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Report of independent Auditors
and Financial Statements
Sutter Community Bank
For the years ended December 31, 2010 and 2009

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CONTENTS
REPORT OF INDEPENDENT AUDITORS
FINANCIAL STATEMENTS
Balance sheets
Statements ofoperations
Statements of changes in shareholders’ equity
Statements of cash flows
Notes to financial statements
PAGE

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REPORT OF INDEPENDENT AUDITORS
To the Board ofDirectors and Shareholders
Sutter Community Bank
We have audited the accompanying balance sheets of Sutter Community Bank (the Bank) as of
December 31, 2010 and 2009, and the related statements of operations, changes in shareholders’ equity,
and cash flows for the years ended December31, 2010 and 2009. These financial statements are the
responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position ofthe Bank as ofDecember 31,2010 and 2009, and the results ofits operations and its
cash flows for the years ended December 31, 2010 and 2009, in conformity with accounting principles
generally accepted in the United States ofAmerica.
Stockton, California
March 22, 2011
Penis-
(iLlHlM. ALLIMHIE OF
lI'IDEFEHDEl‘IT FIRMS

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SUTTER COMMUNITY BANK

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SUTTER COMMUNITY BANK
BALANCE SHEETS
ASSETS
DECEMBER 31,
2010 2009
Cash and due from banks $ 11,744,180 $ 9,352,525
Loans held for sale 9,009,564 6,650,181
Loans, net 40,817,658 42,700,785
Premises and equipment, net 37,668 94,501
Other real estate owned 1,864,150 1,871,012
Interest receivable and other assets 1,863,564 2,022,950
$ 65,336,784 $ 62,691,954
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits $ 55,881,182 $ 55,634,434
Secured borrowings 2,000,365 -
Interest payable and other liabilities 316,008 266,978
Total liabilities 58,197,555 55,901,412
Commitments and contingencies (Notes 8 and 11)
Shareholders’ equity
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, no par value, 5,000,000 shares
authorized; 951,678 shares issued and outstanding
at December 31, 2010 and 2009 9,478,418 9,478,418
Additional paid-in capital 782,626 747,731
Accumulated deficit (3,121,815) (3,43 5,607)
Total shareholders' equity 7,139,229 6,790,542
$ 65,336,784 $ 62,691,954
2 See accompanying notes

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SUTTER COMMUNITY BANK
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2010 2009
INTEREST INCOME
Interest and fees on loans S 3,517,867 3 3,694,484
Interest on federal funds sold 70 4,679
Interest on deposits in other financial institutions 12,329 9,066
3,530,266 3,708,229
INTEREST EXPENSE
Interest expense on deposits 520,502 1,143,078
Interest expense on borrowings 14,764 -
535,266 1,143,078
Net interest income 2,995,000 2,565,151
PROVISION FOR LOAN LOSSES 195,000 1,022,500
Net interest income after provision for loan losses 2,800,000 1,542,651
NON-INTEREST INCOME
Gain on sale ofloans 328,960 561,146
(Loss) gain on sale of other real estate owned (16,452) 248,095
Loan servicing fees and commissions 164,724 181,761
Service charges on deposits 139,260 95,191
Other operating income 53,062 46,049
669,554 1,132,242
NON-INTEREST EXPENSES
Salaries and employee benefits 1,359,930 1,430,324
Write down of other real estate owned 504,245 6,138
Data processing fees 321,893 320,285
Insurance expense 230,066 163,837
Occupancy and equipment expense 203,540 254,359
Professional fees 195,399 171,694
Other real estate owned expense 89,81 1 45,988
Advertising and promotion 70,295 54,113
Transportation and communication expense 25,890 29,435
Supplies expense 20,177 24,604
Other operating expenses 133,716 110,988
3,154,962 2,611,765
Income before provision for income taxes 314,592 63,128
Provision for income taxes 800 800
Net income $ 313,792 $ 62,328
NET INCOME PER SHARE ~
BASIC AND DILUTED S 0.33 $ 0.07
WEIGHTED AVERAGE SHARES OUTSTANDING 951,678 951,678
See accompanying notes 3

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STATEMENTS OF CASH FLOWS

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SUTTER COMMUNITY BANK
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization of premises
and equipment
Stock-based compensation
Provision for loan losses
Proceeds from the sale ofloans held for sale
Originations of loans held for sale
Gain on sale of loans
Loss (gain) on sale of other real estate owned
Write down of other real estate owned
Amortization of servicing asset
Increase (decrease) in interest payable
and other liabilities
Decrease (increase) in interest receivable and
other assets
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in loans
Proceeds from sale of other real estate owned
Purchase of equity stock
Purchase of premises and equipment
Net cash from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits and
savings accounts
Net (decrease) increase in time deposits
Proceeds from secured borrowings
Net cash from financing activities
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning ofyear
CASH AND CASH EQUIVALENTS, end ofyear
YEARS ENDED DECEMBER 31,
2010 2009
3 313,792 3 62,328
61,155 136,027
34,895 258,296
195,000 1,022,500
4,451,136 7,620,421
(6,540,406) (13,998,008)
(328,960) (561,146)
16,452 (248,095)
504,245 6,138
152,497 70,123
49,030 (237,775)
143,593 (421,725)
(947,571) (6,290,916)
440,565 (116,265)
683,970 601,417
(28,100) (53,800)
(4,322) (2,615)
1,092,113 428,737
3,656,022 3,515,756
(3,409,274) 1,374,513
2,000,365 -
2,247,113 4,890,269
2,391,655 (971,910)
9,352,525 10,324,435
8 11,744,180 8 9,352,525

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SUTTER COMMUNITY BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2010 2009
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 33 578,547 $ 1,317,095
Income taxes 35 800 $ 800
NON-CASH INVESTING AND FINANCING ACTIVTIES:
During 2010 and 2009, the Bank acquired real estate in connection with loan foreclosures and
transferred $1,197,805 and $911,322, respectively, in loans receivable to other real estate owned.
See accompanying notes 7

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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 —~ ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Sutter Community Bank (the Bank) conform to generally accepted
accounting principles and general practices within the banking industry. A summary of the significant
accounting policies applied in the preparation of the accompanying financial statements follows.
On December 15, 2005, the California Commissioner of Financial Institutions approved the Bank’s
application for organization. The Bank also received approval ofan application that it filed for insurance of
bank deposit accounts with the Federal Deposit Insurance Corporation (FDIC). The state chartered bank
was incorporated under the laws ofthe state ofCalifornia on December 19, 2005, and opened for business
on June 19, 2006. The Bank offers traditional commercial banking products and services to businesses and
individuals through one branch located in Sutter County.
Estimates -— In preparing financial statements in conformity with generally accepted accounting principles,
management is required to make estimates and assumptions that affect the reported amounts ofassets and
liabilities and the disclosure ofcontingent assets and liabilities at the date ofthe financial statements and
revenues and expenses during the reported period. Actual results could differ from those estimates.
The allowance for loan losses is the most significant accounting estimate reflected in the Bank’s financial
statements. The allowance for loan losses includes charges to reduce the recorded balances of loans
receivable to their estimated net realizable value, as appropriate. The allowance is based on estimates, and
ultimate losses may vary from current estimates. The Bank provides for estimated losses on loans
receivable and real estate when any significant and permanent decline in value occurs. These estimates for
losses are based on individual assets and their related cash flow forecasts, sales values, independent
appraisals, the volatility ofcertain real estate markets, and concern for disposing ofreal estate in distressed
markets. Although management of the Bank believes the estimates underlying the calculation of specific
allowances are reasonable, there can be no assurances that the Bank could ultimately realize these values.
in addition to providing valuation allowances on specific assets where a decline in value has been identified,
the Bank establishes general valuation allowances for losses based on the overall portfolio composition,
general market conditions, concentrations, and prior loss experience.
Other significant management judgments and accounting estimates reflected in the Bank's financial
statements include:
0 Decisions regarding the timing and placement of loans on non-accrual;
0 Determination, recognition, and measurement ofimpaired loans;
' Recognition and measurement of asset servicing rights;
0 Determination and evaluation ofdeferred tax assets and liabilities;
0 Determination of the fair value ofother real estate owned; and
0 Determination of the fair value ofstock option awards.

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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY or SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Concentrations of credit risk — Assets and liabilities that subject the Bank to concentrations of credit risk
consist of cash balances at other banks, loans, and deposits. Most of the Bank’s customers are located within
Sutter County and the surrounding areas. The Bank's primary lending products are discussed in Note 3 to the
financial statements. The Bank did not have any significant concentrations in its business with any one
customer or industry. The Bank obtains what it believes to be sufficient collateral to secure potential losses on
loans. The extent and value of collateral varies based on the details underlying each loan agreement.
As of December 31, 2010 and 2009, the Bank had no cash deposits at other financial institutions in excess of
FDIC insured limits. However, from time to time the Bank may place deposits in excess ofFDIC insured limits
with major financial institutions. The Bank monitors the financial condition of these institutions and
management believes the risk ofloss to be minimal.
Cash and cash equivalents ~ Cash and cash equivalents include cash on hand, amounts due from banks,
money market funds, and federal funds sold. Generally, federal funds are sold for one-day periods.
Loans and allowance for loan losses - Loans are reported at the principal amount outstanding, net of
deferred loan fees and costs and the allowance for loan losses. Unearned discounts on installment loans are
recognized as income over the terms ofthe loans. Interest on other loans is calculated by using the simple
interest method on the daily balance ofthe principal amount outstanding.
Loan fees, net of certain direct costs of origination, are deferred and amortized over the contractual term of
the loan as an adjustment to the interest yield. During the years ended December 31, 2010 and 2009,
salaries and employee benefits expense totaling $223,090 and $212,500, respectively, were deferred as loan
origination costs.
Loans on which the accrual ofinterest has been discontinued are designated as non-accrual loans. Accrual
ofinterest on loans is discontinued either when reasonable doubt exists as to the full and timely collection
ofinterest or principal or when a loan becomes contractually past due by 90 days or more with respect to
interest or principal. When a loan is placed on non~accrual status, all interest previously accrued, but not
collected, is reversed against current period interest income. Income on such loans is then recognized only
to the extent that cash is received and where the future collection of principal is probable. Interest accruals
are resumed on such loans only when they are brought fully current with respect to interest and principal
and when, in the judgment of management, the loans are estimated to be fully collectible as to both
principal and interest.
The allowance for loan losses is established through a provision for loan losses charged to operations. Loans
are charged against the allowance for loan losses when management believes that the collectability ofthe
principal is unlikely. Subsequent recoveries ofpreviously charged off amounts, ifany, are credited to the
allowance.

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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANlZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Loans and allowance for loan losses - (continued)
Management employs a systematic methodology for determining the allowance for loan losses. On a
quarterly basis, management reviews the credit quality Ofthe loan portfolio and considers problem loans,
delinquent loans, existing general economic conditions affecting the key lending areas of the Bank, credit
quality trends, collateral values, loan volumes and concentrations, seasoning ofthe loan portfolio, specific
industry conditions, recent loss experience, duration of the current business cycle, bank regulatory
examination results, and findings ofthe Bank's internal credit examiners. The allowance for loan losses at
December 31, 2010 and 2009, reflects management's estimate Of probable losses in the portfolio. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as
more information becomes available.
The allowance consists ofspecific, general, and unallocated components. The specific component relates to
loans that are classified as impaired. Impaired loans, as defined, are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or the fair value Of the collateral if
the loan is collateral dependent. The general component relates tO non~impaired loans and is based on
historical loss experience, with consideration given to the loss history experienced by the Bank’s peers
when the Bank did not have losses in a particular loan class, adjusted for qualitative factors impacting the
loan portfolio. An unallocated component is maintained to cover uncertainties that could affect
management's estimate Of probable losses. The unallocated component of the allowance reflects the margin
of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific
and general losses in the portfolio.
The Bank considers a loan impaired when it is probable that all amounts ofprincipal and interest due will
not be collected according to the contractual terms ofthe loan agreement, which is the same criteria used
for the transfer ofloans to non-accrual status. Interest income is recognized on impaired loans in the same
manner as non-accrual loans. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not
classified as impaired. Management determines the significance ofpayment delays and payment shortfalls
on a case-by—case basis, taking into consideration all ofthe circumstances surrounding the loan and the
borrower. including the length Ofthe delay, the reasons for the delay, the borrower's prior payment record,
and the amount of the shortfall in relation to the principal and interest owed.
In situations where, for economic or legal reasons related to a borrower's financial difficulties, the Bank
grants a concession to the borrower that we would not otherwise consider, the related loan is classified as a
troubled debt restructuring. We measure any loss on the troubled debt restructuring in accordance with
the guidance concerning impaired loans set forth above.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Premises and equipment ~ Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives using the straight-line method. The
estimated lives used in determining depreciation are:
Furniture, fixtures, and equipment 2 5 years
Computer software 2 - 5 years
Leasehold improvements 3 -— 4 years
Leasehold improvements are amortized over the lesser ofthe useful life ofthe asset or the term ofthe lease.
The straight-line method of depreciation is followed for all assets for financial reporting purposes, but
accelerated methods are used for tax purposes. Deferred income taxes have been provided for the resulting
temporary differences.
Income taxes — The Bank uses the asset and liability method to account for income taxes. Under such
method, deferred tax assets and liabilities are recognized for the future tax consequences of differences
between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax
basis (temporary differences). Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes in the period of enactment.
A valuation allowance against net deferred tax assets is established to the extent that it is more likely than
not that the benefits associated with the deferred tax assets will not be fully realized.
In accordance with accounting standards, the Bank has assessed its tax positions and has concluded there
are no unrecognized tax benefits at December 31, 2010 and 2009.
The Bank recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense.
During the years ended December 31, 2010 and 2009, the Bank recognized no interest and penalties.
The Bank files income tax returns in the US. federal jurisdiction and with the state ofCalifornia. The Bank is
subject to U.S. federal or state income tax examinations by tax authorities for years beginning 2007.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Net income per common share - Basic net income per share amounts are computed by dividing net
income available to shareholders by the weighted average number Ofcommon shares outstanding during
the year. Diluted earnings per share reflects the potential dilution that could occur if securities or other
contracts to issue common stock, such as stock options, result in the issuance of common stock which share
in the earnings of the Bank. The treasury stock method is applied to determine the dilutive effect of stock
options when computing diluted earnings per share. For the years ended December 31, 2010 and 2009, all
stock options were excluded from the calculation of diluted earnings per share because the options'
exercise price was greater than the average market price ofthe Bank's common shares.
Other real estate owned - Real estate acquired through, or in lieu of, loan foreclosure is expected to be
sold and is recorded at the date offoreclosure at the lower Ofthe recorded investment in the property or its
fair value less estimated costs to sell (fair value) establishing a new cost basis. After foreclosure, valuations
are periodically performed by management with any subsequent write downs recorded as a valuation
allowance and charged against operating expenses. Operating expenses ofsuch properties, net ofrelated
income, are included in other expenses; and gains and losses on their disposition are included in non-
interest income and expenses. During 2010, the Bank sold three properties classified as other real estate
owned (OREO) for a loss of$16,452 and foreclosed on two loans, transferring $1,197,805 to OREO. During
2009, the Bank sold two OREO properties for a gain of$248,095 and foreclosed on three loans, transferring
$911,322 to OREO. Additionally, the Bank recorded a write down and corresponding increase to the
valuation allowance for OREO equal to $504,245 and $6,138 during 2010 and 2009, respectively. The
carrying amount of OREO at December 31, 2010 and 2009, is reflected net of a valuation allowance of
$915,305 and $506,138, respectively.
Transfers of financial assets — Transfers of financial assets are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets is deemed to be surrendered when:
[1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free ofconditions that
contain it from taking advantage Of that right) to pledge or exchange the transferred assets, and (3) the
Bank does not maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Transfers of financial assets (continued)
The Bank sells certain portions of government guaranteed loans in the secondary market. These sales are
recorded by the Bank when control is surrendered and any warranty period or recourse provision expires.
The warranty period associated with the loan sales typically extends for 90 days from the date ofthe sale
and requires the Bank to reimburse the purchaser for certain fees paid to the Bank if the underlying
borrower prepays 0r defaults on the loan. During the warranty period, the Bank does not derecognize the
loan from its balance sheets. The loans are reported as a component Ofloans held for sale on the balance
sheets. The proceeds received in the sale are reflected as secured borrowings on the balance Sheets and any
gain or loss to be realized on the sale is deferred. Upon the expiration ofthe warranty period, the sale is
recognized by the Bank, the loan subject to the sale and the related secured borrowing is derecognized from
the balance sheets, and any deferred gain or loss is recognized in the statements of operations. During
November 20 10, the Bank sold the guaranteed portion oftwo government guaranteed loans for $2,000,365.
As a result of deferring the recognition of the sale, the Bank recognized a secured borrowing totaling
$2,000,3 65 at December 3 1, 2010, which includes $201,637 in deferred gains to be recognized during the
first quarter of 2011 when the warranty period expires and the sale is recognized.
Advertising costs The Bank expenses advertising costs as they are incurred. Advertising expense was
$33,268 and $25,750 for the years ended December 31, 2010 and 2009, respectively.
Loans held for sale — Loans held for sale include government guaranteed and mortgage loans and are
reported at the lower Ofcost or market value. Cost generally approximates market value, given the short
duration ofthese assets. Gains or losses on the sale ofloans that are held for sale are recognized at the time
of the sale, subject to the expiration of any warranty or recourse provisions, and determined by the
difference between net sale proceeds and the net book value Ofthe loans less the estimated fair value Ofany
retained mortgage servicing rights. There were $9,009,564 and $6,650,181 of loans held for sale at
December 31, 2010 or 2009, respectively. Loans held for sale are included on the balance sheets.
Servicing rights — In accordance with accounting standards, all servicing assets and liabilities are to be
initially measured at fair value. In addition, entities are permitted to choose to either subsequently measure
servicing rights at fair value and report changes in fair value in earnings, or amortize servicing rights in
proportion to and over the period ofthe estimated net servicing income or loss and assess the rights for
impairment. Beginning with the fiscal year in which an entity adopts this accounting standard, it may elect
to subsequently measure a class of servicing assets and liabilities at fair value. The effect Ofre-measuring an
existing class of servicing assets and liabilities at fair value is to be reported as a cumulative-effect
adjustment to retained earnings as of the beginning ofthe period Ofadoption. For the Bank, this standard
became effective on January 1, 2007.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Servicing rights - (continued)
The Bank sells or transfers loans, including the guaranteed portion of Small Business Administration (SBA)
and United States Department of Agriculture (USDA) loans (with servicing retained) for cash proceeds equal
to the principal amount ofloans, as adjusted to yield interest to the investor based upon the current market
rates. The Bank records an asset representing the right to service loans for others when it sells a loan and
retains the servicing rights. The carrying value of loans is allocated between the loan and the servicing
rights, based on their relative fair values. The fair value of servicing rights is estimated by discounting
estimated future cash flows from servicing using discount rates that approximate current market rates and
using estimated prepayment rates.
The servicing rights are initially measured at fair value and amortized in proportion to and overthe period
of the estimated net servicing income assuming prepayments. Additionally, management assesses the
servicing rights for impairment as of each financial reporting date. For purposes of evaluating and
measuring impairment, servicing rights are based on a discounted cash flow methodology, current
prepayment speeds and market discount rates. Any impairment is measured as the amount by which the
carrying value of servicing rights for a stratum exceeds its fair value. The carrying value of SBA/USDA
servicing rights at December 31, 2010 and 2009, were $623,959 and $667,85 2, respectively. No impairment
charges were recorded for the years ended December 31, 2010 or 2009, related to SBA/USDA servicing
assets.
Stock-based compensation - The Bank accounts for its stock-based compensation in accordance with the
provisions set forth in the accounting standards that requires the Bank to recognize in the statements of
operations the grant-date fair value ofstock options and other equity-based forms ofcompensation issued
to employees and directors over the requisite service period (generally the vesting period).
The fair value of each option grant is estimated as ofthe grant date using the Black—Scholes option-pricing
model. During 2010, 2,400 stock options were granted with a weighted average grant date fair value of
$2.58. The weighted average assumptions used by the Bank for the 2010 option grants included: 000%
dividend yield, 48.0 7% expected volatility, 2.59% risk-free interest rate, and an expected option term of 6.5
years. The assumptions used in this model include an estimate ofexpected volatility, based on the historical
volatility of the price of similar bank stocks. The Bank estimates the number of options expected to be
forfeited based on its historical experience. The risk-free interest rates are equal to the US. Treasury yield
at the time of the grant and commensurate with the expected term of the grant. The expected term is
estimated by management using the contractual life ofthe option and the vesting period. There were no
stock option grants during 2009.
Reclassifications - Certain reclassifications have been made to the 2009 financial statements to conform to
the classifications used in 2010.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Adoption of new accounting standards — in January 2011, the FASB issued Accounting Standards Update
(ASU) NO. 20 1 1-0 1, Receivables (Topic 31 0): Deferral of the Efl’ective Date of Disclosures about Troubled Debt
Restructurings in Update No. 2010-20. The amendments in this update temporarily delay the effective date
of the disclosures about troubled debt restructurings in ASU NO. 2010—20, Receivables (Topic 310]:
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses for public
entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a
troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings
for public entities and the guidance for determining what constitutes a troubled debt restructuring will then
be coordinated. Currently, the guidance is anticipated to be effective for interim and annual periods ending
after lune 15, 2011. The amendments in this update apply to all public-entity creditors that modify
financing receivables within the scope Of the disclosure requirements about troubled debt restructurings in
ASU 2010-20. The amendments in this update do not affect non-public entities. As this ASU is disclosure-
related only, our adoption of this ASU in 2011 will not impact the Bank's financial condition or results of
operations.
In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic310): Disclosures about the Credit Quality
of Financing Receivables and the/illowancefor CreditLosses. This update amends Topic 3 10 to improve the
disclosures that an entity provides about the credit quality of its financing receivables and the related
allowance for credit losses. As a result Of these amendments, an entity is required to disaggregate by
portfolio segment or class certain existing disclosures and provide certain new disclosures about its
financing receivables and related allowance for credit losses. The amendments in this update apply to all
entities, both public and non-public. The amendments in this update affect all entities with financing
receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower
ofcost or fair value. For public entities, the disclosures required by this update as ofthe end Ofa reporting
period are effective for interim and annual reporting periods ending on or after December 15, 2010. The
disclosures about activity that occurs during a reporting period are effective for interim and annual
reporting periods beginning on or after December 15, 2010. For non-public entities, the disclosures are
effective for annual reporting periods ending on or after December 15, 2011. The amendments in this
update encourage, but do not require, comparative disclosures for earlier reporting periods that ended
before initial adoption. However, an entity should provide comparative disclosures for those reporting
periods ending after initial adoption. As this ASU is disclosure-related only, the adoption Ofthis ASU did not
impact the Bank’s financial condition or results of operations.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Adoption of new accounting standards ~ (continued)
in April 20 10, the FASB issued ASU No. 2010-18, Receivables (Topic 31 0): Effect ofa Loan Modification When
the Loan Is Part ofa Pool That IsAccountedfor as a Single Asset. This update clarifies that modifications of
loans that are accounted for within a pool under Subtopic 310-30, which provides guidance on accounting
for acquired loans that have evidence Ofcredit deterioration upon acquisition, do not result in the removal
of those loans from the pool even if the modification would otherwise be considered a troubled debt
restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan
is included is impaired if expected cash flows for the pool change. The amendments do not affect the
accounting for loans under the scope of Subtopic 31030 that are not accounted for within pools. Loans
accounted for individually under Subtopic 3 10-30 continue to be subject to the troubled debt restructuring
accounting provisions within Subtopic 310-40. The amendments in this update affect any entity that
acquires loans subject to Subtopic 3 10-30, that accounts for some or all ofthose loans within pools, and that
subsequently modifies one or more of those loans after acquisition. The amendments in this update are
effective for modifications ofloans accounted for within pools under Subtopic 3 10~30 occurring in the first
interim or annual period ending on or after July 15, 20 10. The amendments are to be applied prospectively.
Early application is permitted. Upon initial adoption ofthe guidance in this update, an entity may make a
one-time election to terminate accounting for loans as a pool under Subtopic 3 10-30. This election may be
applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting tO
subsequent acquisitions ofloans with credit deterioration. Adoption ofthis ASU did not have an impact on
the Bank's financial statements.
In January 2010, the FASB issued ASU No.20 10-0 6, Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements. This update requires: (1) disclosure Ofthe amounts
ofsignificant transfers in and out ofLevel 1 and Level 2 fair value measurement categories and the reasons
for the transfers; and (2) separate presentation of purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable inputs (Level 3). in addition, this
update clarifies the requirements of the following existing disclosures set forth in the Codification:
Subtopic 820-10: (1) For purposes of reporting fair value measurement for each class of assets and
liabilities, a reporting entity needs to use judgment in determining the appropriate classes ofassets and
liabilities; and (2) a reporting entity should provide disclosures about the valuation techniques and inputs
used to measure fair value for both recurring and non~recurring fair value measurements. This update is
effective for interim and annual reporting periods beginning January 1, 2010, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements, which are effective for fiscal years beginning January 1, 201 1, and for interim periods within
those fiscal years. As this ASU is disclosure-related only, the adoption ofthis ASU did not impact the Bank’s
financial condition or results ofoperations.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 2 — CASH AND DUE FROM BANKS
Cash and due from banks includes balances with the Federal Reserve Bank and other correspondent banks.
The Bank is required to maintain specified reserves by the Federal Reserve Bank. The average reserve
requirements are based on a percentage ofthe Bank's deposit liabilities. At December 31, 2010 and 2009,
no reserve was required. There were no deposits uninsured by the FDIC at December 31, 2010 or 2009.
NOTE 3 — LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Major segments of loans are as follows:
DECEMBER 31,
2010 2009
Commercial $ 7,304,627 $ 6,944,707
Real estate
Commercial 17,053,827 18,201,924
Construction 3,056,733 3,039,825
Residential 2,715,230 3,492,044
Agricultural 11,098,095 11,439,620
Consumer and other 803,911 682,268
42,032,423 43,800,388
Allowance for loan losses (1,024,431) (888,882)
Deferred loan fees and costs, net (190,334) (210,721)
$ 40,817,658 $ 42,700,785
Management has an established methodology to determine the adequacy ofthe allowance for loan losses
that assesses the risks and losses inherent in the loan portfolio. For purposes ofdetermining the allowance
for loan losses, the Bank has segmented certain loans in the portfolio by product type. Loans are segmented
into the following pools: commercial, real estate (commercial, construction, and residential), agricultural,
and consumer. The Bank also sub-segments these segments into classes based on the associated risks
within those segments. Commercial loans are divided into the following two classes: lines of credit and
secured loans, Real estate loans are divided into the following seven classes: commercial real estate,
commercial land, construction of single family residences (SFR), residential lots, residential owner-occupied
(0/0], residential non-O/O, and home equity. Agricultural loans are divided into the following two classes;
farm land and equipment and crop production. Consumerloans are divided into the following three classes:
secured, unsecured, and overdraft lines of credit. For each class ofloan management exercises significant
judgment to determine the estimation method that fits the credit risk characteristics of its portfolio
segment.
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