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    Cal Oaks State Bank Annual Report Cal Oaks State Bank Annual Report Document Transcript

    • The Business of Building success 2006 annual Report
    • Net Income Up Growth in 45% officeRs 2006 execuTiVe officeRs cole W. minnick President kenneth s. Paris Executive Vice President Jerry d. smith Executive Vice President operating income and net Chief Executive Officer Chief Credit Officer Chief Financial Officer income set records, with net income at $1,619,024. Assets Up Thousand oaks office 18% Gary d. Trow catherine Giuffre Priscilla Jewell Senior Vice President Vice President Vice President Commercial Lender Branch Operations Manager Compliance Officer lynn kistner alan kravets don spurrier Vice President Vice President Vice President Human Resources Commercial Lender Commercial Lender muoysim Tang-Paradis dianna Traylor Tim Weaver Net Loans Up Vice President Vice President Vice President 18% SBA Business Development Officer Controller SBA Manager Barry yablow nicole andrews elizabeth de alejandro Vice President Assistant Vice President Assistant Vice President Accounts Receivable Finance Manager Operations Officer Account Services Manager sandra merritt daniel Quick Assistant Vice President Assistant Vice President $2,000 $120,000 $90,000 Accounts Receivable Manager Financial Systems Officer $80,000 $100,000 simi Valley office $1,500 $70,000 Tom odegard amber sorbello kelly Riley $80,000 $60,000 Vice President Assistant Vice President Assistant Operations Officer Commercial Lender Operations Officer $1,000 $50,000 $60,000 $40,000 $0 $40,000 $30,000 $20,000 $(500) $20,000 $10,000$(1,000) $0 $0 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 neT income asseTs neT loans (in thousands) (in thousands) (in thousands)
    • March 1, 2007To Our Shareholders and Customers:Your Board and Management are delighted to report that the Bank had an outstanding2006. Our net income was $1,619,024 ($1.12 per share), compared to $1,118,997($0.78 per share) in 2005—a 45% increase. Just as important, our pre-tax income was$1,426,000. Year-end assets were up $17.5 million, or 18.1%, to $114.0 million from$96.6 million. Our gross loans were up $13.4 million, or 17.5%, to $89.8 million from$76.4 million. Deposits increased $7.5 million, or 9.0%, to $91.2 million. In Septemberthe Bank was able to take $192,000 into income by recognizing a portion of the Bank’stax deferred asset. This income recognition was based on the Bank’s return to operatingprofitability in 2006. This also is the year the Bank exhausts its ability to increaseincome through the deferred tax asset as the income in 2007 is fully taxable.In October, the Bank introduced a new product called “Digital Deposit” which allowsbusinesses to send their check deposit to the Bank via an electronic scanner, therebyeliminating having to come into the Bank to make a check deposit. We expect “DigitalDeposit” to be an important addition to our service offerings.The Bank has also received Preferred Lenders Program status from the Small BusinessAdministration. This important and prestigious designation means the Bank canapprove and close SBA loans without the concurrence of the SBA, which we anticipatewill tremendously improve our lending capabilities. The Bank now has a full in-housearray of loan products, including accounts receivable financing (factoring).The Bank has clearly demonstrated that it is a successful community bank that cancompete effectively in this market and generate consistently healthy earnings. We havemet and surpassed our prior challenges and are focused on providing excellent servicewhile growing the Bank. We continue to work aggressively and diligently to increaseour core deposit balances to help maintain the Bank’s excellent net interest margins.Our mission is simple: to be the premier community bank in Ventura County.We thank our shareholders and customers for their steadfast support. We appreciatethe opportunity to provide banking services on a personal basis. We also want toexpress thanks to our employees for their invaluable contributions to the Bank’ssuccess. We look forward to seeing you at the next Annual Shareholders meeting.ROBeRT e. LeWIS COLe W. MInnICkChairman of the Board President & Chief Executive Officer 2006 Annual Report
    • A Growing Portfolio of Precision A Bold, Fresh Vision of the Future Business Banking Products When the calendar turned to 2006, California Oaks State Bank was riding a wave of SBA Loans unprecedented growth. That momentum continued through the past year. It promises to As a Preferred Small Business Administration lender, Cal Oaks assists business owners in navigating the lending process, selecting the optimal loan package, and managing propel us into a bright future filled with prosperity and innovations that empower Ventura documentation. Our discovery process enables us to choose only those SBA borrowers County businesses to realize their potential. This is our vision for 2007...and beyond. with the greatest growth potential. This reduces default risk and allows us to reward well-managed Ventura County companies with competitive rates and flexible terms. Like the oak tree that is our namesake, Cal Oaks is a model of stability and strength in a changing Accounts Receivable Services world. Our team of business bankers remains intact, blending proven financial wisdom with Turn healthy billings into immediate cash flow no matter what your payment terms are. aggressive new ideas that better serve our business customers. Our revenues continue to surge, Cal Oaks offers two Accounts Receivable programs: showing the year-to-year health that befits a well-run institution. And our suite of fine-tuned • Lending, in which we create a custom loan for your company with your business banking products is expanding, fueled by exceptional customer input. confirmed receivables as collateral; • Financing, in which we purchase your invoices and handle collections. Our vision is clear: to become Ventura County’s undisputed leader in community banking Whichever option you choose, our rates and terms match or beat the factoring firms—and for businesses and professional practices. But our measure of achievement will always lie you receive extraordinary Cal Oaks customer care. If your customers don’t pay like clockwork, let us give your business an edge. with our customers. When you compete, profit, and grow, we succeed. That remains the mission of the Cal Oaks team, from our Board of Directors to our employees. Thank you Commercial Real estate Loans for continuing to be a part of it. Cal Oaks makes real estate loans from $250,000 to $3 million, allowing growing businesses to buy the commercial property they need or to expand existing properties. Loans can be made for the following: • To acquire a new location • To acquire new property and build • Capital to make improvements to your current facilities expansion requires space. Cal Oaks helps you get the real estate you need. General Commercial Loans From general capital to home equity loans, Cal Oaks is the Ventura County business resource for commercial financing. We offer proven companies extremely competitive rates and friendly terms that take into account the ebb and flow of the business cycle. If you have a strong record of growth and profitability, talk to us about a business loan or credit line toThe core of our use for equipment, marketing, hiring, and more.business banking Digital Depositsmteam blends Our newest service takesyears of proven convenience and securityfinancial wisdom to a new level. Digitalwith innovation, Deposit allows you to make check deposits todelivering bold, your Cal Oaks businesseffective solutions for accounts without leavingour business customers. your office. Cole W. Minnick Jerry D. Smith Kenneth S. Paris President Executive Vice President Executive Vice President Chief Executive Officer Chief Financial Officer Chief Credit Officer 2006 Annual Report
    • Cal Oaks SBA Loans “Though I’ve been in business for nearly 24 years, I never understood the financials because I am more of a creative person. When we needed a Cal Oaks SBA Loan to grow our business, Tim Weaver held my hand throughout the entire process, making it painless and understandable. I highly recommend Cal Oaks State Bank because I know they will ” take care of your business as they have with ours. eILeen GOuLD Lifestyles Interior Design & Construction “SBA loans offer business owners opportunities to compete in the marketplace by providing financing for expansion, growth and seasonal needs. Additionally, SBA loans provide longer financing terms than traditional loans, which will improve monthly cash flow.”TIM WeAVeR eILeen GOuLD TIM WeAVeRVice President & Lifestyles Interior Design & Vice President & SBA ManagerSBA Manager Construction
    • Cal Oaks Accounts Receivable Services “Our company has recently increased tenfold, and while our billing has increased, there is still a lag between production and collections. Barry Yablow and the Cal Oaks A/R financing team provide us with money immediately for our invoices so that we can take care of payroll and production-related costs, and keep business running smoothly. The staff is always available to answer questions about my accounts and offer assistance with my line of credit and other banking needs. Cal Oaks has become an extension of our A/R department—to them we aren’t just an account number, but a growing company with many possibilities. We could not have jumped ahead in the market were it not for the help and backing of California Oaks State Bank. ” GAIL SOLOMOn Solomon Foods “Sales can be easy for a company to make, but often difficult to collect on. Cal Oaks A/R financing improves a company’s cash flow as sales invoices are quickly turned into cashBARRY YABLOW GAIL SOLOMOnVice President & Solomon Foods to meet daily business needs and enable theA/R Finance Manager company to continue to grow. ” BARRY YABLOW Vice President & A/R Finance Manager
    • OuR GROWTh SuCCeSS Vavrinek, Trine, Day & Co., LLP net Income Certified Public Accountants & Consultants VALUE THE DIFFERENCE (in thousands) $2,000 $1,500 $1,000 INDEPENDENT AUDITORS’ REPORT Board of Directors and Shareholders of $500 California Oaks State Bank We have audited the accompanying balance sheets of California Oaks State Bank as of December 31, $0 2006 and 2005, and the related statements of income, changes in shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Bank’s management. $(250) 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 $(500) of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit $(750) also includes assessing the accounting principles used and significant estimates made by management, as 2002 2003 2004 2005 2006 well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. FInAnCIAL hIGhLIGhTS In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of California Oaks State Bank as of December 31, 2006 and 2005 and the results of its December 31, 2002, 2003, 2004, 2005, and 2006 operations and its cash flows for the years then ended, in conformity with accounting principles (in thousands) generally accepted in the United States of America. 2002 2003 2004 2005 2006Net Interest Income $ 4,049 $ 4,394 $ 4,637 $ 6,140 $ 7,274Provision for Loan Losses $ 129 $ 190 $ 43 $ 325 $ 170Net Income $( 589) $ (708) $ 554 $ 1,119 $ 1,619 Laguna Hills, CaliforniaNet Income per Share (not in thousands) $( 0.90) $ (0.92) $ 0.58 $ 0.78 $ 1.12 February 5, 2007At Year End: Assets $ 84,478 $ 80,223 $ 87,421 $ 96,583 $ 114,059 Investments $ 14,698 $ 12,435 $ 9,444 $ 7,137 $ 7,939 Loans, net $ 48,952 $ 52,208 $ 64,351 $ 75,379 $ 88,642 Deposits $ 79,710 $ 74,092 $ 76,342 $ 83,747 $ 91,248 Shareholders’ equity $ 4,657 $ 5,806 $ 10,515 $ 12,238 $ 14,172Book Value per Share (not in thousands) $ 6.25 $ 6.09 $ 7.67 $ 8.50 $ 9.80Selected Ratios: ROAA -0.84% -0.76% 0.66% 1.18% 1.51% ROAe -12.68% -15.07% 7.84% 9.75% 12.46% Tier 1 Leverage Ratio 5.83% 6.80% 12.30% 12.65% 12.32% Risk-Based Capital 8.90% 10.70% 15.30% 15.85% 15.53% 25231 Paseo De Alicia, Suite 100 Laguna Hills, CA 92653 Tel: 949.768.0833 Fax: 949.768.8408 www.vtdcpa.com FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA 1
    • Balance Sheets December 31, 2006 and 2005 Balance Sheets December 31, 2006 and 2005 2006 2005 2006 2005 ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY Cash and Due from Banks $ 8,319,131 $ 9,063,070 Deposits: Federal Funds Sold 6,420,000 2,540,000 noninterest-Bearing Demand $ 39,148,869 $ 34,791,088 TOTAL CASH AND CASH EQUIVALENTS 14,739,131 11,603,070 Money Market and nOW Accounts 26,297,187 29,173,824 Savings 4,662,485 5,976,867 Investment Securities Available for Sale 7,938,593 7,136,798 Time Deposits under $100,000 7,757,577 4,295,576 Time Deposits $100,000 and Over 13,382,249 9,509,070 Loans: TOTAL DEPOSITS 91,248,367 83,746,425 Construction 19,419,458 14,494,004 Commercial Real estate 30,426,091 26,207,211 Federal home Loan Bank Advances 8,002,900 – Residential Real estate 11,828,163 7,782,812 Accrued Interest and Other Liabilities 636,110 598,129 Commercial 21,625,373 21,392,819 TOTAL LIABILITIES 99,887,377 84,344,554 Accounts Receivable Financing 5,059,019 5,203,411 Consumer 1,447,436 1,359,876 Commitments and Contingencies - notes 4 and 10 – – TOTAL LOANS 89,805,540 76,440,133 Shareholders’ equity: net Deferred Loan Fees ( 121,214) ( 134,401) Serial Preferred Stock - 10,000,000 Shares Authorized, Allowance for Loan Losses ( 1,042,417) ( 926,075) no Par Value, no Shares Issued and Outstanding NET LOANS 88,641,909 75,379,657 Common Stock - 10,000,000 Shares Authorized; Shares Issued and Outstanding - 1,446,537 in 2006 and 1,438,943 in 2005 14,295,587 14,207,573 Accrued Interest Receivable 403,115 338,631 Additional Paid-in Capital 82,023 – Premises and equipment 346,036 459,826 Accumulated Deficit ( 105,763) ( 1,724,787) Federal home Loan Bank Stock - at Cost 381,300 365,000 Accumulated Other Comprehensive Loss - Deferred Tax Asset 765,000 500,000 Net Unrealized Loss on Investment Securities Classified as Other Assets 844,637 800,022 Available for Sale, net of Taxes of $69,146 in 2006 ( 99,503) ( 244,336) TOTAL SHAREHOLDERS’ EQUITY 14,172,344 12,238,450 $ 114,059,721 $ 96,583,004 $ 114,059,721 $ 96,583,00410 California Oaks State Bank The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. 2006 Annual Report 11
    • Statements of Income December 31, 2006 and 2005 Statement of Changes in Shareholders’ equity December 31, 2006 and 2005 2006 2005 INTEREST INCOME Interest and Fees on Loans $ 7,961,964 $ 6,063,285 Accumulated Common Stock Additional Retained Other Interest on Investment Securities 247,381 268,847 Comprehensive Number of Paid-in Earnings Comprehensive Interest on Federal Funds 355,484 152,688 Income Shares Amount Capital (Deficit) Income (Loss) Total Other Interest Income 16,194 – Balance at January 1, 2005 1,370,361 $ 13,473,484 $ – $( 2,843,784) $( 114,365) $10,515,335 TOTAL INTEREST INCOME 8,581,023 6,484,820 INTEREST EXPENSE Proceeds from exercise of Interest on Money Market, Savings and nOW Accounts 355,314 157,169 Stock Options 7,780 $ 95,668 95,668 Interest on Time Deposits 675,482 187,233 Proceeds from Sale of Stock, Other Borrowings 276,174 477 net of Costs of $13,363 60,802 638,421 638,421 TOTAL INTEREST EXPENSE 1,306,970 344,879 Comprehensive Income: NET INTEREST INCOME 7,274,053 6,139,941 net Income $ 1,118,997 1,118,997 1,118,997 Provision for Loan Losses 170,000 325,000 unrealized Losses on NET INTEREST INCOME AFTER Available-for-Sale Securities ( 129,971) ( 129,971) ( 129,971) PROVISION FOR LOAN LOSSES 7,104,053 5,814,941 Total Comprehensive Income $ 989,026 NONINTEREST INCOME Service Charges, Fees and Other Income 633,009 616,554 Gain on Sale of SBA Loans 78,755 129,417 Balance at December 31, 2005 1,438,943 14,207,573 – ( 1,724,787) ( 244,336) 12,238,450 Gain on Sale of Credit Card Loans – 20,238 Proceeds from exercise of 711,764 766,209 Stock Options 7,594 88,014 88,014 NONINTEREST EXPENSE Salaries and Employee Benefits 3,232,099 2,908,487 Stock-based Compensation 82,023 82,023 Occupancy expenses 742,376 697,756 Comprehensive Income: Furniture and equipment 206,648 245,167 net Income $ 1,619,024 1,619,024 1,619,024 Data Processing expense 538,558 533,493 Advertising and Marketing expense 219,649 155,854 unrealized Gains on Available-for-Sale Securities Professional Services 350,267 472,408 net of Taxes of $69,146 144,833 144,833 144,833 Messenger and Courier Services 115,242 102,719 Total Comprehensive Income $ 1,763,857 Insurance and Assessments 130,475 156,038 Other expenses 854,464 689,431 6,389,778 5,961,353 Balance at December 31, 2006 1,446,537 $ 14,295,587 $82,023 $( 105,763) $( 99,503) $ 14,172,344 INCOME BEFORE INCOME TAXES 1,426,039 619,797 Income Taxes (Benefit) ( 192,985) ( 499,200) NET INCOME $ 1,619,024 $ 1,118,997 NET INCOME PER SHARE - BASIC $ 1.12 $ 0.78 NET INCOME PER SHARE - DILUTED $ 1.08 $ 0.7512 California Oaks State Bank The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. 2006 Annual Report 13
    • Statement of Cash Flows December 31, 2006 and 2005 notes to Financial Statements December 31, 2006 and 2005 2006 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATING ACTIVITIES Nature of Operations net Income $ 1,619,024 $ 1,118,997 Adjustments to Reconcile net Income to net California Oaks State Bank (the “Bank”) generates commercial and consumer loans and receives deposits from customers located primarily in the Conejo Valley area of Ventura County, California. The Bank was formed in 1997 and commenced Cash Provided by Operating Activities: operations in 1998. The Bank has two branches, one in Thousand Oaks and one in Simi Valley. The financial information Depreciation and Amortization 261,706 283,883 for the branches has been aggregated into one reporting segment. The Bank operates under a state charter and provides full Provision for Loan Losses 170,000 325,000 banking services. As a state bank, the Bank is subject to regulation by the California Department of Financial Institutions Gain on Sale of SBA Loans ( 78,755) ( 129,417) (“DFI”) and the Federal Deposit Insurance Corporation (“FDIC”). The accounting and reporting policies of the Bank are in accordance with accounting principles generally accepted in the united States of America and conform to practices Gain on Sale of Credit Loans – ( 20,238) within the banking industry. The following are descriptions of the more significant of those polices. Stock-based Compensation 82,023 – Deferred Tax Benefit ( 193,785) ( 500,000) Use of Estimates in the Preparation of Financial Statements Other Items - net ( 73,187) 158,625 The preparation of financial statements in conformity with accounting principles generally accepted in the United States NET CASH PROVIDED BY OPERATING ACTIVITIES 1,787,026 1,236,850 of America requires management to make estimates and assumptions that affect the reported amounts of assets and INVESTING ACTIVITIES 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. Purchases of Available-for-Sale Securities ( 2,000,000) – Proceeds from Maturities of Available-for-Sale Securities 1,229,892 2,099,545 The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the net Increase in Loans ( 14,703,481) ( 13,369,500) estimated losses on loans, management obtains independent appraisals for significant collateral. The Bank’s loans are Proceeds from Sale of SBA Loans 1,349,984 2,021,840 generally secured by specific items of collateral including real property, consumer assets and business assets. Proceeds from Sale of Credit Card Loans – 144,424 While management uses available information to recognize losses on loans, further reductions in the carrying amounts of Change in Correspondent Bank Stock ( 16,300) ( 652,600) loans may be necessary based on changes in local economic conditions. Because of these factors, it is reasonably possible Purchases of Premises and equipment ( 103,916) ( 99,865) that the estimated losses on loans may change materially in the near term. however, the amount of the changes that is NET CASH USED BY INVESTING ACTIVITIES ( 14,243,821) ( 9,856,156) reasonably possible cannot be estimated. FINANCING ACTIVITIES Cash and Cash Equivalents net Change in Demand Deposits and Savings Accounts 166,762 ( 2,474,122) net Change in Time Deposits 7,335,180 9,878,824 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 one-day periods. net Increase in Federal home Loan Bank Advances 8,002,900 – Proceeds from exercise of Options and Sale of Common Stock, net 88,014 734,089 Cash and Due From Banks NET CASH PROVIDED BY FINANCING ACTIVITIES 15,592,856 8,138,791 Banking regulations require that banks maintain a percentage of their deposits as reserves in cash or on deposit with the INCREASE (DECREASE) Federal Reserve Bank. The Bank complied with the reserve requirements as of December 31, 2006. IN CASH AND CASH EQUIVALENTS 3,136,061 ( 480,516) The Bank maintains amounts due from banks, which exceed federally insured limits. The Bank has not experienced any Cash and Cash equivalents at Beginning of Period 11,603,070 12,083,586 losses in such accounts. CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,739,131 $ 11,603,070 Investment Securities Supplemental Disclosures of Cash Flow Information: Investments not classified as trading securities nor as held to maturity securities are classified as available-for-sale Interest Paid $ 1,251,729 $ 260,648 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 Taxes Paid $ 7,015 $ 800 shareholders’ equity. Premiums or discounts on held-to-maturity and available-for-sale securities are amortized or accreted into income using the interest method. Realized gains or losses on sales of held-to-maturity or available-for-sale securities are recorded using the specific identification method. Declines in the fair value of individual available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.14 California Oaks State Bank The accompanying notes are an integral part of these financial statements. 2006 Annual Report 15
    • notes to Financial Statements December 31, 2006 and 2005 notes to Financial Statements December 31, 2006 and 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Loans Income Taxes Loans are reported at the principal amount outstanding, net of any deferred loan origination fee income and deferred Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing direct loan origination costs, and net of any unearned interest on discounted loans. Deferred loan origination fee income the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been and direct loan origination costs are amortized to interest income over the life of the loan using the interest method. recognized in the financial statements. A valuation allowance is established to reduce the deferred tax asset to the level Interest on loans is accrued to income daily based upon the outstanding principal balances. 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 loss carryforwards depends on having sufficient taxable income of an appropriate Loans for which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on character within the carryforward periods. such loans is discontinued when there exists a reasonable doubt as to the full and timely collection of either principal or interest or when principal or interest is past due 90 days, based on the contractual terms of the loan. Income on such loans Comprehensive Income is then only recognized to the extent that cash is received and where the future collection of principal is probable. Accrual of interest is resumed only when principal and interest are brought fully current and when such loans are considered to The Bank adopted SFAS no. 130, “Reporting Comprehensive Income,” which requires the disclosure of comprehensive be collectible as to both principal and interest. income and its components. Changes in unrealized gain (loss) on available-for-sale securities net of income taxes is the only component of accumulated other comprehensive income for the Bank. For impairment recognized in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) no. 114, “Accounting by Creditors for Impairment of a Loan”, as amended by SFAS no. Earnings Per Share (EPS) 118, the entire change in the present value of expected cash flows is reported as either provision for loan losses in the same manner in which impairment initially was recognized, or as a reduction in the amount of provision for loan losses Basic ePS excludes dilution and is computed by dividing income available to common stockholders by the weighted- that otherwise would be reported. average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock or resulted in The Bank has adopted SFAS no. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments the issuance of common stock that then shared in the earnings of the entity. of Liabilities.” The Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Under this Statement, after a transfer of financial assets, an entity recognizes the Disclosure About Fair Value of Financial Instruments financial and servicing assets it controls and liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS No. 107 specifies the disclosure of the estimated fair value of financial instruments. The Bank’s estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. To calculate the gain (loss) on sale of loans, the Bank’s investment in the loan is allocated among the retained portion of the loan, the servicing retained, the interest-only strip and the sold portion of the loan, based on the relative fair market however, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates are not value of each portion. The gain (loss) on the sold portion of the loan is recognized at the time of sale based on the difference necessarily indicative of the amounts the Bank could have realized in a current market exchange. The use of different between the sale proceeds and the allocated investment. As a result of the relative fair value allocation, the carrying value market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. of the retained portion is discounted, with the discount accreted to interest income over the life of the loan. That portion of the excess servicing fees that represent contractually specified servicing fees (contractual servicing) are reflected as Financial Instruments a servicing asset which is amortized over an estimated life using a method approximating the level yield method; in the In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of event future prepayments exceed Management’s estimates and future expected cash flows are inadequate to cover the commitments to extend credit, commercial letters of credit, and standby letters of credit as described in note 10. unamortized servicing asset, additional amortization would be recognized. The portion of excess servicing fees in excess Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred of the contractual servicing fees is reflected as interest-only (I/O) strips receivable, which are classified as interest-only or received. strips receivable available for sale and are carried at fair value. Stock-Based Compensation Allowance for Loan Losses The Bank has adopted SFAS no. 123 (R) “Shared-Based Payment.” This Statement generally requires entities to The allowance for loan losses is adjusted by charges to income and decreased by charge-offs (net of recoveries). recognize the cost of employee services received in exchange for awards of stock options, or other equity instruments, Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, based on the grant-date fair value of those awards. This cost is recognized over the period which an employee is required known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated to provide services in exchange for the award, generally the vesting period. value of any underlying collateral, and current economic conditions. Change in Accounting Principle Premises and Equipment The Bank adopted SFAS No. 123 (R) on January 1, 2006 using the “modified prospective method.” Under this method Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed compensation expense is recognized using the fair-value method for all new stock option awards as well as any existing using the straight-line method over the estimated useful lives, which ranges from three to ten years for furniture, fixtures awards that are modified, repurchased or cancelled after January 1, 2006 and prior periods not restated. In addition, the and equipment. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of unvested portion of previously awarded options outstanding as of January 1, 2006 will also be recognized as expense over the improvements or the remaining lease term, whichever is shorter. expenditures for betterments or major repairs are the requisite service period based on the fair value of those options as previously calculated at the grant date under the capitalized and those for ordinary repairs and maintenance are charged to operations as incurred. pro-forma disclosures of SFAS no. 123. The fair value of each grant is estimated using the Black-Scholes option pricing model. During 2006 the Bank recognized pre-tax stock-based compensation expense of $82,023, as a result of adopting Advertising Costs SFAS no. 123 (R). The Bank expenses the costs of advertising in the period incurred.16 California Oaks State Bank 2006 Annual Report 17
    • notes to Financial Statements December 31, 2006 and 2005 notes to Financial Statements December 31, 2006 and 2005 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) NOTE 2. INVESTMENT SECURITIES (continued) Prior to the adoption of SFAS no. 123 (R), the Bank accounted for stock-based awards using the intrinsic value method The scheduled maturities of investment securities at December 31, 2006 were as follows: prescribed in Accounting Principles Board (“APB”) Opinion no. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options was measured as the excess, if any, of the Available-for-Sale quoted market price of the Bank’s stock at the date of the grant over the amount an employee must pay to acquire the Amortized stock. All of the Bank’s stock option grants included exercise prices equal to the Bank’s current market price per share; Cost Fair Value accordingly, no compensation expense was reported using the intrinsic value method of APB Opinion no. 25. Due After One Year through Five Years $ 2,997,163 $ 2,969,474 had compensation cost for the Bank’s stock option plans been determined based on the fair value at the grant dates for After Five Years through Ten Years 1,000,000 985,312 awards under those plans consistent with the method of SFAS no. 123, the Bank’s net income and income per share for Mortgaged-Backed Securities 4,110,079 3,983,807 2005 would have changed to the pro forma amounts indicated below: $ 8,107,242 $ 7,938,593 2005 net Income As Reported $ 1,118,997 The Bank did not sell any of its available-for-sale securities in 2006 and 2005. Stock-Based Compensation using the Intrinsic Value Method – The unrealized losses in available-for-sale securities as of December 31, 2006 and 2005 with continuous losses present Stock-Based Compensation that would have been reported using the Fair Value Method of SFAS 123 ( 278,050) for less than twelve months and twelve months or more and their fair value is summarized below: Pro Forma $ 840,947 Less than Twelve Months Twelve Months or More Total Per Share Data: Losses Fair Value Losses Fair Value Losses Fair Value net Income - Basic December 31, 2006 As Reported $0.78 u.S. Agency Pro Forma $0.59 Securities $( 1,475) $ 998,525 $( 42,008) $ 1,955,155 $( 43,483) $ 2,953,680 Mortgaged-Backed Per Share Data: Securities – – ( 126,272) 3,983,807 ( 126,272) 3,983,807 net Income - Diluted As Reported $0.75 $( 1,475) $ 998,525 $( 168,280) $ 5,938,962 $( 169,755) $ 6,937,487 Pro Forma $0.57 December 31, 2005 u.S. Agency Securities $ – $ – $( 56,088) $ 1,939,003 $( 56,088) $ 1,939,003 Mortgaged-Backed NOTE 2. INVESTMENT SECURITIES Securities ( 16,911) 539,734 ( 171,337) 4,658,061 ( 188,248) 5,197,795 Debt and equity securities have been classified in the statements of condition according to management’s intent. $( 16,911) $ 539,734 $( 227,425) $ 6,597,064 $( 244,336) $ 7,136,798 The carrying amount of available-for-sale securities and their approximate fair values at December 31 were as follows: Gross Gross As of December 31, 2006, the Bank had twenty investment securities whose estimated fair value had declined 2.4% Amortized unrealized unrealized from the Bank’s amortized cost. Management evaluates investment securities for other-than-temporary impairment Cost Gains Losses Fair Value taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether the Bank has the intent and ability to retain the investment for a period of time sufficient to December 31, 2006 allow for any anticipated recovery in fair value. As of December 31, 2006, no declines in value are deemed to be other- u.S. Agency Securities $ 3,997,163 $ 1,106 $( 43,483) $ 3,954,786 than-temporary. Mortgaged-Backed Securities 4,110,079 – ( 126,272) 3,983,807 $ 8,107,242 $ 1,106 $( 169,755) $ 7,938,593 NOTE 3. LOANS December 31, 2005 Although the Bank seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, u.S. Agency Securities $ 1,995,091 $ – $( 56,088) $ 1,939,003 real estate and real estate associated businesses are among the principal industries in the Bank’s market area and, as a Mortgaged-Backed Securities 5,386,043 – ( 188,248) 5,197,795 result, the Bank’s loan and collateral portfolios are, to some degree, concentrated in those industries. $ 7,381,134 $ – $( 244,336) $ 7,136,798 Securities carried at approximately $3,280,412 and $3,500,880 at December 31, 2006 and 2005, respectively, were pledged to secure deposits of public funds and borrowing arrangements.18 California Oaks State Bank 2006 Annual Report 19
    • notes to Financial Statements December 31, 2006 and 2005 notes to Financial Statements December 31, 2006 and 2005 NOTE 3. LOANS (continued) NOTE 5. DEPOSITS A summary of the changes in the allowance for loan losses as of December 31 follows: At December 31, 2006, the scheduled maturities of time deposits are as follows: 2006 2005 Due in One Year or Less $ 21,023,627 Due from One to Five Years 116,199 Balance at Beginning of Year $ 926,075 $ 594,704 Additions to the Allowance Charged to expense 170,000 325,000 $ 21,139,826 Recoveries on Loans Charged Off 40,742 8,455 1,136,817 928,159 NOTE 6. EMPLOYEE BENEFIT PLAN Less Loans Charged Off ( 94,400) ( 2,084) The Bank adopted a 401(k) for its employees in 1999. under the plan, eligible employees may defer a portion of their $ 1,042,417 $ 926,075 salaries. The plan also provides for discretionary Bank profit sharing contributions. The Bank made a contribution of $70,991 and $8,803 for 2006 and 2005, respectively. The Bank had no significant impaired loans outstanding for the years ended December 31, 2006 and 2005. The Bank also originates loans for sale to governmental agencies and institutional investors. At December 31, 2006 and NOTE 7. INCOME TAXES 2005, the Bank was servicing approximately $2,567,099 and $2,675,833, respectively, in SBA loans previously sold. The provision for income taxes included in the statements of income as of December 31 consists of the following: NOTE 4. PREMISES AND EQUIPMENT 2006 2005 A summary of premises and equipment as of December 31 follows: Current: Federal $ – $ – 2006 2005 State 800 800 800 800 Leasehold Improvements $ 567,405 $ 496,950 Deferred ( 193,785) ( 500,000) Furniture, Fixtures, and equipment 947,807 1,068,531 1,515,212 1,565,481 $( 192,985) $( 499,200) Less Accumulated Depreciation and Amortization (1,169,176) (1,105,655) $ 346,036 $ 459,826 A comparison of the federal statutory rate to the Bank’s effective income tax rate follows: 2006 2005 The Bank has entered into leases for its bank premises, which expire at various dates through 2014. These leases include provisions for periodic rent increases as well as payment by the lessee of certain operating expenses. Rental expense Amount Rate Amount Rate relating to these leases was $523,893 (prior to $88,068 of sublease income) and $498,520 (prior to $95,758 of sublease Federal Tax Rate $ 485,000 34.0% $ 211,000 34.0% income) for the periods ended December 31, 2006 and 2005, respectively. California Franchise Taxes, net of Federal Benefit 107,000 7.5% 46,000 7.4% The approximate future minimum annual payments for these leases by year are as follows: Change in Valuation Allowance ( 793,000) ( 55.6)% ( 770,000) ( 124.2)% Other Items - net 8,015 0.6% 13,800 2.3% 2007 $ 530,119 2008 496,178 Bank’s effective Rate $( 192,985) ( 13.5)% $( 499,200) ( 80.5)% 2009 499,379 2010 499,379 2011 499,379 Deferred taxes are a result of differences between income tax accounting and generally accepted accounting principles Thereafter 1,081,987 with respect to income and expense recognition. $ 3,606,421 The Bank’s subleases are on a month-to-month basis. The minimum rental payments shown above are given for the existing lease obligations and are not a forecast of future rental expense.20 California Oaks State Bank 2006 Annual Report 21
    • notes to Financial Statements December 31, 2006 and 2005 notes to Financial Statements December 31, 2006 and 2005 NOTE 7. INCOME TAXES (continued) NOTE 9. STOCK OPTION PLAN (continued) The following is a summary of the components of the net deferred tax asset accounts recognized in the accompanying The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model statements of balance sheet: with the following assumptions presented below: 2006 2005 2006 2005 Deferred Tax Assets: expected Volatility 21% 21% net Operating Loss Carryforward $ 185,000 $ 875,000 expected Term 6.25 Years 6.25 Years Depreciation Differences 69,000 99,000 expected Dividends none none Allowance for Loan Loss 426,000 352,000 Risk Free Rate 4.61% 3.75% Available-for-Sale Securities 69,000 – Weighted-Average Grant Date Fair Value $ 4.85 $ 3.88 Other 38,000 10,000 787,000 1,336,000 The expected volatility is based on the historical volatility of the Bank during the year. The expected term represents the estimated average period of time that the options remain outstanding. Since the Bank does not have sufficient historical Valuation Allowance – (793,000) data on the exercise of stock options, the expected term 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 Deferred Tax Liabilities: interest rate offered for zero coupon u.S. Treasury bonds over the expected term of the options. Other ( 22,000) ( 43,000) ( 22,000) ( 43,000) A summary of the status of the Bank’s stock option plan as of December 31, 2006 and changes during the year ending thereon is presented below: net Deferred Tax Assets $ 765,000 $ 500,000 Weighted- Weighted- Average The Bank has net operating loss carryforwards of approximately 544,000 for federal income tax purposes. net operating Average Remaining Aggregate loss carryforwards will expire in 2024 for federal income tax purposes if not previously utilized. exercise Contractual Intrinsic Shares Price Term Value NOTE 8. BORROWING ARRANGEMENTS Outstanding at Beginning of Year 278,195 $ 10.63 Granted 5,650 $ 14.80 The Bank may borrow up to $6,000,000 overnight on an unsecured basis from two correspondent banks. The Bank also exercised ( 7,594) $ 11.59 has a line of credit with the Federal home Loan Bank (FhLB) secured by certain of its loans and assets of the Bank. As Forfeited or expired ( 4,576) $ 11.62 of December 31, 2006, this line had total financing availability of approximately $28.2 million and was collateralized by loans and other assets of approximately $113.1 million. As of December 31, 2006, the Bank had advances from Outstanding at end of Year 271,675 $ 10.68 6.7 Years $ 1,717,000 FhLB totaling $8,002,900 of which $5,000,000 was advanced at 5.57%, due on January 16, 2007, and $3,002,900 was advanced at 5.42%, due on March 19, 2007. Options exercisable 240,352 $ 10.67 6.6 Years $ 1,521,000 The total intrinsic value of the options exercised during the years ended December 31, 2006 and 2005 were approximately NOTE 9. STOCK OPTION PLAN $23,000 and $13,000, respectively. As of December 31, 2006, there was $91,000 of total unrecognized compensation cost related to the outstanding stock options that will be recognized over a weighted average period of 1.3 years. The Bank’s 2006 Omnibus Stock Incentive Plan (“2006 Plan”) was approved by its shareholders on May 25, 2006. The 2006 Plan replaces the Bank’s 1998 Stock Option Plan and all existing options under the 1998 Plan became subject to the 2006 Plan. Under the 2006 Plan, directors, officers, employees and consultants may be granted options, stock appreciation NOTE 10. COMMITMENTS rights, restricted stock awards, deferred stock awards and performance units and also allows for performance objectives upon which awards may be conditioned. The maximum number of shares as to which stock awards may be granted under In the ordinary course of business, the Bank enters into financial commitments to meet the financing needs of its customers. the 2006 Plan is 429,358 shares. This reserved share amount is subject to adjustments for stock splits, stock dividends, These financial commitments include commitments to extend credit and standby letters of credit. Those instruments recapitalization or similar transactions. The 2006 Plan also provides for accelerated vesting if there is a change in control, involve to varying degrees, elements of credit and interest rate risk not recognized in the Bank’s financial statements. as defined in the Plan. The Bank recognized stock-based compensation cost of $82,023 in 2006. 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.22 California Oaks State Bank 2006 Annual Report 23
    • notes to Financial Statements December 31, 2006 and 2005 notes to Financial Statements December 31, 2006 and 2005 NOTE 10. COMMITMENTS (continued) NOTE 12. EARNINGS PER SHARE As of December 31, the Bank had the following outstanding financial commitments whose contractual amount The following is a reconciliation of net income and shares outstanding to the income and number of shares used to represents credit risk: compute ePS: 2006 2005 2006 2005 Income Shares Income Shares undisbursed loan commitments $ 27,149,000 $ 22,736,000 Standby letters of credit 285,000 528,000 net Income as Reported $ 1,619,024 $ 1,118,997 Shares Outstanding at Year end 1,446,537 1,438,943 $ 27,434,000 $ 23,264,000 Impact of Weighting Shares Purchased During the Year ( 1,485) ( 7,011) Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition Used in Basic EPS 1,619,024 1,445,052 1,118,997 1,431,932 established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total Dilutive effect of Outstanding amounts do not necessarily represent future cash requirements. The Bank evaluates each client’s credit worthiness on a Stock Options 55,651 50,774 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 Used in Dilutive EPS $ 1,619,024 1,500,703 $ 1,118,997 1,482,706 secured by real estate. NOTE 11. RELATED PARTY TRANSACTIONS NOTE 13. REGULATORY CAPITAL REQUIREMENTS In the ordinary course of business, the Bank has granted loans to certain officers and directors and the companies with The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure which they are associated. In the Bank’s opinion, all loans and loan commitments to such parties are made on substantially to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions the same terms including interest rates and collateral, as those prevailing at the time of comparable transactions with by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital other persons. The activity in these loans is as follows: adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as 2006 2005 calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Balance at the beginning of the year $ 712,000 $ 1,158,000 Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum new loans and renewals – 700,000 Repayments and renewals ( 17,000) ( 1,146,000) amounts and ratios (set forth in the table below) of total and Tier 1 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 Balance at the end of the year $ 695,000 $ 712,000 31, 2006, that the Bank meets all capital adequacy requirements to which it is subject. The FDIC most recently categorized the Bank as well capitalized under the regulatory framework for capital adequacy Deposits from related parties held by the Bank at December 31, 2006 and 2005 amounted to approximately $1,919,000 purposes and there are no conditions or events since the last notification that Management believes have changed the and $1,812,000, respectively. 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): The Bank subleases certain office facilities to a director under a lease agreement expiring in April 2007. Rental income received on this lease during 2006 and 2005 was $10,800 and $10,800, respectively. Amount of Capital Required The Bank expensed $54,577 and $91,471 during 2006 and 2005, respectively, for legal fees to a firm having a member To Be Well- who is also a director of the Bank. Capitalized For Capital under Prompt Adequacy Corrective Actual Purposes Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2006: Total Capital (to Risk-Weighted Assets) $ 15,382 15.53% $ 7,924 8.0% $ 9,904 10.0% Tier 1 Capital (to Risk-Weighted Assets) $ 14,272 14.41% $ 3,962 4.0% $ 5,943 6.0% Tier 1 Capital (to Average Assets) $ 14,272 12.32% $ 4,633 4.0% $ 5,791 5.0% As of December 31, 2005: Total Capital (to Risk-Weighted Assets) $ 13,466 15.85% $ 6,795 8.0% $ 8,494 10.0% Tier 1 Capital (to Risk-Weighted Assets) $ 12,483 14.70% $ 3,398 4.0% $ 5,097 6.0% Tier 1 Capital (to Average Assets) $ 12,483 12.65% $ 3,948 4.0% $ 4,935 5.0%24 California Oaks State Bank 2006 Annual Report 25
    • notes to Financial Statements December 31, 2006 and 2005 notes to Financial Statements December 31, 2006 and 2005 NOTE 13. REGULATORY CAPITAL REQUIREMENTS (continued) NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of The estimated fair value of financial instruments at December 31 is summarized as follows (amounts in thousands): 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 by the Bank to shareholders during the same period. 2006 2005 Carrying Fair Carrying Fair NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS Value Value Value Value Financial Assets: The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current Cash and Due From Banks $ 8,319 $ 8,319 $ 9,063 $ 9,063 transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific Federal Funds Sold 6,420 6,420 2,540 2,540 point in time based on relevant market information and information about the financial instrument. These estimates Investment Securities 7,939 7,939 7,137 7,137 do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a Loans 88,642 88,063 75,380 75,805 particular financial instrument. Because no market value exists for a significant portion of the financial instruments, Accrued Interest Receivable 403 403 339 339 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 Financial Liabilities: uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions Deposits 91,248 91,202 83,746 83,696 could significantly affect the estimates. Accrued Interest and Other Liabilities 636 636 598 598 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: Financial Assets The carrying amounts of cash, short-term investments, due from customers on acceptances and Bank acceptances outstanding are considered to approximate fair value. Short-term investments include federal funds sold, securities purchased under agreements to resell, and interest bearing deposits with Banks. The fair values of investment securities, including available for sale, are generally based on quoted market prices. The fair value of loans are estimated using a combination of techniques, including discounting estimated future cash flows and quoted market prices of similar instruments where available. Financial Liabilities The carrying amounts of deposit liabilities payable on demand, commercial paper, and other borrowed funds are considered to approximate fair value. For fixed maturity deposits, fair value is estimated by discounting estimated future cash flows using currently offered rates for deposits of similar remaining maturities. The fair value of long term debt is based on rates currently available to the Bank for debt with similar terms and 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.26 California Oaks State Bank 2006 Annual Report 27
    • Our vision is clear: DIReCTORSto become Ventura County’s Robert e. Lewis Chairman of the Boardundisputed leader in community Managing Partner Ablon, Lewis, Bass & Galebanking for businesses and Robert J. Brownprofessional practices. President The Comdyn Group Michael L. Iverson Owner Iverson Construction, Inc. Lawrence C. Janss President Lawrence Janss Company Robert P. keller Managing Director Triumph Investment Fund, LP Leonard M. Linton Chief Executive Officer 1st Nationwide Resources Group L. karsten Lundring Managing Partner Thrivent Financial for Lutherans Cole W. Minnick President & Chief Executive Officer California Oaks State Bank norman J. nagel, D.D.S Orthodontist
    • Thousand oaks office 50 West hillcrest drive Thousand oaks, ca 91360 Phone: (805) 496-6774 Fax: (805) 496-0014 simi Valley office1397 east los angeles avenue, unit c simi Valley, ca 93065 Phone: (805) 581-4450 Fax: (805) 581-4460 www.caloaks.com