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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR the quarter period ended June 30, 2002
Commission File No. 0-31080
NORTH BAY BANCORP
-----------------
(Exact name of registrant as specified in its charter)
California 68-0434802
---------- ----------
(State or Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
1500 Soscol Avenue, Napa, California 94559-1314
-----------------------------------------------
(Address of principal executive office including Zip Code)
Registrant's telephone number, including area code: (707) 257-8585
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the North Bay Bancorp's Common
Stock outstanding as of August 13, 2002: 2,117,464
Pursuant to the Securities Exchange Commission's Release No. 34-45589 ("Order
under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions From
Certain Provisions of the Act and Rules Thereunder"), no auditor reviewed the
unaudited interim financial statements contained in North Bay Bancorp's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. The interim
financial statements contained in the Company's March 2002 Quarterly Report have
been subsequently reviewed by KPMG, LLP, the Company's current independent
public accountants. There were no changes to the interim financial statements
contained in the March 2002 Quarterly Report on Form 10-Q.
Part 1.
FINANCIAL INFORMATION
FORWARD LOOKING STATEMENTS
In addition to the historical information, this Quarterly Report contains
certain forward-looking information within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 321E of the Securities Exchange
Act of 1934, as amended, and are subject to the "Safe Harbor" created by those
Sections. The reader of this Quarterly Report should understand that all such
forward-looking statements are subject to various uncertainties and risks that
could affect their outcome. The Company's actual results could differ materially
from those suggested by such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, (i)
variances in the actual versus projected growth in assets, return on assets,
loan losses, expenses, rates charged on loans and earned on securities
investments, rates paid on deposits, and fee and other noninterest income
earned; (ii) competitive pressures among depository and other financial
institutions may increase significantly and have an effect on pricing, spending,
third-party relationships and revenues; (iii) enactment of adverse government
regulations; (iv) adverse conditions and volatility, as a result of recent
economic uncertainty created by the September 11, 2001 terrorists attacks on the
World Trade Center and the Pentagon, the United States' war on terrorism, in the
stock market, the public debt market and other capital markets and the impact of
such conditions of the Company; (vi) continued changes in the interest rate
environment may reduce interest margins and adversely impact net interest
income; (vii) as well as other factors. This entire Quarterly Report should be
read to put such forward-looking statements in context and to gain a more
complete understanding of the uncertainties and risks involved in the Company's
business.
Moreover, wherever phrases such as or similar to "In Management's opinion", or
"Management considers" are used, such statements are as of and based upon the
knowledge of Management at the time made and are subject to change by the
passage of time and/or subsequent events, and accordingly such statements are
subject to the same risks and uncertainties noted above with respect to
forward-looking statements.
FINANCIAL INFORMATION
The information for the three months and six months ended June 30, 2002 and June
30, 2001 is unaudited, but in the opinion of management reflects all adjustments
which are necessary to present fairly the financial condition of North Bay
Bancorp (Company) at June 30, 2002 and the results of operations and cash flows
for the three and six months then ended. Results for interim periods should not
be considered as indicative of results for a full year.
2
Item 1.
FINANCIAL STATEMENTS
North Bay Bancorp
Consolidated Balance Sheets
Unaudited
June 30, June 30, December 31,
Assets 2002 2001 2001
------------ ------------ ------------
Cash and due from banks $ 14,135,000 $ 16,971,000 $ 19,311,000
Federal funds sold 26,648,000 45,436,000 18,000,000
Time deposits with other financial institutions 100,000 100,000 100,000
------------ ------------ ------------
Total cash and cash equivalents 40,883,000 62,507,000 37,411,000
Investment Securities:
Held-to-maturity 1,293,000 1,334,000 1,314,000
Available-for-sale 88,713,000 63,874,000 83,565,000
Equity securities 1,267,000 1,249,000 1,241,000
------------ ------------ ------------
Total investment securities 91,273,000 66,457,000 86,120,000
Loans, net of allowance for loan losses of $3,005,000 in June, 2002
$2,494,000 in June, 2001 and $2,717,000 in December, 2001 206,899,000 169,196,000 183,548,000
Bank premises and equipment, net 10,647,000 7,173,000 9,329,000
Accrued interest receivable and other assets 12,989,000 5,828,000 10,398,000
------------ ------------ ------------
Total assets $362,691,000 $311,161,000 $326,806,000
============ ============ ============
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing $ 86,419,000 $ 70,198,000 $ 77,117,000
Interest bearing 231,153,000 209,010,000 215,324,000
------------ ------------ ------------
Total deposits 317,572,000 279,208,000 292,441,000
Long term debt 0 2,308,000 1,846,000
------------ ------------ ------------
Total borrowings 0 2,308,000 1,846,000
Accrued interest payable and other liabilities 2,724,000 1,648,000 2,539,000
------------ ------------ ------------
Total liabilities 320,296,000 283,164,000 296,826,000
Floating rate subordinated debenture (trust preferred securities) 10,000,000 0 0
Shareholders' equity:
Preferred stock - no par value:
Authorized, 500,000 shares;
Issued and outstanding - none
Common stock - no par value:
Authorized, 10,000,000 shares;
Issued and outstanding - 2,098,313 shares in June 2002,
1,956,040 shares in June, 2001, and 1,960,902 in December, 2001 24,833,000 21,873,000 21,973,000
Retained earnings 6,560,000 5,608,000 7,454,000
Accumulated other comprehensive income 1,002,000 516,000 553,000
------------ ------------ ------------
Total shareholders' equity 32,395,000 27,997,000 29,980,000
Total liabilities and shareholders' equity $362,691,000 $311,161,000 $326,806,000
============ ============ ============
The accompanying notes are an integral part of these statements
3
North Bay Bancorp
Consolidated Income Statements
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Interest Income
Loans (including fees) $ 4,096,000 $ 3,792,000 $ 7,897,000 $ 7,381,000
Federal funds sold 98,000 361,000 156,000 605,000
Investment securities - taxable 790,000 768,000 1,655,000 1,523,000
Investment securities - tax exempt 189,000 165,000 338,000 332,000
----------- ----------- ----------- -----------
Total interest income 5,173,000 5,086,000 10,046,000 9,841,000
Interest Expense
Deposits 817,000 1,639,000 1,652,000 3,202,000
Short term borrowings 0 0 0 2,000
Long term debt 24,000 44,000 39,000 107,000
----------- ----------- ----------- -----------
Total interest expense 841,000 1,683,000 1,691,000 3,311,000
Net interest income 4,332,000 3,403,000 8,355,000 6,530,000
Provision for loan losses 144,000 111,000 288,000 222,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 4,188,000 3,292,000 8,067,000 6,308,000
Non interest income 645,000 567,000 1,278,000 1,112,000
Gains on securities transactions, net 0 0 66,000 0
----------- ----------- ----------- -----------
Total non interest income 645,000 567,000 1,344,000 1,112,000
Non interest expenses
Salaries and employee benefits 1,976,000 1,542,000 3,880,000 2,950,000
Occupancy 218,000 200,000 452,000 421,000
Equipment 466,000 343,000 942,000 673,000
Other 795,000 790,000 1,548,000 1,502,000
----------- ----------- ----------- -----------
Total non interest expense 3,455,000 2,875,000 6,822,000 5,546,000
----------- ----------- ----------- -----------
Income before provision for
income taxes 1,378,000 984,000 2,589,000 1,874,000
Provision for income taxes 501,000 362,000 934,000 698,000
----------- ----------- ----------- -----------
Net income $ 877,000 $ 622,000 $ 1,655,000 $ 1,176,000
=========== =========== =========== ===========
Basic earnings per common share: $ 0.42 $ 0.30 $ 0.80 $ 0.57
=========== =========== =========== ===========
Diluted earnings per common share: $ 0.41 $ 0.30 $ 0.78 $ 0.57
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements
4
North Bay Bancorp
Consolidated Statement of Change in Shareholders' Equity
For the Six Months Ended
June 30, 2002
(Unaudited)
Accumulated
Other Total
Common Shares Common Retained Comprehensive Shareholders' Comprehensive
Outstanding Stock Earnings Income Equity Income
-------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 1,960,902 $ 21,973,000 $ 7,454,000 $ 553,000 $ 29,980,000
Stock dividend 97,408 2,143,000 (2,157,000) (14,000)
Cash dividend (392,000) (392,000)
Comprehensive income:
Net income 1,655,000 1,655,000 $ 1,655,000
Other comprehensive loss, net of
tax:
Change in net unrealized
losses on
available-for-sale
securities, net of tax 449,000 449,000 449,000
------------
Comprehensive income $ 2,104,000
============
Stock options exercised 40,003 717,000 717,000
------------ ------------ ------------
BALANCE, JUNE 30, 2002 2,098,313 $ 24,833,000 $ 6,560,000 $ 1,002,000 $ 32,395,000
============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements
5
North Bay Bancorp
Consolidated Statement of Cash Flows
Unaudited
(In 000's)
Six Months Ended June 30,
2002 2001
-------- --------
Cash Flows From Operating Activities:
Net income $ 1,655 $ 1,176
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 723 515
Provision for loan losses 288 222
Amortization of deferred loan fees (244) (200)
Premium amortization (discount accretion), net 467 (6)
Gain on securities transactions (66) 0
Loss on sale of capital assets 1 0
Changes in:
Interest receivable and other assets (2,702) 1,021
Interest payable and other liabilities 185 223
-------- --------
Net cash provided by operating activities 307 2,951
-------- --------
Cash Flows From Investing Activities:
Investment securities held-to-maturity:
Proceeds from maturities and principal payments 21 19
Investment securities available-for-sale:
Proceeds from maturities and principal payments 20,582 7,844
Proceeds from sale of securities 5,112 0
Purchases (30,476) (13,950)
Equity securities:
Proceeds from sale of securities 10 23
Purchases (36) (40)
Net increase in loans (23,395) (19,210)
Sale of capital assets 1 0
Capital expenditures (2,043) (2,446)
-------- --------
Net cash used in investing activities (30,224) (27,760)
-------- --------
Cash Flows From Financing Activities:
Net increase in deposits 25,131 62,570
Repayment of long-term debt (1,846) (461)
Stock options exercised 510 134
Proceeds from issuance of Trust Preferred Securities 10,000 0
Dividends paid (406) (383)
-------- --------
Net cash provided by financing activities 33,389 61,860
-------- --------
Net increase in cash and cash equivalents 3,472 37,051
Cash and cash equivalents at beginning of year 37,411 25,456
-------- --------
Cash and cash equivalents at end of period $ 40,883 $ 62,507
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 1,856 $ 2,900
Taxes paid $ 991 $ 271
Retired assets $ 0 $ 15
The accompanying notes are an integral part of these statements
6
NORTH BAY BANCORP
Notes to the Consolidated Financial Statements
(Unaudited)
June 30, 2002
NOTE 1 - Basis of Presentation
The accompanying consolidated financial statements, which include the accounts
of North Bay Bancorp and its subsidiaries (the "Company"), have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) and in Management's opinion, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results for
such interim periods. The subsidiaries consist of two community banks, The
Vintage Bank, established in 1985, and Solano Bank, which was opened July 17,
2000. All significant intercompany transactions and balances have been
eliminated. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to SEC rules or regulations; however, the
Company believes that the disclosures made are adequate to make the information
presented not misleading. The interim results for the six months ended June 30,
2002 and 2001, are not necessarily indicative of results for the full year. It
is suggested that these financial statements be read in conjunction with the
financial statements and the notes included in the Company's Annual Report for
the year ended December 31, 2001.
NOTE 2 - Commitments
The Company has outstanding standby Letters of Credit of approximately $748,000,
undisbursed real estate and construction loans of approximately $13,672,000, and
undisbursed commercial and consumer lines of credit of approximately
$48,937,000, as of June 30, 2002.
NOTE 3 - Earnings Per Common Share
The Company declared a 5% stock dividend on January 28, 2002. As a result of the
stock dividend the number of common shares outstanding and earnings per share
data was adjusted retroactively for all periods presented.
The following table reconciles the numerator and denominator of the Basic and
Diluted earnings per share computations:
Weighted Average Per-Share
Net Income Shares Amount
---------- ------ ------
For the three months ended June 30, 2002
----------------------------------------
Basic earnings per share $877,000 2,080,851 $0.42
Dilutive effect of stock options 62,946
Diluted earnings per share 2,143,797 $0.41
For the three months ended June 30, 2001
----------------------------------------
Basic earnings per share $622,000 2,053,842 $0.30
Dilutive effect of stock options 22,094
Diluted earnings per share 2,075,936 $0.30
Weighted Average Per-Share
Net Income Shares Amount
---------- ------ ------
For the six months ended June 30, 2002
--------------------------------------
Basic earnings per share $1,655,000 2,070,461 $0.80
Dilutive effect of stock options 58,645
Diluted earnings per share 2,129,106 $0.78
For the six months ended June 30, 2001
--------------------------------------
Basic earnings per share $1,176,000 2,048,840 $0.57
Dilutive effect of stock options 25,189
Diluted earnings per share 2,074,029 $0.57
NOTE 4- Segment Reporting
The Company's operating segments consist of its traditional community banking
activities provided through its Banks and activities related to the Bancorp.
Community banking activities include the Banks' commercial and retail lending,
deposit gathering and investment and liquidity management activities. As
permitted, the Company has aggregated the results of the separate banks and
branches into a single reportable segment, and the Bancorp activities are
reported as "Other". The Bancorp provides services such as, Data Processing and
Management services to the Banks'.
The components of the Company's business segments for the three months ended
June 30, 2002 were as follows:
8
(In 000's)
Community Intersegment
Banking Other Adjustments Consolidated
------- ------- ------- -------
Interest Income $ 5,173 $ 0 0 $ 5,173
Interest Expense 817 24 0 841
------- ------- ------- -------
Net Interest Income 4,356 (24) 0 4,332
Provision for loan losses 144 0 0 144
Equity in net income of
subsidiaries 0 982 (982) 0
Noninterest Income 687 1,392 (1,434) 645
Noninterest Expense 3,346 1,543 (1,434) 3,455
------- ------- ------- -------
Income Before Tax 1,553 807 (982) 1,378
Provision for
Income Taxes 571 (70) 0 501
------- ------- ------- -------
Net Income $ 982 $ 877 ($ 982) $ 877
------- ------- ------- -------
The components of the Company's business segments for the three months ended
June 30, 2001 were as follows:
(In 000's)
Community Intersegment
Banking Other Adjustments Consolidated
------- ------- ------- -------
Interest Income $ 5,086 $ 0 $ 0 $ 5,086
Interest Expense 1,640 43 0 1,683
------- ------- ------- -------
Net Interest Income 3,446 (43) 0 3,403
Provision for loan losses 111 0 0 111
Equity in net income of
subsidiaries 0 659 (659) 0
Noninterest Income 609 1,335 (1,377) 567
Noninterest Expense 2,896 1,356 (1,377) 2,875
------- ------- ------- -------
Income Before Tax 1,048 595 (659) 984
Provision for
Income Taxes 389 (27) 0 362
------- ------- ------- -------
Net Income $ 659 $ 622 ($ 659) $ 622
------- ------- ------- -------
The components of the Company's business segments for the six months ended June
30, 2002 were as follows:
(In 000's)
Community Intersegment
Banking Other Adjustments Consolidated
-------- -------- -------- --------
Interest Income $ 10,059 $ 0 ($ 13) $ 10,046
Interest Expense 1,665 39 (13) 1,691
-------- -------- -------- --------
Net Interest Income 8,394 (39) 0 8,355
Provision for loan losses 288 0 0 288
Equity in net income of
subsidiaries 0 1,890 (1,890) 0
Noninterest Income 1,427 2,742 (2,825) 1,344
Noninterest Expense 6,548 3,099 (2,825) 6,822
-------- -------- -------- --------
Income Before Tax 2,985 1,494 (1,890) 2,589
Provision for
Income Taxes 1,095 (161) 0 934
-------- -------- -------- --------
Net Income $ 1,890 $ 1,655 ($ 1,890) $ 1,655
-------- -------- -------- --------
Assets $359,290 $ 43,818 ($40,417) $362,691
Loans, Net 206,899 0 0 206,899
Deposits 326,175 0 (8,603) 317,572
Equity 31,814 32,395 (31,814) 32,395
The components of the Company's business segments for the six months ended June
30, 2001 were as follows:
9
(In 000's)
Community Intersegment
Banking Other Adjustments Consolidated
-------- -------- -------- --------
Interest Income $ 9,841 $ 0 $ 0 $ 9,841
Interest Expense 3,205 106 0 3,311
-------- -------- -------- --------
Net Interest Income 6,636 (106) 0 6,530
Provision for loan losses 222 0 0 222
Equity in net income of
subsidiaries 0 1,491 (1,491) 0
Noninterest Income 1,197 2,204 (2,289) 1,112
Noninterest Expense 5,195 2,640 (2,289) 5,546
-------- -------- -------- --------
Income Before Tax 2,416 949 (1,491) 1,874
Provision for
Income Taxes 925 (227) 0 698
-------- -------- -------- --------
Net Income $ 1,491 $ 1,176 ($ 1,491) $ 1,176
-------- -------- -------- --------
Assets $308,999 $ 30,907 ($28,745) $311,161
Loans, Net 169,196 0 0 169,196
Deposits 280,874 0 (1,666) 279,208
Equity 27,079 27,997 (27,079) 27,997
NOTE 5 - Impact of Recently Issued Accounting Standards
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.
The Company adopted the provisions of Statement 141 in fiscal year 2001 and
Statement 142 effective January 1, 2002. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 continued to be amortized
prior to the adoption of Statement 142. The Company does not have any goodwill
and intangible assets acquired in business combinations completed before July 1,
2001. The adoption of Statements No. 141 and 142 did not have a material impact
on the financial condition or operating results of the Company.
NOTE 6 - Accounting for Asset Retirement Obligations
The Financial Accounting Standards Board (FASB) recently issued Statement No.
143, Accounting for Asset Retirement Obligations in August 2001. This Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs.
As a result, FASB Statement No. 143 applies to all entities that have legal
obligations associated with the retirement of long-lived tangible assets that
result from the acquisition, construction, development or normal use of the
asset. As used in this Statement, a legal obligation results from existing law,
statute, ordinance, written or oral contract, or by legal construction of a
contract under the doctrine of promissory estoppel.
Statement No. 143 requires an enterprise to record the fair value of an asset
retirement obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of a tangible long-lived asset. Since
the requirement is to recognize the obligation when incurred, approaches that
have been used in the past to accrue the asset retirement obligation over the
life of the asset are no longer acceptable. Statement No. 143 also requires the
enterprise to record the contra to the initial obligation as an increase to the
carrying amount of the related long-lived asset (i.e., the associated asset
retirement costs) and to depreciate that cost over the remaining useful life of
the asset. The liability is changed at the end of each period to reflect the
passage of time (i.e., accretion expense) and changes in the estimated future
cash flows underlying the initial fair value measurement. Enterprises are
required to adopt Statement No. 143 for fiscal years beginning after June 15,
2002. Early adoption is encouraged. The Company does not expect adoption of
Statement No. 143 to have a material impact on the financial condition or
operating results of the Company.
NOTE 7 - Accounting for the Impairment or Disposal of Long-Lived Assets
On October 3, 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement
No. 121, Accounting for the Impairment
10
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains
many of the fundamental provisions of that Statement.
Statement No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in Opinion 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity. The Company adopted the provisions of Statement 144 on
January 1, 2002. The adoption of Statement No. 144 did not have a material
impact on the financial condition or operating results of the Company.
NOTE 8 - Rescission of SFAS No. 4, 44, and 64, Amendments of SFAS No. 13, and
Technical Corrections
Statement Financial Accounting Standards No. 145 rescinds SFAS No. 4, which
requires all gains and losses from extinguishment of debt to be aggregated and,
if material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria in Opinion No. 30 will now be used to classify
those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer
necessary because SFAS No. 4 has been rescinded.
The accounting, disclosure and financial statements provision of SFAS No. 145
are effective for financial statements in fiscal years beginning after May, 15,
2002. Any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet the criteria in
Opinion No. 30 for classification as an extraordinary item shall be
reclassified. The implementation of Statement No. 145 is not expected to have a
material impact on the financial condition or operating results of the Company.
NOTE 9 - Accounting for Costs Associated with Exit or Disposal Activities
The Financial Accounting Standards Board issued FASB Statement No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, (SFAS 146),
which requires the Company to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS 146 replaces Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recongnition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." The provisions of SFAS 146 are to applied prospectively to
exit or disposal activities initiated after December 31, 2002.
11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
In addition to the historical information this Quarterly Report contains certain
forward-looking statements. The reader of this Quarterly Report should
understand that all such forward-looking statements are subject to various
uncertainties and risks that could affect their outcome. The Company's actual
results could differ materially from those suggested by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, variances in the actual versus projected growth in
assets, return on assets, loan losses, expenses, rates charged on loans and
earned on securities investments, rates paid on deposits, competition effects,
fee and other noninterest income earned, the economic uncertainty created by the
September 11, 2001 terrorist attacks on the World Trade Center and the United
States' war on terrorism, as well as other factors. This entire Quarterly Report
should be read to put such forward-looking statements in context and to gain a
more complete understanding of the uncertainties and risks involved in the
Company's business.
Moreover, wherever phrases such as or similar to "In Management's opinion"
"Management considers" are used, such statements are as of and based upon the
knowledge of Management at the time made and are subject to change by the
passage of time and/or subsequent events, and accordingly such statements are
subject to the same risks and uncertainties noted above with respect to
forward-looking statements.
CRITICAL ACCOUNTING POLICIES
In preparing its consolidated financial statements, the Company is required to
make judgments and estimates that may have a significant impact upon its
financial results. Certain accounting policies require the Company to make
significant estimates and assumptions, which have a material impact on the
carrying value of certain assets and liabilities, and are considered critical
accounting policies. The estimates and assumptions used are based on the
historical experiences and other factors, which are believed to be reasonable
under the circumstances. Actual results could differ significantly from these
estimates and assumptions , which could have a material impact on the carrying
value of assets and liabilities at the balance sheet dates and results of
operations for the reporting periods. The Company's determination of the
adequacy of its allowance for loan losses is particularly susceptible to
management's judgment and estimates. For further information, see Provision and
Allowance for Loan Losses on page 14.
OVERVIEW
Net income was $877,000 or $.41 per diluted share for the three months ended
June 30, 2002, compared with $622,000 or $.30 per diluted share for the three
months ended June 30, 2001, an increase of 41%. Net income was $1,655,000 or
$.78 per diluted share for the six months ended June 30, 2002, compared with
$1,176,000 or $.57 per diluted share for the six months ended June 30, 2001, an
increase of 41%. Total assets were $362,691,000 as of June 30, 2002; equating to
a 17% growth in assets during the twelve months ended June 30, 2002.
SUMMARY OF EARNINGS
NET INTEREST INCOME
The following table provides a summary of the components of interest income,
interest expense and net interest margins for the six months ended June 30, 2002
and June 30, 2001:
(In 000's)
2002 2001
---- ----
Average Income/ Average Average Income/ Average
Balance Expense Yield/Rate Balance Expense Yield/Rate
------------------------------------------------------------------------------------
Loans(1)(2) $ 200,580 $ 7,897 7.87% $ 163,007 $ 7,381 9.06%
Investment securities:
Taxable 68,833 1,652 4.80% 47,430 1,520 6.41%
Non-taxable(3) 14,238 406 5.70% 13,828 420 6.07%
--------- --------- --------- ---------
TOTAL LOANS AND INVESTMENT
SECURITIES 283,651 9,955 7.02% 224,265 9,321 8.31%
Due from banks, time 100 3 6.00% 100 3 6.00%
Federal funds sold 19,844 156 1.57% 28,203 605 4.29%
--------- --------- --------- ---------
TOTAL EARNING ASSETS 303,595 $ 10,114 6.66% 252,568 $ 9,929 7.86%
--------- --------- --------- ---------
Cash and due from banks 18,606 15,467
Allowance for loan losses (2,885) (2,400)
Premises and equipment, net 10,262 6,687
Accrued interest receivable
and other assets 10,859 6,065
--------- ---------
12
TOTAL ASSETS $ 340,437 $ 278,387
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Interest bearing demand $ 122,104 $ 500 0.82% $92,126 $ 1,239 2.69%
Savings 23,904 113 0.95% 18,393 129 1.40%
Time 75,699 1,039 2.75% 70,568 1,834 5.20%
--------- --------- --------- ---------
221,707 1,652 181,087 3,202
Long-term debt 1,709 39 4.56% 2,461 107 8.70%
Short-term borrowings 0 0 0.00% 90 2 4.44%
1,709 39 2,551 109
TOTAL INTEREST BEARING
LIABILITIES 223,416 $ 1,691 1.51% 183,638 $ 3,311 3.61%
--------- --------- --------- ---------
Noninterest bearing DDA 82,102 65,778
Accrued interest payable
and other liabilities 3,937 1,542
Shareholders' equity 30,982 27,429
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 340,437 $ 278,387
========= =========
NET INTEREST INCOME $ 8,423 $ 6,618
========= =========
NET INTEREST INCOME TO
AVERAGE EARNING ASSETS
(Net Interest Margin (4)) 5.55% 5.24%
(1) Average loans would include nonaccrual loans. The Company had no nonaccrual
loans during 2002 or 2001.
(2) Loan interest income includes loan fee income of $563 in 2002 and $452 in
2001 for the six months ended June 30, 2002 and June 30, 2001, respectfully.
(3) Average yields shown are taxable-equivalent. On a non- taxable basis, 2002
interest income was $338 with an average yield of 4.75%; in 2001 non-taxable
income was $332 and the average yield was 4.80%.
(4) Net interest margin is calculated by dividing net interest income by the
average balance of total earning assets for the applicable period
Net interest income represents the amount by which interest earned on earning
assets (primarily loans and investments) exceeds the amount of interest paid on
deposits. Net interest income is a function of volume, interest rates and level
of non-accrual loans. Non-refundable loan origination fees are deferred and
amortized into income over the life of the loan.
Net interest income before the provision for loan losses on a taxable-equivalent
basis for the three months ended June 30, 2002 and June 30, 2001 was $4,368,000
and $3,447,000, respectively. These results equate to a 27% increase in net
interest income for the second quarter of 2002 compared to the second quarter of
2001. Loan fee income, which is included in interest income from loans, was
$299,000 for the three months ended June 30, 2002, compared with $255,000 for
the three months ended June 30, 2001. Net interest income before the provision
for loan losses on a taxable-equivalent basis for the six months ended June 30,
2002 and June 30, 2001 was $8,423,000 and $6,618,000, respectively. These
results equate to a 27% increase in net interest income for the first six months
of 2002 compared to the same period in 2001. Loan fee income, which is included
in interest income from loans, was $563,000 for the six months ended June 30,
2002, compared with $452,000 for the six months ended June 30, 2001.
Taxable-equivalent interest income increased $79,000 or 2% in the second quarter
of 2002 compared with the same period of 2001. The net increase of $79,000 was
attributed to an increase in the volume of earning assets accounting for
$1,028,000 of this increase, offset by a decrease of $949,000 attributable to
lower rates. Interest paid on interest-bearing liabilities decreased $842,000 in
2002 in the second quarter of 2002 compared with the second quarter of 2001.
Although increases in the volume of deposits and other borrowings accounted for
an increase of $195,000 it was offset by $1,037,000 attributed to lower rates.
The average balance of earning assets increased $51,027,000 or 20% during the
twelve months ended June 30, 2002. Taxable-equivalent interest income increased
$185,000 or 2% in the first six months of 2002 compared with the same period of
2001. The net increase of $185,000 was attributed to an increase in the volume
of earning assets accounting for $2,224,000 of this increase, offset by a
decrease of $2,039,000 attributable to lower rates. The average balance of
interest-bearing liabilities increased $39,778,000 or 22% during the first six
month of 2002 compared with the same period in 2001. Interest paid on
interest-bearing liabilities decreased $1,620,000 in
13
2002 compared with 2001. Although increases in the volume of deposits and other
borrowings accounted for an increase of $540,000 it was offset by $2,160,000
attributed to lower rates. Management does not expect a material change in the
Company's net interest margin during the next twelve months as the result of a
modest increase or decrease in general interest rates.
The following table sets forth a summary of the changes in interest earned and
interest paid for the first six months in 2002 over 2001 resulting from changes
in assets and liabilities volumes and rates. The change in interest due to both
rate and volume has been allocated in proportion to the relationship of absolute
dollar amounts of change in each.
(In 000's)
2002 Over 2001
--------------
Volume Rate Total
----------------------------------
Increase (Decrease) In
Interest and Fee Income
Time Deposits With Other
Financial Institutions $ 0 $ 0 $ 0
Investment Securities:
Taxable 686 (554) 132
Non-Taxable(1) 12 (26) (14)
Federal Funds Sold (179) (270) (449)
Loans 1,705 (1,189) 516
----------------------------------
Total Interest and Fee Income 2,224 (2,039) 185
----------------------------------
Increase (Decrease) In
Interest Expense
Deposits:
Interest Bearing
Transaction Accounts 403 (1,142) (739)
Savings 38 (54) (16)
Time Deposits 134 (929) (795)
----------------------------------
Total Deposits 575 (2,125) (1,550)
Long-term Debt (33) (35) (68)
Short-term Borrowings (2) 0 (2)
----------------------------------
Total Interest Expense 540 (2,160) (1,620)
----------------------------------
Net Interest Income $ 1,684 $ 121 $ 1,805
==================================
(1) The interest earned is taxable-equivalent.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses at a level considered
adequate to provide for losses that can be reasonably anticipated. The allowance
is increased by the provision for loan losses and reduced by net charge offs.
The allowance for loan losses is based on estimates, and ultimate losses may
vary from current estimates. These estimates are reviewed periodically and as
adjustments become necessary they are reported in earnings in the periods in
which they become known. The Company conducts credit reviews of the loan
portfolio and considers current economic conditions, historical loan loss
experience and other factors in determining the adequacy of the allowance
balance. This evaluation establishes a specific allowance for all classified
loans over $50,000 and establishes percentage allowance requirements for all
other loans, according to the classification as determined by the Company's
internal grading system. As of June 30, 2002 the allowance for loan losses of
$3,005,000 represented 1.43% of loans outstanding. As of June 30, 2001, the
allowance represented 1.45% of loans outstanding. During the six months ended
June 30, 2002,
14
$288,000 was charged to expense for the loan loss provision, compared with
$222,000 for the same period in 2001. There were no net charge-offs during the
first six months of 2002, compared with net recoveries of $4,000 for the first
six months of 2001. The following table summarizes changes in the allowance for
loan losses:
(In 000's)
June 30, June 30,
2002 2001
Balance, beginning of period $ 2,717 $ 2,268
Provision for loan losses 288 222
Loans charged off (2) 0
Recoveries of loans previously charged off 2 4
------- -------
Balance, end of period $ 3,005 $ 2,494
======= =======
Allowance for loan losses to total outstanding
loans 1.43% 1.45%
There were no loans on non-accrual status as of June 30, 2002, June 30, 2001 or
December 31, 2001.
NON-INTEREST INCOME
Non-interest income was $645,000 for the three months ended June 30, 2002
compared with $567,000 for the same period in 2001, a 14% increase. Non-interest
income was $1,278,000 for the six months ended June 3, 2002 compared with
$1,112,000 for the same period in 2001, a 15% increase. Non-interest income
primarily consists of service charges and other fees related to deposit
accounts. The increase in non-interest income resulted primarily from an
increase in the number of deposit accounts, transaction volumes and directly
related service charges.
GAINS ON SECURITIES
Net gain of $66,000 for the six months ended June 30, 2002 resulted from the
sale of several available-for-sale securities. There were no gains or losses on
securities for the three months ended June 30, 2002 or 2001 and no gains or
losses on securities during the six months ended June 30, 2001.
NON-INTEREST EXPENSE
Non-interest expense for the three months ended June 30, 2002 and June 30, 2001
was $3,455,000 and $2,875,000, respectively, a 20% increase. Non-interest
expense for the six months ended June 30, 2002 and June 30, 2001 was $6,822,000
and $5,546,000, respectively, a 23% increase. The increase compared with the
prior reporting period is primarily due to the Company opening two new branch
offices during the first quarter of 2002. Salaries and employee benefits expense
for the three months ended June 30, 2002 and 2001 were $1,976,000 and
$1,542,000, respectively, a 28% increase. Salaries and employee benefits expense
for the six months ended June 30, 2002 and 2001 were $3,880,000 and $2,950,000,
respectively, a 32% increase. The increase in 2002 resulted from increased
salaries paid to Company officers and employees, and an increase of
approximately nine full-time equivalent employees from 125 at June 30, 2001 to
134 at June 30, 2002. The Company continued to strengthen its management team by
hiring six additional managers over 2001. Occupancy expense for the three months
ended June 30, 2002 and 2001 were $218,000 and $200,000, respectively, a 9%
increase. Occupancy expense for the six months ended June 30, 2002 and 2001 were
$452,000 and $421,000, respectively, representing a 7% increase. The increase in
2002 is attributed to opening two branch offices in January 2002, offset by
rental income from leases at the Vacaville property, which was purchased by
Solano Bank mid-2001. The Company had six branch offices at June 30, 2001
compared with eight at June 30, 2002. Equipment expenses for the three months
ended June 30, 2002 and 2001 was $466,000 and $343,000, respectively,
representing an increase of 36%. Equipment expenses for the six months ended
June 30, 2002 and 2001 was $942,000 and $673,000, respectively, an increase of
40%. The increase was primarily due to an increase in depreciation expense
resulting from accelerated depreciation on the host banking system, which was
replaced in 2002, as well as furniture and equipment depreciation expenses of
the two new branch offices. Other expenses for the three months ended June 30,
2002 and June 30, 2001 were $795,000 and $790,000, respectively, approximately a
1% increase. Other expenses for the six months ended June 30, 2002 and June 30,
2001 were $1,548,000 and $1,502,000, respectively, a 3% increase. The increase
from last year is primarily due to costs associated with operating eight branch
offices in 2002 in comparison to six in 2001.
INCOME TAXES
The Company reported a provision for income tax for the three months ended June
30, 2002 and 2001 of $501,000 and $362,000, respectively. The Company reported a
provision for income tax for the six months ended June 30, 2002 and 2001 of
$934,000 and $698,000, respectively. Both the 2002 and 2001 provisions reflect
tax accruals at statutory rates for both federal and state income taxes,
adjusted primarily for the effect of the Company's investments in tax-exempt
municipal securities and bank owned life insurance policies.
BALANCE SHEET
Total assets as of June 30, 2002 were $362,691,000 compared with $311,161,000 as
of June 30, 2001, and $326,806,000 at December 30, 2001 equating to a 17%
increase during the twelve months ended June 30, 2002, and an 11% increase for
the six months ended June 30, 2002. Total deposits as of June 30, 2002 were
$317,572,000 compared with $279,208,000 as of June 30, 2001, and $292,441,000 at
December 30, 2001 representing a 14% increase during the twelve months then
ended, and a 9% increase for the six months ended June 30, 2002. Loans
outstanding as of June 30, 2002 were $209,904,000 compared with $171,690,000 as
of June 30, 2001, and $186,265,000 at December 30, 2001 equating to a 22%
increase during the twelve months then ended and a 13% increase for the six
months ended June 30, 2002.
15
TRUST PREFERRED SECURITIES
On June 26, 2002, North Bay Statutory Trust I (Trust), a Connecticut statutory
business trust and wholly-owned subsidiary of North Bay Bancorp, issued $10
million in floating rate Cumulative Trust Preferred Securities (Securities). The
Securities bear a rate of Libor plus 3.45% and have an initial interest rate of
5.34%; the Securities will mature on June 26, 2032, but earlier redemption is
permitted under certain circumstances, such as changes in tax or regulatory
capital rules. The principal asset of the trust is a $10,310,000 floating rate
subordinated debenture of the Company. The subordinated debenture bears an
initial interest rate of 5.34%, and matures June 26, 2032, subject to earlier
redemption under certain circumstances. North Bay Bancorp owns all the common
securities of the Trust.
The Securities, the subordinated debentures, and the common securities issued by
the Trust are redeemable in whole or in part on or after June 26, 2007, or at
any time in whole, but not in part, upon the occurrence of certain events. The
Securities are included in Tier 1 capital for regulatory capital adequacy
determination purposes, subject to certain limitations. The Company fully and
unconditionally guarantees the obligations of the Trust with respect to the
issuance of the Securities.
Subject to certain exceptions and limitations, the Company may, from time to
time, defer subordinated debenture interest payments, which would result in a
deferral of distribution payments on the Securities and, with certain
exceptions, prevent the Company from declaring or paying cash distributions on
the Company's common stock or debt securities that rank junior to the
subordinated debentures.
BORROWINGS
The Company had a $3,000,000 unsecured loan with Union Bank of California that
was to mature in 2003 with principal and interest payments due quarterly. The
loan was a variable rate loan tied to Union Bank's reference rate. The Company
paid the loan in full in June, 2002 with the proceeds of the Trust Preferred
Securities.
LIQUIDITY AND CAPITAL ADEQUACY
The Company's liquidity is determined by the level of assets (such as cash,
Federal Funds, and investment in unpledged marketable securities) that are
readily convertible to cash to meet customer withdrawals and borrowings.
Management reviews the Company's liquidity position on a regular basis to ensure
that it is adequate to meet projected loan funding and potential withdrawal of
deposits. The Company has a comprehensive Asset/Liability Management and
Liquidity Policy, which it uses to determine adequate liquidity. As of June 30,
2002 liquid assets were 36% of total assets, compared with 41% as of June 30,
2001. The Bancorp is primarily dependent on the funds received from Management
Fees charged to the subsidiary Banks' and the proceeds of the Trust Preferred
Securities to service its commitments and capital purchases.
The Federal Deposit Insurance Corporation Improvement Act (FDICA) established
ratios used to determine whether a Company is "Well Capitalized," "Adequately
Capitalized," "Undercapitalized," "Significantly Undercapitalized," or
"Critically Undercapitalized." A Well Capitalized Company has risk-based capital
of at least 10%, tier 1 risked-based capital of at least 6%, and a leverage
ratio of at least 5%. As of June 30, 2002, the Company's risk-based capital
ratio was 15.48%. The Company's tier 1 risk-based capital ratio and leverage
ratio were 14.44% and 12.03%, respectively.
As the following table indicates, the Bank currently exceeds the regulatory
capital minimum requirements. The Bank is considered "Well Capitalized"
according to regulatory guidelines.
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 June 30, 2002:
Total Capital (to Risk
Weighted Assets)
Consolidated $44,399 15.48% $22,937 >8.00% $28,671 >10.00%
- -
The Vintage Bank 26,099 10.92% 19,114 >8.00% 23,892 >10.00%
- -
Solano Bank 7,720 17.41% 3,548 >8.00% 4,435 >10.00%
- -
Tier I Capital (to Risk
Weighted Assets)
Consolidated 41,393 14.44% 11,468 >4.00% 17,202 >6.00%
- -
The Vintage Bank 23,313 9.76% 9,557 >4.00% 14,335 >6.00%
- -
Solano Bank 7,500 16.91% 1,774 >4.00% 2,661 >6.00%
- -
Tier I Capital (to
Average Assets)
Consolidated 41,393 12.03% 13,767 >4.00% 20,650 >5.00%
-
The Vintage Bank 23,313 8.06% 11,575 >4.00% 17,363 >5.00%
- -
Solano Bank 7,500 17.41% 2,192 >4.00% 3,288 >5.00%
- -
16
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. Although
the Company manages other risks, as in credit quality and liquidity risk, in the
normal course of business, management considers interest rate risk to be
principally a market risk. Other types of market risks, such as foreign currency
exchange rate risk, do not arise in the normal course of the Company's business
activities. The majority of the Company's interest rate risk arises from
instruments, positions and transactions entered into for purposes other than
trading. They include loans, securities available-for-sale, deposit liabilities,
short-term borrowings and long-term debt. Interest rate risk occurs when assets
and liabilities reprice at different times as interest rate changes.
The Company manages interest rate risk through its Audit Committee. The Audit
Committee monitors exposure to interest rate risk on a quarterly basis using
both a traditional gap analysis and simulation analysis. Traditional gap
analysis identifies short and long-term interest rate positions or exposure.
Simulation analysis uses an income simulation approach to measure the change in
interest income and expense under rate shock conditions. The model considers the
three major factors of (a) volume differences, (b) repricing differences and (c)
timing in its income simulation. The model begins by disseminating data into
appropriate repricing buckets based on internally supplied algorithms (or
overridden by calibration). Next, each major asset and liability type is
assigned a "multiplier" or beta to simulate how much that particular balance
sheet category type will reprice when interest rates change. The model uses
eight asset and liability multipliers consisting of bank-specific or default
multipliers. The remaining step is to simulate the timing effect of assets and
liabilities by modeling a month-by-month simulation to estimate the change in
interest income and expense over the next 12-month period. The results are then
expressed as the change in pre-tax net interest income over a 12-month period
for +1%, and +2% shocks.
Utilizing the simulation model to measure interest rate risk at June 30, 2002
and December 31, 2001 the Company is within the established exposure of a 4%
change in "return on equity" tolerance limit. There were no significant changes
in interest rate risk from the annual report on form 10-K for December 31, 2001.
17
PART II - OTHER INFORMATION
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 25, 2002, Open Solutions, Inc. ("OSI") filed a complaint against the
Company in the United States District Court, District of Connecticut (Civil
Action No. 302CV1284 JCH). The action is for breach of contract and breach of
good faith and fair dealing brought pursuant to Connecticut law and alleges that
the Company has failed and continues to fail to make payments for support
services provided to it by OSI. OSI seeks monetary damage which it believes to
be in excess of $500,000. The Company has not yet responded to the complaint,
but intends to vigorously defend the action and to raise appropriate affirmative
defenses and/or file appropriate cross-complaints.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 26, 2002, North Bay Statutory Trust I (Trust), a Connecticut statutory
business trust and wholly-owned subsidiary of North Bay Bancorp, issued $10
million in floating rate Cumulative Trust Preferred Securities (Securities) to
Preferred Term Securities VI, LTD, a Cayman Island limited liability company.
The Securities bear a rate of Libor plus 3.45% and have an initial interest rate
of 5.34%; the Securities will mature on June 26, 2032, but earlier redemption is
permitted under certain circumstances, such as changes in tax or regulatory
capital rules. The principal asset of the trust is a $10,310,000 floating rate
subordinated debenture of the Company. The subordinated debenture bears an
initial interest rate of 5.34%, and matures June 26, 2032, subject to earlier
redemption under certain circumstances. North Bay Bancorp owns all the common
securities of the Trust.
The Securities, the subordinated debentures, and the common securities issued by
the Trust are redeemable in whole or in part on or after June 26, 2007, or at
any time in whole, but not in part, upon the occurrence of certain events. The
Securities are included in Tier 1 capital for regulatory capital adequacy
determination purposes, subject to certain limitations. The Company fully and
unconditionally guarantees the obligations of the Trust with respect to the
issuance of the Securities.
Subject to certain exceptions and limitations, the Company may, from time to
time, defer subordinated debenture interest payments, which would result in a
deferral of distribution payments on the Securities and, with certain
exceptions, prevent the Company from declaring or paying cash distributions on
the Company's common stock or debt securities that rank junior to the
subordinated debentures.
The debenture and the guarantee were issued pursuant to the exception from
registration provided by section 4 (2) of the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Third Annual Meeting of the shareholders of the
Company was held on April 30, 2002.
(b) Proxies for the meeting were solicited pursuant to
Regulation 14A under the Act, there were no solicitations in opposition to
management's nominees as listed in the proxy statement, and all such nominees
were elected.
(c) In addition to the election of directors and aside from
procedural matters, the following matters were voted upon at the annual
shareholders' meeting:
(i) A proposal to approve the Company's 2002 Stock
Option Plan (the "Plan"). The affirmative vote of the majority of the shares
voted and the majority of the disinterest shares voting was required for
approval. At the Third Annual Meeting, the proposal to approve the Plan was
approved with 1,006,893 affirmative votes (all of which were disinterest
shares), 10,080 negative votes, and 36,619 abstaining votes.
(d) There was no settlement between the Company and any other
person terminating any solicitation subject to Rule 14a-11.
ITEM 5. OTHER INFORMATION
None
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) An index of exhibits begins on page 21.
(b) On April 3, 2002 the Company filed a Current Report on Form 8-K,
reporting that he Company issued a press release announcing that John A. Nerland
accepted the position of President and CEO of its subsidiary bank, Solano Bank.
On April 15, 2002 the Company filed a Current Report on Form 8-K, reporting it
had dismissed Arthur Andersen, LLP and retained KPMG, LLP as the independent
accountant chosen to audit the Company's consolidated financial statements. On
May 20, 2002 the Company filed a Current Report on Form 8-K, reporting the
issuance of a press release announcing the Company's earning for the quarter
ended March 31, 2002. No Financial statements were filed the Current Report on
Form 8-K. On June 7, 2002 the Company filed a Current Report on Form 8-K,
reporting that the Company issued a press release announcing its plans for a $10
million participation in a trust preferred pooled transaction.
19
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this quarterly report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTH BAY BANCORP
A California Corporation
Date: August 13, 2002 BY: /s/ Terry L. Robinson
--------------------------------
Terry L. Robinson
President & CEO
Principal Executive Officer
Date: August 13, 2002 BY: /s/ Lee-Ann Cimino
--------------------------------
Lee-Ann Cimino
Senior Vice President
Principal Financial Officer
20
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4.1 Certificate Evidencing Floating Rate Capital Securities
4.2 Floating Rate Junior Subordinated Deferrable Interest Debenture
4.3 Certificate Evidencing Floating Rate Common Securities
4.4 Guarantee Agreement
4.5 Indenture dated June 26, 2002 , North Bay Bancorp Issuer, State
Street Bank and Trust Company of Connecticut, N.A., as Trustee
for Floating Rate Junior Subordinated Deferrable Interest
Debenture
10.1 Amended North Bay Bancorp Stock Option Plan*
10.2 North Bay Bancorp 2002 Stock Option Plan and Related Agreements
(1)*
10.15 Employment Agreement dated as of April 15, 2002 by and between
Solano Bank and John A. Nerland*
10.16 North Bay Bancorp 2002 Deferred Fee Plan*
10.17 Amended and Restated Declaration of Trust by and Among State
Street Bank and Trust Company of Connecticut, N.A, as
Institutional Trustee, North Bay Bancorp as Sponsor, and
Administrators, Dated as of June 26, 2002.
11 Statement re: computation of per share earnings is included in
Note 3 to the unaudited condensed consolidated financial
statements of Registrant.
99.1 Certificate of Principal Executive Officer Pursuant to 18
U.S.C. Section 1350
99.2 Certificate of Principal Financial Officer Pursuant to 18
U.S.C. Section 1350
(1) Filed as Exhibit 99.1 to Registration Statement No. 333-90006 on Form
S-8 filed by North Bay Bancorp with SEC on June 7, 2002 and incorporated
herein by reference.
* Compensation Plans
21