filed by amendment (1) Attached as Exhibit 7(c)(2) to North Bay Bancorp's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 29, 1999, and incorporated herein by reference. EX-3.1 2 ARTICLES OF INCORPORATION OF NORTH BAY BANCORP Exhibit 3.1 Articles of Incorporation of North Bay Bancorp ARTICLES OF INCORPORATION OF NORTH BAY BANCORP The undersigned Incorporator, for the purpose of forming a corporation under the General Corporation Law of the State of California, hereby certifies that: I. NAME The name of this corporation is North Bay Bancorp. II. PURPOSE The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III. AGENT FOR SERVICE OF PROCESS The name and complete business address in this State of the corporation's initial agent for service of process is Terry L. Robinson, Vintage Bank, 1500 Soscol Avenue, Napa, California 94558-9959. IV. AUTHORIZED STOCK (a) North Bay Bancorp (hereinafter the "Corporation") is authorized to issue two classes of shares, designated "Common Stock" and "Preferred Stock," respectively. The number of shares of Common Stock authorized to be issued is Ten Million (10,000,000) and the number of shares of Preferred Stock authorized to be issued is Five Hundred Thousand (500,000). (b) The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon the Preferred Stock or any series thereof with respect to any wholly unissued class or series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares 1 constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. V. LIABILITY LIMITATION (a) The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. VI. INDEMNIFICATION (a) The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaws, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code. VII. BUSINESS COMBINATIONS The shareholder vote required to approve Business Combinations (as herein defined) shall be as set forth in this Article VII. A. Certain Definitions. For purposes of this Article: (1) "Voting Stock" shall mean all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class (it being understood that, for purposes of this Article VII, each share of the Voting Stock shall have the number of votes granted to it pursuant to Article IV of these Articles of Incorporation or any designation of the rights, powers and preferences of any class or series of Preferred Stock made pursuant to said Article IV (a "Preferred Stock Designation"). (2) A "person" shall mean any individual, firm, corporation, trust, partnership, association or other entity. (3) "Affiliates", "affiliated" and "Associates" shall have the respective meaning ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 1, 1999. 2 (4) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph (6) of this Section A, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (5) A person shall be a "beneficial owner" or "beneficially own" or have "beneficial ownership" of any Voting Stock: (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote or to direct the voting thereof pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for purposes of acquiring, holding, voting or disposing of any shares of Voting Stock. (6) "Interested Shareholder" shall mean any person (other than the Corporation or any Subsidiary) who or which: (a) is the beneficial owner, directly or indirectly, of more than twenty percent (20%) of the voting power of the then-outstanding Voting Stock; or (b) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the voting power of the then-outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 3 (7) For the purposes of determining whether a person is an Interested Shareholder pursuant to paragraph (6) of this Section A, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph (5) of this Section A but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (8) "Continuing Director" means any member of the Board of Directors of the Corporation (the "Board") who is not affiliated with the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, or any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. (9) "Fair Market Value" means: (a) in the case of stock on a given date, the highest closing sale price during the 30-day period immediately preceding such date of a share of such stock on the Composite Tape for New York Exchange-Listed Stocks or, if such stock is not quoted on the Composite Tape of the New York Stock Exchange or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding such date on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use or, if no such quotations are available, the fair market value on such date of a share of such stock as determined by the Board in good faith; and (b) in the case of property other than cash or stock, the fair market value of such property on such date as determined by the Board in good faith. (10) "Business Combinations" shall include: (a) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Shareholder or (ii) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be an Interested Shareholder or an Affiliate or Associate of an Interested Shareholder; or (b) any sale, lease, exchange, mortgage, pledge, grant of a security interest, transfer or other disposition (in one transaction or a series of transactions) directly or indirectly to or with any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of ten percent 4 (10%) or more of the total value of the assets of the Corporation and its consolidated subsidiaries reflected in the most recent balance sheet of the Corporation; or (c) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $10,000,000 or more; or (d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder; except that this provision shall not limit the right of shareholders to elect voluntarily to wind up or dissolve the Corporation by the vote of shareholders holding shares of stock representing more than fifty percent (50%) of the stock then entitled to vote in the election of directors; or (e) any reclassification of the Corporation's securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving any Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate beneficial ownership of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder in the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary; or as a result of which the shareholders of the Corporation would cease to be shareholders of a corporation incorporated under the laws of the State of California having, as part of its articles of incorporation, provisions to the same effects as this Article VII. (11) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" shall include the shares of any class of outstanding Voting Stock retained by the holders of such shares. (12) "Announcement Date" shall mean the date of the first public announcement of a proposed Business Combination. (13) "Determination Date" shall mean the date on which the Interested Shareholder became an Interested Shareholder. (14) "Consummation Date" shall mean the date of the consummation of the Business Combination. 5 B. Voting Requirements. Except as otherwise provided in Section C of this Article VII, a Business Combination shall require (1) the affirmative vote of at least sixty-six and two thirds percent (66-2/3%) of the voting power of the then-outstanding Voting Stock and (2) the affirmative vote of the holders of at least a majority of the voting power of all the then-outstanding shares of the Voting Stock other than the Voting Stock of which an Interested Shareholder or an Affiliate is the beneficial owner, voting together as a single class. Such affirmative votes shall be required notwithstanding any other provisions of these Articles of Incorporation or any provision of law or of any agreement with any national securities exchange which might otherwise permit a lesser vote or no vote, but such affirmative votes shall be required in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, these Articles of Incorporation, any Preferred Stock Designation or otherwise. C. Price and Procedure Requirements. The provisions of Section B of this Article VII shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law, and any other provision of the Articles of Incorporation, any Preferred Stock Designation, any agreement with any national securities exchange or otherwise if, in the case of a Business Combination that does not involve any cash or other consideration being received by the shareholders of the Corporation, solely in their respective capacities as shareholders of the Corporation, the condition specified in the following paragraph (1) is met, or in the case of any other Business Combination, the conditions specified in either of the following paragraphs (1) or (2) are met: (1) The Business Combination shall have been approved by a majority of the Continuing Directors, it being understood that this condition shall not be capable of satisfaction unless there is at least one Continuing Director. (2) All of the following conditions shall have been met: (a) The aggregate amount of the cash and the Fair Market Value, as of the Consummation Date, of consideration other than cash to be received per share by holders of common shares of the Corporation in such Business Combination shall be not less than the highest of the following (in each case appropriately adjusted in the event of any stock dividend, stock split, combination of shares or similar event): (i) (if applicable) (a) the highest per share price (including any brokerage commissions, transfer taxes, and soliciting dealers' fees) paid by the Interested Shareholder for any common shares of the Corporation acquired or beneficially 6 owned by it that were acquired within the two-year period immediately prior to the Announcement Date or in the transaction in which it became an Interested Shareholder, whichever is higher, plus (b) interest thereon at the rate for 90-day United States Treasury obligations in effect on the Determination Date, calculated and compounded annually from that date until the Consummation Date, less the per share amount of cash dividends payable to holders of record on record dates occurring in the interim, up to the amount of such interest; (ii) the Fair Market Value per common share of the Corporation on the Announcement Date; or (iii) the Fair Market Value per common share of the Corporation on the Determination Date. (b) The aggregate amount of the cash and the Fair Market Value, as of the Consummation Date, of consideration other than cash to be received per share by the holders of less than the highest class (or series) of Voting Stock in such Business Combination shall be not less than the highest of the following (in each case appropriately adjusted in the event of any stock dividend, stock split, combination of shares or similar event), it being intended that the requirements of this paragraph (b) be met with respect to each class and series of Voting Stock, whether or not the Interested Shareholder has previously acquired any shares of a particular class or series: (i) (if applicable) (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of such class (or series) of Voting Stock acquired or beneficially owned by it that were acquired within the two-year period immediately prior to the Announcement Date or in the transaction in which it became an Interested Shareholder, whichever is higher, plus (b) interest thereon at the rate for 90-day United States Treasury obligations in effect on Determination Date, calculated and compounded annually from that date until the Consummation Date, less the per share amount of cash dividends payable to holders of record on record dates occurring in the interim, up to the amount of such interest; 7 (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class (or series) of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (iii) the Fair Market Value per share of such class (or series) of Voting Stock on the Announcement Date; and (iv) the Fair Market Value per share of such class (or series) of Voting Stock on the Determination Date. (c) The consideration to be received by holders of a particular class (or series) of Voting Stock shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such class (or series) of Voting Stock. If the Interested Shareholder has paid for shares of any class (or series) of Voting Stock with varying forms of consideration, the form of consideration for such class (or series) of Voting Stock shall be either cash or the form used to acquire the largest number of such shares. (d) All shares of Voting Stock of which the Interested Shareholder is not the beneficial owner immediately prior to the Consummation Date shall be exchanged in such Business Combination only for cash or other consideration meeting all of the terms and conditions of this Section C; provided, however, that the failure of any shareholder, exercising a statutory right to dissent from such Business Combination and to receive payment of the Fair Market Value of shares, to exchange shares in such Business Combination shall not be deemed to have prevented satisfaction of the condition set forth in this paragraph (d). (e) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; (ii) there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of Continuing Directors, and (II) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar 8 transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (iii) such Interested Shareholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder. (f) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately, solely in such Interested Shareholder's capacity as a shareholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any subsidiary of the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (g) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all shareholders of the Corporation at least thirty (30) days prior to the Consummation Date (whether or not such proxy or information statement is otherwise required) and the Continuing Directors, if there are any at the time, shall be provided a reasonable opportunity to state therein their views respecting such proposed Business Combination and to include therewith an opinion of an independent investment banker selected by the Continuing Directors with respect to such Business Combination. (h) A state or federal regulatory authority having jurisdiction under the circumstances shall have determined that the Business Combination is fair to the holders of the Voting Stock. D. Powers of the Board of Directors. A majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such determination as is hereinafter in this Section D specified is to be made by the Board) shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article VII, including, without limitation, (1) whether a person is an Interested Shareholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, and (4) whether 9 the applicable conditions set forth in Section C of this Article VII have been met with respect to any Business Combination. E. No Effect on Fiduciary Obligations or Interested Shareholders. Nothing contained in this Article VII shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. F. Amendment, Repeal, etc. Notwithstanding any other provision of these Articles of Incorporation or the Bylaws (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the Bylaws) the affirmative vote of the holders of at least sixty-six and two thirds percent (66-2/3%) or more of the outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal or adopt any provision inconsistent with this Article VII or any provisions thereof. VIII. EVALUATION OF BUSINESS COMBINATIONS, ETC. In connection with the exercise of its judgement in determining what is in the best interest of the Corporation and of the shareholders, when evaluating a "Business Combination," as defined in Article VII of these Articles of Incorporation, or a proposal by another person or persons to make a business combination or a tender or exchange offer, the Board of Directors of the Corporation shall, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it may deem relevant: (1) The social and economic effects of the transaction on the Corporation and its subsidiaries, employees, depositors, loan and other customers, creditors, and other elements of the communities in which the Corporation and its subsidiaries operate or are located; (2) The business and financial condition and earning prospects of the acquiring person or persons, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition and other likely financial obligations of the acquiring person or persons, and the possible effect of such condition upon the Corporation and its subsidiaries and the other elements of the communities in which the Corporation and its subsidiaries operate or are located; (3) The competence, experience and integrity of the acquiring person or persons and its or their management; (4) Whether the proposed transaction might violate federal or state law; and 10 (5) Not only the consideration being offered in a proposed transaction and related to the current market price for the outstanding capital stock of the Corporation, but also to the market price for the capital stock of the Corporation over a period of years, the estimated price that might be achieved in a negotiated sale of the Corporation as a whole or in part, and the Corporation's future value as an independent entity. IN WITNESS WHEREOF, the undersigned Incorporator has executed these Articles of Incorporation. /s/ R. Brent Faye ---------------------------------- R. Brent Faye, Incorporator DECLARATION I declare that I am the person who executed the foregoing Articles of Incorporation and that said instrument is my act and deed. Executed at San Francisco, California, this 7th day of June, 1999. /s/ R. Brent Faye ---------------------------------- R. Brent Faye 11 EX-3.2 3 BYLAWS, AS AMENDED, OF NORTH BAY BANCORP Exhibit 3.2 Bylaws, as amended, of North Bay Bancorp BYLAWS OF NORTH BAY BANCORP A California Corporation TABLE OF CONTENTS ARTICLE I. Offices.............................................................1 Section 1. Principal Office....................................1 Section 2. Other Offices.......................................1 ARTICLE II. Meetings of Shareholders...........................................1 Section 3. Place of Meetings...................................1 Section 4. Annual Meetings.....................................1 Section 5. Special Meetings....................................2 Section 6. Notice of Shareholders' Meetings....................2 Section 7. Quorum..............................................2 Section 8. Adjourned Meeting...................................3 Section 9. Waiver or Consent by Shareholders...................3 Section 10. Action Without Meeting..............................3 Section 11. Voting Rights; Cumulative Voting....................4 Section 12. Proxies.............................................4 Section 13. Voting by Joint Holders or Proxies..................4 Section 14. Inspectors of Election..............................5 ARTICLE III. Directors; Management.............................................5 Section 15. Powers..............................................5 Section 16. Number and Qualification of Directors...............5 Section 17. Election and Term of Office.........................6 Section 18. Removal of Directors................................6 Section 19. Vacancies...........................................6 Section 20. Place of Meetings...................................7 Section 21. Organizational Meetings.............................7 Section 22. Other Regular Meetings..............................7 Section 23. Special Meetings....................................7 Section 24. Quorum..............................................7 Section 25. Contents of Notice and Waiver of Notice.............8 Section 26. Adjournment.........................................8 -i- Section 27. Notice of Adjournment...............................8 Section 28. Telephone Participation.............................8 Section 29. Action Without Meeting..............................8 Section 30. Fees and Compensation...............................8 ARTICLE IV. Officers...........................................................8 Section 31. Officers............................................8 Section 32. Election............................................9 Section 33. Subordinate Officers................................9 Section 34. Removal and Resignation.............................9 Section 35. Vacancies...........................................9 Section 36. Chairman of the Board..............................10 Section 37. President..........................................10 Section 38. Vice Presidents....................................10 Section 39. Secretary..........................................10 Section 40. Chief Financial Officer............................11 ARTICLE V. General Corporate Matters..........................................11 Section 41. Record Date and Closing of Stock Books.............11 Section 42. Corporate Records and Inspection by Shareholders...12 Section 43. Checks, Drafts, Evidences of Indebtedness..........12 Section 44. Corporate Contracts and Instruments; How Executed..12 Section 45. Stock Certificates.................................12 Section 46. Lost Certificates..................................12 Section 47. Reports to Shareholders............................13 Section 48. Indemnity of Officers, Directors, etc..............13 Section 49. Fiscal Year........................................13 Section 50. Construction and Definitions.......................13 ARTICLE VI. Amendments........................................................13 Section 51. Amendments by Shareholders.........................13 Section 52. Amendment by Directors.............................13 -ii- BYLAWS OF NORTH BAY BANCORP (A California Corporation) ARTICLE I. Offices Section 1. Principal Office. The principal executive office in the State of California for the transaction of the business of the corporation (called the principal office) is fixed and located at 1500 Soscol Avenue, Napa, California, 94559. The Board of Directors shall have the authority from time to time to change the principal office from one location to another within or without the State by amending this Section 1 of the Bylaws. Section 2. Other Offices. One or more branches or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate. ARTICLE II. Meetings of Shareholders Section 3. Place of Meetings. Meetings of the shareholders shall be held at any place within the State of California that may be designated either by the Board of Directors in accordance with these Bylaws. If no such designation is made, the meetings shall be held at the principal office of the corporation. Section 4. Annual Meetings. The annual meeting of the shareholders shall be held on the 4th Tuesday of April of each year. The exact date and time of such annual meeting shall be fixed by resolution of the Board of Directors; provided, however, that should such day fall on a legal holiday, then the meeting shall be held on the next succeeding business day, at which time the shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation, and transact such other business as may properly be brought before the meeting. If the annual meeting of shareholders shall not be held during the time above specified, the Board of Directors shall cause such a meeting to be held as soon thereafter as convenient and -1- any business transacted or election held at such meeting shall be as valid as if transacted or held at an annual meeting during the time above specified. Section 5. Special Meetings. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by a majority of the Board of Directors, the Chairman of the Board of Directors, the President, or by holders of shares entitled to cast not less than 10 percent (10%) of the votes at the meeting. Section 6. Notice of Shareholders' Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 (or, if sent by third class mail, 30) nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of Section 601(f) of the California Corporations Code, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. Notice of a shareholders' meeting shall be given either personally or by first class mail, or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in Section 605 of the California Corporations Code) on the record date for the shareholders' meeting, notice may be sent by third class mail or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal office of the corporation is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder to the principal office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders. Upon request in writing to the Chairman of the Board of Directors, the President, or the Secretary by any person entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. Section 7. Quorum. The presence at any meeting, in person or by proxy, of persons entitled to vote a majority of the voting shares of the corporation shall constitute a quorum for the transaction of business. Shareholders present at a valid meeting at which a quorum is initially present may continue to do business until adjournment notwithstanding the withdrawal -2- of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 8. Adjourned Meeting. Any annual or special shareholders' meeting may be adjourned from time to time, even though a quorum is not present, by vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy, provided that in the absence of a quorum, no other business may be transacted at the meeting except as provided in Section 7 of these Bylaws. Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 9. Waiver or Consent by Shareholders. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by Section 6 of these Bylaws or Section 601(f) of the California Corporations Code to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, except as provided in Section 601(f) of the California Corporations Code. Section 10. Action Without Meeting. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, except that unanimous written consent shall be required for election of directors to non-vacant positions. Unless the consents of all shareholders entitled to vote have been solicited or received in writing, notice shall be given to non-consenting shareholders to the extent required by Section 603(b) of the California Corporations Code. Any shareholder giving written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the corporation prior to the time that -3- written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 11. Voting Rights; Cumulative Voting. Only persons in whose names shares entitled to vote stand on the stock records of the corporation at the close of business on the record date fixed by the Board of Directors as provided in Section 41 of these Bylaws for the determination of shareholders of record shall be entitled to notice of and to vote at such meeting of shareholders. Except as provided in the next following sentence and except as may be otherwise provided in the Articles of Incorporation, each shareholder entitled to vote shall be entitled to one vote for each share held on each matter submitted to a vote of shareholders. In the election of directors, each such shareholder complying with the following paragraph may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes in favor of any candidate or candidates unless such candidate's or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, such fact shall be announced to all shareholders and proxies present, who may then cumulate their votes for candidates in nomination. In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, are elected. Voting may be by voice or ballot, provided that any election of directors must be by ballot upon the demand of any shareholder made at the meeting and before the voting begins. Section 12. Proxies. Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. All proxies must be in writing and must be signed by the shareholder confirming the proxy or his or her attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in Section 705 of the California Corporations Code. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting, by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. Section 13. Voting by Joint Holders or Proxies. Shares or proxies standing in the names of two or more persons shall be voted or represented in accordance with the provisions of Section 704 -4- of the California Corporations Code, so that, if only one of such persons is present in person or by proxy, that person shall have the right to vote all such shares, and all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum. Section 14. Inspectors of Election. In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the Chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies; receive votes, ballots or consents; hear and determine all challenges and questions in any way arising in connection with the right to vote; count and tabulate all votes or consents; determine when the polls shall close; determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III. Directors; Management Section 15. Powers. Subject to any provisions of the Articles of Incorporation, of the Bylaws and of law limiting the powers of the Board of Directors or reserving powers to the shareholders, the Board of Directors shall, directly or by delegation, manage the business and affairs of the corporation and exercise all corporate powers permitted by law. Section 16. Number and Qualification of Directors The authorized number of directors shall be not less than six (6) nor more than eleven (11), until changed by amendment of the Articles of Incorporation or, if not prohibited by the Articles, by an amendment of this bylaw adopted by the shareholders. The exact number of directors within said range is fixed at eight (8) and may be reduced or increased within said range by a resolution duly adopted by the Board of Directors. Directors need not be shareholders of the corporation. No reduction of the authorized number of directors shall have the effect of removing any director before his or her term of office expires." Nomination for election of members of the Board of Directors may be made by the Board of Directors or by any shareholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations shall be made in writing and shall be delivered or mailed to the President of the corporation not less than 21 days nor more than 60 days prior to any meeting of shareholders called for the election of -5- directors; provided however, that if less than 21 days' notice of the meeting is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the President of the corporation not later than the close of business on the tenth day following the day on which the notice of meeting was mailed; provided further, that if notice of such meeting is sent by third class mail as permitted by Section 6 of these Bylaws, no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in the discretion of the Chairman of the meeting, be disregarded and upon the Chairman's instructions, the inspectors of election can disregard all votes cast for each such nominee. A copy of this paragraph shall be set forth in a notice to shareholders of any meeting at which directors are to be elected. Section 17. Election and Term of Office. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in Section 18 of these Bylaws, begin immediately after their election and shall continue until their respective successors are elected and qualified. Section 18. Removal of Directors. A director may be removed from office by the Board of Directors if he or she is declared of unsound mind by an order of court or convicted of a felony. Any or all of the directors may be removed from office without cause by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors; however, unless the entire Board of Directors is removed, an individual director shall not be removed if the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast, or, if such action is taken by written consent, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. A director may also be removed from office by the Superior Court of the county in which the principal office is located, at the suit of shareholders holding at least ten percent (10%) of the number of outstanding shares of any class, in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation, in the manner provided by law. Section 19. Vacancies. A vacancy or vacancies on the Board of Directors shall exist on the death, resignation, or removal of any director, or if the authorized number of directors is increased or the shareholders fail to elect the full authorized number of directors. Except for a vacancy created by the removal of a director, vacancies on the Board of Directors may be filled by a majority of the remaining directors although less than a quorum, or by a sole remaining director, and each director elected in this manner shall hold office until his or her successor is elected at an annual or special shareholders' meeting. -6- The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the Chairman of the Board of Directors, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 20. Place of Meetings. Regular and special meetings of the Board of Directors shall be held at any place within the State of California that is designated by resolution of the Board or, either before or after the meeting, consented to in writing by all the Board members. If the place of a regular or special meeting is not fixed by resolution or written consents of the Board, it shall be held at the corporation's principal office. Section 21. Organizational Meetings. Immediately following each annual shareholders' meeting, the Board of Directors shall hold a regular meeting to organize, elect officers, and transact other business. Notice of this meeting shall not be required. Section 22. Other Regular Meetings. Other regular meetings of the Board of Directors shall be held at least once each calendar month at such time and place as the Board of Directors by resolution shall determine. Notice of these regular meetings shall not be required. Section 23. Special Meetings. Special meetings of the Board of Directors for any purpose may be called at any time by the Chairman of the Board of Directors, or the President, or any Vice President, or the Secretary, or any two directors. Special meetings of the Board shall be held upon four days' notice by mail or 48 hours' notice delivered personally or by telephone, including a voice messaging system or other technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States Mails, postage prepaid. Any other written notice, including facsimile, telegram or electronic mail message, shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone, including a voice messaging system or other system or technology designed to record or communicate messages, or wireless, to the recipient, including the recipient's designated voice mailbox or address on such system, or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Section 24. Quorum. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn a meeting under Section 26 of these Bylaws. Every act done or decision made by a majority of the directors present at a meeting at which a quorum is present shall be regarded as the act of the Board of Directors, unless the vote of a greater number is required by law, the Articles of Incorporation, or these -7- Bylaws, and subject to the provisions of Section 310 and Section 317(e) of the California Corporations Code. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by a majority of the required quorum for such meeting. Section 25. Contents of Notice and Waiver of Notice. Neither the business to be transacted at, nor the purpose of, any regular or special Board meeting need be specified in the notice or waiver of notice of the meeting. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to said director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 26. Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. Section 27. Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place are fixed at the meeting being adjourned, except that if the meeting is adjourned for more than 24 hours such notice shall be given prior to the adjourned meeting to the directors who were not present at the time of the adjournment. Section 28. Telephone Participation. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meetings can hear one another. Such participation constitutes presence in person at such meeting. Section 29. Action Without Meeting. The Board of Directors may take any action without a meeting that may be required or permitted to be taken by the Board at a meeting, if all members of the Board individually or collectively consent in writing to the action. The written consent or consents shall be filed in the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same effect as a unanimous vote of directors. Section 30. Fees and Compensation. Directors and members of committees shall receive neither compensation for their services nor reimbursement for their expenses unless these payments are fixed by resolution of the Board. This Section shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation for those services. ARTICLE IV. Officers Section 31. Officers. The officers of the corporation shall be a President, a Chief Financial Officer and a Secretary. The corporation may also have, at the discretion of the Board -8- of Directors, a Chairman of the Board and a Vice Chairman of the Board (each of whom shall be chosen from the Board of Directors), one or more Vice Presidents, one or more Cashiers, one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Cashiers and/or Financial Officers, and any other officers who may be appointed under Section 33 of these Bylaws. Any two or more offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity unless authorized to do so generally or in the specific instance by the Board of Directors. Any officer of the corporation may be excluded by resolution of the Board of Directors or by a provision of these Bylaws from participation, other than in the capacity of a director, in major policy making functions of the corporation. Upon direction by the Board of Directors, any officer or employee of the corporation so designated shall give bond of suitable amount with security to be approved by the Board of Directors, conditioned on the honest and faithful discharge of his or her duties as such officer or employee. At the discretion of the Board, such bonds may be schedule or blanket form and the premiums shall be paid by the corporation. The amount of such bonds, the form of coverage, and the name of the company providing the surety therefor shall be reviewed annually by the Board of Directors. Action shall be taken by the Board at that time approving the amount of the bond to be provided by each officer and employee of the corporation for the ensuing year. Section 32. Election. The officers of the corporation, except those appointed under Section 33 of these Bylaws, shall be chosen annually by the Board of Directors, and each shall hold his or her office until he or she resigns or is removed or otherwise disqualified to serve, or his or her successor is elected and qualified. Section 33. Subordinate Officers. The Board of Directors may elect or appoint, and may authorize the President or the Chief Executive Officer to appoint, any other officers that the business of the corporation may require, each of whom shall hold office for the period, have the authority, and perform the duties specified in the Bylaws or by the Board of Directors. Section 34. Removal and Resignation. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed with or without cause either by the Board of Directors at any time or, except for an officer chosen by the Board, by any officer on whom the power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the corporation, but such notice shall not prejudice the rights, if any, of the corporation under any contract of employment to which the officer is a party. An officer's resignation shall take effect when it is received or at any later time specified in the resignation. Unless the resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective. Section 35. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in the Bylaws for regular election or appointment to the office. -9- Section 36. Chairman of the Board. The Board of Directors may appoint one of its members to be the Chairman to serve at the pleasure of the Board of Directors. If appointed, the Chairman shall preside at all meetings of the Board of Directors and of the shareholders of the corporation and shall supervise the carrying out of the policies adopted or approved by the Board of Directors; shall have general executive powers, as well as the specific powers conferred by these Bylaws; and, shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned by the Board of Directors. Section 37. President. The President shall be the corporation's chief executive officer and shall, subject to the control of the Board of Directors, have general supervision, direction, and control over the corporation's business and officers. In the absence of the Chairman, the President shall preside at any meeting of the Board of Directors or the shareholders of the corporation. The President shall have general executive powers, shall be ex officio a member of all the standing committees except the Audit Committee, and shall have and may exercise any and all other powers and duties pertaining by law, regulation or practice, to the Office of President, or imposed by these Bylaws. The President shall also have and may exercise such further powers and duties as from time to time may be conferred, or assigned by the Board of Directors. Section 38. Vice Presidents. If the President is absent or is unable or refuses to act, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions on, the President. Each Vice President shall have any other duties that are prescribed for said Vice President by the Board of Directors or the Bylaws. Section 39. Secretary. The Secretary shall keep or cause to be kept and shall make available at the principal office and any other place that the Board of Directors specifies, a book of minutes of all directors' and shareholders' meetings. The minutes of each meeting shall state the time and place that it was held; whether it was regular or special; if a special meeting, how it was authorized; the notice given; the names of those present or represented at shareholders' meetings; and the proceedings of the meetings. A similar minute book shall be kept for each committee of the Board. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the shareholders' names and addresses, the number and classes of shares held by each, the number and date of each certificate issued for these shares, and the number and date of cancellation of each certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all directors' and shareholders' meetings required to be given under these Bylaws or by law, shall keep the corporate seal in safe custody, and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or these Bylaws. The Secretary shall be deemed not to be an executive officer of the corporation and the Secretary shall be excluded from participation, other than in the capacity of director if the Secretary is also a director, in major policy making functions of the corporation. -10- Section 40. Chief Financial Officer. The Chief Financial Officer shall be the corporation's chief financial officer and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares and shall file or cause to be filed all regulatory reports required pursuant to law or regulation. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with the depositories designated by the Board of Directors. The Chief Financial Officer shall disburse the corporation's funds as ordered by the Board of Directors; shall render to the President and directors, whenever they request it, an account of all his transactions as Chief Financial Officer and of the corporation's financial condition; and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or Bylaws. If required by the Board of Directors, the Chief Financial Officer shall give the corporation a bond in the amount and with the surety or sureties specified by the Board for faithful performance of the duties of that person's office and for restoration to the corporation of all its books, papers, vouchers, money, and other property of every kind in that person's possession or under that person's control on that person's death, resignation, retirement, or removal from office. ARTICLE V. General Corporate Matters Section 41. Record Date and Closing of Stock Books. The Board of Directors may fix a time in the future as a record date for determining shareholders entitled to notice of and to vote at any shareholders' meeting; to receive any dividend, distribution, or allotment of rights; or to exercise rights in respect of any other lawful action, including change, conversion, or exchange of shares. The record date shall not, however, be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action. If a record date is fixed for a particular meeting or event, only shareholders of record on that date are entitled to notice and to vote and to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business -11- on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. Section 42. Corporate Records and Inspection by Shareholders. Books and records of account and minutes of the proceedings of the shareholders, Board, and committees of the Board shall be kept available at the principal office for inspection by the shareholders to the extent required by Section 1601 of the California Corporations Code. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and make extracts. Section 43. Checks, Drafts, Evidences of Indebtedness. All checks, drafts, or other orders for payment of money, notes, and all mortgages, or other evidences of indebtedness, issued in the name of or payable to the corporation, and all assignments and endorsements of the foregoing, shall be signed or endorsed by the person or persons and in the manner specified by the Board of Directors. Section 44. Corporate Contracts and Instruments; How Executed. Except as otherwise provided in the Bylaws, officers, agents, or employees must be authorized by the Board of Directors to enter into any contract or execute any instrument in the corporation's name and on its behalf. This authority may be general or confined to specific instances. Section 45. Stock Certificates. One or more certificates for shares for the corporation's capital stock shall be issued to each shareholder for any of such shareholder's shares that are fully paid. The corporate seal or its facsimile may be fixed on certificates. All certificates shall be signed by the Chairman of the Board, President, Chief Financial Officer and Secretary, or Assistant Secretary. Any or all of the signatures on the certificate may be facsimile signatures. Section 46. Lost Certificates. No new share certificate that replaces an old one shall be issued unless the old one is surrendered and canceled at the same time; provided, however, that if any share certificate is lost, stolen, mutilated or destroyed, the Board of Directors may authorize issuance of a new certificate replacing the old one on any terms and conditions, including reasonable arrangement for indemnification of the corporation, that the Board may specify. Prior to the due presentment for registration of transfer in the stock transfer book of the corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the State of California. -12- Section 47. Reports to Shareholders. The requirement for the annual report to shareholders referred to in Section 1501(a) of the California Corporations Code is hereby expressly waived so long as there are less than 100 holders of record of the corporation's shares. The Board of Directors shall cause to be sent to the shareholders such annual or other periodic reports as the Board considers appropriate or as otherwise required by law. If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to the person making the request within 30 days thereafter the financial statements referred to in Section 1501(a) for such year. Section 48. Indemnity of Officers, Directors, etc. The corporation shall indemnify its "agents", as defined in Section 317 of the California Corporations Code, to the full extent permitted by said Section, as amended from time to time, or as permitted by any successor statute to said Section. Section 49. Fiscal Year. The fiscal year of this corporation shall begin on the first day of January and end on the 31st day of December of each year. Section 50. Construction and Definitions. Unless the context otherwise requires, the general provisions, rules of construction and definitions in the California Corporations Code shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular includes the plural, the plural includes the singular and the term "person" includes both a corporation and a natural person. ARTICLE VI. Amendments Section 51. Amendments by Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote. Section 52. Amendment by Directors. Subject to the right of shareholders under the preceding Section 51, new bylaws may be adopted, or these Bylaws may be amended, or repealed by the Board of Directors, except that only the shareholders can adopt a by-law or amendment thereto which specifies or changes the number of directors on a fixed-number Board of Directors or the minimum or maximum number of directors on a variable-number Board of Directors, or which changes from a fixed-number Board of Directors to a variable-number Board of Directors or vice versa. -13- CERTIFICATE OF SECRETARY I, the undersigned, certify that: 1. I am the duly elected and acting Secretary of North Bay Bancorp, a California corporation; and 2. The foregoing Bylaws, consisting of thirteen (13) pages, are the Bylaws of this corporation as duly adopted by Resolutions of the Sole Incorporator dated June18, 1999 and as amended by the written consent of North Bay Bancorp's shareholders on October 18, 1999. IN WITNESS WHEREOF, I have subscribed my name and affixed the seal of this corporation on December 13, 1999. /s/ Wyman G. Smith III -------------------------------- Wyman G. Smith, III Secretary -14- EX-5.1 4 OPINION RE: LEGALITY Exhibit 5.1 Opinion Re: Legality ---------------- LILLICK --------&------- CHARLES ---------------- LLP ATTORNEYS AT LAW Two Embarcadero Center Phone: 415-984-8200 San Francisco, CA 94111-3996 Fascimile: 415-984-8300 December 20, 1999 Writer's Email Address Writer's Direct Dail Number rfaye@lillick.com 415-984-8365 North Bay Bancorp 1500 Soscol Avenue Napa, California 94559 Ladies and Gentlemen: With reference to the Registration Statement on Form SB-2 filed by North Bay Bancorp ("North Bay") with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of shares of North Bay Common Stock, no par value, (the "Shares") to be issued in connection with the public sale of the Shares by North Bay: We are of the opinion that the Shares have been duly authorized and, when issued in accordance with the Prospectus contained in the Registration Statement, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement, and any amendments thereto, and the use of our name under the caption "Legal Matters" in the Registration Statement, and any amendments thererto, and in the Prospectus included therein. Very truly yours, /s/ Lillick & Charles LLP LILLICK & CHARLES LLP EX-10.1 5 NORTH BAY BANCORP STOCK OPTION PLAN Exhibit 10.1 North Bay Bancorp Stock Option Plan NORTH BAY BANCORP STOCK OPTION PLAN SECTION 1 PURPOSE AND RECITALS On November 1, 1999, North Bay Bancorp (the "Company") became the bank holding company of The Vintage Bank (the "Bank") through a corporate reorganization (the "Reorganization"). In the Reorganization, the Bank became the wholly-owned subsidiary of the Company. Pursuant to the terms of the reorganization the Amended and Restated 1993 Stock Option Plan of the Bank became the North Bay Stock Option Plan. The Bank Stock Option Plan (the "1993 Plan") was originally approved by the Board of Directors of the Bank on March 4, 1993, approved by the stockholders of the Bank on April 27, 1993, and approved by the California Superintendent of Banks on March 25, 1993, and thereafter amended and restated by the Board of Directors of the Bank on March 17, 1997, and approved the stockholders of the Bank on April 29, 1997, and amended by the Board of Directors of the Bank on July 21, 1997, and approved by the stockholders of the Bank on April 28, 1998. This document memorializes all amendments to the 1993 Plan as well as an amendment approved by the Board of Directors of the Company on November 15, 1999, which amendment did not require the approval of the stockholders of the Bank, and conforming revisions consistent with the effect of the Reorganization. The purpose of the North Bay Bancorp Stock Option Plan (the "Plan") is to provide a means whereby non-employee directors (subject to the restrictions contained in Sections 2 and 4), full-time, salaried officers, non-employee officers and employees of the Company and its wholly-owned bank subsidiaries may be granted incentive stock options and/or nonqualified stock options to purchase the Common Stock (as defined in Section 3) of the Company, in order to attract and retain the services of such directors, full-time, salaried officers, non-employee officers and employees, and to provide added incentive to them by encouraging stock ownership in the Company. SECTION 2 ADMINISTRATION 2.1 Plan Administration This Plan shall be administered by a Stock Option Plan Administration Committee (the "Committee") appointed by the Board of Directors of the Company (the "Board"). The number of members of the Committee shall be not less than three. The Committee shall be composed of the Personnel Committee of the Board excluding, however, any full-time, salaried officer or employee of the Company or any of its wholly-owned subsidiaries and provided that all of the members of the Committee shall be "disinterested persons" as defined in the rules and regulations promulgated under Section 16(b) of the Securities and Exchange Act of 1934 (the "Exchange Act"), as amended from time to time. 1 2.2 Procedures The Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the members of the Committee present at meetings at which a quorum exists, or acts reduced to or approved in writing by all Committee members, shall be valid acts of the Committee. 2.3 Responsibilities Except for the terms and conditions explicitly set forth in this Plan, the Committee shall have the authority, in its discretion, to determine all matters relating to the options to be granted under this Plan, including selection of the individuals to be granted options, the number of shares to be subject to each option, the exercise price, all other terms and conditions of the options. Grants under the Plan need not be identical in any respect, even when made simultaneously. The interpretation and construction by the Committee of any terms or provisions of this Plan or any option issued hereunder, or of any rule or regulation promulgated in connection herewith, shall be conclusive and binding on all interested parties, so long a such interpretation and construction, with respect to incentive stock options, corresponds to the requirements of Section 422 of the Internal Revenue Code of 1986 (the "Code"), the regulations thereunder, and any amendments thereto. 2.4 Section 16(b) Compliance and Bifurcation of This Plan It is the intention of the Company that this Plan comply in all respects with Rule 16b-3 under the Exchange Act and, if any Plan provision is later found not to be in compliance with such Rule, the provisions shall be deemed null and void, and in all events this Plan shall be construed in favor of its meeting the requirements of Rule 16b-3. Notwithstanding anything in this Plan to the contrary, the Board, in its absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to participants who are officers and directors subject to Section 16(b) of the Exchange Act without so restricting, limiting or conditioning this Plan with respect to other participants. No options shall be granted under this Plan to any person if the granting of such option would not meet the requirements of Rule 16b-3 for exemption under Section 16(b) of the Exchange Act. SECTION 3 STOCK SUBJECT TO THIS PLAN The stock subject to this Plan shall be the Company's Common Stock (the "Common Stock"), presently authorized but unissued or now held or subsequently acquired by the Company. Subject to adjustments as provided in Section 7, the aggregate amount of Common Stock to be delivered upon the exercise of all options granted under this Plan shall not exceed 337,211 shares, as such Common Stock was constituted on the effective date of the 2 Reorganization.(1) If any option granted under this Plan shall expire, be surrendered, exchanged for another option, canceled or terminated for any reason without having been exercised in full, the unpurchased shares subject thereto shall thereupon again be available for purposes of this Plan, including for replacement options which may be granted in exchange for such surrendered, canceled or terminated options. SECTION 4 ELIGIBILITY An incentive stock option may be granted only to an individual who, at the time the option is granted, is a full-time salaried officer or employee of the Company or any of its wholly-owned subsidiaries. A nonqualified stock option may be granted to any director, full-time, salaried officer, non-employee officer or employee of the Company or any of its wholly-owned subsidiaries. Any party to whom an option is granted under this Plan shall be referred to hereinafter as an "Optionee." SECTION 5 TERMS AND CONDITIONS OF OPTIONS Options granted under this Plan shall be evidenced by written agreements which shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and which are not inconsistent with this Plan. Notwithstanding the foregoing, options shall include or incorporate by reference the following terms and conditions: 5.1 Number of Shares and Price The maximum number of shares that may be purchased pursuant to the exercise of each option and the price per share at which such option is exercisable (the "exercise price") shall be as established by the Committee, subject to the following limitations: (a) the exercise price of any option shall be not less than the fair market value per share of the Common Stock at the time the option is granted, which shall be determined by the Committee in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation Section 20.2031-2; (b) with respect to incentive stock options granted to greater then 10% stockholders, the exercise price shall be as required by Section 6; (c) the number of shares subject to outstanding stock options held by any single optionee shall not exceed 10% of the total outstanding shares of Common Stock. - ------------------ (1) By the terms of the 1993 Plan, the aggregate amount of Common Stock reserved for issuance upon the exercise of all options granted was 140,000. After giving effect to the split of the Bank's stock in 1997 and stock dividends since the 1993 Plan was adopted, the adjusted number of shares available for issuance under the 1993 Plan as of November 1, 1999, the effective date of the Reorganization, was 337,211. 3 5.2 Non-Employee Directors (a) In accordance with subsection 5.2 of the 1993 Plan, every director of the Bank who was not also a full-time, salaried officer or employee (a "non-employee director") was granted an option to purchase 3,000 shares effective upon the latest of the following dates: (1) the date on which the Optionee had been a director for six months; (2) the date on which the 1993 Plan was approved by the Bank's stockholders; or (3) the date on which the 1993 Plan was approved by the California Superintendent of Banks. The exercise price of the options granted to the non-employee directors was the fair market value per share of the Common Stock at the time of the grant. The term with respect to the options granted to the non-employee directors was 5 years and 30 days exercisable pursuant to a vesting schedule entitling non-employee directors to exercise 20% of the total option following the completion of each year of service from the date the options were granted. (b) Notwithstanding any provision herein to the contrary, but subject to all limitations not inconsistent herewith, every non-employee director of the Company or any of its wholly-owned subsidiaries shall be eligible to be granted an option to purchase 6,000 shares.(2) The time of any such grant shall be on the latest of the following dates: (1) the date on which this Plan is approved by the Bank's stockholders; or (2) the date on which the Optionee becomes a director. The exercise price of any option granted to a non-employee director shall be the fair market value per share of the Common Stock at the time of such grant. No options may be granted to a non-employee director except as provided in this paragraph. 5.3 Term and Maturity Subject to the restrictions contained in Section 6 with respect to granting incentive stock options to greater than 10% stockholders, the term of each incentive stock option shall be as established by the Committee and, if not so established, shall be 10 years from the date it is granted, but in no event shall the term of any incentive stock option exceed 10 years. The term of each nonqualified stock option shall be as established by the Committee and, if not so established, shall be 10 years; provided, however, that (i) the term with respect to any option previously granted to a non-employee director under subsection 5.2(a) or 5.2(b) shall remain 5 years and 30 days. To ensure that the Company will achieve the purpose and receive the benefits contemplated in this Plan, any option granted to any Optionee shall (unless, with respect to employees who are not subject to Section 16 of the Exchange Act, the condition of this sentence is waived or modified in the agreement evidencing the option or by resolution adopted by the Committee) be exercisable according to the following schedule: Period of Optionee's Continuous Relationship With the Company From Portion of Total Option - -------------------- (2) By the terms of the 1993 Plan, the number of shares was 3,000. The number of shares has been increased to reflect the effect of the 1997 stock split. 4 the Date the Option Is Granted Which is Exercisable ---------------------------------- ------------------------- after 1 year 20% after 2 years 40% after 3 years 60% after 4 years 80% after 5 years 100% Notwithstanding the foregoing, any option granted to a non-employee director under subsection 5.2(b) shall be exercisable only according to the following schedule: Period of Optionee's Continuous Relationship With the Company From Portion of Total Option the Date the Option Is Granted Which is Exercisable ---------------------------------- ------------------------- after 1 year 20% after 2 years 40% after 3 years 60% after 4 years 80% after 5 years 100% Notwithstanding the foregoing, in the event an Optionee is unable to exercise any non-qualified stock option on account of the Company's Insider Trading Policy, the exercise period shall be extended until the next succeeding trading window (determined in accordance with the Insider Trading Policy) closes. 5.4 Exercise Subject to the vesting schedules described in subsection 5.3 and to any additional holding period required by applicable law, each option may be exercised in whole or in part; provided, however, that no fewer than 20% of the total shares subject to the option (or the remaining shares then purchasable under the option, if less than 20%) may be purchased upon any exercise of option rights hereunder and that only whole shares will be issued pursuant to the exercise of any option. During an Optionee's lifetime, any stock options granted under this Plan are personal to him or her and are exercisable solely by such Optionee. Options shall be exercised by delivery to the Company of notice of the number of shares with respect to which the option is exercised, together with payment of the exercise price. 5.5 Payment of Exercise Price 5 Payment of the option exercise price shall be made in full at the time the notice of exercise of the option is delivered to the Company and shall be in cash, bank certified or cashier's check or personal check (unless at the time of exercise the Committee in a particular case determines not to accept a personal check) for the Common Stock being purchased. 5.6 Withholding Tax Requirement The Company shall have the right to retain and withhold from any payment of cash or Common Stock under this Plan the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to such payment. At its discretion, the Company may require an Optionee receiving shares of Common Stock to reimburse the Company for any such taxes required to be withheld by the Company and withhold any distribution in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amounts due or to become due from the Company to the Optionee an amount equal to such taxes or retain and withhold that number of shares having a fair market value not less than the amount of such taxes required to be withheld by the Company to reimburse the Company for any such taxes and cancel (in whole or in part) any such shares so withheld. If required by Section 16(b) of the Exchange Act, the election to pay withholding taxes by delivery of shares held by any person who at the time of exercise is subject to Section 16(b) of the Exchange Act shall be made within six months prior to the date the option exercise becomes taxable. 5.7 Nontransferability of Option Options granted under this Plan and the rights and privileges conferred hereby may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or Title I of the Employment Retirement Income Security Act, or the rules thereunder, and shall not be subject to execution, attachment or similar process. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any option under the Plan or of any right or privilege conferred hereby contrary to the Code or to the provisions of this Plan, or the sale or levy of any attachment or similar process upon the rights and privileges conferred hereby shall be null and void. Notwithstanding the foregoing, an Optionee may, during the Optionee's lifetime, designate a person who may exercise the option after the Optionee's death by giving written notice of such designation to the Committee. Such designation may be changed from time to time by the Optionee by giving written notice to the Committee revoking any earlier designation and making a new designation. 5.8 Termination of Relationship If the Optionee's relationship with the Company or any wholly-owned subsidiary ceases for any reason other than termination for cause, death or total disability, and unless by its terms 6 the option sooner terminates or expires, then the Optionee may exercise, for a period of 90 days following termination of the relationship, that portion of the Optionee's option which is exercisable at the time of such cessation, but the Optionee's option shall terminate at the end of such period following such cessation as to all shares for which it has not theretofore been exercised. If, in the case of an incentive stock option, an Optionee's relationship with the Company or any wholly-owned subsidiary changes (i.e., from employee to nonemployee, such as a consultant), such change shall constitute a termination of the Optionee's employment with the Company or wholly-owned subsidiary, and the Optionee's incentive stock option shall terminate in accordance with this subsection. If the relationship of an Optionee is terminated for cause, any option granted hereunder shall automatically terminate as of the first discovery by the Company or wholly-owned subsidiary of any reason for termination for cause, and such Optionee shall thereupon have no right to purchase any shares pursuant to such option. "Termination for cause" shall mean dismissal for dishonesty, conviction or confession of a crime punishable by law (except minor violations), fraud, serious misconduct, material regulatory violation or disclosure of confidential information, and shall include termination of any relationship pursuant to the order or request of any governmental regulatory agency. If an Optionee's relationship with the Company or any wholly-owned subsidiary is suspended pending an investigation of whether or not the Optionee shall be terminated for cause, all the Optionee's rights under any option granted hereunder likewise shall be suspended during the period of investigation. If an Optionee's relationship with the Company or any wholly-owned subsidiary ceases because of a total disability, the Optionee's option shall terminate at the end of a 12-month period following such cessation (unless by its terms it sooner terminates and expires). As used in this Plan, the term "total disability" refers to a mental or physical impairment of the Optionee which is expected to result in death or which has lasted or is expected to last for a continuous period of 12 months or more and which causes the Optionee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties for the Company or wholly-owned subsidiary and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the Company and the two independent physicians have furnished their opinion of total disability to the Committee. For purposes of this subsection 5.7, with respect to incentive stock options, employment shall be deemed to continue while the Optionee is on military leave, sick leave or other bona fide leave of absence (as determined by the Committee). The foregoing notwithstanding, employment shall not be deemed to continue beyond the first 90 days of such leave, unless the Optionee's reemployment rights are guaranteed by statute or by contract. 5.9 Death of Optionee If an Optionee dies while he or she has a relationship with the Company or any wholly-owned subsidiary, any option held by such Optionee, to the extent that the Optionee would have 7 been entitled to exercise such option, may be exercised within one year after his or her death by the personal representative of his or her estate or by the person or persons to whom the Optionee's rights under the option shall pass by will or by the applicable laws of descent and distribution. 5.10 Status of Stockholders Neither the Optionee nor any party to which the Optionee's rights and privileges under the option may pass shall be, or have any of the rights or privileges of, a stockholder of the Company with respect to any of the shares issuable upon the exercise of any option granted under this Plan unless and until such option has been exercised. 5.11 Continuation of Relationship Nothing in this Plan or in any option granted pursuant to this Plan shall confer upon any Optionee any right to continue in the employ of the Company or wholly-owned subsidiary or to interfere in any way with the right of the Company or wholly-owned subsidiary to terminate his or her employment or other relationship with the Company or wholly-owned subsidiary at any time. 5.12 Modification and Amendment of Option Subject to the requirements of Code Section 422 with respect to incentive stock options and to the terms and conditions and within the limitations of this Plan, the Committee may modify or amend outstanding options granted under this Plan. The modification or amendment of an outstanding option shall not, without the consent of the Optionee, impair or diminish any of his or her rights or any of the obligations of the Company under such option. Except as otherwise provided in this Plan, no outstanding option shall be terminated without the consent of the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments made to outstanding incentive stock options granted under this Plan shall be made in such a manner so as not to constitute a "modification," as defined in Code Section 424(h), and so as not to cause any incentive stock option issued hereunder to fail to continue to qualify as an incentive stock option as defined in Code Section 422(b). 5.13 Limitation on Value for Incentive Stock Options As to all incentive stock options granted under the terms of this Plan, to the extent that the aggregate fair market value (determined at the time the incentive stock option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by the Optionee during any calendar year (under this Plan and all other incentive stock option plans of the Company) exceeds $100,000, such options shall be treated as nonqualified stock options. The previous sentence shall not apply if the Internal Revenue Service publicly rules, issues a 8 private ruling to the Company, any Optionee, or any legatee, personal representative or distributee of an Optionee or issues regulations changing or eliminating such annual limit. SECTION 6 GREATER THAN 10% STOCKHOLDERS 6.1 Exercise Price and Term of Incentive Stock Options If incentive stock options are granted under this Plan to employees who own more than 10% of the total combined voting power of all classes of stock of the Company, the term of such incentive stock options shall not exceed five years and the exercise price shall be not less than 110% of the fair market value of the Common Stock at the time the incentive stock option is granted. This provision shall control notwithstanding any contrary terms contained in an option agreement or any other document. 6.2 Attribution Rule For purposes of subsection 6.1, in determining stock ownership, an employee shall be deemed to own the stock owned, directly or indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its stockholders, partners or beneficiaries. If an employee or a person related to the employee owns an unexercised option or warrant to purchase stock of the Company, the stock subject to that portion of the option or warrant which is unexercised shall not be counted in determining stock ownership. For purposes of this Section 6, stock owned by an employee shall include all stock actually issued and outstanding immediately before the grant of the incentive stock option to the employee. SECTION 7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION The aggregate number and class of shares for which options may be granted under this Plan, the number and class of shares covered by each outstanding option and the exercise price per share thereof (but not the total price), and each such option, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock of the Company resulting from a split-up or consolidation of shares or any like capital adjustment, or the payment of any stock dividend. 7.1 Effect of Liquidation, Reorganization or Change in Control 7.1.1 Cash, Stock or Other Property for Stock Except as provided in subsection 7.1.2, upon a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the 9 merger), consolidation, acquisition of property or stock, separation, reorganization (other than a mere reincorporation or the creation of a holding company) or liquidation of the Company, as a result of which the stockholders of the Company have the right to receive cash, stock or other property in exchange for or in connection with their shares of Common Stock, any option granted hereunder shall become exercisable in full immediately prior to any such merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, whether or not the vesting requirements set forth in the option agreement have been satisfied, unless such options are converted in accordance with the provisions of subsection 7.1.2. 7.1.2 Conversion of Options on Stock-for-Stock Exchange If the stockholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their shares of Common Stock in any transaction involving a merger, consolidation, acquisition of property or stock, separation or reorganization, all options granted hereunder shall be converted into options to purchase shares of Exchange Stock unless the Company and the corporation issuing the Exchange Stock, in their sole discretion, determine that any or all such options granted hereunder shall not be converted into options to purchase shares of Exchange Stock but instead shall terminate, subject to the provisions of subsection 7.1.1. The amount and price of converted options shall be determined by adjusting the amount and price of the options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of Common Stock receive in such merger, consolidation, acquisition of property or stock, separation or reorganization. The vesting schedule set forth in the option agreement shall continue to apply to the options granted for the Exchange Stock. 7.2 Fractional Shares In the event of any adjustment in the number of shares covered by any option, any fractional shares resulting from such adjustment shall be disregarded and each such option shall cover only the number of full shares resulting from such adjustment. 7.3 Determination of Committee to Be Final All Section 7 adjustments shall be made by the Committee, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. Unless an Optionee agrees otherwise, any change or adjustment to an incentive stock option shall be made in such a manner so as not to constitute a "modification," as defined in Code Section 424(h), and so as not to cause his or her incentive stock option issued hereunder to fail to continue to qualify as an incentive stock option as defined in Code Section 422(b). SECTION 8 SECURITIES REGULATION 10 Shares of Common Stock shall not be issued with respect to an option granted under this Plan unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, any applicable state securities laws, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, any applicable banking rules and regulations, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Bank with respect to such compliance, including the availability of an exemption from registration for the issuance and sale of any shares hereunder. Inability of the Company to obtain from any regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary for the lawful issuance and sale of any shares hereunder or the unavailability of an exemption from registration for the issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of an option, the Company may require the Optionee to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of the counsel for the Company, such a representation is required by any relevant provision of the aforementioned laws. At the option of the Company, a stop-transfer order against any shares of stock may be placed on the official stock books and records of the Company, and a legend indicating that the stock may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation may be stamped on stock certificates in order to assure exemption from registration. The Committee may also require such other action or agreement by the Optionee as may from time to time be necessary to comply with the federal and state securities laws. Should any of the Company's capital stock of the same class as the Common Stock subject to options granted hereunder be listed on a national securities exchange, all shares of Common Stock issued hereunder if not previously listed on such exchange shall be authorized by that exchange for listing thereon prior to the issuance thereof. SECTION 9 AMENDMENT AND TERMINATION 9.1 Action of Board of Directors The Board of Directors of the Company may at any time suspend, amend or terminate this Plan, provided that except as set forth in Section 7, the approval of the Company's stockholders shall have been obtained within 12 months before or after the adoption by the Board of any amendment which will: 11 (a) increase the number of shares which are to be reserved for the issuance of options under this Plan; (b) permit the granting of stock options to a class of persons other than those presently permitted to receive stock options under this Plan; (c) reduce the minimum exercise price of options to be granted under this Plan; (d) increase the maximum term of options to be granted under this Plan; or (e) require stockholders' approval under applicable law, including Section 16(b) of the Exchange Act. Any amendment made to this Plan which would constitute a "modification" to incentive stock options outstanding on the date of such amendment shall not be applicable to such outstanding incentive stock options, but shall have prospective effect only, unless the Optionee agrees otherwise. Notwithstanding the foregoing, no amendment to this Plan which changes the amount, price or timing of options which may be granted to non-employee directors shall be made more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 9.2 Automatic Termination Unless sooner terminated by the Board, this Plan shall terminate 10 years from the date on which this Plan is adopted by the Board. No option may be granted after such termination or during any suspension of this Plan. The amendment or termination of this Plan shall not, without the consent of the Optionee, alter or impair any rights or obligations under any option theretofore granted under this Plan. SECTION 10 EFFECTIVENESS OF THIS PLAN This Plan became effective upon adoption by the Board and approval by the stockholders of the Bank. This plan was approved by the stockholders of the Bank on April 27, 1993 and by the California Superintendent of Banks of March 25, 1993. Adopted and amended by the Board of Directors of the Bank on March 17, 1997, approved by the stockholders of the Bank on April 29, 1997. 12 An amendment made to include non-employee officers was adopted by the Board of Directors of the Bank on July 21, 1997 and approved by the stockholders of the Bank on April 28, 1998. Adopted and amended by the Board of Directors of the Company on November 15, 1999. 13 EX-10.2 6 EMPLOYMENT AGREEMENT WITH TERRY L. ROBINSON Exhibit 10.2 Employment Agreement with Terry L. Robinson EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into effective as of March 1, 1999, by and between Terry L. Robinson (hereinafter referred to as "Employee"), and The Vintage Bank, a bank chartered by the California State Banking Department (sometimes referred to as "the Bank"). 1. Employment Agreement. The Bank hereby agrees to employ Employee and Employee hereby agrees to serve as such Employee upon the terms and conditions hereinafter set forth. 2. Term of Employment. The term of employment commenced as of March 1, 1999, and shall continue for a period of five (5) years from such date unless sooner terminated as hereinafter provided in paragraphs 12 and 13 of this Agreement. 3. Employee's Position and Duties. Employee shall perform the duties of the President and Chief Executive Officer of the Bank subject to the powers vested in the Board of Directors of the Bank and in the Bank's shareholders, or such other duties as may be prescribed by the Board. During the term of this Agreement, Employee shall perform his duties faithfully, diligently, and to the best standards of the banking industry and in compliance with all applicable laws and the Bank's articles of incorporation and bylaws. 4. Devotion of Entire Time to Bank's Business. During his employment, Employee shall devote his full energies, interest, abilities, and productive time to the performance of this Agreement and shall not, without the Bank's prior written consent, render to others services of any kind for compensation, or engage in any other business activity that would materially interfere with the performance of his duties under this Agreement. 1 5. Compensation. During the term of this Agreement, the Bank shall pay to Employee, and Employee hereby accepts as compensation an annual salary in the amount of One Hundred Seventy-four Thousand and No/100ths Dollars ($174,000.00). Such compensation shall be paid in equal bi-monthly installments. Employee?s salary shall be subject to annual adjustment as may be determined by the Bank's Board of Directors in its sole and absolute discretion. All compensation will be subject to such withholding deductions as are required by law or agreed upon by the Employee. 6. Incentive Compensation. Commencing with the Bank's 1999 fiscal year and as additional compensation for services rendered hereunder Employee shall be entitled to receive from the Bank a sum equal to a portion of a specified percentage, which portion and percentage will be determined by the Bank's Board of Directors in its sole and absolute discretion, of the Bank's after tax net profit to be paid to full time salaried officers pursuant to a non-qualified profit sharing plan to be established by the Bank (the "Plan" hereafter). The Plan shall establish a level of after tax net profit which must be exceeded (the "Target Level") before Employee or any other full time salaried officers of the Bank shall be entitled to additional compensation under the Plan. The Plan shall establish a formula by which the specified percentage of the Bank's after tax profit to be distributed under the Plan increases as the profits increase. 7. Reimbursable Expenses. The Bank shall reimburse the Employee for the following expenses: 7.1. The Employee's necessary travel, hotel, and entertainment expenses incurred in connection with the business of the Bank or other events that contribute to the benefit of the Bank in amounts determined by the Board of Directors. 7.2. All other expenses incurred by the Employee in the course of his employment with the Bank in the amounts to be determined by the Board of Directors; and 2 7.3. The Employee shall obtain, maintain and submit to the Bank documentary evidence (such as receipts or paid bills) which states sufficient information for each expenditure. The audit committee of the Bank?s Board of Directors shall semi-annually review the Employee?s reimbursable expenses. 8. Employee Benefits. During the employment term, Employee shall be entitled to receive all other benefits of employment generally available to the Bank's other full time salaried officers when and as he becomes eligible for them and as the Bank establishes them, including group heath and life insurance benefits. 9. Vacations. Commencing with the 1999 calendar year, Employee shall be entitled to twenty (20) days of paid vacation in each full calendar year during the term of this Agreement and an appropriate pro rata portion thereof for any partial calendar year. Employee may be absent from his employment for vacation only at such time as the Bank's Board of Directors shall determine from time to time. In the event that Employee is unable for any reason to take the total amount of vacation time authorized herein during any calendar year, he shall be deemed to have waived any entitlement to vacation for that time. 10. Automobile. The Bank shall, in its sole discretion, elect either of the following options, provided that it may change its election with reasonable notice to Employee: (i) The Bank will provide Employee with an automobile, to be approved by the Bank's Board of Directors prior to its purchase, to use in the performance of his duties on behalf of the Bank during the term of this Employment Agreement. In addition, the Bank will provide maintenance and insurance on the automobile and will reimburse Employee for any operating costs expended on the Bank's behalf; or (ii) the Bank will pay to Employee an automobile allowance in the amount of seven hundred fifty dollars ($750.00) per month for the purpose of acquisition or lease of an 3 automobile of Employee's choice, including all insurance and maintenance costs associated with such automobile's operation. In addition, the Bank will pay for the Employees mileage in the performance of his duties on behalf of the Bank, on a per mile basis at such rate as the Bank may from time to time determine. 11. Termination. 11.1. Employee may terminate this Agreement by giving the Bank not less then six (6) months prior written notice of resignation. Employee shall be entitled to no further compensation from the Bank after the effective date of his resignation. 11.2. The Bank may terminate this Agreement at any time, subject to the provisions of subparagraph 11.3 of this paragraph, with or without cause. 11.3. Subject to the provisions of paragraph 12 of this Agreement, in the event that the Bank terminates this Agreement without cause, Employee shall be paid severance pay equal to six (6) months base salary as specified in paragraph 5 or severance pay equal to the remainder of his base salary for the remaining term of this Agreement if the remaining term of this Agreement is less than six (6) months provided, however, that if the Bank, or any successor to the business of the Bank, terminates this Agreement without cause within two years following a Business Combination or effective change in control (as those terms are defined in paragraph 12.1 of this Agreement) then such termination shall be subject to the payment of severance pay as provided in paragraph 12.1 of this Agreement. Such severance pay shall be paid in the manner described in paragraph 12.2 hereof. 11.4. In the event the Bank terminates this Agreement for cause, Employee shall be entitled to no severance pay and no further compensation whatsoever under this Agreement beyond the effective date of such termination. "Cause" shall include but not be limited to, any material act of dishonesty, disclosure of confidential information, gross carelessness or 4 misconduct, inadequate or improper performance or unjustifiable neglect of duties under this Agreement, any act which in any way has a direct, substantial, and adverse affect on the Bank's reputation or financial condition, or termination of this Agreement pursuant to order of any government regulatory agency. 11.5. If, during the term of this Agreement, Employee becomes disabled, this Agreement may be then terminated subject to the Bank?s obligation to continue to pay Employee as hereinafter provided in this subparagraph 11.5. For purposes of this paragraph, Employee shall be considered ?disabled? if he is determined to be disabled in accordance with the terms of any disability insurance policy maintained by the Bank for Employee at the time of the onset of the disability and Employee is disabled for a period of sixty (60) consecutive days. In the absence of any such policy, Employee shall be considered "disabled" if he is unable to perform substantially all of his duties under this Agreement because of illness, injury, or physical or mental incapacity for a period of sixty (60) consecutive days. For the first sixty (60) days of Employee?s disability the Bank shall continue to pay Employee at a rate commensurate with Employee?s then annual salary. For the period after the first sixty (60) days of Employee?s disability, the Bank shall continue to pay Employee at a rate commensurate with the benefit Employee will receive under any disability insurance policy maintained by the Bank for a period of one hundred twenty (120) days or until Employee?s benefits under any disability policy maintained by the Bank for Employee commence, whichever period is shorter. 11.6. Any termination of the employment of the Employee under this Agreement by the Bank shall be exercisable on behalf of the Bank by the Board of Directors of the Bank. 12. Merger, Sale or Transfer of Bank Assets, Change in Control. 12.1. Disposition of Agreement. If, during the term of this Agreement, there occurs a Business Combination (as that term is defined in Article VIII of the Bank's articles of 5 incorporation, the relevant provisions of which are incorporated herein by reference as they exist on the date hereof, whether or not such article is in effect at the time of such Business Combination) or an effective change in control of the Bank resulting from privately negotiated purchase(s) of the Bank's common stock or an offer to all shareholders of the Bank offering to purchase or acquire by exchange their shares or any combination thereof, then the Bank may, at its sole option, (1) assign this Agreement and all rights and obligations under it to any business entity that succeeds to substantially all of the Bank's business subject to the rights of Employee herein enumerated, (2) continue this Agreement in full force and effect subject to the rights of Employee herein enumerated or (3) terminate this Agreement effective on the date of the Business Combination or effective change in control. In the event the Bank terminates this Agreement Employee shall be paid severance pay in accordance with paragraph 12.2 hereof. In the event the Bank assigns this Agreement or continues this Agreement as more particularly set forth above, Employee may, for a period of thirty (30) days following written notice of such assignment or election to continue and at his sole option, (1) consent to said assignment or election to continue or (2) elect to terminate this Agreement. In the event Employee elects to terminate this Agreement, Employee shall be paid severance pay in accordance with paragraph 12.2 hereof. 12.2. Severance Pay. The amount of severance pay to which Employee shall be entitled under the circumstances specified in paragraph 12.1 hereof shall be as follows: (i) In the event of a Business Combination during the term of this Agreement which satisfies the conditions provided in paragraph C (1) of Article VIII of the Bank's articles of incorporation (relating to approval by a majority of Continuing Directors), Employee shall be paid severance pay equal to one (1) year's base salary as specified in paragraph 5 hereof or severance pay equal to the remainder of his base salary for the remaining term of this Agreement if the remaining term is less than one (1) year. 6 (ii) In the event of a Business Combination during the term of this Agreement which does not satisfy the conditions provided in paragraph C(1) of Article VIII of the Bank's articles of incorporation, or in the event of an effective change of control of the Bank during the term of this Agreement, Employee shall be paid severance pay equal to two (2) year's base salary as specified in paragraph 5 hereof. 12.3. Method of Payment. In any event in which severance pay is to be paid hereunder, it shall be paid in a single lump sum within thirty (30) days of the Bank's or Employee's election to terminate this Agreement. Such severance pay shall be subject to such withholding deductions as are required by law. 12.4. Limitation on Severance Pay. In the event the severance pay to be paid hereunder will, when aggregated with all other payments to Employee which are contingent (either in amount or in timing) on a change of the ownership or effective control of the Bank, or in the ownership of a substantial portion of its assets, have an aggregate present value of three hundred percent (300%) or more of the Employee's base amount, as defined in Internal Revenue Code Section 280G, then, in such event his severance pay to be paid hereunder shall be reduced by an amount sufficient to cause the aggregate of all payments to Employee which are contingent on a change of ownership or effective control of the Bank, or on the ownership of a substantial portion of its assets to be equal to two hundred ninety-nine percent (299%) of the Employee's base amount. 12.5. An "effective change in control" of the Bank shall be deemed to have occurred upon the acquisition of thirty percent (30%) or more of the Bank's outstanding Common Stock by a single individual, a single entity or an affiliated group of individuals and/or entities. 13. Employee's Termination. If it becomes known that this Agreement will be terminated by Employee in accordance with its provisions, the Bank may, in its sole discretion but 7 subject to its other obligations under this Agreement, relieve Employee of his duties under this Agreement, and assign Employee other reasonable duties and responsibilities to be performed until the termination becomes effective. 14. Protection of Confidential Data. Employee acknowledges that the customer lists, trade secrets, loan, financial and other proprietary information of the Bank are valuable, special and unique assets of the Bank. Employee acknowledges that in the course of his employment, Employee will have access to confidential records and data pertaining to the Bank's customers and to the relationship between these customers and the Bank. Such information is considered secret and it is disclosed to Employee in confidence. During his employment by the Bank and for two (2) years after termination of that employment, Employee shall not directly or indirectly disclose or use any such information, except as required in the course of his employment by the Bank. In addition, during and for two (2) years after termination of his employment, Employee shall not induce or attempt to induce any employee of the Bank to discontinue representing the Bank for the purpose of representing any competitor of the Bank. Employee acknowledges that the remedy at law for the breach of this covenant is inadequate and that the Bank, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. 15. Miscellaneous Provisions. 15.1 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or breach of this Agreement, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction. There shall be three arbitrators, one to be chosen by each party at will, and the third arbitrator to be selected by the two arbitrators so chosen. Each party shall pay the fees of the arbitrator it selects and of their 8 own attorneys, and the expenses of their witnesses, the fees of the third arbitrator, and all other fees and costs, shall be borne equally by the parties. Employee is obligated under this Agreement to protect the confidential information of the Bank. The breach of Employee?s obligation to protect the confidential information of the Bank cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, in addition to other remedies provided by law or this Agreement and notwithstanding the foregoing mandatory arbitration provisions, the Bank shall have right during or after the term of this Agreement to obtain injunctive relief against the breach of this contract by Employee. The prevailing party in any action for injunctive relief shall be entitled to recover reasonable attorneys? fees and costs. 15.2. Integration. This Agreement contains the entire agreement between the parties and supersedes all prior oral and written agreements, understandings, commitments, and practices between the parties, including all prior employment and consulting agreements, whether or not fully performed by Employee before the date of this Agreement. No amendments to this Agreement may be made except by a writing signed by both parties. 15.3. Notices. Any notice to the Bank required or permitted under this Agreement shall be given in writing to the Bank, either by personal service or by registered or certified mail, postage prepaid, addressed to the Chairman of the Board of Directors of the Bank at his then principal place of business. Any such notice to Employee shall be given in a like manner and, if mailed, shall be addressed to Employee at his home address then shown in the Bank's files. For the purpose of determining compliance with any time limit in this Agreement, a notice shall be deemed to have been duly given (a) on the date of service, if served personally on the party to whom notice is to be given, or (b) on the second business day after mailing, if mailed to the party to whom the notice is to be given in the manner provided in this section. 15.4. Assignment. Except as hereinabove expressly provided, this Agreement 9 may not be assigned by either party without the prior written consent of the other party. 15.5. Severability. If any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect. If any provision is held unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. 15.6. Effect of Headings. The subject headings of the paragraphs and subparagraphs of this Agreement are included for purposes of convenience only, and shall not effect the construction or interpretation of any of its provisions. 15.7. Parties in Interest. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and, subject to the provisions of paragraph 12 hereof, their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third parties to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over against any party to this Agreement. 15.8. Choice of Law. The formation, construction, and performance of this Agreement shall be construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. THE BANK: The Vintage Bank By: ----------------------------------------- Thomas F. Malloy, Chairman of the Board EMPLOYEE: --------------------------------------------- Terry L. Robinson 10 EX-23.2 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT Exhibit 23.2 Consent of Arthur Andersen LLP as an independent public accountants for North Bay Bancorp and The Vintage Bank. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT As independent public accountants, we hereby consent to the use of our report dated February 23, 1999 related to financial statements of The Vintage Bank and to all references to our Firm in the Form SB-2 registration statement of North Bay Bancorp. /s/ Arthur Andersen LLP San Francisco, California December 21, 1999 EX-24 8 POWER OF ATTORNEY Exhibit 24 Power of Attorney EXHIBIT 24 POWER OF ATTORNEY Each person whose signature appears below hereby authorizes Terry L. Robinson or Thomas F. Malloy and either of them, as attorney-in-fact, to sign in his or her behalf, individually and in each capacity stated below, and to file this Registration Statement on Form SB-2 and all amendments and/or supplements to this Registration Statement on Form SB-2. /s/ Terry L. Robinson , Director, December 20, 1999 - --------------------------- Principal Executive Officer Terry L. Robinson /s/ David B. Gaw , Director December 20, 1999 - --------------------------- David B. Gaw /s/ Conrad W. Hewitt , Director December 20, 1999 - --------------------------- Conrad W. Hewitt /s/ Harlan R. Kurtz , Director December 20, 1999 - --------------------------- Harlan R. Kurtz /s/ Richard S. Long , Director December 20, 1999 - --------------------------- December 20, 1999 Richard S. Long /s/ Thomas H. Lowenstein , Director December 20, 1999 - --------------------------- 20, 1999 Thomas H. Lowenstein /s/ Thomas F. Malloy , Director December 20, 1999 - --------------------------- December 20, 1999 Thomas F. Malloy /s/ James Tidgewell , Director December 20, 1999 - --------------------------- December 20, 1999 James Tidgewell /s/ Lee-Ann Almeida , Principal Financial Officer December 20, 1999 - --------------------------- Lee-Ann Almeida EX-27.1 9 FINANCIAL DATA SCHEDULE
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS OF THE VINTAGE BANK AS OF DECEMBER 31, 1998 AND 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 8,402 200 6,000 0 47,506 13,512 13,757 96,527 1,752 180,291 162,173 0 1,208 0 0 0 11,004 5,906 180,291 8,465 2,969 472 11,906 3,991 3,992 7,914 240 65 5,660 3,412 3,412 0 0 2,111 1.41 1.37 8.01 89 0 0 0 1,532 59 39 1,752 1,752 0 0
EX-27.2 10 FINANCIAL DATA SCHEDULE
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS OF THE VINTAGE BANK AS OF SEPTEMBER 30, 1999 AND 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH FLOWS FOR EACH OF THE PERIODS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 8,418 100 5,000 0 57,950 1,390 1,390 117,225 1,940 197,655 173,595 5,000 1,274 0 0 0 12,294 5,492 197,655 7,136 2,789 118 10,043 3,044 3,171 6,872 180 10 4,688 3,290 3,290 0 0 2,038 1.34 1.31 7.63 13 0 0 0 1,752 11 19 1,940 1,940 0 0
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