October 22, 2008
To our valued clients:
The events of the past 90-days in the financial services industry have been unsettling for the American public.
Businesses, large and small, and consumers have been left feeling uncertain about the direction our economy may turn
from day-to-day.
The failure of several very recognizable investment banks, government sponsored enterprises (GSEs) - Freddie Mac
and Fannie Mae, savings banks (thrifts), as well as traditional commercial banks demonstrated clearly the magnitude
of the crisis for those institutions with highly complex balance sheets and only partially understood business models
and risk profiles.
The overwhelming majority of the crisis is centered in the mortgage and housing ‘meltdown’ and affects institutions
possessing substantial assets directly associated with ill-conceived mortgage lending and especially the hedging activities
associated with those assets.
It is very important to point out to our customers the distinction between these failed or struggling institutions and the
business model of a community bank such as Scott Valley Bank. With very few exceptions, community banking has
been largely unaffected by this crisis, due to the non-complex nature of our balance sheets.
Scott Valley Bank maintains a very traditional community bank business model wherein customer deposits and shareholder equity make up the liability and capital side of the balance sheet and loans from within our markets coupled
with conservative, highly-rated investments make up the asset side. It is this traditional, non-complex model, our focus
on the local communities we serve, and our extremely well-capitalized position that makes us an above-average bank,
from a safety and soundness standpoint.
The recent passing of the Emergency Economic Stabilization Act of 2008 legislation, which contains the Treasury’s
Troubled Asset Relief Program (TARP) to purchase problem mortgage assets, provided a few benefits to the Community
Banking industry. However, most community banks, like Scott Valley Bank, did not participate in the origination of
these “troubled assets” and therefore will not be accessing the program for relief. In fact, the only truly meaningful
part of the legislation for Scott Valley Bank and our clients is the reinforcement of confidence provided by the elevated
FDIC insurance for bank deposits. The banking industry has, for years, been requesting an increased level of insurance coverage to reflect changes in the nature of depository relationships since the last increase in 1980 and, while
enacted as a temporary provision, an increase to $250,000 appears likely to become the ongoing standard for deposit
insurance in the future.
In contrast to what you have watched play out in the media of late, Scott Valley Bank’s financial position remains
strong. We will end the current year with solid profits, strong liquidity and an extremely high level of capital
when compared to regulatory standards. Our investment portfolio does not contain a single mortgage-backed
security and we are certainly not involved in the dangerous credit-default hedging activities previously mentioned.
While we do maintain a small piece of GSE preferred stock, the ongoing book value of that stock is less than
$100,000 and therefore, inconsequential to our future earnings and asset quality.
Scott Valley Bank remains very strong and we are proud of our 150-year heritage as California’s Oldest Community
Bank. Our management team and staff stand ready to support your banking needs and deliver the high level of service
you deserve.
As a family-owned bank, our commitment to our communities and to continued conservative banking practices will
not waiver as we go through these undeniably difficult economic times. Take solace in the fact that you do business
with one of the best capitalized, well-managed community banks in the state and in the nation.
We appreciate your confidence in Scott Valley Bank and offer our continued commitment to deliver to you the very best
in safe, secure, personalized banking services.
Sincerely,
Timothy S. Avery
President/CEO