2015 Annual Report
We’re the bank
where local matters.
Kingsburg Branch
1580 Draper Street
(559) 802-1070
Porterville Branch
65 West Olive Ave
(559) 306-1300
Visalia Branch
400 West Center Ave
(559) 802-1000
Yuba City Branch
700 Plumas St.
(530) 674-8900
Fresno Office
2014 S Tulare Street
Suite 406
(559) 286-9621
www.suncrestbank.com
Top
2002015
Healthiest Banks
by DepositAccounts.com
Top 5 Reasons to Invest
in Suncrest Stock
Premier Management Team With Equity
Profitability with Improving Operating Leverage
Attractive Market for Community Banking
Positioned for Continued Business Expansion
Fewer and Fewer Community Banks
Table of Contents
02
04
06
08
20
22
23
25
26
27
28
30
30
Board of Directors
Dear Shareholders and Customers
Committed to Community
Growth Strategy
Introduction
08
Growth in Foundation Markets
Open in New Locations
Open Businesses Not Branches
Specialize in Critical Sectors
Seek Out Acquisitions
10
12
14
16
18
2015 Marketing & Advertising Campaigns
Financial Statements
Independent Auditor’s Report
Statements of Financial Condition
Statements of Income
Statements of Comprehensive Income
Statement of Changes in Shareholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
ii
Board of Directors
David C. Crinklaw
Dave is a resident of Exeter, with business
interests throughout the Central Valley.
Dave sold his home construction business
in 2000 and now specializes in commercial
construction. He also farms grapes in
Fresno and Tulare counties and manages a
farm services company serving the
Central Valley.
William A. Benneyan, Chairman
Bill was born and educated in Fresno, CA, and
is a graduate of California State University,
Fresno. He has lived in the Visalia, Lindsay and
Fresno areas his entire life. Bill is a Certified
Public Accountant and owned a CPA practice
in Lindsay and Visalia. Bill is also a custom
home builder and is currently the President of
Benart S&L Custom Homes. Bill is the former
Vice-Chairman of Mineral King National Bank,
a highly successful community bank in Visalia
that sold to Vallicorp in 1994 and served
on the Vallicorp Board of Directors until its
sale to Westamerica Bank. Bill then served
on the Central Valley Advisory Board for
Westamerica Bank.
Darrell Tunnell
Darrell was born in Porterville and raised
in Terra Bella. He moved to Visalia in 1979,
where he began working in the aircraft
repair and maintenance field. In 1984
Darrell received his airframe and power
plant certificate from the Federal Aviation
Administration. Darrell has owned Aircraft
Mechanical Services, Inc., which is the
Visalia Airport fixed base operator (FBO)
since 1988. Darrell is active in many sports
and is an active contributor to school and
civic organizations. He is also a proud
supporter of the American Cancer Society
and Wounded Warrior Project.
Gary E. Esajian
Gary has lived in the Lemoore area most
of his life. He farms in Kings, Fresno and
Tulare counties and manages real estate
development interests here and in San Luis
Obispo County. Gary serves on the Board
of the Westlands Water District and the San
Joaquin Valley Cotton Board, and is active in
local farm bureaus and chambers
of commerce.
Florencio “Frank” Paredez
A native of Tulare County, Frank graduated
from College of the Sequoias and farms
in the Exeter area. He owns a packing-
house and the Hungry Hollow Borrow Pit
in Porterville and is active in local and San
Francisco-based farmers’ markets. Frank has
been active on many boards of directors for
organizations throughout Tulare County.
Ciaran McMullan, President & CEO
Ciaran is a native of the agricultural north west
of Northern Ireland. He held senior roles in
banking in Europe and Australia before moving
to the U.S., where he served as Chairman of
the Great Western Bancorporation, CEO of
National Australia Bank Americas based in
the Midwest, and as a Managing Director
with Capello Capital Corporation in California.
His expertise is in agribusiness and small
business banking, and in developing and
building banking businesses. He is a graduate
of Stirling University and Sheffield Hallam
University in the UK, and attended Harvard
Business School’s Executive Education
Program in Agribusiness.
2
Michael E. Thurlow
Mike is a native of the Reedley/Kingsburg
area, and is a graduate of Reedley
High, Reedley College and California
Polytechnic University, San Luis Obispo.
Mike is an owner/manager of a produce
company that stores, packs and ships fruit
raised in the South Valley. Mike is active
in the community personally and through
his business.
Marc R. Schuil, Vice Chairman
Marc is a co-founder of Schuil & Associates
and has partnered with his two brothers,
Mike Schuil and Rick Schuil for over 30 years.
Marc earned a Bachelor of Science degree
from Fresno State University and an MBA in
Finance and Marketing from the University of
Southern California. In addition to holding his
broker’s license in the state of California, he is
currently an active licensed broker in the states
of California, Texas, Oklahoma, Arizona, Iowa,
South Dakota, Oregon, Kansas, Colorado, and
New Mexico. Marc’s strong investment and
analytical skills have assisted him in evaluating
profit potentials of various agricultural
opportunities. Marc has been involved in a
variety of civic organizations.
Daniel C. Jacuzzi
A lifelong resident of the Yuba-Sutter
area, Dan is a real estate broker and owner
of Century 21 Select Real Estate, Select
School of Real Estate, Stanford Mortgage,
Select Property Management and Coldwell
Banker Select of Nevada. His companies
employ nearly 1,000 people throughout
Northern California, Lake Tahoe and
Northern Nevada.Dan was named Realtor
Broker of the Year in 1995 and 1999, and
his brokerage firm has been recognized by
Realtor Magazine as one of the “Top 100
Largest Real Estate Firms” in the nation. He
is an active member of the Association of
Realtors in Sacramento, El Dorado, Placer,
Butte, Yuba and Sutter counties.
Eric M. Shannon
Eric’s family has been farming in the area
for more than 100 years and Eric continues
that tradition. A graduate of UC Davis, Eric
farms and is active in real estate development
projects in the Visalia area. He served as
president of his Rotary Club and is active in
many other organizations.
Dale B. Margosian
Born in Dinuba, Dale is a longtime resident
of Porterville and a graduate of California
State University, Fresno. He has managed
a thriving CPA practice in Porterville for
over 28 years and participates in many civic
organizations.
Matthew B. Pomeroy
Born and raised in Yuba City, Matt has
been a self-employed contractor with
Pomeroy Construction for 20 years,
building custom homes in the Yuba
County foothills. Matt and his brother,
Jarrod, took over their family farming
operation in 2011, growing peaches,
prunes and walnuts. Matt was a founding
board member of Sutter Community
Bank. He built his own home in the
foothills and enjoys spending time with
his wife and two sons.
3
Dear Shareholders and Customers,
2015 was a great year for Suncrest Bank.
Profitability with Improving Operating Leverage
We achieved outstanding fiscal results while continuing to
The bank has delivered 17 straight quarters of profitability,
effectively execute on our stated “5 in 5” strategic growth
has a simple, common equity capital structure with no
plan. At December 31, 2015, our assets totaled $296.9
debt, and a clean and high yielding loan portfolio. We
which is an increase of $108.3 million, or 57% over the
have improved our Efficiency Ratio every year since
prior year’s ending balance. Our loan portfolio grew by
the formation of the bank and will continue to carefully
$83.1 million to $208.3 million, a 67% increase over 2014,
manage non-interest expenses as we grow. Since the
and our total deposits grew by $90.3 million and ended
appointment of new management and establishment
the year at $256.7 million, a 54% increase over the prior
of our five year plan in the fall of 2013, we have been
year. Our pretax earnings continue to improve in line with
investing in growing our balance sheet, and have been
our strategic growth trajectory, and were $1,637,715 for
one of the fastest growing banks in the country over the
2015, an increase of 120% over the prior year. This is an
last two years. Despite that rapid growth we have still
excellent result particularly given that we had one-time
managed to increase our ROAA over the period, and every
expenses of approximately $600,000 associated with
year since booking our Deferred Tax Asset in December
our acquisition of Sutter Community Bank in December,
2013. We will continue to deliver improved operating
and we opened our third full service branch in the city
leverage as we grow.
of Kingsburg, CA in June. In this year’s annual report we
have provided more detail behind the key elements of our
strategic plan, and have laid out below why we believe
Suncrest Bank continues to be an excellent investment for
both new and existing shareholders.
Premier Leadership Team with Equity
Attractive Market for Community Banking
We are in a very attractive market for community banking
with significantly less big bank competition than the
major metro areas. Despite positive economic growth
throughout the Central Valley, many national banks
including Citibank, JP Morgan Chase and Bank of America
We have a highly effective leadership team with a unique
are actively closing branches, immediately benefiting
combination of international experience and hands-on,
local banks like Suncrest. In addition, we have developed
community bank management capability, who have
invested their own capital into the bank. Our Chief
a highly valuable niche expertise in agribusiness banking,
and are one of only six California based banks1 that are
Executive Officer and Chief Credit Officer have worked
focused on the agricultural sector, despite the state
in international banking in Europe, South America and
contributing over 12% of the nation’s agricultural GDP.
Australia as well as many years in the community banking
and agribusiness lending sectors in the US. Management
and Board together own almost 18% of the total shares
outstanding, which in turn helps create a tight alignment
between the bank’s strategic growth objectives and our
focus on improving shareholder value.
1 Banks with farm loan concentrations of > 20%
4
Positioned for Continued Business Expansion
Since completing our capital raise of $13.5 million
in April 2015, we have been putting those funds to
good use, increasing our lending staff from two to
nine, opening a third branch, making our first whole-
of-bank acquisition, and significantly expanding
the geographic markets we can target. The bank is
significantly better positioned for profitable growth
$1,500,000
$1,000,000
$500,000
$0
-$500,000
-$1,000,000
-$1,5000,000
-$2,000,000
-$2,500,000
Income Before Taxes
today than it was prior to completing our capital raise.
2008 2009 2010 2011 2012 2013 2014 2015
Fewer and Fewer Community Banks
The number of independent community banks in
California, and the wider US, continues to decline.
Since Suncrest Bank was formed in 2008, the number
of community banks2 in the US has decreased from
7225 to 54803, and in the State of California it has
declined from 240 to 1373. In addition, the number
of new “de-novo” banks being formed has dropped
dramatically. Prior to the Global Financial Crisis, there
was an average of 75 to 100 new banks formed every
year. Since 2011, there have only been five new banks
chartered in total, across the entire country. Basic
supply and demand economics dictate that the fewer
community banks there are the more valuable they
will become.
In closing, we thank the Board of Directors for their
continued guidance and commitment, and our
shareholders and customers for their investment
and support.
William A. Benneyan
Chairman
Ciaran McMullan
President & CEO
2 Banks with less than $1 billion in total assets
3 Source: Bankshape and Dominic Coey
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$0
200%
175%
150%
125%
100%
75%
50%
25%
0%
3%
2%
1%
0%
-1%
-2%
-3%
Asset Growth
2008 2009 2010 2011 2012 2013 2014 2015
685%
Efficiency Ratio
86.34%
83.62%
77.04%
2008 2009 2010 2011 2012 2013 2014 2015
LTM Return on Assets (ROAA)
0.24%
0.41%
-15.08%
2008 2009 2010 2011 2012 20131 2014 2015
1 2013 includes the impact of the DTA
5
Committed to Community
Porterville High School Academy
Of Business
Advisory Board Chairman
Casa Of Tulare County Fundraiser
In Visalia
Back To School Drive
Donated School Supplies To Schools In
East Porterville
Bake Sale For Alex
Customer’s Daughter Diagnosed With Cancer
Banking Class For Special Needs Kids
Lindurst High School
Bethlehem Center
Fundraisers
Bible Study Fellowship International
Group Leader
Boys And Girls Club
Donation
Boys And Girls Club Of Porterville
Porterville Chamber Of Commerce
Business Partner For A Day
Casa Of Tulare County
Total Contributions:
Approximately
$50,000
Central Valley Score
South Valley Financial Consultant
Chamber Of Commerce
Porterville Iris Festival
Chili Cook-Off
Church Of Visalia
County Center Rotary Ride To
End Polio, Visalia
Volunteer
Delta Kappa Lota: Live Oak, Ca
Fundraising For Scholarships
Divisidero Middle School
Band Boosters
Yuba City Downtown Business Association
Downtown Visalia Taste Of Downtown
Downtown Visalian’s
Executive Board
Entrepreneurs Of Association Committee
Exeter Chamber Fall Festival
Family Crisis Center
Donation Of Prize Money From Lindsay Q’ue’n
For Kids Decorating Contest
Family Crisis Center
Christmas Fundraiser
Future Farmers Of America
Advisor
Porterville High School Pathways Academy
Of Business
Project Judge
Heritage Foundation
Transport A Vehicle
Hispanic Chamber Of Commerce
Board Member
Judy Sarber Blood Drive
Kcaps: Kingsburg Community Assistance
Program Services
Kingsburg Care Center
6
Kingsburg Chamber Of Commerce
Kingsburg Girls Softball League
Kingsburg Harvest Moon Festival
Las Madrinas Visalia Fundraiser
Lindsay Rib Cook-Off
Lions Club
Member, Spaghetti Feed And
Installation Dinner
Los Malandrenes Foundation
Board Member
Monache High School Dress For Success
National Association Government Guaranteed
Lending Small Bank West Committee
Board Member
Networking For Women
Member And Past President
National Junior Basketball
Board Of Directors
Porterville Adult Day Services
Fundraiser Auction
Porterville Adult Day Services
Board, Finance Committee, Masquerade Ball
Fundraiser Set-Up / Decorate, Fundraiser Ticket Sales
Porterville High School
Baseball Dinner, Final Project Judging, Freshman
Orientation, Pab Car Sales/
Finance Exercise
Porterville Breakfast Lions
Porterville Chamber Of Commerce
Porterville Fair
Board, Livestock Auction
Porterville Mariachi Academy Foundation
Dinners, Parades, Programs & Events
Porterville Unifed School District
Pathways 8 Oversight Committee
Que’n For Kids Lindsay Rib Cook-Off
Reaching Higher
Board Member
Retrouvaille
Risk Management Association
Board Secretary, Chairman Of Events
And Planning
Rolling For Ring Necks
Vet Support
Ronald Mcdonald House Charities Of The
Central Valley
Rotary Casino Night
Small Business Association Fresno District Office
Speaker At Community Outreach Trainings
Shannon Ranch Elementary School
Sierra View District Hospital
Donation, Gala
Soroptimist International Of Visalia
Member/Past President, Spring Fling Fundraiser, Ruby
Awards Committee
Visalia Chamber Of Commerce
Board Member, Steering Committee, Golf Committee,
Facilitator, Man/Woman Of The Year Committee
Visalia Community Church Of Christ
Praise And Worship Team
Visalia Country Club
Board Member
Visalia Economic Development Corp
Board Member
Visalia Emergency Aid
Decorated For Christmas Tree Auction
Race Against Hunger
Visalia Rescue Mission
Motor Cycle Run
Visalia Sunset Rotary
Charter Member/President Elect,
Adventure Ark Fundraiser
Western Bank
Decorating Contest
Wine And Cheese Walk
Young Entrepreneurs Academy
Instructor
Yuba Sutter Fair
St Annes School
Spring Dinner
Strathmore High School
Football Boosters
Dinners, Concessions & Fundraisers
Suncrest Vip Event
Teach Children To Save
Various Schools
Toys For Tots
Tulare County Farm Bureau
Scholarship Dinner
Tulare Kings Hispanic Chamber
Member
United Way Of Tulare County
Board Member
United Way Yuba City Event Committee
Elegant Soiree Wine Event, Spectacular Run 5K,
Bishop Pumpkin Wine Event
University Presbyterian Church
Board Property Finance Committee Member
Valley Small Business Development
Corporation
Loan Committee Member
Vandalia 4-H
Visalia AYSO
Coach/Referee
Visalia Cal Ripken Little League Baseball
3,217
TOTA L HOURS
O F S E RVICE
Volunteered
For
99
ORGANIZATIONS
7
GROWTH STRATEGY:
Introduction
Our 5 in 5 Growth Strategy
Growth in Foundation Markets
Following the appointment of new management in the second
quarter of 2013, both Board and Management began working
KEY OBJECTIVE
together, over the course of three strategic planning workshops,
to develop the bank’s new five year plan. In the fall of 2013,
we finalized the new plan and set a target of growing to $500
million in assets within five years, coining the term “5 in 5” as
representative of that ambitious goal.
Grow market share to 8% to 10% in
foundation locations
Open in New Locations
In determining this goal, we took into account a number of
critical factors including; (1) the fact that larger (>$500M) asset
KEY OBJECTIVE
Open in 2 to 3 new, strategically
banks tend to trade at higher multiples than smaller (<$500M)
attractive locations
banks, (2) what was realistic in terms of market share growth
in the bank’s only two locations at that time (e.g. Porterville and
Visalia) within that five year time frame, and (3) what additional
Open Businesses Not Branches
growth might be possible should the bank be able to broaden its
geographic footprint and range of industry sectors it serves.
This new strategic plan, comprised of the five overarching and
interconnected programs summarized in the chart opposite,
has been delivering real results. We have increased net loans by
over 150% of what they were at the end of the first quarter of
2013, and at a compound annual growth rate of 40%. We have
increased total deposits by nearly 200%, at a CAGR of 49%.
KEY OBJECTIVE
Become a positive economic influence
in each community we serve
Specialize in Critical Sectors
We have increased total revenue from $4.5M to just over $9.4M,
KEY OBJECTIVE
a compound annual growth rate of nearly 31%, and we have
Build expertise in sectors critical to the
almost tripled our earnings net of provisions to $1.43M, a CAGR
Central Valley economy.
of nearly 38%. In addition, in 2015, Suncrest Bank was the 6th
fastest growing bank in California based on percentage change
in total assets, and in the top 1% of fastest growing banks in the
Seek Out Acquisitions
country, coming 64th out of nearly 7000 banks nationally.
KEY OBJECTIVE
Achieve scale and improve operating
efficiencies through M&A.
8
6th fastest growing bank
IN CA OUT OF 194
64th fastest growing bank
IN THE US OUT OF APPROX. 7000
Rank
Name
Percent
Rank
Name
State
Percent
1
2
3
4
5
6
Rancho Santa Fe Thrift & Loan Association
136.05
62
Live Oak Banking Company
NC
59.07
CIT Bank, National Association
100.71
63
United Fidelity Bank, F.S.B.
IN
57.85
First Foundation Bank
91.45
64
Suncrest Bank
Plaza Bank
88.53
65
United Community Bank
Pacific Commerce Bank
62.22
66
Business First Bank
Suncrest Bank
57.38
67
Pilgrim Bank
CA
WI
LA
TX
57.38
57.34
56.97
56.28
Source: BankShape and Dominic Coey
Source: BankShape and Dominic Coey
Net Loans
Total Deposits
$250,000
$200,000
$150,000
$100,000
$50,000
0
%
0 .2
R : 4
G
A
C
$82,178
$208,310
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
0
%
8.7
R: 4
G
A
C
$86,256
$256,677
3/31/2013
12/31/2015
3/31/2013
12/31/2015
Total Revenue
Pre-Provision Net Income
$9,410
$10,000
$8,000
$6,000
$4,000
$2,000
0
%
0 . 6
R : 3
G
A
C
$4,512
$1,600
$1,400
$1,200
$1,000
$800
$600
$40
$200
0
$1,431
8 . 0 %
R : 3
G
A
C
$590
3/31/2013 LTM
12/31/2015 LTM
3/31/2013 LTM
12/31/2015 LTM
Source: SNL Financial, Company Management.
9
GROWTH STRATEGY:
Growth in Foundation Markets
The cornerstone of our growth plan is to consolidate and grow our presence in our two foundation markets of
Visalia and Porterville, aiming to achieve a deposit market share of 8 to 10% in each. Through a combination of
targeted marketing, identifying and recruiting the best local staff, improving our products and digital offerings,
and living our values of community support and involvement, we have continued to improve our market share
every year. Since June 2013 our percentage share of the local deposit market has increased by over 75%
in Visalia, from 2.67% to 4.63%, and we have improved our ranking from 12th to 9th largest local bank. In
Porterville, our market share has increased by over 88% from 3.85% to 7.25%. , and our ranking among all other
banks has improved from 7th to 5th. This focus on building our business in our core markets has allowed us to
outpace all of our locally headquartered1 community bank competitors. Over the two year period from 12/31/13
to 12/31/15, Suncrest grew its total deposits by 81.78%2 and its gross loans by 69.71%2. This analysis excludes
the impact of the deposits and loans added through our acquisition of Sutter Community Bank.
In addition, we are also developing a new flagship branch for the Visalia market, in a more prominent downtown
location right on Main Street, where we have acquired the former Citibank Building. This is an important next
step in continuing to penetrate the local deposit market. We expect to open the new facility in late 2016.
Strong Core Balance Sheet - Growth Relative to Peers
Suncrest Bank
Security
First Bank
Valley
Business Bank
Fresno
First Bank
United
Security Bank
Premier
Valley Bank
Murphy
Bank
81.78%
69.71%
59.23%
49.73%
40.71%
25.90% 26.56%
38.45%
36.22%
30.37%
31.13%
10.85%
14.63%
9.77%
% Loan Growth 2014 & 2015
% Deposit Growth 2014 & 2015
1 Community banks with < $1 billion in assets headquartered in Fresno or Tulare County
2 Excludes the impact of the deposits and loans added through our acquisition of Sutter Community Bank
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
10
Visalia Deposit Market Share Increased by over 73%
Visalia Branch Growth
2014
11th
4.24%
2015
9th
4.63%
2 013
12th
2.67%
Based on FDIC deposit market share data and bank ranking by city
Porterville Deposit Market Share Increased by over 88%
Porterville Branch Growth
2015
5th
7.25%
201 4
7th
5.15%
2013
7th
3.85%
Based on FDIC deposit market share data and bank ranking by city
10%
5%
0%
10%
5%
0%
11
GROWTH STRATEGY:
Open in New Locations
Potential new locations must have certain
In March of 2016 we took our fi rst steps into the
characteristics that make them attractive to us; they
Fresno market, establishing what’s commonly referred
should represent a realistic opportunity for Suncrest
to as a “Loan Production Offi ce” or LPO in that City.
to win new deposit or loan business, the local
While not being a full service branch, an LPO allows
economies should be underpinned by industries we
us to originate and approve new loans, originate new
understand , they should represent an opportunity
deposit accounts, and more conveniently serve our
for us to further diversify our loan portfolio, and
existing Fresno based borrowers. Our new facility
they should display positive trends in key socio-
is also much more accessible for a number of our
demographic indicators in particular, population
lending and credit staff who live in Fresno, and no
growth, median income, employment and retail sales.
longer have to make the ninety minute daily round trip
In June of 2015, we moved quickly to take advantage
journey to Visalia.
of the opportunity to open our third full service branch
in the City of Kingsburg, following the closures of both
Citibank and JP. Morgan Chase in that community.
Known as Central California’s Swedish Village, the
city’s population has grown by 27% since 2000
while median household income has grown over
31%. Kingsburg is an ideal fi t with Suncrest’s growth
strategy, and we look forward to many successful
years serving that community.
2 NEW
LOCATIONS
Suncrest expanded its
geographic footprint with two
signifi cant strategic moves into
Fresno County
12
KINGSBURG
KINGSBURG
• Deposit market of over $130 million
• Deposit market of over $130 million
• Only two other competitors
• Only two other competitors
• Suncrest the only community bank
• Suncrest the only community bank
• Reached $8.2 million in deposits
• Reached $8.2 million in deposits
by 12/31/15
by 12/31/15
FRESNO
FRESNO
• Deposit market of over $9.8 billion
• Deposit market of over $9.8 billion
• Two community banks sold to out of area
• Two community banks sold to out of area
banking groups in 20151
banking groups in 20151
• Suncrest plans to open a full service branch
• Suncrest plans to open a full service branch
in the future
in the future
1 Premier Valley Bank was acquired by Heartland Financial from Iowa and
Security First Bank announced its intention to sell to an LA based group.
13
GROWTH STRATEGY:
Open Businesses, Not Branches
At Suncrest Bank, we know we only succeed when the communities we serve succeed. How we do
business, refl ects this belief. Open “businesses not branches” describes our approach to how we manage
and operate our branches, how we contribute to the social and economic life of the communities we
serve, and the ideas behind the introduction of our local Market President role. Each Suncrest location is
led by a local Market President, together with a dedicated team of individuals, all with deep roots in their
communities and a real understanding of the unique aspects of where they live and work. Our Market
President role has responsibility for all branch operations, local staff, local marketing, managing branch
profi tability, growing both sides of the balance sheet, and – critically – they are specifi cally remunerated
on gathering deposits locally and lending locally, to support the growth of small business and ensure the
economic health and prosperity of their local communities. In short, our approach is designed to keep
more money re-circulating in the local economies of each of the communities we serve. This is often
referred to as the local multiplier effect.
Local Multiplier Effect
Economic studies have shown how shopping at local, independent businesses is not just a nice thing
to do, but is truly one of the best ways to strengthen and sustainably grow our local economies. The
data shows that through buying locally we can create more jobs and retain more of the wealth created
at home, where it belongs. A 2012 study undertaken by Civic Economics found that the local retailers
return an average of 52 percent of their revenue to the local economy, compared with just 16 percent
for the chain retailers. Similarly, locally owned restaurants re-circulate an average of 79 percent of their
revenues, compared to 30 percent for national chain eateries. Banking with a local bank - that runs its
branches like local businesses in the way we do - achieves exactly the same result. We invest deposits
through loans to increase local business capacity, which in turn allows local businesses and their
employees to increase deposits and savings through their success. This virtuous cycle is a key driver in
creating jobs and an enduring well-being for all members of our local Valley communities.
Each member of our staff wears the “Bank Local” pin shown below, and carries credit card sized versions
of the “Top 6 Reasons” shown opposite, as a reminder of the importance of this element of our strategy.
14
The Top 6 Reasons To Shop, Dine
& Do Business Local
1. More Money Re-Circulates In Our Local Communities
2. Non Profits Receive Greater Support
3. Most New Jobs Are Provided By Local Businesses
4. Unique Businesses Are Part Of Our Distinctive Character
5. Local Business Owners Invest In Our Community
6. Customer Service Is Often Better
The Top 6 Reasons
To Bank Local
1. We Give You The Same Services At A Lower Cost
2. We Put Your Money To Work Growing Your Local Economy
3. Decisions Are Made Locally, By People Who Live Locally
4. We Share Your Commitment To Your Community
5. We Won’t Gamble Your Money Away On Wall Street
6. You Can Be Proud Of Where You Bank
15
GROWTH STRATEGY:
Specialize in Critical
Sectors
We think it is critical to have a well-diversifi ed portfolio but also to specialize in profi table
niches, fundamental to the Central Valley economy, where we can develop expertise and
where barriers to entry can be high in terms of knowledge and talent. Competing on price
alone is not a viable strategy therefore, in order to remain competitive, we are not only
maintaining and building our reputation for exemplary customer service but have also
developed deep expertise in two particular business sectors. These sectors are Farming
and Agribusiness, and Government Guaranteed Lending, in particular the Small Business
Administration and USDA Loan Programs.
Nobody knows more about
local business and SBA loans
than Suncrest Bank.
A Small Business Administration loan is a great way to expand your business,
purchase real estate, acquire equipment, or make renovations to your facilities.
As a leading SBA lender with years of experience, Suncrest Bank can guide you
through the process and help your business rise to the next level.
• Loans up to $5 million to qualified borrowers
• Loans to Purchase Fixed Assets and Debt Refinance
• Inventory and Working Capital
• Business Acquisition and Real Estate Loans
• Flexible terms with fixed rates and longer maturities
• Preferred Lender Status
• SBA Express Loan program streamlines the process
• Suncrest Bank is one of the fastest growing banks in California
• Regularly rated 5 Stars for safety by Bauer Financial
Craig Howells
VP SBA Lending
559-802-1066
www.suncrestbank.com
GOVERNMENT
GUARANTEED LENDING
Our Government Guaranteed Lending group
has the ability to offer a range of products that
are important to the Valleys small businesses
and farmers including Farmer Mac, FSA, SBA,
USDA and the Cal. Cap program. We have
Preferred Lender status with the Small Business
Administration and specialize in both the 504
and 7a products.
Jan and Charlie Chrisman,
SBA Loan Customers
16
AGRIBUSINESS
The Central Valley is one of the world’s most productive agricultural
regions with more than 230 crops being grown here. The State of
California contributes over 12% of the nation’s agricultural GDP, with
over 65% of the total California farmgate being produced in the Central
Valley. Agriculture is critical to our local economy and as such we
believe it is equally critical to understand that industry, and to support
the people and businesses who work in it. In 2014 we launched a new
brand and separate division called Suncrest Agribusiness dedicated to
serving farmers, ranchers and agribusinesses throughout the Valley,
and today we have an extremely well diversifi ed agricultural portfolio,
comprised of crop production lines and agricultural real estate, in both
the North and South Valley, and across multiple crop types including
nuts, citrus, grapes, tree fruit and rice.
Victor Mendes,
Ag Banking Customer
& Shareholder
You’re good at growing.
We’re good at
growing businesses.
We’re the local ag loan experts.
At Suncrest Bank, we don’t send loan applications to a distant committee for
final approval. Our knowledgeable, experienced loan advisors make the decisions
right here in the Central Valley so you get a fast answer.
• Loans up to $8 million to qualified borrowers
• Quick, local decision making
• Suncrest Bank is one of the fastest growing banks in California
• Agricultural Real Estate Loans, Production Finance,
Development Loans, Equipment Financing and Leasing
• Fixed rate products with maturities from 5 years to 25 years
• Regularly rated 5 Stars for safety by Bauer Financial
Mike Flynn
Agribusiness Manager
559-802-1002
www.suncrestbank.com
17
GROWTH STRATEGY:
Seek Out Acquisitions
In December of 2015 we completed the acquisition
in locations where the major cities, communities,
of Sutter Community Bank in Yuba City. We believe
industries and agri-sectors have very similar
that it is both prudent and sensible for the Bank
characteristics to our current locations.
to consider acquisition and merger opportunities
that are consistent with our strategy, improve our
Ideal Geographic Fit
core funding position, have a positive impact on
Yuba City is an agricultural community with very
our earnings, strengthen our balance sheet, and do
similar socio-demographics to the communities we
not lead to increased risks and fi nancial problems.
have already been successful in. The Yuba-Sutter
Moreover, the growth and expansion of the Bank
area has a different mix of crop types than in our
in general, whether it be through mergers and
southern footprint giving us the opportunity to
acquisitions, de-novo branching or normal organic
further diversify our ag lending portfolio, and the
growth, will be focused on locations and industry
impacts of the drought are much less severe than
sectors that our Board and Management understand
in the South Valley helping to de-concentrate our
very well, and have solid experience in. On this basis,
exposure to that particular climatic risk.
we believe that we are very well equipped to grow
Core Balance Sheet Growth
Combined Bank
Suncrest
12/31/14
Suncrest
Legacy Bank
12/31/151
Organic
Growth Rate
Suncrest/Sutter
12/31/15
Merger
Growth Rate
Millions
Total Assets
Deposits
Loans
Leverage
Ratio
188.6
166.4
124.5
11.06
Improved Shareholder Value
TBVPS
EPS
8.26
0.18
230.5
199.1
160.4
12.97
7.983
0.202
22%
20%
29%
17.3%
(3.4%)4
11.1%
296.9
256.7
208.3
12.18
57%
54%
67%
10.1%
Merger Dilution/
Accretion Effects
7.88
0.25
(1.25%)5
20%6
1 Estimated Suncrest standalone 12/31 position
2 Estimated EPS excluding merger expenses and bargain purchase gain
3 TBVPS at 11/30/15
4 TBVPS reduction during 2015 due to $13.5 M of new capital raised at $7 per share
5 TBVPS dilution from 11/30/15
6 EPS accretion from estimated Legacy Bank EPS at 12/31/15
18
Excellent Capability and Cultural Fit
Systems conversion was completed over the
The bank had deep existing expertise in farming and
weekend of Jan 8th and two former Sutter Directors
agribusiness, a strong capital position and low cost,
have joined our Main Board. In addition, a new Local
core deposits. They too were focused on building
capability in the same critical industry sectors of
Yuba-Sutter Board has been formed comprised of the
remaining Sutter Community Bank Directors, and we
Ag and SBA Lending and had a well-diversifi ed and
have also appointed a New Market President to lead
high yielding loan portfolio, with a relatively small
our business in the Yuba-Sutter Community.
non-performing component. Most importantly, the
staff and leadership of Sutter Community Bank were
genuinely committed to the same core principles of
good community banking.
Extremely Positive Deal Economics
The deal was an all-stock transaction allowing us
to maintain our capital levels post deal, which was
critically important given how strong our organic
growth has and will continue to be. The price was
determined based on a book-for-book exchange
ratio which we felt was fair to both sides. In terms of
shareholder value, the deal was extremely positive,
being immediately accretive to EPS (even with deal
costs included), and less than 1.3% tangible book
value dilution.
Hello, Yuba City.
SuncrestBank.com
We’re the bank
where local matters.
Tim Cole
Commercial Banking &
Agribusiness Manager
Mary Chavez
Compliance Officer
We’re the Bank
Where Local Matters.
Becoming part of the local community really matters at Suncrest Bank.
That's why you'll find the same friendly faces you know and trust to greet you
at our doors. For all your personal banking, business banking and commercial
lending needs stop by and see us in downtown Yuba City.
MEET YOUR YUBA CITY TEAM (L-R)
Diana Armstrong
Lending Support Specialist
Patricia Rogers
Customer Service Representative
Glenna Mathews
Customer Service Manager
Sophie Jurado
Business Customer Service
Representative
Marcella Honig
Sr. Relationship Manager
Aman Bains
Market President
Lisa Laswell
Sr. Relationship Manager
Mary Anderson
Operations Manager
Parm Pamma
Financial Analyst
Cindy Stroup
Lending Support Specialist
Not pictured
Sandy Beaver
Customer Service Representative
Samantha Trotter
Customer Service Representative
Yuba City Branch
700 Plumas Street
(530) 674-8900
www.suncrestbank.com
19
2015 Marketing &
Advertising Campaigns
Top
Healthiest Banks
2002015
by DepositAccounts.com
We’re the Bank
Where Local Matters.
Being part of the local community really matters at
Suncrest Bank. That's why you'll find the same friendly
faces you know and trust to greet you at our doors. For all
your personal banking, business banking and commercial
lending needs stop by and see us in downtown Visalia.
MEET YOUR VISALIA TEAM (L-R)
Brooke Reed
Customer Service
Manager
Cathy Huff
Relationship Manager
Craig Howells
Manager SBA
& USDA Lending
Tracy Cizek
Lending Support
Lupe Garcia
Branch Manager
Barbra Hood
Sr. Relationship Manager
Cesar Gutierrez
Commercial Banking
Manager
Vicki Evans
Customer Service
Representative
Kathleen Bernardo
Customer Service
Representative
Mike Flynn
Manager Agribusiness
Lending
Leah Herron (Not present)
Customer Service
Representative
Visalia Branch
400 West Center Ave
(559) 802-1000
www.suncrestbank.com
Growth is good.
Healthy growth is even better.
At Suncrest Bank, we’re proud of our growth. We’re even prouder of the way we’ve
grown—staying strong through good times and bad. In fact, for the second year in
a row, Suncrest Bank has been named one of the 200 Healthiest Banks in America
by DepositAccounts.com. Suncrest Bank is one of only 49 banks in the United States
to have received this distinction for two consecutive years. Suncrest Bank where
Growing is Great and Growing Strong is even better!
Visalia Branch
400 West Center Ave
(559) 802-1000
Porterville Branch
65 West Olive Ave
(559) 306-1300
Kingsburg Branch
1580 Draper Street
(559) 802-1070
www.suncrestbank.com
Deposits in a snap.
Safe. Secure. Convenient. Introducing Mobile Deposits from
Suncrest Bank, the easy way to deposit checks from anywhere,
anytime using your mobile device. Just snap a picture of the front
and back of your endorsed check. It’s that simple.
The App is free! Sign up for Suncrest
Mobile Banking today. Download the
App from the Apple App Store® or
Google Play Store®
Top
Healthiest Banks
2002015
by DepositAccounts.com
Kingsburg Branch
1580 Draper Street
(559) 802-1070
Porterville Branch
65 West Olive Ave
(559) 306-1300
Visalia Branch
400 West Center Ave
(559) 802-1000
Yuba City Branch
700 Plumas St.
(530) 674-8900
www.suncrestbank.com
20
WE’RE THE
BANK FOR
PEOPLE
LIKE YOU.
At Suncrest your loan requests are approved locally in a quick
and timely manner. Our experienced loan advisors have deep
knowledge of Yuba City and will work with you to customize a
program to achieve your business goals.
• Loans up to $10 million to qualified borrowers
• Commercial Real Estate Loans
• Lines of Credit
• Inventory and Working Capital Loans
• Equipment financing and leasing programs
• Fixed rate products with maturities from 5 years to 25 years
• Regularly rated 5 Stars for safety by Bauer Financial
yuba city
kingsburg
porterville
visalia
%
APY*
1.50
on balances up to $25,001
(cid:76)(cid:73)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:223)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:72)(cid:87)
%
APY*
0.01
on all balances even if
(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:223)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:81)(cid:206)(cid:87)(cid:3)(cid:80)(cid:72)(cid:87)
And it’s easy to earn our highest rates...
Just do the following transactions & activities in your Kasasa Cash® account
(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:223)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:92)(cid:70)(cid:79)(cid:72)(cid:29)
• Have at least 10 debit card purchases post and settle
• Be enrolled and receive e-statement notice
• Have at least one (1) bill pay transaction post and settle
(cid:86)(cid:88)(cid:81)(cid:70)(cid:85)(cid:72)(cid:86)(cid:87)(cid:69)(cid:68)(cid:81)(cid:78)(cid:17)(cid:70)(cid:82)(cid:80)
Porterville Branch
65 W Olive Ave.
559-306-1300
(cid:36)(cid:51)(cid:60)(cid:3) (cid:32)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3) (cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:3) (cid:60)(cid:76)(cid:72)(cid:79)(cid:71)(cid:17)(cid:3)(cid:36)(cid:51)(cid:60)(cid:86)(cid:3) (cid:68)(cid:70)(cid:70)(cid:88)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3) (cid:68)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:21)(cid:18)(cid:20)(cid:25)(cid:18)(cid:20)(cid:25)(cid:17)(cid:3) (cid:53)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:3) (cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3) (cid:76)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:81)(cid:72)(cid:71)(cid:17)(cid:3) (cid:48)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3) (cid:87)(cid:82)(cid:3) (cid:82)(cid:83)(cid:72)(cid:81)(cid:3) (cid:76)(cid:86)(cid:3) (cid:7)(cid:24)(cid:19)(cid:17)(cid:13)(cid:44)(cid:73)(cid:3) (cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:80)(cid:72)(cid:87)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)
(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:92)(cid:70)(cid:79)(cid:72)(cid:29)(cid:3)(cid:11)(cid:20)(cid:12)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:21)(cid:24)(cid:15)(cid:19)(cid:19)(cid:20)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:3)(cid:36)(cid:51)(cid:60)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:17)(cid:24)(cid:19)(cid:8)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:11)(cid:21)(cid:12)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:7)(cid:21)(cid:24)(cid:15)(cid:19)(cid:19)(cid:20)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:3)(cid:19)(cid:17)(cid:23)(cid:19)(cid:8)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:7)(cid:21)(cid:24)(cid:15)(cid:19)(cid:19)(cid:20)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:20)(cid:17)(cid:24)(cid:19)(cid:8)(cid:3)
(cid:16)(cid:3)(cid:19)(cid:17)(cid:24)(cid:27)(cid:8)(cid:3)(cid:36)(cid:51)(cid:60)(cid:3)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)(cid:3)(cid:44)(cid:73)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:80)(cid:72)(cid:87)(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:3)(cid:19)(cid:17)(cid:19)(cid:20)(cid:8)(cid:3)(cid:36)(cid:51)(cid:60)(cid:17)(cid:3)(cid:52)(cid:88)(cid:68)(cid:79)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:92)(cid:70)(cid:79)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:29)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)
(cid:20)(cid:19)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:80)(cid:88)(cid:86)(cid:87)(cid:3)(cid:83)(cid:82)(cid:86)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:46)(cid:68)(cid:86)(cid:68)(cid:86)(cid:68)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:80)(cid:88)(cid:86)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:72)(cid:81)(cid:85)(cid:82)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:3)(cid:72)(cid:16)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:87)(cid:3)(cid:20)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:3)(cid:83)(cid:68)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:36)(cid:38)(cid:43)(cid:3)(cid:68)(cid:88)(cid:87)(cid:82)(cid:80)(cid:68)(cid:87)(cid:76)(cid:70)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:80)(cid:88)(cid:86)(cid:87)(cid:3)(cid:83)(cid:82)(cid:86)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:46)(cid:68)(cid:86)(cid:68)(cid:86)(cid:68)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:17)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:87)(cid:68)(cid:78)(cid:72)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:82)(cid:86)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:87)(cid:87)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:17)(cid:3)
(cid:36)(cid:55)(cid:48)(cid:16)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:71)(cid:82)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:86)(cid:3)(cid:69)(cid:72)(cid:87)(cid:90)(cid:72)(cid:72)(cid:81)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:88)(cid:86)(cid:3)(cid:71)(cid:82)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:179)(cid:48)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)
(cid:52)(cid:88)(cid:68)(cid:79)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:38)(cid:92)(cid:70)(cid:79)(cid:72)(cid:180)(cid:3)(cid:80)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:191)(cid:85)(cid:86)(cid:87)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:92)(cid:70)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:71)(cid:68)(cid:92)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:92)(cid:70)(cid:79)(cid:72)(cid:17)(cid:3)(cid:47)(cid:76)(cid:80)(cid:76)(cid:87)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:54)(cid:54)(cid:49)(cid:17)(cid:3)(cid:36)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:79)(cid:92)(cid:17)(cid:3)(cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:36)(cid:55)(cid:48)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:90)(cid:68)(cid:76)(cid:89)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:191)(cid:89)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:92)(cid:70)(cid:79)(cid:72)(cid:17)(cid:3)(cid:49)(cid:82)(cid:81)(cid:86)(cid:88)(cid:73)(cid:191)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:76)(cid:86)(cid:70)(cid:72)(cid:79)(cid:79)(cid:68)(cid:81)(cid:72)(cid:82)(cid:88)(cid:86)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:68)(cid:79)(cid:79)(cid:3)(cid:46)(cid:68)(cid:86)(cid:68)(cid:86)(cid:68)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:46)(cid:68)(cid:86)(cid:68)(cid:86)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:46)(cid:68)(cid:86)(cid:68)(cid:86)(cid:68)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:80)(cid:68)(cid:85)(cid:78)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:37)(cid:68)(cid:81)(cid:70)(cid:57)(cid:88)(cid:72)(cid:15)(cid:3)(cid:47)(cid:87)(cid:71)(cid:17)(cid:15)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:36)(cid:17)
Free Kasasa checking rewards you in ways
you might not think a community bank could.
But the best part is, you don’t have to go to
some big bank to get it.
Open your account online at
www.suncrestbank.com
Or visit us at Kingsburg Branch
1580 Draper Street | 559- 802-1070
www.suncrestbank.com
*APY = Annual Percentage Yield. APYs accurate as of 2/16/16. Rates may change after account is opened. Minimum to open is $50.*If qualifications are met each monthly qualification cycle: (1) balances up to $25,001 receive APY of 1.50%; and, (2) balances over $25,001 earn 0.40% interest rate on
portion of balance over $25,001, resulting in 1.50% - 0.58% APY depending on the balance. If qualifications are not met, all balances earn 0.01% APY. Qualifications during each monthly qualification cycle are as follows: at least 10 debit card purchases must post and settle the Kasasa Cash account,
account must be enrolled and receive e-statement notice, and at least 1 bill pay or ACH automatic debit transaction must post and settle the Kasasa Cash account. Transactions may take one or more banking days from the date transaction was made to post to and settle the account. ATM-processed
transactions do not count towards qualifying debit card transactions. Transfers between your accounts with us do not count as qualifying transactions. “Monthly Qualification Cycle” means a period beginning one day prior to the first day of the current statement cycle through one day prior to the close
of the current statement cycle. Limit one account per SSN. Available to personal accounts only. Nationwide ATM fees waived up to five times per statement cycle. Nonsufficient funds fees and miscellaneous fees apply to all Kasasa accounts.
Kasasa, Kasasa Cash, Kasasa Cash Back and Kasasa Tunes are trademarks of BancVue, Ltd., registered in the U.S.A.
We’re growing quickly.
So can you.
Suncrest Bank is one of the fastest growing banks in the United States.
We can put that same success to work for you. At Suncrest your loan
requests are approved locally in a quick and timely manner. Our
experienced loan advisors have deep knowledge of the Central Valley and
will work with you to customize a program to achieve your business goals.
Caesar Gutierrez
Commercial Banking Manager
559-802-1048
1.50%
APY*
On Kasasa Cash balances
up to $25,001.00
if qualifications
are met
.01 %
APY*
On all Kasasa Cash
balances if qualifications
are not met
* APY = Annual Percentage Yield. APYs accurate as of 2-16-16. Rates may change after account is opened. Minimum to
open is $50. If qualifications are met each monthly qualification cycle: (1) balances up to $25,001.00 receive APY of
1.50%; and, (2) balances over $25,001.00 earn 0.40% interest rate on portion of balance over $25,001.00, resulting in
1.50% - 0.58% APY depending on the balance. If qualifications are not met, all balances earn 0.01% APY. Qualifications
during each monthly qualification cycle are as follows: at least 10 debit card purchases must post and settle the Kasasa
Cash account, account must be enrolled and receive e-statement notice, and at least 1 bill pay or ACH automatic debit
transaction must post and settle the Kasasa Cash account. Transactions may take one or more banking days from the date
transaction was made to post to and settle the account. ATM-processed transactions do not count towards qualifying debit
card transactions. Transfers between your accounts with us do not count as qualifying transactions. “Monthly Qualification
Cycle” means a period beginning one day prior to the first day of the current statement cycle through one day prior to the
close of the current statement cycle. Limit one account per SSN. Available to personal accounts only. Nationwide ATM fees
waived up to five times per statement cycle. Nonsufficient funds fees and miscellaneous fees apply to all Kasasa accounts.
Open your account
online at:
www.suncrestbank.com
Plus, have
ATM fees
waived
nationwide.*
• Loans up to $8 million to qualified borrowers
• Commercial Real Estate Loans
• Agricultural Real Estate Loans, Production Finance,
Development Loans, Equipment Financing and Leasing
• Lines of Credit
• Inventory and Working Capital Loans
• Flexible terms with fixed rates and longer maturities
• Regularly rated 5 Stars for safety by Bauer Financial
Top
Healthiest Banks
2002015
by DepositAccounts.com
www.suncrestbank.com
21
Table of Financial Statements
19
20
Independent Auditor’s Report On The Financial Statements
Financial Statements
20
Statements of Financial Condition
22
Statements of Income
23
24
25
26
Statements of Comprehensive Income
Statement of Changes in Shareholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
22
(cid:1)
Vavrinek, Trine, Day & Co., LLP
Certified Public Accountants (cid:1)
(cid:14)(cid:2)(cid:9)(cid:13)(cid:5)(cid:1)(cid:12)(cid:7)(cid:5)(cid:1)(cid:4)(cid:8)(cid:6)(cid:6)(cid:5)(cid:11)(cid:5)(cid:10)(cid:3)(cid:5)(cid:1)
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders of
Suncrest Bank
Report on Financial Statements
We have audited the accompanying financial statements of Suncrest Bank, which are comprised of the
statements of financial condition as of December 31, 2015 and 2014, and the related statements of income,
comprehensive income, changes in shareholders' equity and cash flows for the years then ended, and the
related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Suncrest Bank as of December 31, 2015 and 2014, and the results of its operations and its cash
flows for the years then ended in accordance with accounting principles generally accepted in the United
States of America.
Laguna Hills, California
February 24, 2016
25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 Fax: 949.768.8408 www.vtdcpa.com
F R E S N O • L A G U N A H I L L S • P A L O A L T O (cid:1) (cid:1)• P L E A S A N T O N • R A N C H O C U C A M O N G A • R I V E R S I D E • S A C R A M E N T O
(cid:1)(cid:1)
23
FINANCIAL STATEMENTS:
Statements of Financial Condition
December 31, 2015 & 2014
Assets
Cash and Due from Banks
Federal Funds Sold
2015
2014
5,370,556
$4,648,094
8,691,000
15,821,000
Interest-Bearing Deposits in Other Banks
10,000,000
-
Total Cash and Cash Equivalents
24,061,556
20,469,094
Investment Securities Available for Sale
54,342,949
40,516,442
Loans:
Real Estate - Other
163,553,994
93,374,513
Construction and Land Development
4,945,745
3,858,822
Commercial and Industrial
Consumer
Total Loans
Deferred Loan Fees, Net of Costs
Allowance for Loan Losses
Net Loans
39,530,750
26,469,066
807,079
1,534,781
208,837,568
125,237,182
(458,940)
(359,393)
(2,245,566)
(1,723,391)
206,133,062
123,154,398
Federal Home Loan Bank and Other Bank Stock, at Cost
1,465,968
2,770,478
649,092
2,080,857
637,510
583,396
-
-
3,507,000
2,217,000
428,000
1,444,149
-
1,059,812
$296,883,111
$188,637,652
Premises and Equipment
Other Real Estate Owned
Bank Owned Life Insurance
Net Deferred Tax Assets
Core Deposit Intangible
Accrued Interest and Other Assets
*The accompanying notes are an integral part of these financial statements.
24
Liability & Shareholders’ Equity
Deposits:
2015
2014
Noninterest-bearing Demand
$84,064,420
$55,502,263
Savings, NOW and Money Market Accounts
114,593,224
69,994,695
Time Deposits Under $250,000
31,588,069
19,355,396
Time Deposits $250,000 and Over
26,431,525
21,564,510
Total Deposits
256,677,238
166,416,864
Accrued Interest and Other Liabilities
874,392
342,596
Total Liabilities
257,551,630
166,759,460
Commitments and Contingencies - Notes E and K
Shareholders' Equity:
Preferred Stock - No par value, 10,000,000 Shares
Authorized, None Outstanding
Common Stock - No par value,
25,000,000 Shares Authorized
Shares Issued and Outstanding,
4,999,895 in 2015 and 2,649,634 in 2014
Additional Paid-in Capital
Accumulated Deficit
Accumulated Other Comprehensive
Income Loss - Net
-
-
40,653,892
24,126,478
1,703,561
1,614,538
(2,942,986)
(3,851,640)
Unrealized Loss on Securities Available for Sale,
Net of Taxes of $57,668 in 2015 and $7,772 in 2014
(82,986)
(11,184)
Total Shareholders’ Equity
39,331,481
21,878,192
$296,883,111
$188,637,652
*The accompanying notes are an integral part of these financial statements.
25
FINANCIAL STATEMENTS:
Statements of Income
For the Years Ended December 31, 2015 & 2014
Interest Income
Interest and Fees on Loans
$8,196,445
$5,988,234
2015
2014
Interest on Investment Securities
Interest on Federal Funds Sold and Other
Total Interest Income
Interest Expense
Interest on Savings Deposits, NOW
and Money Market Accounts
Interest on Time Deposits
Interest on Other Borrowings
Total Interest Expense
Net Interest Income
Provision for Loan Losses
725,238
118,602
415,522
76,308
9,040,285
6,480,064
161,343
176,515
226,177
272,420
5
387,525
8,652,760
522,275
6
448,941
6,031,123
314,400
Net Interest Income After Provision For Loan Losses
8,130,485
5,716,723
Noninterest Income
Service Charges, Fees, and Other Income
201,997
133,908
Bargain Purchase Gain on Acquisition
of Sutter Community Bank
Gain on Sale of Securities
Gain on Sale of Loans
Noninterest Expense
314,499
-
-
240,378
756,874
11,485
237,084
382,477
Salaries and Employee Benefits
4,182,051
3,018,770
Occupancy Expenses
Equipment Expenses
Other Expenses
Income Before Taxes
Income Taxes
Net Income
Net Income Per Share - Basic
Net Income Per Share - Diluted
704,671
180,299
641,153
175,592
2,182,623
1,518,064
7,249,644
5,353,579
1,637,715
745,621
729,061
350,054
$908,654
$395,567
$0.25
$0.25
$0.18
$0.18
*The accompanying notes are an integral part of these financial statements.
26
FINANCIAL STATEMENTS:
Statements of
Comprehensive Income
For the Years Ended December 31, 2015 & 2014
2015
2014
$908,654
$395,567
Net Income
Other Comprehensive Income (Loss)
Unrealized Gains and Losses on
Securities Available for Sale
Change in Net Unrealized Gain (Loss)
(121,698)
Reclassification of Gain Recognized in Net Income, Net
-
Income Taxes (Benefit):
Change in Net Unrealized Gain (Loss)
(121,698)
(49,896)
Reclassification of Gain Recognized in Net Income, Net
-
Total Other Comprehensive Income (Loss)
(49,896)
(71,802)
107,307
(11,485)
95,822
43,996
(4,709)
39,287
56,535
Total Comprehensive Income
$836,852
$452,102
*The accompanying notes are an integral part of these financial statements.
27
FINANCIAL STATEMENTS:
Statements of Changes in
Shareholders’ Equity
For the Years Ended December 31, 2015 & 2014
Common Stock
Number of
Shares
Amount
Additional
Paid-in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance January 1, 2014
1,915,902
$19,146,645
$1,519,254
$(4,247,207)
$(67,719)
$16,350,973
Net Income
Stock-based Compensation
Issuance of Stock to Employees
in Exchange for Services Rendered
Issuance of Common Stock, net
of Expenses of $153,529
Other Comprehensive
Income, Net of Taxes
395,567
141,382
6,980
46,098
(46,098)
726,752
4,933,735
395,567
141,382
-
4,933,735
56,535
56,535
Balance at December 31, 2014
2,649,634
24,126,478
1,614,538
(3,851,640)
(11,184)
21,878,192
Net Income
Stock-based Compensation
Issuance of Stock to Employees
in Exchange for Services Rendered
Issuance of Common Stock, net
of Expenses of $324,959
Issuance of Stock in the Acquisition
of Sutter Community Bank
Other Comprehensive
Loss, Net of Taxes
908,654
185,413
13,770
96,390
(96,390)
1,192,075
8,019,566
1,144,416
8,411,458
908,654
185,413
-
8,019,566
8,411,458
(71,802)
(71,802)
Balance at December 31, 2015
4,999,895
$40,653,892
$1,703,561
$(2,942,986)
$(82,986)
$39,331,481
*The accompanying notes are an integral part of these financial statements.
28
FINANCIAL STATEMENTS:
Statements of Cash Flows
For the Years Ended December 31, 2015 & 2014
Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net Cash
From Operating Activities
Depreciation and Amortization
Stock-based Compensation
Provision for Loan Losses
Deferred Tax Expense
Gain on Sale of Securities
Gain on Sale of Loans
2015
2014
$908,654
$395,567
242,997
185,413
522,275
332,000
-
218,299
141,382
314,400
345,000
(11,485)
(240,378)
(237,084)
Loans Originated for Sale
(2,310,293)
(2,327,174)
Proceeds from Sale of Loans
2,587,287
2,578,580
Bargain Purchase Gain
(314,499)
-
Other Items
354,114
(433,553)
Net Cash From Operating Activities
2,267,570
983,932
Investing Activities
Purchase of Available-for-Sale Securities
(39,770,988)
(38,733,211)
Maturities of Available-for-Sale Securities
27,548,880
10,934,781
Proceeds from Sale of Available-for-Sale Securities
-
1,993,315
Net Increase in Loans
(37,381,921)
(30,764,740)
Purchase of Federal Home Loan Bank Stock
(427,700)
(43,800)
Cash Acquired in Acquisition
14,489,998
-
Purchase of Premises and Equipment
(2,353,093)
(103,091)
Net Cash From Investing Activities
(37,894,824)
(56,716,746)
Financing Activities
Net Increase in Demand Deposits and Savings Accounts
31,374,390
43,550,419
Net Change in Time Deposits
(174,240)
13,336,697
Proceeds from Issuance of Common Stock, Net
8,019,566
4,933,735
Net Cash From Financing Activities
39,219,716
61,820,851
Net Increase in Cash and Cash Equivalents
3,592,462
6,088,037
Cash and Cash Equivalents at Beginning of Year
20,469,094
14,381,057
Cash and Cash Equivalents at End of Year
$24,061,556
$20,469,094
Supplemental Disclosures of Cash Flow Information
Interest Paid
Taxes Paid
$371,072
$450,025
$455,000
-
*The accompanying notes are an integral part of these financial statements.
29
FINANCIAL STATEMENTS:
Notes to Financial Statements
December 31, 2015 & 2014
Note A - Summary of Significant
Accounting Policies
Nature of Operations
The Bank has been incorporated in the State of California and
organized as a single operating segment that operates four
full-service branches in Visalia, Porterville, Kingsburg and
Yuba City, California. The Bank’s primary source of revenue
is providing loans to customers, who are predominately
small and middle-market businesses and individuals located
primarily in the Central Valleys of California.
Subsequent Events
The Bank has evaluated subsequent events for recognition
and disclosure through February 24, 2016, which is the date
the financial statements were available to be issued.
Use of Estimates in the Preparation of
Financial Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, 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.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include cash, due from banks and federal funds
sold. Generally, federal funds are sold for periods of less than
ninety days.
Cash and Due from Banks
Banking regulations require that banks maintain a percentage
of their deposits as reserves in cash or on deposit with the
Federal Reserve Bank. The Bank was in compliance with its
reserve requirements as of December 31, 2015.
The Bank maintains amounts due from banks, which
may exceed federally insured limits. The Bank has not
experienced any losses in such accounts.
Investment Securities
Bonds, notes, and debentures for which the Bank has the
positive intent and ability to hold to maturity are reported at
cost, adjusted for premiums and discounts that are recognized
in interest income using the interest method over the period
of maturity.
Investments not classified as trading securities nor as held-
to-maturity securities are classified as available-for-sale
securities and recorded at fair value. Unrealized gains or
losses on available-for-sale securities are excluded from net
income and reported as an amount net of taxes as a separate
component of other comprehensive income included in
shareholders’ equity. Premiums and discounts on held-to-
maturity and available-for-sale securities are amortized or
accreted into income using the interest method. Realized gains
or losses of held-to-maturity or available-for-sale securities
are recorded using the specific identification method.
Management evaluates securities for other-than-temporary
impairment (“OTTI”) on at least a quarterly basis, and more
frequently when economic or market conditions warrant
such an evaluation. For securities in an unrealized loss
position, management considers the extent and duration of
the unrealized loss, and the financial condition and near-
term prospects of the issuer. Management also assesses
whether it intends to sell, or it is more likely than not that
it will be required to sell, a security in an unrealized loss
position before recovery of its amortized cost basis. If either
of the criteria regarding intent or requirement to sell is met,
the entire difference between amortized cost and fair value
is recognized as impairment through earnings. For debt
securities that do not meet the aforementioned criteria, the
amount of impairment is split into two components as follows;
OTTI related to credit loss, which must be recognized in the
income statement and; OTTI related to other factors, which
is recognized in other comprehensive income. The credit loss
is defined as the difference between the present value of the
cash flows expected to be collected and the amortized cost
basis. For equity securities, the entire amount of impairment
is recognized through earnings.
Loans Held for Sale
Government Guaranteed loans originated and intended for
sale in the secondary market are carried at the lower of cost or
estimated market value in the aggregate.
30
Notes to Financial Statements
Note A - Summary of Significant
Accounting Policies - Continued
portions thereof, are uncollectible. This methodology
for determining charge-offs is consistently applied to
each segment.
Net unrealized losses are recognized through a valuation
allowance by charges to income. Gains or losses realized
on the sales of loans are recognized at the time of sale and
are determined by the difference between the net sales
proceeds and the carrying value of the loans sold, adjusted
for any servicing asset or liability. Gains and losses on
sales of loans are included in noninterest income.
Loans
Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity
or payoff are reported at their outstanding unpaid
principal balances reduced by any charge-offs or specific
valuation accounts and net of deferred fees or costs on
originated loans, or unamortized premiums or discounts on
purchased loans. Loan origination fees and certain direct
origination costs are capitalized and recognized as an
adjustment of the yield of the related loan.
Loans on which the accrual of interest has been
discontinued are designated as nonaccrual loans. The
accrual of interest on loans is discontinued when principal
or interest is past due 90 days based on the contractual
terms of the loan or when, in the opinion of management,
there is reasonable doubt as to collectability. When loans
are placed on nonaccrual status, all interest previously
accrued but not collected is reversed against current
period interest income. Income on nonaccrual loans is
subsequently recognized only to the extent that cash
is received and the loan’s principal balance is deemed
collectible. Interest accruals are resumed on such loans
only when they are brought current with respect to interest
and principal and when, in the judgment of management,
the loans are estimated to be fully collectible as to all
principal and interest.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for
probable incurred credit losses. Loan losses are charged
against the allowance when management believes the
uncollectability of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
Management estimates the allowance balance required
using past loan loss experience, the nature and volume
of the portfolio, information about specific borrower
situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance
may be made for specific loans, but the entire allowance
is available for any loan that, in management’s judgment,
should be charged off. Amounts are charged-off when
available information confirms that specific loans or
The Bank determines a separate allowance for each portfolio
segment. The allowance consists of specific and general
reserves. Specific reserves relate to loans that are individually
classified as impaired. A loan is impaired when, based on current
information and events, it is probable that the Bank will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. Factors considered in determining
impairment include payment status, collateral value and the
probability of collecting all amounts when due. Measurement
of impairment is based on the expected future cash flows of an
impaired loan, which are to be discounted at the loan’s effective
interest rate, or measured by reference to an observable market
value, if one exists, or the fair value of the collateral for a
collateral-dependent loan. The Bank selects the measurement
method on a loan-by-loan basis except that collateral-dependent
loans for which foreclosure is probable are measured at the fair
value of the collateral.
The Bank recognizes interest income on impaired loans
based on its existing methods of recognizing interest income
on nonaccrual loans. Loans, for which the terms have been
modified resulting in a concession, and for which the borrower is
experiencing financial difficulties, are considered troubled debt
restructurings and classified as impaired with measurement of
impairment as described above.
If a loan is impaired, a portion of the allowance is allocated so
that the loan is reported, net, at the present value of estimated
future cash flows using the loan’s existing rate or at the fair value
of collateral if repayment is expected solely from the collateral.
General reserves cover non-impaired loans and are based
on peer bank historical loss rates for each portfolio segment,
adjusted for the effects of qualitative or environmental factors
that are likely to cause estimated credit losses as of the
evaluation date to differ from the portfolio segment’s historical
loss experience. Qualitative factors include consideration of the
following: changes in lending policies and procedures; changes
in economic conditions; changes in the nature and volume of
the portfolio; changes in the experience, ability and depth of
lending management and other relevant staff; changes in the
volume and severity of past due, nonaccrual and other adversely
graded loans; changes in the loan review system; changes in the
value of the underlying collateral for collateral-dependent loans;
concentrations of credit and the effect of other external factors
such as competition and legal and regulatory requirements.
31
Notes to Financial Statements
Note A - Summary of Significant
Accounting Policies - Continued
Portfolio segments identified by the Bank include real estate
– other, construction and land development, commercial and
industrial, and consumer loans. Relevant risk characteristics
for these portfolio segments generally include debt service
coverage, loan-to-value ratios and financial performance
on non-consumer loans and credit scores, debt-to income,
collateral type and loan-to-value ratios for consumer loans.
Certain Acquired Loans
As part of business acquisition, the Bank acquired certain
loans that have shown evidence of credit deterioration
since origination. These acquired loans are recorded at the
allocated fair value, such that there is no carryover of the
seller’s allowance for loan losses. Such acquired loans are
accounted for individually. The Bank estimates the amount
and timing of expected cash flows for each purchased loan,
and the expected cash flows in excess of the allocated fair
value is recorded as interest income over the remaining
life of the loan (accretable yield). The excess of the loan’s
contractual principal and interest over expected cash flows
is not recorded (non-accretable difference). Over the life of
the loan, expected cash flows continue to be estimated. If the
present value of expected cash flows is less than the carrying
amount, a loss is recorded through the allowance for loan
losses. If the present value of expected cash flows is greater
than the carrying amount, it is recognized as part of future
interest income.
Federal Home Loan Bank (“FHLB”) Stock
The Bank is a member of the FHLB system. Members are
required to own a certain amount of stock based on the level
of borrowings and other factors, and may invest in additional
amounts. FHLB stock is carried at cost, classified as a
restricted security, and periodically evaluated for impairment
based on the ultimate recovery of par value. Both cash and
stock dividends are reported as income.
Other Real Estate Owned
Real estate acquired by foreclosure or deed in lieu of
foreclosure is recorded at fair value at the date of foreclosure,
establishing a new cost basis by a charge to the allowance for
loan losses, if necessary. Other real estate owned is carried
at the lower of cost or fair value, less estimated costs to
sell. Fair value is based on current appraisals less estimated
selling costs. Any subsequent write-downs are charged
against operating expenses. Operating expenses of such
properties, net of related income, and gains and losses on
their disposition are included in other operating expenses.
As of December 31, 2015 other real estate owned consisted
of vacant land. The Bank did not have any foreclosures in
process as of December 31, 2015.
Premises and Equipment
Land is carried at cost. Premises and equipment are carried
at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method
over the estimated useful lives, which ranges from three to
ten years for furniture and equipment and forty years for
premises. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the
improvements or the remaining lease term, whichever is
shorter. Expenditures for betterments or major repairs are
capitalized and those for ordinary repairs and maintenance
are charged to operations as incurred.
Other Intangible Assets
Other intangible assets consist of core deposit intangible
assets arising from a whole bank acquisition. They are
initially measured at fair value and then amortized over
their estimated useful lives of approximately seven years.
Amortization expense in 2015 was $0. Future amortization
expense for the next five years is approximately $54,000
per year.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales,
when control over the assets has been relinquished. Control
over transferred assets is deemed to be surrendered when
the assets have been isolated from the Bank, the transferee
obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the
transferred assets, and the Bank does not maintain effective
control over the transferred assets through an agreement to
repurchase them before their maturity.
Stock-Based Compensation
The Bank recognizes the cost of employee services received
in exchange for awards of stock options, or other equity
instruments, based on the grant-date fair value of those
awards. This cost is recognized over the period which an
employee is required to provide services in exchange for the
award, generally the vesting period. See Note L for additional
information on the Bank’s stock option plan.
Advertising Costs
The Bank expenses the costs of advertising in the
period incurred.
Income Taxes
Deferred income taxes are computed using the asset
and liability method, which recognizes a liability or asset
representing the tax effects, based on current tax law, of
future deductible or taxable amounts attributable to events
that have been recognized in the financial statements. A
valuation allowance is established to reduce the deferred
tax asset to the level at which it is “more likely than not” that
the tax asset or benefits will be realized. Realization of tax
benefits of deductible temporary differences and operating
32
Notes to Financial Statements
Note A - Summary of Significant
Accounting Policies - Continued
loss carryforwards depends on having sufficient taxable
income of an appropriate character within the carry
forward periods.
The Bank has adopted guidance issued by the Financial
Accounting Standards Board (“FASB”) that clarifies the
accounting for uncertainty in tax positions taken or expected
to be taken on a tax return and provides that the tax effects
from an uncertain tax position can be recognized in the
financial statements only if, based on its merits, the position
is more likely than not to be sustained on audit by the taxing
authorities. Interest and penalties related to uncertain tax
positions are recorded as part of income tax expense.
Earnings Per Share (“EPS”)
Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-
average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings
of the entity.
Comprehensive Income
Changes in unrealized gains and losses on available-for-
sale securities is the only component of accumulated other
comprehensive income for the Bank.
Financial Instruments
In the ordinary course of business, the Bank has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, commercial letters of credit,
and standby letters of credit as described in Note K. Such
financial instruments are recorded in the financial statements
when they are funded or related fees are incurred or received.
Fair Value Measurement
Fair value is the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or
liability in an orderly transaction between market participants
on the measurement date. Current accounting guidance
establishes a fair value hierarchy, which requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The guidance
describes three levels of inputs that may be used to measure
fair value:
Level 1: Quoted prices (unadjusted) for identical assets or
liabilities in active markets that the entity has the ability to
access as of the measurement date.
Level 2: Significant other observable inputs other than Level
1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable
market data.
Level 3: Significant unobservable inputs that reflect a Bank’s
own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
See Note N for more information and disclosures relating to
the Bank’s fair value measurements.
Reclassifications
Certain reclassifications have been made in the 2014 financial
statements to conform to the presentation used in 2015.
These reclassifications had no impact of the Bank’s previously
reported financial statements.
Adopted Accounting Guidance
In January 2014, the FASB issued Accounting Standards
Update (ASU) No. 2014-04, Receivables—Troubled
Debt Restructurings by Creditors (Subtopic 310-40):
Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure, a consensus of
the FASB Emerging Issues Task Force. This Update provides
clarification as to when an in-substance repossession or
foreclosure has occurred, i.e., the creditor is considered to
have received physical possession of residential real estate
property collateralizing a consumer mortgage loan and,
therefore, the loan receivable should be derecognized and
the real estate property should be recognized. Under ASU
No. 2014-04, a creditor has received physical possession of
residential real estate property collateralizing a consumer
mortgage loan upon either (1) the creditor obtaining legal title
to the property upon completion of a foreclosure or (2) the
borrower conveying all interest in the property to the creditor
to satisfy the loan through completion of a deed in lieu of
foreclosure or a similar legal agreement. The Update also will
require disclosure in annual and interim financial statements
of both (1) the amount of foreclosed residential real estate
property held by the creditor and (2) the recorded investment
in consumer mortgage loans collateralized by residential
real estate property that are in the process of foreclosure
according to local requirements of the applicable jurisdiction.
The amendments in this Update are effective for interim and
annual periods beginning after December 15, 2014. Adoption
of this Update did not have a material impact on the Bank’s
financial statements.
Recent Accounting Guidance Not Yet Effective
In May 2014, the FASB issued Accounting Standards Update
(ASU) No. 2014-09, Revenue from Contracts with Customers
(Topic 606). This Update requires an entity to recognize
revenue as performance obligations are met, in order to
reflect the transfer of promised goods or services
33
Notes to Financial Statements
Note A - Summary of Significant
Accounting Policies - Continued
to customers in an amount that reflects the consideration
the entity is entitled to receive for those goods or services.
The following steps are applied in the updated guidance:
(1) identify the contract(s) with a customer; (2) identify the
performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the
performance obligations in the contract; and (5) recognize
revenue when, or as, the entity satisfies a performance
obligation. These amendments are effective for annual
reporting periods beginning after December 15, 2017,
including interim periods within that reporting period. Early
adoption is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim
reporting periods within that period. The Bank is currently
evaluating the effects of ASU 2014-09 on its financial
statements and disclosures, if any.
On January 5, 2016, the FASB issued Accounting Standards
Update 2016-01, Financial Instruments–Overall: Recognition
and Measurement of Financial Assets and Financial Liabilities.
Changes made to the current measurement model primarily
affect the accounting for equity securities with readily
determinable fair values, where changes in fair value will
impact earnings instead of other comprehensive income. The
accounting for other financial instruments, such as loans,
investments in debt securities, and financial liabilities is largely
unchanged. The Update also changes the presentation and
disclosure requirements for financial instruments including a
requirement that public business entities use exit price when
measuring the fair value of financial instruments measured
at amortized cost for disclosure purposes. This Update is
generally effective for public business entities in fiscal years
beginning after December 15, 2017, including interim periods
within those fiscal years. The Bank is currently evaluating
the effects of ASU 2016-01 on its financial statements and
disclosures, if any.
period, which can extend for up to one year after the
closing date of the transaction. While additional significant
changes to the closing date fair values are not expected, any
information relative to the changes in these fair values will be
evaluated to determine if such changes are due to events and
circumstances that existed as of the acquisition date.
On December 11, 2015, the Bank acquired all the assets and
assumed all the liabilities of Sutter Community Bank (“SCB”)
in exchange for Bank stock. The Bank issued 1,144,416 shares
of Bank common stock with a fair value of $7.35 per share total
transaction value of approximately $8,411,000. SCB operated
one branch in Yuba City, California. The Bank acquired SCB as
the location and culture fit within the Bank’s strategic plans
for expansion.
A bargain purchase gain totaling $314,499 resulted from the
acquisition and is included as a component of noninterest
income in the statements of income.
For loans acquired from SCB, the contractual amounts due,
expected cash flows to be collected and fair value as of
December 11, 2015 were as follows (dollar amounts
in thousands):
Purchased
Credit-
Impaired
All Other
Acquired
Loans
Contractual Amounts Due
Cash Flows not Expected to be Collected
Expected Cash Flows
Interest Component of Expected Cash Flows
Fair Value of Acquired Loans
$
$
2,554
364
2,190
237
1,953
60,193
-
60,193
15,945
44,248
$
$
In accordance with generally accepted accounting principles
there was no carryover of the allowance for loan losses that
had been previously recorded by SCB.
The following table represents the assets acquired and
liabilities assumed of SCB as of December 11, 2015 and the
fair value adjustments and the amounts recorded by the Bank
in 2015 under the acquisition method of accounting (dollar
amounts in thousands):
SCB
Book Value
Fair Value
Adjustments
Fair
Value
Note B - Acquisition
The Bank accounted for the following acquisition under the
acquisition method of accounting. The acquired assets,
assumed liabilities and identifiable intangible assets were
recorded at their respective acquisition date fair values. The
Bank determined the fair value of the securities, loans, core
deposit intangible and deposits with the assistance of third
party valuations. The fair value of other real estate owned
(“OREO”) was based on appraisals.
The estimated fair value in this acquisition is subject to
refinement as additional information relative to the closing
date fair values become available through the measurement
ASSETS ACQUIRED
Cash and Cash Equivalents
Investment Securities
Loans, Gross
Allowance for Loan Losses
Other Bank Stock
Premises and Equipment
Bank Owned Life Insurance
Other Real Estate Owned
Deferred Tax Assets
Core Deposit Intangible
Accrued Interest and Other Assets
Total Assets Acquired
LIABILITIES ASSUMED
Deposits
Other Liabilities
Total Liabilities Assumed
Excess of Assets Acquired
Over Liabilities Assumed
Stock Consideration
Recorded Gain on Acquisition
34
$
(
14,490
1,906
47,538
1,493)
398
86
2,076
1,171
1,495
-
558
68,225
$
-
(
81)
1,337)
(
1,493
-
-
-
522)
77
428
219)
161)
(
$(
(
$
14,490
1,825
46,201
-
398
86
2,076
649
1,572
428
339
68,064
$
$
$
58,977
287
59,264
$
(
84
10)
74
$
59,061
277
59,338
8,961
68,225
$
(
$(
235)
161)
8,726
8,411
315
$
Notes to Financial Statements
Note C - Investment Securities
Debt and equity securities have been classified in the
statements of financial condition according to management’s
intent. The amortized cost of securities and their approximate
fair values at December 31 were as follows:
De cember 31, 2015
Available-for-Sale Securities:
U.S. Government and
Agency Securities
Mortgaged-Backed
Securities
De cember 31, 2014
Available-for-Sale Securities:
U.S. Government and
Agency Securities
Mortgaged-Backed
Securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
27,505,350
$
15,261
$(
76,102)
$
27,444,509
26,978,253
116,815
(
196,628)
26,898,440
$
54,483,603
$
132,076
$(
272,730)
$
54,342,949
$
28,742,398
$
28,941
$(
84,452)
$
28,686,887
11,793,000
41,983
(
5,428)
11,829,555
$
40,535,398
$
70,924
$(
89,880)
$
40,516,442
The amortized cost and estimated fair value of all investment
securities as of December 31, 2015 by expected maturities
are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
No securities were sold in 2015. Gross realized gains in 2014
on sales of available-for-sale securities were $11,485.
Available-for-Sale Securities
Amortized
Cost
Fair
Value
As of December 31, 2015, the Bank has three U.S. government
agency securities that have been in an unrealized loss
position over 12 months. Unrealized losses on these
investment securities have not been recognized into income
as management does not intend to sell, and it is not “more
likely than not” that management would be required to sell the
securities prior to their anticipated recovery, and the decline
in fair value is largely due to change in interest rates. The fair
value is expected to recover as the bonds approach maturity.
Securities with a fair value of approximately $7.3 million
were pledged to the Federal Home Loan Bank as discussed
in Note G. Securities with a fair value of $17.5 million were
pledged to secure public monies and for other purposes as
required by law.
Note D - Loans
The Bank’s loan portfolio consists primarily of loans to
borrowers within the Central Valleys of California. Although
the Bank seeks to avoid concentrations of loans to a single
industry or based upon a single class of collateral, real estate
and real estate associated businesses are among the principal
industries in the Bank’s market area and, as a result, the
Bank’s loan and collateral portfolios are, to some degree,
concentrated in those industries.
A summary of the changes in the allowance for loan losses as
of December 31 follows:
Due within One Year
Due from One Year to Five Years
Due from Five to Ten Years
Due after Ten Years
$
15,868,339
12,574,643
4,636,520
21,404,101
$
15,858,293
12,530,696
4,695,174
21,258,786
Balance at Beginning of Year
Additions to the Allowance Charged to Expense
Recoveries on Loans Charged-Off
2015
2014
$
1,723,391
522,275
-
2,245,666
$
1,417,381
314,400
-
1,731,781
$
54,483,603
$
54,342,949
Less Loans Charged-Off
(
100)
(
8,390)
$
2,245,566
$
1,723,391
The gross unrealized loss and related estimated fair value
of investment securities that have been in a continuous loss
position for less than twelve months and over twelve months
at December 31, 2015 and 2014, are as follows:
December 31, 2015:
U.S. Government and
Agency Securities
Mortgaged-Backed
Securities
December 31, 2014:
U.S. Government and
Agency Securities
Mortgaged-Backed
Securities
Less than Twelve Months
Unrealized
Losses
Fair Value
Over Twelve Months
Total
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
$(
64,634)
$
13,176,698
$(
11,468)
$
1,488,330
$(
76,102)
$
14,665,028
(196,628)
20,970,132
-
-
(196,628)
20,970,132
$(
261,262)
$
34,146,830
$(
11,468)
$
1,488,330
$(
272,730)
$
35,635,160
$(
40,533)
$
10,208,813
$(
43,919)
$
4,955,780
$(
84,452)
$
15,164,593
(5,428)
2,131,386
-
-
(5,428)
2,131,386
$(
45,961)
$
12,340,199
$(
43,919)
$
4,955,780
$(
89,880)
$
17,295,979
35
Notes to Financial Statements
Note D - Loans - Continued
The following table presents the activity in the allowance
for loan losses for the year 2015 and 2014 and the recorded
investment in loans and impairment method as of December
31, 2015 and 2014 by portfolio segment:
Impaired - A loan is considered impaired, when, based on
current information and events, it is probable that the Bank
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Additionally,
all loans classified as troubled debt restructurings are
considered impaired.
The risk category of loans by class of loans was as follows as of
December 31, 2015:
December 31, 2015
Pass
Special
Mention
Substandard
Impaired
Total
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
$
63,087,928
57,045,546
26,575,768
10,477,245
4,661,388
39,324,577
802,538
$
432,121
-
-
-
-
10,456
-
$
2,002,513
-
619,303
-
42,794
112,183
-
$
3,313,570
-
-
-
241,563
83,534
4,541
$
68,836,132
57,045,546
27,195,071
10,477,245
4,945,745
39,530,750
807,079
$
201,974,990
$
442,577
$
2,776,793
$
3,643,208
$
208,837,568
The risk category of loans by class of loans was as follows as of
December 31, 2014:
December 31, 2014
Pass
Special
Mention
Substandard
Impaired
Total
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
$
44,602,318
26,836,159
14,549,706
5,225,084
3,545,500
26,423,240
1,534,781
$
156,158
-
-
-
-
-
-
$
2,005,088
-
-
-
10,726
-
-
$
-
-
-
313,322
35,100
-
$
46,763,564
26,836,159
14,549,706
5,225,084
3,858,822
26,469,066
1,534,781
$
122,716,788
$
156,158
$
2,015,814
$
348,422
$
125,237,182
Past due and nonaccrual loans presented by loan class were as
follows as of December 31, 2015 and 2014:
December 31, 2015
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
December 31, 2014
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
30-59 Days
Past Due
$
-
-
-
-
39,125
-
Still Accruing
60-89 Days
Past Due
-
$
-
-
-
-
-
-
Over 90 Days
Past Due
Nonaccrual
-
$
-
-
-
-
-
-
$
2,566,890
-
33,201
-
241,563
185,896
4,541
$
39,125
$
-
$
-
$
3,032,091
$
-
-
-
-
23,947
-
$
-
-
180,000
-
-
-
-
$
-
-
-
-
-
-
-
$
-
-
-
-
313,322
35,100
-
$
23,947
$
180,000
$
-
$
348,422
December 31, 2015
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
Real Estate -
Other
Construction
and Land
Development
Commercial
and
Industrial
Consumer
Total
$
1,167,486
353,698
-
-
$
(
48,676
1,539)
-
-
$
474,196
138,809
(100)
-
$
33,033
31,307
-
-
$
1,723,391
522,275
(100)
-
End of Year Reserves:
$
1,521,184
$
47,137
$
612,905
$
64,340
$
2,245,566
Specific
General
Purchased Credit Impaired Loans
-
$
1,521,184
-
-
$
47,137
-
-
$
612,905
-
-
$
64,340
-
$
-
2,245,566
-
Loans Evaluated for Impairment:
Individually
Collectively
Purchased Credit Impaired Loans
December 31, 2014
Allowance for Loan Losses:
Beginning of Year
Provisions
Charge-offs
Recoveries
$
1,521,184
$
47,137
$
612,905
$
64,340
$
2,245,566
$
3,313,570
158,612,919
1,627,505
$
241,563
4,704,182
-
$
83,534
39,350,625
96,591
$
4,541
802,538
-
$
3,643,208
203,470,264
1,724,096
$
163,553,994
$
4,945,745
$
39,530,750
$
807,079
$
208,837,568
$
1,094,629
72,857
-
-
$
34,659
14,017
-
-
$
275,196
207,390
(8,390)
-
$
12,897
20,136
-
-
$
1,417,381
314,400
(8,390)
-
End of Year Reserves:
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
Specific
General
-
$
1,167,486
-
$
48,676
$
35,100
439,096
-
$
33,033
$
35,100
1,688,291
Loans Evaluated for Impairment:
Individually
Collectively
$
1,167,486
$
48,676
$
474,196
$
33,033
$
1,723,391
-
$
93,374,513
$
313,322
3,545,500
$
35,100
26,433,966
-
$
1,534,781
$
348,422
124,888,760
$
93,374,513
$
3,858,822
$
26,469,066
$
1,534,781
$
125,237,182
The Bank categorizes loans into risk categories based
on relevant information about the ability of borrowers to
service their debt such as current financial information,
historical payment experience, collateral adequacy, credit
documentation, and current economic trends, among other
factors. The Bank analyzes loans individually by classifying
the loans as to credit risk. This analysis typically includes
larger, non-homogeneous loans such as commercial real
estate and commercial and industrial loans. This analysis
is performed on an ongoing basis as new information is
obtained. The Bank uses the following definitions for
risk ratings:
Pass - Loans classified as pass include loans not meeting the
risk ratings defined below.
Special Mention - Loans classified as special mention have
a potential weakness that deserves management’s close
attention. If left uncorrected, these potential weaknesses may
result in deterioration of the repayment prospects for the loan
or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are
inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged,
if any. Loans so classified have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. They
are characterized by the distinct possibility that the institution
will sustain some loss if the deficiencies are not corrected.
36
Notes to Financial Statements
Note D - Loans - Continued
Information relating to individually impaired loans presented
by class of loans was as follows as of December 31, 2015
and 2014:
Impaired Loans
Unpaid
Principal
Balance
Recorded Without Specific With Specific
Allowance
Allowance
Investment
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
$
$
$
3,910,827
-
-
-
331,898
141,960
6,470
4,391,155
3,313,570
-
-
-
241,563
83,534
4,541
3,643,208
3,313,570
-
-
-
241,563
83,534
4,541
3,643,208
-
$
-
-
-
-
-
-
$
-
-
$
-
-
-
-
-
-
$
-
2,059,000
-
-
-
20,000
7,000
500
2,086,500
$
$
$
$
$
138,708
-
-
-
-
-
-
138,708
December 31, 2015
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
December 31, 2014
Real Estate Other:
Commercial
Farmland
1-4 Family Residential
Multifamily Residential
Construction and Land Development
Commercial and Industrial
Consumer
-
$
-
-
-
486,434
43,490
-
-
$
-
-
-
313,322
35,100
-
-
$
-
-
-
313,322
-
-
-
$
-
-
-
-
35,100
-
-
$
-
-
-
-
35,100
-
-
$
-
-
-
359,000
30,000
-
-
$
-
-
-
-
-
-
$
529,924
$
348,422
$
313,322
$
35,100
$
35,100
$
389,000
$
-
2016
2017
2018
2019
2020
Thereafter
$
392,000
190,000
172,000
173,000
174,000
2,002,000
$
3,103,000
The Bank has operating leases for branches than will expire
at various dates through June 2035. The leases include
provisions for periodic rent increases as well as payment by
the lessee of certain operating expenses. The leases also
include provisions for options to extend the lease. The rental
expense relating to the leases and other short term rentals was
approximately $344,000 and $316,000 for the years ended
December 31, 2015 and 2014, respectively.
At December 31, 2015, the future lease rental payable under
noncancellable operating lease commitments for the branches
was as follows:
The outstanding balance and carrying amount of purchased
credit impaired loans as of December 31, 2015 were as follows:
Outstanding Balance
Carrying Amount
2015
2,511,906
1,724,096
$
$
The minimum rental payments shown above are given for
the existing lease obligations and are not a forecast of future
rental expense.
The change in accretable discount on purchased credit
impaired loans during the period was as follows:
Note F - Deposits
At December 31, 2015, the scheduled maturities of time
deposits are as follows:
2016
2017
2018
2019
2020
$
51,131,035
1,616,204
1,241,526
3,509,731
521,098
$
58,019,594
Balance at January 1
New Loans Purchased
Accretion of Income
Reversals (Sales and Foreclosures)
Restructuring as TDR
Transfer to Nonaccretable Discount
Balance at December 31
2015
$
-
236,707
-
-
-
215,070)
21,637
(
$
Income is not recognized on certain purchased loans if the
Bank cannot reasonably estimate cash flows expected to be
collected. The carrying amount of such loans was $1,297,746
at December 31, 2015.
Note E - Premises and Equipment
A summary of premises and equipment as of
December 31 follows:
2015
2014
Land
Building
Leasehold Improvements
Furniture, Fixtures, and Equipment
Less Accumulated Depreciation and Amortization
$
600,000
1,317,517
1,362,552
1,262,844
4,542,913
1,772,435)
(
-
$
-
1,195,113
917,743
2,112,856
1,529,460)
(
$
2,770,478
$
583,396
37
Notes to Financial Statements
Note G - Other Borrowings
The Bank may borrow up to $9.4 million overnight on an
unsecured basis from its correspondent banks. As of
December 31, 2015, the Bank has no amounts outstanding
under these arrangements.
In addition, the Bank is also a member of the Federal Home
Loan Bank (“FHLB”) and has arranged a secured borrowing
line with that institution, secured by the assets of the Bank.
Under this line, the Bank may borrow up to approximately
$22.0 million subject to providing adequate collateral and
continued compliance with the Advances and Security
Agreement and other eligibility requirements established by
the FHLB. The Bank has pledged $7.3 million of investment
securities as collateral for this line. As of December 31, 2015
the Bank had no amounts outstanding under this arrangement.
Note H - Other Expenses
Other expenses as of December 31 are comprised of
the following:
Professional Fees
Data Processing
Office Expenses
Marketing and Business Promotion
Insurance
Regulatory Assessments
Other Expenses
2015
2014
$
817,560
533,983
213,832
170,806
47,533
150,418
248,491
$
524,181
279,750
177,370
174,338
43,416
126,283
192,726
$
2,182,623
$
1,518,064
Note I - Income Taxes
The provision (benefit) for income taxes for the years ended
December 31, consists of the following:
Current:
Federal
State
Deferred
2015
2014
$
296,019
101,042
397,061
332,000
$
-
5,054
5,054
345,000
$
729,061
$
350,054
The Bank is subject to federal income tax and franchise tax of
the state of California. Income tax returns for the years ending
after December 31, 2011 are open to audit by the federal
authorities and income tax returns for the years ending after
December 31, 2010 are open to audit by state authorities. The
Bank does not expect the total amount of unrecognized tax
benefits to significantly increase or decrease within the next
twelve months.
38
As of December 31, 2015, the Bank has net operating loss
carryforwards of approximately $1,771,000 for California
franchise tax purposes. The use of the net operating loss
carryforwards is limited by Section 382 of the Internal Revenue
Service Code to $219,000 per year. California net operating
loss carryforwards, to the extent not used will begin to expire
in 2028.
A comparison of the federal statutory income tax rates to the
Bank’s effective income tax rates follows:
2015
2014
Amount
Rate
Amount
Rate
Statutory Federal Tax
State Tax, Net of Federal Benefit
Stock-based Compensation
Merger Expenses
Bargain Purchase Gain
Other Items, Net
$
(
557,000
117,000
30,000
70,000
107,000)
62,061
34.0%
7.1%
1.8%
4.3%
6.5%)
3.8%
(
$
254,000
59,000
18,000
-
-
19,054
34.1%
7.9%
2.4%
-
-
2.6%
Actual Tax Expense (Benefit)
$
729,061
44.5%
$
350,054
47.0%
Deferred taxes are a result of differences between income tax
accounting and generally accepted accounting principles with
respect to income and expense recognition. The following is
a summary of the components of the net deferred tax asset
accounts recognized in the accompanying statement of
financial condition at December 31:
Deferred Tax Assets:
Pre-Opening Expenses
Allowance for Loan Losses Due to Tax Limitations
Depreciation Differences
Other Real Estate Owned Differences
Operating Loss Carryforwards
Unrealized Loss on Available-for-Sale Securities
Stock-Based Compensation
Purchase Accounting Adjustments
Other Assets and Liabilities
Deferred Tax Liabilities:
Other Assets and Liabilities
2015
2014
$
432,000
756,000
252,000
713,000
149,000
58,000
352,000
469,000
510,000
3,691,000
$
367,000
694,000
192,000
-
481,000
8,000
352,000
-
233,000
2,327,000
(
(
184,000)
184,000)
(
(
110,000)
110,000)
Net Deferred Tax Assets
$
3,507,000
$
2,217,000
Note J - Related Party Transactions
In the ordinary course of business, the Bank has granted
loans to certain directors and the companies with which
they are associated. The total outstanding principal and
commitment of these loans at December 31, 2015 and 2014
was approximately $5,383,000 and $4,707,000, respectively.
Also, in the ordinary course of business, certain executive
officers, directors and companies with which they are
associated have deposits with the Bank. The balances of
these deposits at December 31, 2015 and 2014 amounted to
approximately $26,512,000 and $25,547,000, respectively.
Notes to Financial Statements
Note K - Commitments
In the ordinary course of business, the Bank enters into
financial commitments to meet the financing needs of its
customers. Those instruments involve to varying degrees,
elements of credit and interest rate risk not recognized in the
Bank’s financial statements.
The Bank’s exposure to loan loss in the event of
nonperformance on commitments to extend credit and
standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit
policies in making commitments as it does for loans reflected
in the financial statements.
As of December 31, 2015 and 2014, the Bank had the following
outstanding financial commitments whose contractual
amount represents credit risk:
Commitments to Extend Credit
$
33,130,000
$
17,072,000
2015
2014
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. Since many of the commitments
are expected to expire without being drawn upon, the
total amounts do not necessarily represent future cash
requirements. The Bank evaluates each client’s credit
worthiness 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 customer.
The majority of the Bank’s commitments to extend credit
and standby letters of credit are secured by real estate or
cash, respectively.
The Bank is involved in various litigation, which has arisen
in the ordinary course of its business. In the opinion of
management, the disposition of such pending litigation will
not have material effect on the Bank’s financial statements.
Note L - Stock-Based Compensation Plans
The Bank’s 2007 Stock Option Plan was approved by its
shareholders in July 2008. Under the terms of the 2007 Stock
Option Plan, officers and key employees may be granted both
nonqualified and incentive stock options and directors and
organizers, who are not also an officer or employee, may only
be granted nonqualified stock options. This plan was replaced
by the 2013 Omnibus Stock Incentive Plan.
The Bank’s 2013 Omnibus Stock Incentive Plan (“2013 Plan”)
was approved by its shareholders in May 2013. Under the
terms of the 2013 Plan, officers and key employees may be
granted both nonqualified and incentive stock options and
directors and other consultants, who are not also an officer
or employee, may only be granted nonqualified stock options.
The 2013 Plan also permits the grant of stock appreciation
rights (“SARs”), restricted shares, deferred shares,
performance shares and performance unit awards. The 2013
Plan provides for the total number of awards of common stock
that may be issued over the term of the plan not to exceed
573,533 shares, of which a maximum of 400,000 shares
may be granted as incentive stock options. The aggregated
number of awards that may be granted to an individual
participant may not exceed 100,000 shares per year. Stock
options and performance share and unit awards are granted at
a price not less than 100% of the fair market value of the stock
on the date of grant. The 2013 plan provides for accelerated
vesting if there is a change of control as defined in the
2013 Plan. Equity awards generally vest over three to five
years. Stock options expire no later than ten years from the
date of grant.
The Bank recognized stock-based compensation cost of
$185,413 and $141,382 for the periods ended December 31,
2015 and 2014. The Bank also recognized income tax benefits
related to stock-based compensation of $40,263 in 2015 and
$35,876 in 2014.
The fair value of each option grant was estimated on the date
of grant using the Black-Scholes option pricing model with the
weighted-average assumptions presented below:
2015
2014
Expected Volatility
Expected Term
Expected Dividends
Risk Free Rate
Grant Date Fair Value
43.28%
6.04 Years
None
1.23%
3.00
$
42.50%
6.06 Years
None
1.21%
2.85
$
Since the Bank has a limited amount of historical stock activity
the expected volatility is based on the historical volatility of
similar banks that have a longer trading history. The expected
term represents the estimated average period of time that the
options remain outstanding. Since the Bank does not have
sufficient historical data on the exercise of stock options,
the expected terms is based on the “simplified” method that
measures the expected term as the average of the vesting
period and the contractual term. The risk free rate of return
reflects the grant date interest rate offered for a comparable
U.S. Treasury bonds over the expected term of the options.
39
Notes to Financial Statements
Note L - Stock-Based Compensation Plans -
Continued
A summary of the status of the Bank’s stock options as of
December 31, 2015 and changes during the year ended
thereon is presented below:
Note M - Earnings Per Share (“EPS”)
The following is a reconciliation of net income and shares
outstanding to the income and number of shares used to
compute EPS:
Weighted-
Average
Exercise
Price
9.51
$
10.00
$
$
7.05
$
-
$
10.00
Shares
(
371,980
90,000)
134,000
-
6,250)
(
Outstanding at Beginning of Year
Cancelled
Granted
Exercised
Forfeited
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Net Income as Reported
Shares Outstanding at Year-End
Impact of Weighting Shares
Issued During the Year
2015
2014
Income
Shares
Income
Shares
$
908,654
$
395,567
4,999,895
(1,304,389)
3,695,506
12,252
3,707,758
395,567
$
395,567
2,649,634
(446,025)
2,203,609
4,082
2,207,691
Used in Basic EPS
908,654
Dilutive Effect of Outstanding
Deferred Shares
Used in Dilutive EPS
$
908,654
Outstanding at End of Year
409,730
$
8.59
5.51 Years
$
69,000
Options Exercisable
250,380
$
9.57
3.10 Years
$
19,000
As of December 31, 2015, there was approximately $292,000
of total unrecognized compensation cost related to the
outstanding stock options that will be recognized over a
weighted-average period of 2.1 years.
During 2015 the Bank cancelled 90,000 options with a
weighted-average exercise price of $10.00 held by directors
and granted 90,000 options that expire in ten years and vest
over three years. This is treated as a modification and the
incremental increase in the fair value was $1.83 per option.
Additional compensation expense of $13,725 was recognized
in 2015 as a result of the modification.
A summary of the status of the Bank’s deferred share awards
as of December 31, 2015 and changes during the year ended
thereon is presented below:
Weighted-
Average
Grant-Date
Fair Value
Shares
Nonvested at January 1, 2015
New Deferred Share Awards
Shares Vested and Issued
Shares Forfeited
30,155
2,408
13,770)
385)
(
(
$
$
$
$
7.00
7.00
6.60
7.00
Nonvested at December 31, 2015
18,408
$
7.00
As of December 31, 2015 there was approximately $54,000
of unrecognized compensation cost related to the restricted
stock grants that will be recognized over a weighted-average
period of 1 year. The fair value of shares issued in 2015 and
2014 was approximately $111,000 and $51,000, respectively.
As of December 31, 2015 and 2014 there were 385,730 and
371,930, respectively, stock options that could potentially
dilute earnings per share in the future that were not included in
the computation of diluted earnings per shares because to do
so would have been antidilutive.
Note N - Fair Value Measurement
The following is a description of valuation methodologies used
for assets and liabilities recorded at fair value:
Securities
The fair values of securities available for sale are determined
by matrix pricing, which is a mathematical technique used
widely in the industry to value debt securities without relying
exclusively on quoted prices for specific securities but rather
by relying on the securities’ relationship to other benchmark
quoted securities (Level 2).
Collateral-Dependent Impaired Loans:
The Bank does not record loans at fair value on a recurring
basis. However, from time to time, fair value adjustments are
recorded on these loans to reflect partial write-downs, through
charge-offs or specific reserve allowances, that are based on
the current appraised or market-quoted value of the underlying
collateral. The fair value estimates for collateral-dependent
impaired loans are generally based on recent real estate
appraisals or broker opinions, obtained from independent
third parties, which are frequently adjusted by management to
reflect current conditions and estimated selling costs (Level 3).
Other Real Estate Owned:
Nonrecurring adjustments to certain commercial and
residential real estate properties classified as other real
estate owned (“OREO”) are measured at the lower of carrying
amount or fair value, less costs to sell. Fair values are generally
based on third party appraisals or broker opinions, which
are frequently adjusted by management to reflect current
conditions and estimated selling costs, resulting in a Level 3
classification. In cases where the carrying amount exceeds the
fair value, less costs to sell, an impairment loss is recognized.
40
Notes to Financial Statements
Note N - Fair Value Measurement - Continued
Appraisals for other real estate owned are performed by
certified general appraisers whose qualifications and licenses
have been reviewed and verified by the Bank. Once received,
a member of the loan department reviews the assumptions
and approaches utilized in the appraisal as well as the overall
resulting fair value. The Bank also determines what additional
adjustments, if any, should be made to the appraisal values on
any remaining other real estate owned to arrive at fair value.
No significant adjustments to appraised values have been
made as a result of this process as of December 31, 2015.
The following table provides the hierarchy and fair value for
each major category of assets and liabilities measured at fair
value at December 31, 2015:
Fair value estimates are based on financial instruments both
on and off the balance sheet without attempting to estimate
the value of anticipated future business and the value of assets
and liabilities that are not considered financial instruments.
Additionally, tax consequences related to the realization of the
unrealized gains and losses can have a potential effect on fair
value estimates and have not been considered in many of
the estimates.
The following methods and assumptions were used to
estimate the fair value of significant financial instruments not
previously presented:
Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash
and cash equivalents approximate the fair values of those
assets due to the short-term nature of the assets.
Fair Value Measurements Using:
Level 2
Level 3
Level 1
Total
Total
Losses
December 31, 2015
Assets measured at fair value on
a recurring basis
Securities Available for Sale
Value
on a Non-recurring Basis
Other Real Estate Owned, Net
December 31, 2014
Assets measured at fair value on
a recurring basis
Securities Available for Sale
$
-
$
54,342,949
$
-
$
54,342,949
$
-
$
-
$
-
$
649,092
$
649,092
$
-
$
-
$
40,516,442
$
-
$
40,516,442
$
-
Loans
For variable rate loans that re-price frequently and with no
significant change in credit risk, fair values are based on
carrying amounts. The fair values for all other loans are
estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to
borrowers with similar credit quality.
Quantitative information about the Bank’s nonrecurring Level 3
fair value measurements as of December 31, 2015 is as follows:
December 31, 2015
Amount Valuation Technique
Fair Value
Unobservable
Input
Range
Other Real Estate Owned
$
649,092
Third Party Appraisals Liquidation and Selling Costs 8% to 50%
Note O - Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at
which the asset or obligation could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale. Fair value estimates are made at a specific
point in time based on relevant market information and
information about the financial instrument. These estimates
do not reflect any premium or discount that could result
from offering for sale at one time the entire holdings of a
particular financial instrument. Because no market value
exists for a significant portion of the financial instruments,
fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve
uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
Federal Home Loan Bank Stock and Other Bank Stock
The fair value of Federal Home Loan Bank Stock and other
Bank stock is not readily determinable due to the lack of its
transferability.
Noninterest-Bearing and Interest Bearing
Demand Deposits
The fair values for noninterest-bearing deposits and interest-
bearing demand deposits are equal to the amount payable on
demand at the reporting date, which is the carrying amount.
Interest-Bearing Time Deposits
The fair values for fixed rate certificates of deposits are
estimated using a cash flow analysis, discounted at interest
rates being offered at each reporting date by the Bank for
certificates with similar remaining maturities.
Off-Balance Sheet Financial Instruments
The fair value of commitments to extend credit and standby
letters of credit is estimated using the fees currently charged
to enter into similar agreements. The fair value of these
financial instruments is not material.
41
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,
Tier 1 and CET1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management
believes, as of December 31, 2015 and 2014, that the Bank
meets all capital adequacy requirements.
As of December 31, 2015, the most recent notification from
the FDIC categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action (there
are no conditions or events since that notification that
management believes have changed the Bank’s category).
To be categorized as well capitalized, the Bank must maintain
minimum ratios as set forth in the table below.
The following table also sets forth the Bank’s actual capital
amounts and ratios (dollar amounts in thousands):
Amount of Capital Required
Actual
For Capital
Adequacy
Purposes
To Be Well-
Capitalized
Under Prompt
Corrective
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2015:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
CET1 Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Average Assets)
$38,237
$35,983
$35,983
$35,983
15.7%
14.8%
14.8%
12.2%
$19,464
$14,598
$10,949
$11,816
As of December 31, 2014:
Total Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Risk-Weighted Assets)
Tier 1 Capital (to Average Assets)
$21,860
$20,129
$20,129
14.7%
13.5%
11.1%
$11,914
$5,957
$7,281
8.0%
6.0%
4.5%
4.0%
8.0%
4.0%
4.0%
$24,330
$19,464
$15,815
$14,770
10.0%
8.0%
6.5%
5.0%
$14,893
10.0%
$8,936
$9,101
6.0%
5.0%
The California Financial Code provides that a bank may not
make a cash distribution to its shareholders in excess of
the lesser of the bank’s undivided profits or the bank’s net
income for its last three fiscal years less the amount of any
distribution made to the bank’s shareholders during the
same period.
Notes to Financial Statements
Note O - Fair Value of Financial Instruments -
Continued
The fair value hierarchy level and estimated fair value of
significant financial instruments at December 31, 2015 and
2014 are summarized as follows (dollar amount
in thousands):
Financial Assets:
Cash and Cash Equivalents
Investment Securities
Loans, net
FHLB and Other Bank Stock
Financial Liabilities:
Noninterest-Bearing and Interest-Bearing
Demand Deposits
Interest-Bearing Time Deposits
2015
2014
Fair Value
Hierarchy
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Level 1
Level 2
Level 2
$
24,062
54,343
206,133
1,466
$
20,062
54,343
205,266
N/A
$
20,469
40,516
123,154
638
$
20,469
40,516
123,019
N/A
Level 1
Level 2
198,658
58,019
198,658
57,918
125,497
40,920
125,497
40,901
Note P - Employee Benefit Plan
The Bank adopted a 401(k) Plan for its employees in 2008.
Under the plan, eligible employees may defer a portion of
their salaries. The plan also provides for a non-elective
discretionary contribution by the Bank. The Bank made no
contributions for 2015 or 2014.
Note Q - Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain
mandatory - and possibly 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 their assets,
liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and
other factors.
In July, 2013, the federal bank regulatory agencies approved
the final rules implementing the Basel Committee on Banking
Supervision’s capital guidelines for U.S. banks. The new
rules became effective on January 1, 2015, with certain of
the requirements phased-in over a multi-year schedule,
and fully phased in by January 1, 2019. The rules include a
new common equity Tier 1 (“CET1”) capital to risk-weighted
assets ratio with minimums for capital adequacy and prompt
corrective action purposes of 4.5% and 6.5%, respectively.
The net unrealized gain or loss on available for sale securities
is not included in computing regulatory capital. Capital
amounts and ratios for December 31, 2014 are calculated
using Basel I rules.
42
xliv
Top 5 Reasons to Invest
in Suncrest Stock
Premier Management Team With Equity
Profitability with Improving Operating Leverage
Attractive Market for Community Banking
Positioned for Continued Business Expansion
Fewer and Fewer Community Banks
2015 Annual Report
We’re the bank
where local matters.
Kingsburg Branch
1580 Draper Street
(559) 802-1070
Porterville Branch
65 West Olive Ave
(559) 306-1300
Visalia Branch
400 West Center Ave
(559) 802-1000
Yuba City Branch
700 Plumas St.
(530) 674-8900
Fresno Office
2014 S Tulare Street
Suite 406
(559) 286-9621
www.suncrestbank.com
Top
2002015
Healthiest Banks
by DepositAccounts.com