Community Valley Bancorp Annual Report 2002

Page 1


TABLE OF CONTENTS Letter to Shareholders 2

Profile 3

Why buy CVLL? 4

Financial Growth 5

Honors 6

Discussion & Analysis 7-9

Condensed Statements 10 - 11

Leadership 12

Management 13

Corporate History 14 - 15

Commitment 16 - 17

Bank Locations 18 - 19

Corporate Information 20

COMMUNITY VALLEY BANCORP

1

2002 ANNUAL REVIEW


TO OUR SHAREHOLDERS Dear Shareholder: Again in 2002 our Bank recorded a year of

Our Bank has also acquired property in

outstanding performance and growth. Faced

Rocklin, right in the center of the Stanford

with a continuing slow economy, we

Ranch and Galleria business area. We

maximized our efforts in products and

expect to have construction completed and

services that have opportunity in these

be open in the spring of next year.

economic times. This all resulted in the Bank realizing growth of almost twenty seven

At the start of 2002 we faced the loss of our

percent in assets and in net income!

Chief Operating Officer John Stanton and a worsening economy. To record such

For the eleventh year in a row, we have been

outstanding results in light of these

named a Super Premier Performing Bank

circumstances is a real testament to the

by the bank consulting firm The Findley

quality and resourcefulness of the staff and

Reports. We are the only bank ever

management that continue to deliver

to receive this honor from its first year

outstanding performance year after year.

of operation. During the year we opened a new branch in Chico and relocated to a new facility in

Keith Robbins

Yuba City. Following the tremendous

President

acceptance of these new locations, we have

Chief Executive Officer

started construction of a new facility for our North Chico branch and are opening a new branch in Paradise and relocating the

Donald W. Leforce

Magalia office.

COMMUNITY VALLEY BANCORP

Chairman of the Board

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2002 ANNUAL REVIEW


PROFILE Community Valley Bancorp

Reorganization

Community Valley Bancorp (CVLL) is the

At the May 2002 Annual Meeting,

parent company of Butte Community Bank,

shareholders of Butte Community Bank

a progressive Northern California bank that

approved the reorganization of the Bank

combines traditional deposit and lending

into Community Valley Bancorp, with the

services with innovative banking solutions.

Bank being its principal asset.

Founded in 1990, Butte Community Bank

This reorganization became effective

is state-chartered with seven branches in

June 17, 2002. Shareholders of Butte

five cities including Chico, Magalia, Oroville,

Community Bank automatically became

Paradise and Yuba City.

shareholders of Community Valley Bancorp. The stock symbol for Community Valley

The Bank has a superb construction loan

Bancorp is CVLL.

program and, in addition to being a topranked USDA Business and Industry Lender,

In August 2002, Butte Community Bank

is certified by the Small Business

shareholders received instructions on how

Administration as a Preferred Lender. This

to exchange their Butte Community Bank

privilege grants authority to underwrite and

shares one-for-one for Community Valley

approve SBA loans locally.

Bancorp shares. The exchange of shares was not mandatory.

Butte Community Bank also operates a progressive merchant services department, a real estate loan center, and a highly successful loan production office in Roseville.

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


WHY BUY CVLL? top-ranked USDA Business & Industry Lender makes us the #1 choice for business and commercial financing.

Proven performance. From a single branch in Paradise, California in 1990, to reaching the $300 million asset benchmark in October 2002, the growth of Butte Community Bank has been nothing short of phenomenal. A quick glance at our 2002 financial report reveals that our deposits, loans and net income have also charted record growth.

Committed to technology. Community Valley Bancorp prides itself on its use of innovative technology. We incorporate new systems not only to improve efficiency and cash flow, but to heighten the customer experience as well.

Strong company, intense focus. While incredibly low interest rates affect all financial institutions, the stocks of smaller community banks are often less affected than the big-money national institutions.

At a time when many small community banks were discounting the impact of the Internet as a viable transaction channel, Butte Community Bank was already offering online banking and electronic funds transfer capabilities.

The reason is that community banks tend to make loans to small businesses and focus on traditional banking services rather than get involved with large companies. They're often immune to high-profile accounting scandals and rarely get rocked by risky

In the spring of 2003, we began offering check imaging and also installed sophisticated data storage and retrieval systems.

Industry recognition and praise.

foreign loans that go into default. The 12-year growth of Butte Community Bank speaks for itself.

Butte Community Bank has been awarded the highest honor of Super Premier Performing Bank for 11 consecutive years by The Findley Reports, a distinguished independent bank evaluation company that examines western banks on four standards of objective criteria: growth in assets, return on equity, return on assets and loan losses. That's every year since the Bank's ratings began in 1992.

Exceptional management team. With over 100 years combined experience, all six members of our Executive Group have been with Butte Community Bank since the beginning. Remarkably, not one member of our executive or administrative teams has left for a competitor. This is a strong testament in an era of high employee turnover and diminished loyalty.

Each year Independent Banker Magazine, a publication of the Independent Community Bankers of America, identifies the top 20 best performing community banks as reported by the FDIC. In the June 2002 issue, Butte Community Bank was named a Top ROE (Return on Equity) Subchapter C corporation. It was the only California community bank identified in the category of banks worldwide with assets between $150 - $300 million in 2001.

Innovative products and services. From Business Workshops to complex construction loans, Butte Community Bank's mix of traditional and progressive financial services is second to none in the markets we serve. Our status as a Small Business Association (SBA) Preferred Lender coupled with our position as a

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


FINANCIAL GROWTH

Net Income ($ millions)

Total Assets ($ millions)

5

350

4.5

300

4 3.5

250

3

200

2.5 2

150

1.5

100

1 50

.5 0

1998

1999

2000

2001

0

2002

1998

1999

Total Deposits ($ millions)

Total Loans ($ millions)

300

250

250

2000

2001

2002

2000

2001

2002

200

200 150 150 100 100 50

50 0

1998

1999

2000

2001

0

2002

COMMUNITY VALLEY BANCORP

5

1998

1999

2002 ANNUAL REVIEW


HONORS The Findley Reports on Financial Institutions Butte Community Bank has received the highest honor of Super Premier Performing bank for 11 years in a row. That's every year since our ratings began in 1992. We are the only bank to ever achieve this distinction in the 30-year history of The Findley Reports. Since 1967, The Findley Reports has been the foundation of the Findley Companies, providing comprehensive financial information to help management meet the challenges and complexities of bank operations. These reports provide the banking industry with performance ratings through the following annual designations: Super Premier Performing (S) Premier Performing (P) Commendable (C) Not Rated These ratings have become highly regarded and recipients are recognized throughout the California banking industry as institutions achieving exceptional financial performance.

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


MANAGEMENT’S DISCUSSION & ANALYSIS Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2002 and 2001.

interest margin for 2002 was 5.36%, down from 5.49% in the year 2001. As is typical in many other community banks, the net interest margin was negatively impacted as market rates fell. The raterelated decline in net interest income, however, was more than offset by the increased income generated by a higher level of average earning assets and favorable changes in the Bank’s deposit mix.

This condensed discussion and analysis of the Company's financial position and results of operations should be read in connection with the Company's Annual Report on Form 10K for the year ended December 31, 2002.

Interest Income Overview

As previously stated, interest income decreased by $817,000, or 4%, from the amount realized in 2001. This decrease in income occurred even though the Bank experienced a 17% gain in average earning assets to $257 million, partially overcoming the 0.13% decline in net interest margin.

Net income was $4,849,000 ($1.87 basic earnings per share) for 2002 compared to 2001 earnings of $3,811,000 ($1.53 basic earnings per share). Return on beginning shareholders’ equity increased to 23.29% in 2002 from 22.81% in 2001. Return on average assets in 2002 and 2001 was 1.69% and 1.54%, respectively.

Interest Expense Total interest expense decreased by $2.57 million to $4.78 million, reflecting a 35% decrease from the $7.34 million expense in 2001. The average rate paid on all interest-bearing liabilities was 2.24% in 2002 compared to 3.82% in 2001. The average balance of interest-bearing deposits increased $20 million, for a 10% gain.

As of December 31, 2002, total assets were $ 337 million, or a 24% increase over the $272.5 million at year-end 2001. The Bank had portfolio loans totaling $233.5 million at December 31, 2002, for an increase of $32.6 million, or a 16% increase over the $200.9 million at December 31, 2001. Deposits also increased 21% to $298 million from the previous year-end total of $246 million. These totals reflect strong growth in profits, loans and deposits.

This lower interest expense (the1.58% lower rate coupled with the 10% growth in interest-bearing deposits) in a declining interest rate environment reflects the downward deposit re-pricing, catching up with the lower loan rates experienced in 2001.

Net Interest Income Net interest income is the difference between total interest income and total interest expense. Net interest income increased $1.8 million to $13.8 million, up 15% from the previous year. The increase in net interest income was the net effect of an $817,000 decrease in interest income and a $2.57 million decrease in interest expense driven by the 16% increase in loans and 21% increase in deposits discussed above.

Provision for Loan Losses The provision for loan losses charged to operations is based on the Bank’s monthly evaluation of the loan portfolio and the adequacy of the allowance in relation to total loans outstanding. The provision for loan losses amounted to $603,000 in 2002 and $500,000 in 2001. This change in the provision is a reflection of the growth in total loans and management’s evaluation and assessment of the loan portfolio.

Net interest income expressed as a percentage of average earning assets is referred to as net interest margin. It is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid on liabilities used to fund those assets. The Bank’s net

COMMUNITY VALLEY BANCORP

Net of recoveries, there were no loan losses in 2002. The 2001 net losses were $100,000, or 0.06% of loans, well below the industry target of 0.80%.

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2002 ANNUAL REVIEW


MANAGEMENT’S DISCUSSION & ANALYSIS Non-Interest Income

Provision for Taxes

Non-interest income of $6.6 million increased $2.6 million or 65% from the 2001 figure of $4 million. This increase was attributed to the Bank’s emphasis on fee based income products during the declining interest rate environment of 2002. We continued to increase the income generated from the origination and sale of mortgage and government-guaranteed loans as we had in 2001.

The effective tax rate for 2002 was 32.9% compared to 38.9% for 2001.

Balance Sheet Analysis Securities classified as held to maturity are the securities that the Bank has the intent and ability to hold to maturity. As of December 31, 2002, the Bank had held to maturity securities totaling $2.9 million as compared to held to maturity securities totaling $2.5 million as of December 31, 2001. Decisions to acquire municipal securities, which are generally placed in this category, are based on tax planning and pledging requirements.

Non-Interest Expense Total non-interest expense increased $3.2 million, or 34%, to $12.5 million. Non-interest expense represented 3.71% of total assets in 2002 and 3.42% in 2001. Increased non-interest expense by only .08% is attributed to the Bank’s control of its overhead and other non-interest costs while growing the overall assets. Refer to Note 12 in the accompanying Consolidated Financial Statements for a detailed description of non-interest income and expense.

Securities classified as available for sale are securities the Bank intends to hold for an indefinite period of time, but not necessarily to maturity. The Bank’s securities classified as held to maturity and available for sale in 2002 and 2001 are shown in Note 2, Investment Securities, in the Notes to the Consolidated Financial Statements.

Salaries and Benefits Salaries and benefits increased 23.80 % to $6.559 million from $5.298 million in 2001. The 2002 increase reflects normal merit increases, employee incentives paid as a result of the Bank’s strong earnings and the increase in personnel due to the Bank’s expansion.

Loans A comparative schedule of outstanding loan balances is presented in Note 3 to the Consolidated Financial Statements. Loan balances net of loss provision at December 31, 2002 were $229.7 million, an increase of 16% from the $197.9 million at yearend 2001. This increase, primarily in the real estate lending area, is due to the Bank’s decision to continue to concentrate on short-term secured loans during a period of change in the interest rate environment.

At December 31, 2002, the Bank had 154 full time equivalent employees compared to 132 at December 31, 2001. Total payroll costs as a percentage of total operating income was 26% in 2002 and 21.25% in 2001. These numbers compare favorably to industry targets of 27% or less.

Risk Elements The majority of the Bank’s loan activity is with customers located within the service area of its branches or lending offices. Approximately 91% of the total loan portfolio is located within the Bank’s service area.

Other Expenses Occupancy and other expenses increased $1.9 million, or 4.8%, to $5.97 million in 2002 from $4.03 million in 2001. The percentage of other expenses to total assets of 1.8% in 2002 remained the same as in 2001. This is attributed to the overall growth of the Bank and a one time insurance related charge to operational expenses, with no other material changes in the areas of data processing, item processing, accounting, and legal or other professional services that make up the majority of this category.

COMMUNITY VALLEY BANCORP

Significant concentrations of credit risk may exist if a number of loan customers are engaged in similar activities and have similar economic characteristics. The Bank believes that it has policies and procedures in place to monitor, mitigate and identify any concentration of credit risk in the portfolio.

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2002 ANNUAL REVIEW


MANAGEMENT’S DISCUSSION & ANALYSIS Non-Performing Assets

Capital

Management classifies all loans as non-accrual when they become more then 90 days past due, or earlier when the timely collection of interest or principal becomes questionable. A loan remains in non-accrual status until principal and interest are current for a sufficient period of time and also meets the Bank’s cash flow and collateral requirements. When this criterion is not met, the loan is chargedoff against the allowance for loan losses or, in the case of real estate loans, is transferred to other real estate. The Bank’s non-performing assets as a percent of net loans totaled 0.3% in 2002 and 0.9% in 2001.

The Bank is subject to certain regulatory capital requirements administered by the FDIC. The FDIC has adopted risk-based capital guidelines which establish a risk-adjusted ratio relating capital to different categories of assets and off balance sheet exposures. The table showing the FDIC required ratios and the Bank’s actual ratios is shown in the Consolidated Financial Statements as Note 11. At December 31, 2002, the Bank’s total risk-based capital ratio was 10.9%, Tier 1 risk-based capital ratio was 9.70% and leverage capital ratio was 7.9%. All ratios exceed the minimum guidelines of 8%, 4% and 4%, respectively. The ratios at December 31, 2001 were 11.6%, 10.4% and 7.7%, respectively.

Allowances for Loan Losses The allowance for loan losses is maintained at a level considered adequate to provide for losses that can reasonably be anticipated. The allowance and relevant changes are shown in Note 3 to the Consolidated Financial Statements. The allowance and its adequacy are reviewed monthly and adjusted as necessary with entries made to earnings in the period that the adjustments are made. At December 31, 2002 the allowance for loan losses was $3 million, or 1.29% of total loans, compared to $2.4 million, or 1.23% of total loans in 2001. The Bank recorded no net charge offs in 2002 compared to 2001 charge offs of $100,000. The continued low level of charge offs to industry standards reflects the Bank’s sound underwriting policies and collection procedures.

Liquidity Management The Bank’s liquidity is determined by the level of liquid assets (such as cash, federal funds sold and securities) that are convertible to cash to meet customer withdrawal and borrowing needs. The Bank’s asset and liability policy is used to monitor and determine liquidity needs. At December 31, 2002, the Bank’s liquidity ratio (cash, fed funds, and securities) as a percentage of total liabilities was 24.3% as compared to 21.1% at December 31, 2001.

Asset and Liability Management The objective of asset and liability management is to manage the sensitivity of net interest rate spreads to changes in interest rates. Management also attempts to balance risk with profitability. Interest rate sensitivity measures the difference in the timing at which certain assets and liabilities are re-priced.

Deposits A comparative schedule of interest bearing deposits is presented as Note 6 to the Consolidated Financial Statements. Total deposits increased $51.6 million, or 21%, in 2002 from $246 million in 2001. The Bank’s continued growth in its branch banking system along with the introduction of new and varied banking products were principal factors in the increased totals.

COMMUNITY VALLEY BANCORP

The Bank historically maintains the majority of its assets and liabilities with relatively short maturities to protect its net interest income from major shifts in rates as was experienced in 2001, and to take advantage of the flexibility afforded by this resulting liquidity.

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2002 ANNUAL REVIEW


CONDENSED STATEMENTS Condensed Consolidated Balance Sheets (in thousands)

December 31, 2001

2002

Assets: Cash and cash equivalents Securities Net loans, including loans held for sale Other assets Total assets Liabilities and shareholders' equity: Deposits Borrowings Other liabilities

$

77,092 3,387 237,611 19,145

$

50,366 3,007 203,854 15,237

$

337,235

$

272,464

$

297,981 732 13,142

$

246,420 852 4,372

Total liabilities Shareholders' Equity

251,644 20,820

311,855 25,380

Total liabilities and shareholder's equity

$

$

337,235

272,464

Condensed Consolidated Statements of Income (in thousands, except per share data)

2002

Interest income Interest expense

Year Ended December 31, 2001 2000

$ 18,572 4,774

$ 19,388 7,344

$ 16,532 5,518

Net interest income Provision for loan losses Noninterest income Operating expense

13,798 603 6,561 12,531

12,044 500 4,026 9,335

11,014 805 3,168 8,398

Income before taxes Income taxes

7,225 2,375

6,235 2,424

4,979 1,932

Net income Net income per share, basic Net income per share, diluted Shares used to compute net income per share, basic Shares used to compute net income per share, diluted Dividends paid per share

$

4,850

$

3,811

$

3,047

$ $

1.87 1.78 2,596 2,730 0.33

$ $

1.53 1.43 2,493 2,680 0.22

$ $

1.29 1.16 2,366 2,629 -

$

$

These condensed financial statements should be read in conjunction with the full consolidated financial statements of the Company in its Annual Report on Form 10-K

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


CONDENSED STATEMENTS Condensed Consolidated Statements of Changes in Shareholders' Equity (in thousands)

2002

Beginning balance

$ 20,820

$ 16,844

$ 13,838

426 (888) 158

909 (591) 139 (292)

301 178 (520)

14 4,850

3,811

3,047

$ 25,380

$ 20,820

$ 16,844

Exercise of stock options Cash dividends Earned ESOP shares Shares acquired by ESOP Changes in unrealized gain on securities available for sale Net income Ending balance

Year Ended December 31, 2001 2000

Condensed Consolidated Statements of Cash Flows (in thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operations

2002 $

Year Ended December 31, 2001 2000

4,850

$

3,811

$

3,047

(3,822)

(1,363)

(230)

1,028

2,448

2,817

Cash flows from investing activities: (Purchases) and sales or maturities of securities, net Net increase in loans made to customers Other, net

(3,754) (32,590) (235)

2,185 (29,735) (1,229)

2,826 (52,887) (753)

Net cash used in investing activities

(36,579)

(28,779)

(50,814)

51,561 (119) (818) 287

52,295 (84) (392) 454

51,251 (126)

58,911

52,273

51,229

23,360 49,671

25,942 23,730

3,233 20,497

$ 73,031

$ 49,672

$ 23,730

Net cash provided by operating activities

Cash flows from financing activities: Net increase in deposits ESOP note, net Dividends paid Proceeds from exercise of stock options Proceeds from issuance of mandatorily redeemable cumulative trust preferred securities of subsidiary grantor trust Net cash provided by financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

COMMUNITY VALLEY BANCORP

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104

8,000

2002 ANNUAL REVIEW


LEADERSHIP Board of Directors Donald W. Leforce

Eugene B. Even

Chairman of the Board President and former Secretary/Treasurer of Compass Equipment, Inc., a mining and heavy equipment manufacturing corporation.

Retired

Gary B. Strauss, M.D.

Ellis L. Matthews

Vice Chairman Retired

John D. Lanam Retired

Retired Certified Public Accountant and former senior partner of Matthews, Hutton & Warren, an accountancy firm.

James S. Rickards Secretary Real Estate Broker associated with Realty World/Country Estates since 2000. Prior to that time, Broker and Owner of Northern California Properties.

Robert L. Morgan, M.D. Retired

Hubert Townshend Semi-retired. Involved in general engineering, contracting and equipment rental. Past partner of S&T Logging Company, Inc.

Keith Robbins President and Chief Executive Officer of Butte Community Bank

Jack B. Schmelke Director Emeritus

M. Robert Ching, M.D. Orthopedic Surgeon

Executive Group Keith Robbins

Craig Larson

President/Chief Executive Officer

Senior Vice President/Chief Lending Officer

John Coger

Russ Wittmeier

Executive Vice President/Chief Financial Officer

Senior Vice President/Branch Development

Steve Johnson

Debbie Miley

Senior Vice President/RE Development and Risk Management

Administrative Vice President/Operations and HR Administrator

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


MANAGEMENT Board of Directors Donald W. Leforce Chairman of the Board President and former Secretary/Treasurer of Compass Equipment, Inc., a mining and heavy equipment manufacturing corporation.

James S. Rickards

Gary B. Strauss, M.D.

Secretary Real Estate Broker associated with Realty World/Country Estates since 2000. Prior to that time, Broker and Owner of Northern California Properties.

Vice Chairman Retired

Keith Robbins President and Chief Executive Officer of Butte Community Bank

M. Robert Ching, M.D. Orthopedic Surgeon

Eugene B. Even

Robert L. Morgan, M.D.

Retired

Retired

John D. Lanam

Hubert Townshend

Retired

Semi-retired. Involved in general engineering, contracting and equipment rental. Past partner of S&T Logging Company, Inc.

Ellis L. Matthews Retired Certified Public Accountant and former senior partner of Matthews, Hutton & Warren, an accountancy firm.

Jack B. Schmelke Director Emeritus

Craig Larson

Executive Group

Senior Vice President/Chief Lending Officer

Keith Robbins

Russ Wittmeier

President/Chief Executive Officer

Senior Vice President/Branch Development

John Coger Executive Vice President/Chief Financial Officer

Debbie Miley Administrative Vice President/Operations and HR Administrator

Steve Johnson Senior Vice President/RE Development and Risk Management

COMMUNITY VALLEY BANCORP

Administrative Management

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2002 ANNUAL REVIEW


CORPORATE HISTORY 1990

1993

1997

Butte Community Bank was founded in August 1990 by a group of distinguished citizens from Paradise and Oroville. They recognized the demand for a local bank to satisfy the unique financial needs of their Northern California communities.

In June 1993, Butte Community Bank opened its third location in the community of Magalia to an overwhelming response. With the closure of three financial institutions in that area, Butte Community Bank realized a banking need for the people of the Upper Ridge.

With Butte Community Bank's expertise in agricultural and business portfolios combined with the growth of the Yuba City market, it was a natural progression to open the fifth office there. The opening of the Yuba City branch not only added to our bottom line, but provided us with opportunities to expand in areas of lending and created a broader customer base that we did not have previously.

In December of 1990, Butte Community Bank opened its doors to Paradise and Oroville with a total of 17 employees.

Magalia Yuba City (2002)

1995

Paradise

In the beginning of 1995, Butte Community Bank opened a fourth location with a loan production office in Chico.

Oroville (2002)

Because of the positive reception of the loan office, Butte Community Bank opened a fullservice banking operation at South Chico on Forest Avenue in September of 1996. We also moved our administration headquarters to the new facility.

1996

1998 Construction of the Central Services and Real Estate Loan Office is completed at 1390 Ridgewood Drive in Chico.

Central Services & Real Estate Loan Office

Chico South

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


CORPORATE HISTORY 1999 In the spring we added a telecommunications network, centralized cash management department and state-of-the-art call center that greatly enhanced our ability to serve our growing number of customers. In June we opened our sixth full-service branch at the Albertson's Shopping Center in North Chico.

City and North Chico, plus a Loan Production Office in Roseville. In 2000 our bank grew in assets 34.69% to over $214 million. Our deposits grew 36% to $194 million and our loans grew 44% to $172 million. Most important, our additions to reserves and net profit totaled $3,656,666, for a net shareholder return of 24.14%.

2001 In 2001 our bank grew in assets 26.6% to over $271 million. Our deposits grew 26.8% to $246 million and our loans grew 20% to $204 million. Most important, the bank's earnings increased 25% to $3.81 million.

Chico North

2000 At the end of its tenth year Butte Community Bank has six fullservice branch offices located in Chico (2), Paradise, Magalia, Oroville, and Yuba City. A loan production office was opened in the city of Roseville in February 2000.

Roseville Loan Production Office

2002 In the first quarter of this year we opened two new full service branch offices. Our facility on Mangrove Avenue in Central Chico opened on February 20 and is our third branch in the city of Chico. We expect this office to attract business from downtown as well as the area surrounding the university. We also relocated our Yuba City branch on April 15, 2002 to a new building in the Feather Down Shopping Center. The 5,600 square-foot facility will give us better exposure and we look for it to attract more consumer and business relationships. In a novel

It's hard to believe, but the end of 2000 marks ten years of growth for Butte Community Bank. From our original roots in Paradise and Oroville, we've added branches in Magalia, South Chico, Yuba

arrangement, Starbucks Coffee is leasing an adjoining space from building owner Butte Community Bank. The coffee house will actually be accessible from within the bank, and vice versa. At the May 2002 Annual Meeting, shareholders of Butte Community Bank approved the reorganization of the bank into Community Valley Bancorp with the bank being its principal asset. This reorganization became effective June 17, 2002. In 2002, Community Valley Bancorp grew in assets 24% to over $337 million. Our deposits grew 21% to $298 million and our loans grew 18% to $241 million. Community Valley Bancorp’s earnings increased 27% to $4.85 million.

2003 In 2003 we will relocate two branches and expand our presence on the Ridge by adding a second location in Paradise on Clark Road. In addition, our growth in Northern California continues with plans for a branch in the Rocklin area, plus a Loan Production Office in Redding. Our central Chico branch, opened in February 2002, has already exceeded all expectations so a remodel is scheduled to begin soon. This will involve the relocation of some crucial special services such as Business Development, Investments, Government Lending and Marketing. To say the least, this will be a busy year.

Chico Central

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


COMMITMENT Community Support: 2002 Butte Community Bank is committed to the Northern California communities we serve. Following are just some of the fine organizations and local events that we helped support in 2002. After Frost Dinner

Chapman Elementary School

Chico Police Department Mounted Patrol Team

Alliance of Music and Theatre Arts

Chico Aquajets

Chico Rooks

Chico Association of Realtors American Cancer Society

Chico Unified School District Education Foundation

Relay for Life

Chico Baseball Legends American Legion Baseball Club Post 17

The ARC of Butte County

Community Church of God Chico Breakfast Lions Club

2002 Back to School Bash

Chuck Peters Racing

Chico Community Scholarship Association

Desperado Horse Club Big Brothers Big Sisters of Butte County

Chico Concours d'Elegance Dried Plum Festival 2002

Boys and Girls Clubs of the North Valley Building Industry Association BIA/Meeks Charity Golf Tournament

California State University, Chico Athletics Department: Cruisin' with the Cats

California State University, Chico

Chico Eastside Little League Durham High School Safe & Sober Grad Night 2002

Chico Economic Planning Corporation 2002 Sporting Clay Shoot 2002 Annual Dinner

Enloe Foundation Enloe 2000

Chico Guild

Ensemble Theatre of Chico

North State Symphony

Shakespeare in the Park

Chico Heat Baseball Club

College of Agriculture

Chico Heat Grand Slam Club California State University, Chico Century Club

California State University, Chico

Chico High School

The Esplanade House Exchange Club of Paradise Feather Fiesta Days

Athletic Program Scholarships

Chico Jaguars

Celebration of People

Chico Merchants Senior Softball

Feather River Health Foundation The Fremont Rideout Health Group Foundation

COMMUNITY VALLEY BANCORP

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2002 ANNUAL REVIEW


COMMITMENT Community Support: 2002 Butte Community Bank is committed to the Northern California communities we serve. Following are just some of the fine organizations and local events that we helped support in 2002.

California State University, Chico

California State University, Chico

Chico Merchants Senior Softball

Athletic Program Scholarships

Chico Police Department Mounted Patrol Team

Celebration of People Chapman Elementary School

Chico Rooks Chico Unified School District

Chico Aquajets After Frost Dinner

Chico Jaguars

Century Club

Education Foundation

Chico Association of Realtors

Community Church of God 2002 Back to School Bash

Alliance of Music and Theatre Arts

Chico Baseball Legends

American Cancer Society

Chico Breakfast Lions Club

Chuck Peters Racing

Relay for Life

American Legion Baseball Club

Desperado Horse Club

Chico Community Scholarship Association

Dried Plum Festival 2002

Chico Concours d'Elegance

Durham High School

Post 17 Safe & Sober Grad Night 2002

The ARC of Butte County Chico Eastside Little League Big Brothers Big Sisters of Butte County Boys and Girls Clubs of the North Valley Building Industry Association

Enloe Foundation Enloe 2000

Chico Economic Planning Corporation 2002 Sporting Clay Shoot 2002 Annual Dinner

Ensemble Theatre of Chico

Chico Guild

The Esplanade House

Shakespeare in the Park

North State Symphony

BIA/Meeks Charity Golf Tournament

Exchange Club of Paradise Chico Heat Baseball Club

California State University, Chico

Feather Fiesta Days

Athletics Department: Cruisin' with the Cats

Chico Heat Grand Slam Club

California State University, Chico

Chico High School

Feather River Health Foundation College of Agriculture

The Fremont

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BANK LOCATIONS

Chico Central Opened February 2002 900 Mangrove Avenue • Chico, CA 95926 (530) 891-9000

Oroville Remodeled October 2002 2227 Myers Street • Oroville, CA 95966 (530) 532-0800

Yuba City Opened April 2002 1600 Butte House Road • Yuba City, CA 95993 (530) 751-2700

Chico South 2041 Forest Avenue • Chico, CA 95928 (530) 891-3494

Chico North & Government Lending 208 West East Avenue, Suite E • Chico, CA 95926 (530) 899-2347

Paradise 672 Pearson Road • Paradise, CA 95969 (530) 877-0857

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BANK LOCATIONS Coming Soon North Paradise 6653 Clark Road (at Wagstaff Road) Paradise, CA 95969 Magalia Relocation 14001 Lakeridge Circle (inside Holiday Quality Foods) Magalia, CA 95954 Magalia 14115 Lakeridge Circle • Magalia, CA 95954 (530) 873-6854

Special Services 936 Mangrove Avenue Chico, CA 95926 Central Chico Remodel 900 Mangrove Avenue (at Palmetto Avenue) Chico, CA 95926 Redding Loan Production Office 100 East Cypress, Suite 150 Redding, CA 96002 North Chico Relocation 237 West East Avenue, Suite 20 (Near Orchard Supply Hardware) Chico, CA 95926

Central Services & Loan Processing Center 1390 Ridgewood Drive • Chico, CA 95973 (530) 899-7100

Rocklin Stanford Ranch Road Rocklin, CA

Loan Production Office 114 N. Sunrise Avenue, C3 • Roseville, CA 95661 (916) 780-9200

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CORPORATE INFORMATION Requests for Information

Market Makers

For address changes, inquiries regarding the purchase or sale of Community Valley Bancorp stock, plus all other shareholder matters, please contact:

Market Makers in Community Valley Bancorp stock are:

Gayle Lee Corporate Vice President/Controller Butte Community Bank (530) 877-0857 ext3115 glee@communityvalleybancorp.com

Dave Bonaccorso Hoefer & Arnett 555 Market St 18th Floor San Francisco, CA 94105 1-800-346-5544

Ken Meyers Wachovia First Union Securities 10466 Brunswick Rd Ste 6 Grass Valley, CA 95945 1-888-383-3112

Address changes can also be made by contacting our transfer agent, U.S. Stock Transfer at:

Joey Warmenhoven Wedbush Morgan Securities 1300 SW Fifth Ave Ste 2000 Portland, OR 97201 1-800-234-0480

U.S. Stock Transfer Corporation 1745 Gardena Ave Ste 200 Glendale, CA 91204-2991 www.usstock.com

Web Sites

Stock Trades

Community Valley Bancorp

Community Valley Bancorp stock is traded on the Over the Counter (OTC) market. The stock symbol is CVLL.

www.communityvalleybancorp.com

Butte Community Bank www.buttecommunity.com

Headquarters Community Valley Bancorp 2041 Forest Avenue Chico, CA 95928

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2002 ANNUAL REVIEW


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