As filed with the Commission on Registration No.
- ------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Amendment No. 1
SVB FINANCIAL SERVICES, INC.
(Name of small business issuer in its charter)
New Jersey 6712
(State or jurisdiction of incor- (Primary Standard Industrial
poration or organization) Classification Code Number)
22-3038058
(I.R.S. Employer Identification No.)
103 West End Avenue
Somerville, New Jersey 08876
(908) 704-1188
(Address and telephone number of principal
executive offices, and address of principal place of business
or intended principal place of business)
Keith B. McCarthy With copies to
Executive V.P. and Treasurer Mark F. Strauss, Esq.
103 West End Avenue Mauro, Savo, Camerino & Grant
Somerville, New Jersey 08876 75-77 North Bridge Street
(908) 704-1188 P.O. Box 1277
(Name, address and telephone number of Somerville, New Jersey 08876
agent for service) (908) 526-0707
Approximate date of proposed sale to the public: As soon after the effective
date of the Amendment of the Registration Statement as is practicable.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
Title of Each Proposed Proposed
Class of Dollar Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Share Price(1) Fee(1)
Common Stock $ 2,600,000 $ 13.00 $2,600,000 $ 896.56
($4.17/share
par value)
<PAGE>
The Registrant hereby amends this amendment of its registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
amendment shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
-----------------
(1) In accordance with Commission Rule 457(o) the Registration Fee has been
calculated based upon the Proposed Maximum Aggregate Offering Price.
2
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET
REGISTRATION STATEMENT ON FORM SB-2
REGISTRATION NO. 33-12305
Amendment No. 1
Item and Caption of Form SB-2 Caption in Prospectus
- ----------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and Front of Registration Statement;
Outside Front Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover
of Prospectus
3. Summary Information and Risk Factors Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Risk Factors;
The Offering - Absence of Public
Market and Arbitrary Determination
of Offering Price
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page; The Offering - Plan of
Distribution; The Offering - Method
of Subscription
9. Legal Proceedings Business - Legal Proceedings
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership of Certain Beneficial Management
Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Experts; Legal Matters
14. Disclosure of Commission Position on Disclosure Regarding Indemnification
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years Summary; Business - General
16. Description of Business Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis
Plan of Operation of Financial Condition and Results
of Operations
3
<PAGE>
<CAPTION>
Item and Caption of Form SB-2 Caption in Prospectus
- ----------------------------- ---------------------
<S> <C>
18. Description of Property Business - Properties
19. Security Ownership of Certain Beneficial Management
Owners and Management
20. Market for Common Equity and Related Summary - The Company;
Stockholder Matters Summary - The Offering;
Risk Factors - No Anticipated Dividends;
Risk Factors - Absence
of Public Market, Risk Factors - Arbitrary
Determination of Offering Price; Management - Stock
Option Plan
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Index to Consolidated Financial
Statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
</TABLE>
4
<PAGE>
Prospectus
SVB FINANCIAL SERVICES, INC.
200,000 Shares
Common Stock, Par Value $4.17/share
SVB Financial Services (the "Company") is offering for sale on a "Best
Efforts" basis, 200,000 shares (the "shares"), of common stock, $4.17/share par
value (the "common stock"). There is no aggregate mimimum number of shares that
will be sold in this offering. See "Risk Factors - No Minimum Subscription".
However, no investor will be allowed to purchase less than 100 shares. Prior to
the date of this offering, there has been no established public trading market
in the common stock, see "Risk Factors - Absence of Public Market and Risk
Factors - Arbitrary Determination of Offering Price."
The Company does not intend at present to apply for listing of the
shares on any securities exchange or to be quoted on the National Association of
Securities Dealers Automatic Quotation System (the "NASDAQ"). The offering price
has been determined arbitrarily, see "Risk Factors - Absence of Public Market
and Risk Factors - Arbitrary Determination of Offering Price".
Prospective purchasers should carefully consider
the information contained herein under the
heading "Risk Factors"
beginning on page 15.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discount Proceeds to
Public and Commissions Company(2)
---------- --------------- -----------
Per Share $ 13.00 None $ 13.00
Total $2,600,000 None $2,600,000
5
<PAGE>
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
The shares are being offered by the Company subject to certain
conditions. The Company reserves the right to withdraw, cancel, or modify this
offering without notice and to reject any order in whole or in part. However,
any material change to this offering will require an amendment to this
Prospectus, which will be made availabale to investors. Any investors who have
submitted their Subscription Agreements prior to that time will then be given
the opportunity to withdraw or modify their order if they so desire. Pending
completion (or termination) of this offering all subscription proceeds will be
held in a special escrow account established by the Company at Summit Bank. It
is expected that delivery of certificates representing the shares of common
stock will be made against payment therefor on or about November 30, 1996 at the
offices of the Company, Somerville, New Jersey (subject to extension as
hereafter provided, see "The Offering").
The date of this Prospectus is , 1996
- -----------------
(2) Before deducting expenses payable by the Company estimated to be $60,000.00.
6
<PAGE>
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
AVAILABLE INFORMATION
SVB Financial Services, Inc. is subject to the informational
requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission" or the
"SEC"). Such reports and other information can be inspected without charge and
copied at prescribed rates at the public reference facilities maintained by the
SEC at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at its regional offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
15th Floor, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates from the SEC's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549 and its public reference facilities in
Chicago, Illinois and New York, New York.
SVB Financial Services, Inc. has filed with the Commission in
Washington, D.C., a Registration Statement on Form SB-2 (herein, together with
all amendments thereto, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Shares offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits thereto and reference is made to the Registration Statement and
exhibits thereto for further information with respect to SVB Financial Services,
Inc. and the Shares offered hereby. Statements herein concerning the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement, together with
exhibits, may be inspected without charge, and copied at prescribed rates at the
principal or regional offices of the Commission at the addresses indicated
above. Copies also may be obtained at prescribed rates from the public reference
facilities maintained by the Commission, at 450 Fifth Street, N.W., Washington,
D.C. Information is also available through the Commission's web site at
[http://www.sec.gov].
7
<PAGE>
PROSPECTUS SUMMARY
The summary set forth below is qualified in its entirety by, and
should be read in conjunction with, the more complete and detailed information
and consolidated financial statements (including notes thereto) appearing
elsewhere in this Prospectus.
The term "Company" as used in this Prospectus refers to SVB Financial
Services, Inc. and its wholly owned subsidiary, Somerset Valley Bank (the
"Bank"). References to, and discussion of, the Company's financial results and
performance for the periods prior to acquisition of Somerset Valley Bank by the
Company (that is September 3, 1996) are for the Bank alone but so stated to give
effect to the acquisition.
The Company
SVB Financial Services, Inc. is a one-bank holding company
incorporated on February 7, 1996 for the purpose of acquiring the Bank. On
September 3, 1996, the Company acquired all of the outstanding shares of the
Bank on a basis of six shares for every five rendered. All per share information
contained in this Prospectus has been adjusted to account for this acquisition
exchange. The Company presently has approximately 400 shareholders of record.
The Bank opened for business on December 20, 1991 and since that time
has grown to over $110 million in assets. The Bank earned its first monthly
profit in June of 1993 and has been profitable ever since. See "Selected
Consolidated Financial Data and Management's Discussion and Analysis of
Operations". The Bank serves small to medium-sized businesses, professionals and
individuals in the Somerset County and surrounding areas. Somerset County is
considered an affluent suburban area with significant commercial activity.
On February 17, 1996, the Bank opened its first branch office in
Hillsborough Township, New Jersey. Approvals have been received for a second
branch office on North Bridge Street in Bridgewater Township, New Jersey (see
"Business").
At this time, the Company's investment in the Bank accounts for
virtually all of its assets and source of income. The Company is subject to the
supervision and regulation of the Federal Reserve System and its Board of
Governors (the "FRB"). The Bank is chartered by the State of New Jersey as a
commercial bank and its deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC"). The operations of the Bank are subject to the
supervision and regulation of the FDIC and the New Jersey Department of Banking.
The principal executive offices of SVB Financial Services, Inc. are
located at 103 West End Avenue, Somerville, New Jersey 08876 and the telephone
number is 908-704-1188.
8
<PAGE>
The Offering
Securities Offered 200,000 shares of Common Stock, par value
$4.17/share
Offering Price $13.00 per share
Common Stock Outstanding 1,174,632 shares (1) prior to the Offering
Common Stock Outstanding 1,374,632 shares (1)(2) after the Offering
Dividends The Company does not currently pay dividends
and has no plans to do so at this time. See
"Investment Considerations - Dividends".
Use of Proceeds To increase the Company's capital base and
thereby support the continued growth of the
Company and the Bank both through internal
expansion, and the expansion of the Bank's
branch network through acquisition of branches
of other financial institutions and/or the
opening of one or more new branch offices.
Determination of Offering The price of $13.00 per share has been ar-
Price bitrarily determined by the Directors and
bears no relationship to established criteria
of value such as assets, earnings or book
value.
Market for Securities There is no established public market for the
stock. At the present time, the Company does
not have any plans to apply for listing of the
stock on any exchange or for quotation on the
NASDAQ system.
Risk Factors Persons contemplating the purchase of the
shares offered by this Prospectus should read
and consider the information discussed under
the heading "Risk Factors".
(1) As of June 30, 1996 and assuming all shareholders participated in the 6 for
5 exchange of shares of SVB Financial Services, Inc. for Somerset Valley Bank.
Does not include the 49,200 shares of Common Stock reserved by the Company for
issuance upon exercise of Stock Options granted pursuant to the Bank's Stock
Option Plan after its adoption and conversion by the Company.
(2) Assuming all shares offered by this Prospectus are sold.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth at and for each of the four
years presented below except for the "performance ratios," are derived from the
audited financial statements of the Company. The selected consolidated financial
information for the six months ended June 30, 1996 and 1995 are derived from
unaudited financial statements of the Company which include all adjustments
consisting only of normal recurring accruals which the Company considers
necessary for a fair presentation of the data for these periods. The results of
operations for the six months ended June 30, 1996 are unaudited and are not
necessarily indicative of results of operations to be expected for the twelve
months ending December 31, 1996. The selected consolidated financial data should
be read in conjunction with the consolidated financial statements of the Company
(including the notes thereto) and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" set forth elsewhere in this
prospectus.
10
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
Six Months Ended
June 30, Year Ended December 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Statement Data:
Interest income $ 3,776,604 $ 2,932,091 $ 6,296,011 $ 4,396,324
Interest expense 1,723,480 1,309,827 2,870,884 1,765,501
------------ ----------- ----------- -----------
Net interest income 2,053,124 1,622,264 3,425,127 2,630,417
Provision for possible loan losses 145,000 90,000 206,000 156,000
------------ ----------- ----------- -----------
Net interest income after provision for possible
loan losses 1,908,124 1,532,264 3,219,127 2,474,417
Non-interest income 158,041 186,502 362,820 207,642
Non-interest expense 1,650,096 1,226,800 2,495,340 2,162,657
------------ ----------- ----------- -----------
Income (loss) before income taxes 416,069 491,966 1,086,607 519,402
Income tax expense (benefit) 167,746 190,826 423,390 (307,752)
------------ ----------- ----------- -----------
Net income (loss) $ 248,323 $ 301,140 $ 663,217 $ 827,154
============ =========== =========== ===========
Balance Sheet Data (at year/period end)
Total Assets $110,135,793 $79,922,971 $88,743,914 $ 74,075,685
Federal funds sold and other short term investments 5,550,672 3,950,007 5,170,063 3,625,661
Securities available for sale 3,828,786 3,393,130 4,874,738 3,473,951
Securities held to maturity 16,123,067 16,530,182 14,580,823 18,091,163
Loans, net 76,547,113 50,866,851 59,528,167 44,988,469
Deposits 100,818,738 71,398,621 79,679,792 67,053,817
Shareholders'Equity 8,929,016 8,323,936 8,703,176 6,819,399
11
<PAGE>
Selected Consolidated Financial Data
Six Months Ended
June 30, Year Ended December 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Performance Ratios:
Return on average assets 0.51% 0.80% 0.83% 1.30%
Return on average equity 5.68% 7.80% 8.16% 13.50%
Net interest margin 4.52% 4.57% 4.53% 4.38%
Asset Quality
Loans past due over 90 days $ 0 $ 138,000 $ 0 $ 0
Non accrual loans 41,000 0 0 0
Net charge offs 9,192 1,068 51,043 14,973
Allowance for loan losses to total loans 0.86% 0.90% 0.88% 0.82%
Per Share Data(1):
Net income (loss) $ 0.21 $ 0.26 $ 0.58 $ 0.80
Book value 7.60 7.09 7.42 6.61
Weighted average shares outstanding 1,174,394 1,173,432 1,152,408 1,029,048
Capital Ratios:
Tier 1 risked-based capital 10.64% 14.55% 13.46% 14.03%
Total risked-based capital 11.44% 15.37% 14.28% 13.28%
Leverage capital 7.98% 11.44% 9.50% 9.21%
(1) Retroactively restated for the 6 for 5 exchange of shares resulting from the
acquisition of Somerset Valley Bank by SVB Financial Services, Inc. and assuming
all of the Bank's shares were exchanged for those of the Company.
12
<PAGE>
<CAPTION>
Selected Consolidated Financial Data
(continued)
Year Ended December 31,
1993 1992
---- ----
<S> <C> <C>
Income Statement Data:
Interest income $ 2,703,788 $ 1,262,247
Interest expense 1,092,806 685,482
----------- -----------
Net interest income 1,610,982 576,765
Provision for possible loan losses 130,000 107,000
----------- -----------
Net interest income after provision for possible
loan losses 1,480,982 469,765
Non-interest income 192,083 87,641
Non-interest expense 1,741,896 1,441,567
----------- -----------
Income (loss) before income taxes (68,831) (884,161)
Income tax expense (benefit) 0 0
----------- -----------
Net income (loss) $ (68,831) $ (884,161)
=========== ===========
Balance Sheet Data:
Total Assets $52,660,542 33,439,249
Federal funds sold and other short term investments 2,914,280 4,582,910
Securities available for sale 5,329,917 0
Securities held to maturity 6,410,724 8,085,218
Loans, net 35,015,352 17,891,230
Deposits 46,604,614 29,810,861
Shareholder's Equity 5,989,086 3,554,968
Performance Ratios:
Return on average assets -0.16% -4.07%
Return on average equity -1.35% -22.50%
Net interest margin 4.07% 2.90%
Asset Quality Ratios:
Loans past due over 90 days 5,985 0
Non accrual loans 0 0
Net charge offs 5,965 0
Allowance for loan losses to total loans 0.65% 0.59%
Per Share Data(1):
Net income (.07) (1.23)
Book value 5.83 4.93
Weighted average shares outstanding 927,509 722,046
13
<PAGE>
Selected Consolidated Financial Data
(continued)
Year Ended December 31,
1993 1992
---- ----
<S> <C> <C>
Capital Ratios:
Tier 1 risked-based capital 15.99% 13.87%
Total risked-based capital 15.39% 13.45%
Leverage capital 11.19% 10.22%
(1) Retroactively restated for the 6 for 5 exchange of shares resulting from the
acquisition of Somerset Valley Bank by SVB Financial Services, Inc. and assuming
all of the Bank's shares were exchanged for those of the Company.
</TABLE>
14
<PAGE>
RISK FACTORS
The purchase of Common Stock in the Offering involves certain risks. In
determining whether or not to make an investment in the Common Stock, current
Shareholders and prospective investors are strongly urged to read and consider
carefully all known material risks which are set forth below as well as the
other information contained in this Prospectus.
A DECISION TO SUBSCRIBE FOR SHARES OF COMMON STOCK MUST BE MADE
PURSUANT TO EACH INVESTOR'S EVALUATION OF THE OFFERING IN THE CONTEXT OF HIS OR
HER BEST INTERESTS. NEITHER THE BOARD OF DIRECTORS OF THE COMPANY, NOR
MANAGEMENT MAKES ANY RECOMMENDATION TO PROSPECTIVE PURCHASERS REGARDING WHETHER
OR NOT THEY SHOULD PURCHASE SHARES MADE AVAILABLE BY THIS OFFERING.
Potential Adverse Effects Of Interest Rate Changes On The Bank And The Company
The operations of financial institutions such as the Bank are dependent
to a large degree on net interest income which is the difference between
interest income from loans and investments and interest expense on deposits and
borrowings. An institution's net interest income is significantly affected by
market rates of interest which in turn are affected by prevailing economic
conditions, by the fiscal and monetary policies of the federal government and by
the policies of various regulatory agencies. The interest rate sensitivity gap
is defined as the difference between the amount of interest earning assets
maturing or repricing within a specific time period less the amount of interest
bearing liabilities maturing or repricing within that same time period. At June
30, 1996, total interest earning assets maturing or repricing within one year
were less than total interest bearing liabilities maturing or repricing during
the same time period by $10.1 million, representing a negative cumulative one
year gap of 9.23%. Like all financial institutions, the Bank's statement of
condition is affected by fluctuations in interest rates. While gap analysis is a
general indicator of the potential effect that changing interest rates may have
on net interest income, the gap itself does not present a complete picture of
interest rate sensitivity. See "Management's Discussion of Financial Condition
and Results of Operations."
Control of Decision Making by Management
Prior to this offering the Directors and Executive Officers owned
600,058 shares or 51.08% of total outstanding shares. The Directors and
Executive Officers have committed to purchase a minimum of 57,700 shares in this
offering. After these shares are purchased the Directors and Executive Officers
will hold 657,758 shares or 47.8% of the outstanding shares assuming all shares
are sold. Although this will be less than the 51.08% held before the offering,
they will continue to be in a position to control all of the decisions of the
Company. It is important to note that the committment is a minimum amount.
15
<PAGE>
Supervision And Regulation
The Federal and state laws and regulations applicable to the Company
and the Bank give regulatory authorities extensive discretion in connection with
their supervisory and enforcement responsibilities, and generally have been
promulgated to protect depositors and the deposit insurance funds and not for
the purpose of protecting shareholders. These laws and regulations can
materially affect the future business of the Company and the Bank. Laws and
regulations now affecting the Company and the Bank may be changed at any time,
and the interpretation of such laws and regulations by bank regulatory
authorities is also subject to change. The Company can give no assurance that
future changes in laws and regulations or changes in their interpretation will
not adversely affect the business of the Company and the Bank.
No Anticipated Dividends
The assets of the Company have grown to over $110,000,000 since
December 20, 1991, the date on which the Bank opened for business. In order to
support the Company's future growth, the Board of Directors has decided to
retain the earnings of the Company in order to maintain or exceed the necessary
regulatory capital ratios and increase the book value of the stock. As a result,
there are no plans to pay cash dividends at this time. This stock should not be
purchased by anyone dependent on dividend income.
No Underwriter
The Directors, Officers and Employees intend to sell the Shares
themselves without the assistance of a professional underwriter. They believe
that they will maximize the net proceeds to the Company and will have more
control over the ownership of shares if they sell the shares without the
services of a professional underwriter. However, the lack of the assistance of a
professional underwriter may have an adverse effect on the ability of the
Company to sell all of the shares offered hereby.
Absence Of Public Market
There is no established public market for the Shares. The shares are
neither listed on any exchange nor quoted on the Nasdaq system. Prior to the
acquisition of the Bank by the Company there were a limited number of privately
negotiated transfers of the Bank's stock, the price for which was not always
made known to Management. In those instances where price was disclosed the
consideration was $10.00/share. Although the Shares will not be restricted as to
transfers, it is unknown if and when a public market in the Bank's stock will
develop. While Shareholders may sell shares of common stock in the future by
means of private negotiated transactions, they should expect their investment in
common stock to be illiquid. Between the time a current shareholder or other
participant submits a subscription form for common stock and the time that such
a subscriber is able to sell such shares, there can be no assurance that the
value of the common stock will not fall below the subscription price. This is
especially so given the lack of an established public market for the common
stock.
Arbitrary Determination of Offering Price
The Offering price of $13.00 per Share was determined arbitrarily by
the Directors and bears no relationship to established criteria of value such as
assets, earnings or book value.
16
<PAGE>
No Minimum Aggregate Subscription
There is no minimum aggregate number of shares required to be sold to
complete this offering. However, no investor may subscribe for less than 100
shares. If substantially less than the maximum number of shares available under
the offering are sold, the Company would realize a commensurate reduction in net
proceeds. Accordingly, the Company may not be able to fully implement its plans
for the use of proceeds. See "Use of Proceeds."
Substantial Competition In The Banking Industry
The Company faces substantial competition for deposits and loans from
major banking and financial institutions, including many which have
substantially greater resources, name recognition and market presence than the
Company. Such competition comes not only from local institutions but also from
out-of-state financial intermediaries that have opened loan production offices
or that solicit deposits in its market area. Many of the financial
intermediaries operating in the Company's market area offer certain services,
such as trust and international banking services, which the Company does not
offer directly. Additionally, banks with larger capitalization and financial
intermediaries not subject to bank regulatory restrictions have larger lending
limits and are thereby able to serve the credit needs of larger customers.
Competitors of the Company include commercial banks, savings institutions,
credit unions, insurance companies, mortgage companies, money market and mutual
funds and other institutions which offer loan and investment products. See
"Business-Competition".
THE OFFERING
The Company is offering a maximum of 200,000 shares of common stock at
a price of $13.00 per share. While there is no aggregate minimum subscription
amount in connection with this offering, no individual subscription will be
accepted for less than 100 shares. Subscriptions will be received by the Company
until 5:00 p.m., local time, on November 30, 1996 (unless extended by the Board
of Directors to a date not later than December 15, 1996). The procedure for
purchasing shares offered hereby is set forth below under "Method of
Subscription". Further, terms, restrictions and conditions on any subscription
are discussed in the following subsections.
The placement of an order pursuant to the Offering is irrevocable once
received by the Escrow Agent except in the event of a material change in the
Offering. In addition, the Company reserves the right to extend the period for
the Offering from November 30, 1996 up to December 15, 1996. Accordingly, a
period of time may elapse between the submission of an order by participants and
receipt of certificates for Common Stock.
Determination Of Offering Price
The offering price of the shares offered by this Prospectus has been
determined arbitrarily by the Board of Directors of the Company without regard
or reference to book value, operating performance of the Bank, or any prices
paid on private transfers of stock.
17
<PAGE>
Right To Terminate The Offering
The Company expressly reserves the right, in its sole discretion, at
any time prior to delivery of any shares of Common Stock offered hereby, to
terminate the Offering by giving oral or written notice thereof to the Escrow
Agent and making a public announcement thereof. The public announcement will
consist of a letter to all subscribers notifying them of the termination and the
publishing of an advertisement on three days within a week in a newspaper
circulated in the company's market area. If the Stock Offering is so terminated,
all funds received from persons placing orders will be promptly refunded,
without interest.
Plan Of Distribution
The shares offered hereby are not being underwritten, and no brokers,
dealers or salespersons have been employed to sell the shares. No discounts or
commissions will be paid in connection with the shares being offered. The
Offering will primarily be made by persons who serve as directors, officers, and
employees of the Company or the Bank, who will solicit subscriptions from
prospective subscribers by personal contact, telephone, mail, or other media.
While no pre-emptive rights are afforded existing Shareholders in this
offering, some of the sales activities will be directed toward existing
Shareholders by sending a copy of the Prospectus to each such Shareholder
inviting their interest. This will be undertaken simultaneously with marketing
efforts to the general public as described below.
The general public will be made aware of the Offering through one or
more announcements placed in newspapers circulating in the Company's market
area, see "Business-Market Area". The Company may also mail an announcement to
its deposit and loan customers. The announcements will advise of the
commencement of the Offering, the availability of the Prospectus, and directions
for obtaining a copy thereof.
It is also contemplated that one or more informational meetings may be
scheduled to which interested persons will be invited and at which copies of the
Prospectus will be distributed with representatives of the Company management
present to give an overview of the Offering and answer questions raised.
No special compensation will be paid to any officer or employee for
performing any duties related to the Offering, but any of them may be reimbursed
by the Company for reasonable out-of-pocket expenses, if any, incurred in
connection with the sale of the shares.
18
<PAGE>
No purchaser shall be permitted to buy an amount of shares which would
result in the beneficial ownership by any person of 10% or more of this
Offering. The Directors of the Company reserve the right to waive these
limitations in their sole discretion. The shares offered hereby are being sold
on a "first come - first served" basis. That is, in the event of any
oversubscription, subscriptions conforming to the stated procedure (see "Method
of Subscription") will be honored in order of the date of their receipt. The
Board of Directors shall have the right, in their sole discretion, to decide any
questions regarding such receipt and the relative order thereof. There is no
minimum number of shares required to be subscribed for to complete the Offering.
However, the Directors, Officers and Employees have committed to subscribe for a
minimum of 57,700 shares made available hereby. The directors, officers,
employees and existing Shareholders will pay the same price per share as any
other subscriber. After the 57,700 shares are purchased the Directors and
Executive Officers will hold 657,758 shares or 47.8% of the outstanding shares
assuming all shares are sold. Although this will be less than the 51.08% they
held before the offering, they will continue to be in a position to control all
of the decisions of the Company.
Method Of Subscription
Any subscriber wishing to purchase shares offered hereby must execute a
Subscription Agreement and mail it (or personally deliver it) together with
payment for the shares being subscribed for by cash or check to:
SVB Financial Services, Inc.
103 West End Avenue
Somerville, New Jersey 08876
Attn: Keith B. McCarthy, Executive V.P. and Treasurer
The form of Subscription Agreement (or a photocopy of same) should be
used. The subscription price must be paid in cash or by check in U.S. dollars
drawn in the order of Summit Bank as Escrow Agent for SVB Financial Services,
Inc. For purposes of this "Method of Subscription", the word "check" also means
a bank draft or money order.
A Subscription Agreement will be considered for acceptance provided it
is:
(a) properly completed, dated, signed and received by the expiration
date of the Offering, which is November 30, 1996 (unless the Offering
is sooner terminated or extended); and
(b) accompanied by payment in full in cash or by check or a combination
thereof.
Subscriptions once delivered cannot be revoked by a subscriber, except
in the event of a material change in the offering, in which case all subscribers
will be notified in writing of same and afforded the right to withdraw or modify
their subscription. Subscriptions not accompaniied by payment are not considered
valid subscriptions. Share certificates for shares duly subscribed and paid for
will be issued as of the closing of this Offering, on or soon after November 15,
1996 (or such other date to which this Offering may be extended by the Company).
19
<PAGE>
In connection with the sale of shares offered hereby, an escrow account
has been established at Summit Bank. Upon receipt of subscription funds, the
Company will deposit the funds in the escrow account. The escrow funds will be
held subject to acceptance of the subscriptions by the Company. If, for any
reason, the Offering is canceled or withdrawn prior to the issuance of the
shares offered or any subscription is rejected (in whole or in part) the funds
paid by the subscriber(s) will be returned promptly.
NO INTEREST WILL BE PAID ON FUNDS DELIVERED TO THE SUBSCRIPTION AGENT
PURSUANT TO THE OFFERING.
USE OF PROCEEDS
If all of the shares offered by this Prospectus are sold, the net
proceeds to the Company are estimated to be $2,540,000, after deducting expenses
of the Offering.
These net proceeds will be used to assist the Company in the expansion
of its business. At least half of the proceeds will be used to make a capital
contribution to the Bank to: (i) support its continuing lending and investment
activities; and/or (ii) purchase or open additional branches. The Bank is in the
process of opening a new branch on North Bridge Street in Bridgewater Township,
New Jersey, see "Business - General". The capital contribution is not required
by either the FDIC or the New Jersey Department of Banking. The Bank is
currently considered adequately capitalized, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital Resources."
If insufficient proceeds are obtained in this offering the Bank would have to
rely solely on its retained earnings for an additional source of capital for its
funding.
Other than the Bridgewater Township Branch of the Bank, the Company has
not entered into any agreements for the acquisition or opening of additional new
branches. However, the Company believes that the consolidation now underway in
the banking industry in the Bank's market area will result in one or more
opportunities to purchase an existing branch location, see "Business -
Competition". The Bridgewater office is a facility that will be built on leased
land. The Company is in the process of negotiating the final construction
costs.
Pending application to the uses described above, these net proceeds
will be invested by the Company in short-term investments, such as federal
funds, government obligations and bank deposits.
20
<PAGE>
DILUTION
Because the Subscription Price is greater than the per share book value
of the Common Stock, current Shareholders will not incur dilution in the book
value of their Common Stock upon completion of the Offering whether or not they
purchase additional shares through this Offering. Current Shareholders who do
not purchase additional shares will suffer a dilution in their percentage voting
interest in the Company as a result of the voting rights acquired by other
investors in the Offering. It is currently estimated that the book value per
share of Common Stock will increase from $7.60 at June 30, 1996 to $8.34 if all
200,000 shares is sold in the Offering. For a tabular presentation of the actual
book value per share of Common Stock at June 30, 1996 and the estimated pro
forma book value per share of Common Stock based on certain assumptions, see
"Capitalization". There will be dilution for new shareholders because the
offering price of $13.00 per share is greater than the $8.34 book value the new
shareholders will have upon completion of the offering.
The Company has had one previous offering during the past five years.
During the period March 1, 1993 to May 31, 1993 the Bank sold shares at $10.00
per share. Attached to these shares were warrants allowing the shareholder to
purchase one share of common stock for every two shares purchased in that
offering for $10.00 per share until March 1, 1995. When the Company acquired the
Bank it did so by issuing six shares for every five shares of the Bank. This had
the effect of changing the shareholders' basis in the common stock who purchased
in the 1993 offering from $10.00 to $8.33 per share. The price to shareholders
in this offering is $13.00 per share.
Prior to the exchange of shares of the Company's common stock for that
of the Bank, the Bank had a stock option plan, see - "Management - Stock Option
Plan". The Company intends to transfer and assume these option which will total
49,200 options. These options all have an exercise price of $8.33 per share. If
all of these options were to be exercised and all 200,000 were sold in this
offering the book value would be $8.34.
Voting rights per share will not change and all holders of Common Stock
continue to have one vote per share. Even if some current Shareholders purchase
additional shares, they may not be able to maintain their percentage voting
interest since there are no preferential or preemptive rights granted to current
Shareholders under the Offering. Further, shares of Common Stock may be
purchased by persons who are not current Shareholders.
The Subscription Price for the Common Stock offered hereby has been
determined arbitrarily by the Board of Directors of the Company. See "Investment
Considerations-Absence of Public Market and Arbitrary Determination of Offering
Price". Until stock certificates are delivered, subscribing purchasers may not
be able to sell the shares of Common Stock that they have purchased in the
Offering. Certificates representing shares of Common Stock purchased in the
Offering will be delivered as soon as practicable after the completion of the
Offering.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management of the Company is not aware of any known trends, events or
uncertainties that will have or that are reasonably likely to have a material
effect on the Company's liquidity, capital resources or results of operations.
Results Of Operations
Net income for the first six months of 1996 was $248,323 or $.21 per
share compared to $301,140 or $.26 per share in 1995. The decline in comparative
earnings occurred during the first three months of 1996. Income for the three
months ended March 31, 1996 was $78,061 compared to $141,797 in 1995. The
Company opened its first branch office in the first quarter and the additional
personnel, occupancy and marketing expenses had a negative impact on first
quarter net income. During the second quarter of 1996, the Company experienced
significant loan and deposit growth. Loans increased $13.9 million or 22% and
deposits increased $14.4 million or 16.7% in the three month period. This growth
was a result of a combination of the new branch office and increased marketing
efforts to capitalize on the migration of consumer and business account holders
dissatisfied with the deterioration of their relationships with recently
consolidated larger banking institutions, see "Business - Competition". The
imposition of unacceptable service charges and the perceived lack of strong
levels of personal service at these larger banking institutions have driven a
significant number of customers to seek new relationships with
community-oriented banks such as Somerset Valley Bank. The growth in loans and
deposits created an increase in net interest income which significantly improved
earnings in the second quarter. Net income for the six months ended June 30,
1996 was $170,262, an increase of $92,201 or 118% from the first quarter and
$8,583 or 5% from the same period last year.
Net income for 1995 was $663,217 compared to $827,154 in 1994. It is
important to note that during 1994 the Company recognized a one-time tax benefit
of $307,752 primarily related to the reversal of a valuation allowance
applicable to the Bank's deferred tax accounts, primarily related to net
operating loss carry forwards. In comparison, the Company was fully taxable in
1995. Pretax income for 1995 increased over 1994 by $567,205 or 109%.
Net income for 1994 was $827,154 compared to a net loss of $68,831 in
1993 and was the first year of profitability for the company. In addition to the
tax benefit mentioned above an increase in net interest income of $993,435 was
primarily responsible for the change to profitabiltiy.
For a discussion concerning the provision for loan losses see "Asset
Quality."
Net Interest Income
Net interest income is the difference between the interest earned on
the Company's earning assets and the interest paid on its interest bearing
liabilities. It is the Company's principal source of revenue.
The following table sets forth for the periods indicated the average
daily balances of certain balance sheet items, the interest earned on earning
assets and the average interest rate paid on interest bearing liabilities, net
interest income and the net interest margin. Net interest margin is defined as
net interest income divided by total earning assets.
22
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
1996 1995
--------------------------------- -----------------------------------
Average Average Average Average
Balance Rate Interest Balance Rate Interest
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Federal Funds Sold $ 3,644,644 5.36% $ 96,874 $ 3,592,027 5.88% $ 211,302
Securities Purchased
Under Agreements to
Resell 0 0.00% 0 0 0.00% 0
Other Short Term
Investments 534,034 5.29% 14,021 283,389 5.22% 14,798
Securities Available
for Sale 5,204,443 5.81% 150,008 3,615,515 5.68% 205,413
Securities Held to
Maturity 16,004,937 6.01% 476,709 17,146,453 5.91% 1,013,811
----------- ---- --------- ----------- ---- ----------
Total Securities 21,209,380 5.96% 626,717 20,761,968 5.87% 1,219,224
Loans 66,240,156 9.25% 3,038,992 51,047,241 9.50% 4,850,687
----------- ---- --------- ----------- ---- ----------
Total Interest Earning
Assets 91,628,214 8.31% 3,776,604 75,684,625 8.32% 6,296,011
Cash and Due From
Banks 3,796,298 3,134,843
Allowance for Possible
Loan Losses (575,635) (451,397)
Premises and Equipment 796,793 490,206
Other Assets 1,434,939 1,033,880
----------- -----------
Total Assets $97,080,609 $79,892,157
=========== ===========
23
<PAGE>
<CAPTION>
Summary of Net Interest Income
(continued)
Years Ended December 31,
1994
------------------------------------
Average Average
Balance Rate Interest
------------------------------------
<S> <C> <C> <C>
Assets:
Federal Funds Sold $ 2,519,589 4.28% $ 107,863
Securities Purchased
Under Agreements to
Resell 441,563 4.10% 18,122
Other Short Term
Investments 393,133 3.72% 14,624
Securities Available
for Sale 4,707,132 4.02% 189,260
Securities Held to
Maturity 11,864,436 4.70% 558,076
----------- ---- ---------
Total Investment
Securities 16,571,568 4.51% 747,336
Loans 40,141,035 8.74% 3,508,379
----------- ---- ---------
Total Interest Earning
Assets 60,066,888 7.32% 4,396,324
Cash and Due From
Banks 2,558,955
Allowance for Possible
Loan Losses (294,854)
Premises and Equipment 475,411
Other Assets 540,111
Total Assets -----------
$63,346,511
===========
24
<PAGE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
1996 1995
--------------------------------- -----------------------------------
Average Average Average Average
Balance Rate Interest Balance Rate Interest
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities and
Shareholders' Equity
Savings Deposits $ 6,218,195 3.15% $ 96,997 $ 5,942,451 3.27% $ 194,042
Money Market Deposit
Accounts 9,497,291 3.19% 150,451 8,366,762 3.54% 296,300
Now Accounts 5,514,953 2.47% 67,676 4,417,143 2.31% 102,187
Time Deposits 52,439,095 5.42% 1,408,356 41,703,884 5.46% 2,278,185
----------- ---- --------- ----------- ---- ----------
Total Interest
bearing Deposits 73,669,534 4.72% 1,723,480 60,430,240 4.75% 2,870,714
Borrowed Funds 0 0 0 2,740 6.20% 170
----------- ---- --------- ----------- ---- ----------
Total Interest
bearing Liabilities 73,669,534 4.72% 1,723,480 60,432,980 4.75% 2,870,884
Demand Deposits 14,099,185 10,838,744
Accrued Expenses and
other Liabilities 543,283 492,190
Shareholders' Equity 8,768,607 8,128,243
---------- ----------
Total Liabilities and
Shareholders' Equity $97,080,609 $79,892,157
=========== ===========
Net Interest Income $2,053,124 $3,425,127
========== ==========
Net Interest Margin 4.52% 4.53%
25
<PAGE>
<CAPTION>
Summary of Net Interest Income
(continued)
Years Ended December 31,
1994
------------------------------------
Average Average
Balance Rate Interest
------------------------------------
<S> <C> <C> <C>
Liabilities and
Shareholders' Equity
Savings Deposits $ 7,611,311 3.31% $ 251,573
Money Market Deposit
Accounts 8,619,199 3.12% 268,781
Now Accounts 4,445,435 2.35% 104,581
Time Deposits 27,492,118 4.15% 1,140,566
----------- ---- ---------
Total Interest
bearing Deposits 48,168,063 3.67% 1,765,501
Borrowed Funds 8,219 4.94% 406
----------- ---- ---------
Total Interest
bearing Liabilities 48,176,282 3.67% 1,765,907
Demand Deposits 8,901,103
Accrued Expenses and
other Liabilities 156,264
Shareholders' Equity 6,112,862
-----------
Total Liabilities and
Shareholders' Equity $63,346,511
===========
Net Interest Income $2,630,417
==========
Net Interest Margin 4.38%
</TABLE>
26
<PAGE>
The following table presents the changes in net interest income attributable to
either a change in volume or a change in rate.
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Due to Increase (Decrease) Due to
Changes in: Changes in:
Increase (Decrease) in Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Federal Funds Sold ....................... $ 35,535 $ (6,292) $ 29,243 $ 55,052 $ 48,387 $ 103,439
Securities Purchased Under
Agreements to Resell ................... 0 0 0 (18,122) 0 (18,122)
Other Short Term Investments ............. 9,758 (367) 9,391 (390) 564 174
Securities Available for Sale ............ 50,147 13,176 63,323 (20,681) 36,834 16,153
Securities Held to Maturity .............. (52,860) 23,048 (29,812) 288,937 166,798 455,735
---------- ----------- ---------- ----------- ----------- -----------
Total Securities ....................... (2,713) 36,224 33,511 268,256 203,633 471,888
Loans .................................... 840,161 (67,793) 772,368 1,016,147 326,161 1,342,308
---------- ----------- ---------- ----------- ----------- -----------
Total Interest Income .................... 882,741 (38,228) 844,513 1,320,943 578,744 1,899,687
---------- ----------- ---------- ----------- ----------- -----------
Interest Expense:
Savings Deposits ......................... 1,302 (4,997) (3,695) (54,529) (3,002) (57,531)
Money Market Deposit Accounts ............ 20,381 (11,778) 8,603 (7,578) 35,097 27,519
Now Accounts ............................. 17,780 3,788 21,568 (663) (1,731) (2,394)
Time Deposits ............................ 353,817 33,530 387,347 705,403 432,216 1,137,619
---------- ----------- ---------- ----------- ----------- -----------
Total Interest bearing Deposits ........ 393,280 20,543 413,823 642,633 462,580 1,105,213
Borrowed Funds ........................... (170) 0 (170) (383) 147 (236)
---------- ----------- ---------- ----------- ----------- -----------
Total Interest Expense ................. 393,110 20,543 413,653 642,250 462,727 1,104,977
---------- ----------- ---------- ----------- ----------- -----------
Change in Net Interest Income ............ $ 489,632 $ (58,772) $ 430,860 $ 678,693 $ 116,017 $ 794,710
=========== =========== =========== =========== =========== ===========
</TABLE>
27
<PAGE>
Six Month's 1996 vs. 1995
Net interest income was $2,053,124 for the first six months of 1996 as
compared to $1,622,264 for the same period in 1995, an increase of $430,860.
Most of this increase was attributable to the growth in average earning assets
which were $71.4 million in the first half of 1995 and $91.6 million in the
first half of 1996. Almost all of this increase occurred in loans. The Company
experienced significant loan growth including commercial, consumer and mortgage
loans. Total loans averaged $66.2 million for the first six months of 1996
compared to $47.9 million for the same period in 1995, an increase of $18.3
million or 38%. Yields on loans declined by 30 basis points, however, the
overall yield on earning assets increased 4 basis points because the percentage
of earning assets made up by loans increased from 67% in the first half of 1995
to 72% in the first half of 1996. The increase in loan volume accounted for
$840,161 of the $844,513 increase in interest income.
Supporting the Company's earning assets were its interest bearing
deposits and noninterest bearing sources of funds such as capital and demand
deposits. Interest bearing deposits were $73.7 million in 1996 compared to $57.4
million in 1995. The increase included all categories of deposits from lower
yielding savings to the higher yielding time deposits. Because of the increases
in loan demand, the Company has been aggressive in its pricing of time deposits.
This, combined with an increase in the overall market interest rates in the
second quarter of 1996 caused the cost of interest bearing liabilities to
increase 12 basis points from the comparable period in 1995. Increases in
noninterest sources of funds offset the increased cost of interest bearing
liabilities slightly but not enough to offset the decline in the yield on
earning assets. Consequently, the net interest margin declined 6 basis points to
4.52%. It is management's goal to manage its interest rate risk in order to
maintain as stable a net interest margin as possible.
The decline in the net interest margin resulted in a reduction in net
interest income of approximately $58,772. This reduction was offset by an
increase in net interest income due to an increase in volume, leaving a net
increase of $430,860.
1995 vs. 1994
Net interest income increased by $794,710 in 1995 as compared to 1994.
Most of this increase was attributable to the growth in the volume of the
Company's earning assets. The average daily balance in earning assets increased
by $15,617,735 or 26% from the 1994 average. Almost 70% of this increase took
the form of loans as the Company continued to experience strong loan demand in
1995 in both the commercial and consumer portfolios. The loans to deposits
ratio, a measure of the percentage of deposits that the Company invests in
loans, which generally provide a higher return than investments and federal
funds sold, increased from 70.3% in 1994 to 71.6% in 1995. The growth in volume
as well as the improvement of the mix in earning assets provided approximately
$1,320,943 of the $1,899,687 increase in interest income. The remainder was
provided by a 100 basis point increase in the yield on earning assets. Interest
rates in general increased substantially during much of 1994. They remained
fairly stable through 1995 before declining slightly in the second half of the
year.
28
<PAGE>
Average interest bearing deposits for 1995 increased $12,262,177 or 25%
from 1994. Most of this increase was in the form of time deposits as the Company
continued to aggressively price its certificates of deposit in order to attract
new customers. The overall cost of interest bearing liabilities increased 108
basis points from 3.67% to 4.75% due to the 1994 increases in
interest rates mentioned above. Offsetting this increased cost was a growth in
the average balance of noninterest sources of funds. Average demand deposits
increased $1,937,641 or 22% due to increases in commercial checking accounts.
Average shareholders' equity increased $2,015,381 due mostly to the issuance of
common stock as a result of the exercise of stock warrants issued in the 1993
stock offering, which expired on March 1, 1995.
The increases in non-interest sources of funds coupled with the growth
in the yield on earning assets contributed to the improvement in the Company's
net interest margin from 4.38% in 1994 to 4.53% in 1995. The improvement in the
net interest margin contributed approximately $116,017 to the increase in net
income while the overall growth of the balance sheet contributed $678,693.
OTHER INCOME:
A comparison of the major components of other income is included in
the following table:
<TABLE>
<CAPTION>
Six Months Ended: The Years Ended:
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service Charges on Deposit Accounts ................... $ 79,009 $ 52,461 $ 120,411 $ 108,060
Gain (Loss) on the Sale of Securities ................. (2,117) 2,336 2,336 0
Gain on the Sale of Loans ............................. 43,513 101,696 181,599 59,358
Other Income .......................................... 37,636 30,009 58,474 40,224
--------- --------- --------- --------
$ 158,041 $ 186,502 $ 362,820 $ 207,642
========= ========= ========= =========
</TABLE>
Other income declined $28,461, or 15% during the first six months of
1996 in comparison with the same period in 1995. The Company is a preferred SBA
lender and, as such, it originates SBA loans and sells the government guaranteed
portions in the secondary market while retaining the servicing. It is important
to note that SBA loans are not the primary focus of the Company's loan business.
SBA loans are originated when management concludes that the borrower is a
candidate and is better served through SBA financing. The amount of gains
recognized on SBA loans is dependent on the volume of new SBA loans generated
each quarter. These amounts can vary greatly from quarter to quarter and year to
year. It is not considered part of the Company's core earnings. These gains
amounted to $43,513 in 1996 as compared to $101,696 in 1995 and is responsible
for the decline in other income. Offsetting part of that decline was an increase
in service charges on deposit accounts of $26,548 or 51% caused by an increase
in the number of both commercial and consumer checking accounts and an increase
in the charge for overdraft fees. Other income increased $7,627 or 25% mostly
from servicing fees on SBA loans sold.
29
<PAGE>
Other income increased $155,178 or 75% for the year ending December
31, 1995 as compared with the same period in 1994. Most of the increase was due
to gains on the sale of SBA loans. During 1995, the Company recognized gains
from the sales of 17 SBA loans totaling $181,599.
Service charges on deposit accounts increased $12,351 or 11% in 1995
compared to 1994 due mostly to account maintenance and overdraft fees on
commercial checking accounts. These increases were a result of volume increases
since the Bank did not change its rate of service charges. In order to attract
and maintain commercial demand deposits, the Company's service charges are
competitive in comparison to other banks.
The increase in other income of $18,250 was also almost entirely due
to servicing fees on the SBA loans sold as mentioned above.
OTHER EXPENSE
A comparison of the major components of other expense is presented in
the following table:
<TABLE>
<CAPTION>
Six Months Ended: The Years Ended:
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries and Employee Benefits ................. $ 853,241 $ 604,201 $1,269,371 $1,055,231
Occupancy Expense .............................. 188,483 113,600 240,049 221,109
Equipment Expense .............................. 114,653 82,923 174,985 152,552
Other Expenses ................................. 493,719 426,076 810,935 733,765
---------- ---------- ---------- ----------
$1,650,096 $1,226,800 $2,495,340 $2,162,657
========== ========== ========== ==========
</TABLE>
Total noninterest expenses increased $423,296 or 35% during the
comparable six month periods from 1995 to 1996. In February of 1996 the Company
opened its first branch office at the Hillsborough Centre Shopping Center.
Although the branch had accumulated over $6.6 million in deposits as of June 30,
1996, it was not expected to generate sufficient volumes in the initial months
to cover expenses. Salaries and benefits expense accounted for $249,040 of the
total increase in expenses. The branch employs five full time people. In
addition, during 1995, the Company added additional staff especially in the
lending area and back office operations in order to properly service the
Company's growth in deposit and loan volume. These additions were not present
for the full year in 1995.
Occupancy increased $74,883 or 66% and equipment increased $31,730 or
38% mostly due to the opening of the new branch as well as equipment purchased
for the other new staff members.
Other expenses increased $67,643 or 16%. Over $43,000 of this increase
was from additional advertising and business development expenses much of which
was caused by the grand opening of the Hillsborough Office. The Company has also
had to advertise more aggressively for deposits in order to fund loan demand.
Outside services and data processing increased over $27,700 due to the growth of
the Company and increased transaction volume. Fees paid to Directors for Board
and Committee meetings increased $17,000.
30
<PAGE>
Total non-interest expenses for the year ended December 31, 1995
increased $332,683 or 15% from the same period in 1994. As a relatively new
organization, the Company has shown significant growth in assets in its first
four years of operation. As a result, expenses have had to grow in order to
support and service the Company's asset growth.
Salary and Benefits expense accounts for approximately half of all
non-interest expenses. As mentioned previously, the growth of the Company during
1995 made it necessary for the Company to add additional staff especially in the
lending department and back office operations. The Company also paid performance
bonuses to most of its officers and employees. These factors caused salary and
benefits expense to increase $214,140 or 20%. Most of the $18,940 increase in
occupancy expense was due to increased rental expense. The Company began leasing
additional space at its back office facility at 117 West End Avenue and is also
leasing land on North Bridge Street in Bridgewater township for the proposed
branch office.
The increase in equipment expense resulted from purchases of furniture
and computer equipment for the additional banking staff as well as increased
costs for equipment maintenance.
Other expenses increased $77,170 or 10.52% during 1995. Data
Processing costs increased $19,766 due to the increase in transaction volume.
Marketing and Business development costs increased $20,915 as the Company became
more aggressive in advertising in both newspaper and radio. Stationery and
supplies increased $18,309 as the cost of paper and transaction volume
increased. Directors fees increased $23,100. Offsetting some of these increases
was a decline in FDIC insurance of $35,821, since the FDIC substantially lowered
premium rates in the second half of 1995. Legal, examination and accounting
expenses also showed a decline of $7,010.
INVESTMENT PORTFOLIO
The Company's investment portfolio is made up of securities available
for sale and securities which it has the ability and the intent to hold to
maturity. The securities available for sale are to be used to fund increases in
loan demand or possible outflows of deposits. The securities held to maturity
are to be matched against maturing liabilities in order to attempt to maintain a
balance in the repricing of the Company's earning assets and interest bearing
liabilities. Maturing securities may also be used to fund increases in loan
demand or allow for the outflow of deposits with which they are matched.
31
<PAGE>
The following table sets forth the amortized cost and estimated market
values of securities in the investment portfolios as of June 30, 1996 and
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31:
1996 1995 1994
-------------------------- ------------------------ ----------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury Securities $1,494,959 $1,496,397 $3,543,131 $3,555,219 $1,244,970 $1,231,732
U.S. Government Agency Securities 1,992,819 1,955,269 791,688 791,338 1,505,934 1,483,093
Mortgage Backed Securities 375,975 377,120 525,452 528,181 781,503 759,126
---------- ---------- ---------- ---------- ---------- ----------
$3,863,753 $3,828,786 $4,860,271 $4,874,738 $3,532,407 $3,473,951
========== ========== ========== ========== ========== ==========
Held to Maturity:
U.S. Treasury Securities $ 6,010,611 $ 6,016,328 $ 6,263,561 $ 6,310,157 $10,451,824 10,329,953
U.S. Government Agency Securities 7,988,308 7,935,625 6,094,722 6,126,613 4,337,200 4,312,707
Other Securities 497,198 501,250 496,147 506,875 1,293,804 1,271,808
Mortgage Backed Securities 1,626,950 1,596,361 1,726,393 1,705,496 2,008,335 1,898,220
----------- ----------- ----------- ----------- ----------- -----------
$16,123,067 $16,049,564 $14,580,823 $14,649,141 $18,091,163 17,812,688
=========== =========== =========== =========== =========== ===========
</TABLE>
Note: With regard to mortgage backed securities the company does not hold any
private issue CMOs. None of the mortgage backed securities are classified as
"high risk" under FFIEC policy statement criteria. As of June 30, 1996 there was
no one issuer where the aggregrate book value or aggregate market value exceeds
ten percent of shareholders' equity.
32
<PAGE>
The maturity distribution and weighted average yield of the Company's investment
portfolio as of June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Due in:
One Year or After 1 year
Less Through 5 years Total
---- --------------- -----
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury Securities
Market Value ................... $ 1,496,397 $ 1,496,397
Yield .......................... 5.74% 5.74%
U.S. Government Agency Securities
Market Value ................... $ 492,300 $ 1,462,969 $ 1,955,269
Yield .......................... 5.17% 5.76% 5.61%
Mortgage Backed Securities
Market Value ................... $ 377,120 $ 377,120
Yield .......................... 7.21% 7.21%
Held to Maturity:
U.S. Treasury Securities
Book Value ..................... $ 5,014,031 $ 996,579 $ 6,010,610
Yield .......................... 5.73% 6.29% 5.82%
U.S. Government Agency Securities
Book Value ..................... $ 3,001,493 $ 4,986,815 $ 7,988,308
Yield .......................... 5.45% 6.10% 5.86%
Other Securities
Market Value ................... $ 497,198 $ 497,198
Yield .......................... 6.85% 6.85%
Mortgage Backed Securities
Market Value ................... $ 1,626,950 $ 1,626,950
Yield .......................... 6.00% 6.00%
</TABLE>
Note: Mortgage backed securities are not included because expected
maturities will differ from contractual maturities. Borrowers may have the right
to prepay or call obligations with or without call or prepayment penalties. U.S.
Government Agency Securities which are callable before their stated maturity are
included in the table at their stated maturity.
33
<PAGE>
LOANS
The following table summarizes the Company's loan portfolio as of June
30, 1996 and December 31, 1995 and 1994.
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1994
-------------- -------------------------
<S> <C> <C> <C>
Secured by Real Estate:
Residential Mortgage ............... $23,471,964 $21,466,489 $17,507,136
Commercial Mortgage ................ 20,809,304 15,700,266 12,825,013
Construction ....................... 2,787,913 2,812,000 3,234,618
Commercial & Industrial .............. 16,182,687 12,554,205 7,525,585
Loans to Individuals for Automobiles . 10,105,300 5,425,201 1,187,858
Other Loans to Individuals ........... 3,953,142 2,186,267 3,184,817
----------- ----------- -----------
$77,310,310 $60,144,428 $45,465,027
=========== =========== ===========
</TABLE>
Note: The Company's commercial loans are not concentrated within a
single industry or group of related industries.
The Company experienced significant loan growth during the first six
months of 1996. The loan portfolio increased by $17.2 million or 28.5% from
December 31, 1995. Since the Company began operations, its main emphasis with
respect to lending was the small to medium sized businesses and professionals in
its market area. This market segment continues to make up the bulk of the
Company's lending. One of the reasons for the significant loan growth was the
apparent inability of the larger regional and out-of-state banks to adequately
service this segment of the market. It is important to note that in the table
above 29% of the loans secured by residential real estate as of June 30, 1996
were for commercial purposes. It is common for small business owners to secure
the commercial loans with their personal residences.
During 1995, the Company began actively seeking relationships with
local automobile dealerships for the purpose of indirect financing of consumer
automobile loans. At June 30, 1996, the Company was performing such financing
for nine dealerships. Automobile loans increased $4.2 million in 1995 and $4.6
million in the first six months of 1996. After declining in 1995, other loans to
individuals increased by $1.8 million in 1996.
34
<PAGE>
The following table sets forth the Company's total loans by maturity
and interest rate sensitivity as of June 30, 1996.
<TABLE>
<CAPTION>
June 30, 1996
Maturity After 1 Through After
Within 1 Year 5 Years 5 years Total
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loans with fixed rates $ 7,130,195 $27,794,835 $ 757,703 $36,682,733
Loans with floating rates 14,256,747 11,474,584 15,896,246 41,627,577
----------- ----------- ----------- -----------
Total $21,386,942 $39,269,419 $16,653,949 $77,310,310
=========== =========== =========== ===========
</TABLE>
ASSET QUALITY:
Various degrees of credit risk are associated with substantially all
investing activities. The lending function, however, carries the greatest risk
of loss. Risk elements include loans past due, nonaccrual loans, renegotiated
loans, other real estate owned and loan concentrations. The Company closely
monitors its loan portfolio to minimize the risk of delinquency and problem
credits. As a general rule a loan that is past due for principal or interest in
excess of ninety days is placed on a nonaccrual basis unless circumstances exist
that would lead management to find that nonaccrual is unnecessary (i.e.,
liquidation of collateral or the borrower has the ability to bring the loan
current as to principal and interest).
The Company's loan portfolio consists of commercial loans, commercial
mortgages, real estate construction loans, residential mortgage loans and
consumer loans.
The Company's commercial loans are primarily made to small businesses
and profesionals in its market area with maturities between one and five years.
The majority of these loans are collateralized by real estate consisting of
single family homes and further secured by personal guarantees. The Company
requries that there be a loan to value ratio not exceeding 80% on these loans.
The Company also reviews borrowers' cash flows in analyzing loan applications.
Risks inherent in these loans include risks that a borrowers cash flow generated
from its business may not be sufficient to repay the loans, either because of
general economic downturns, downturns specific to the borrower's business or
interest rate changes which cause deterioration in a borrower's cash flow as
well as risks associated with the collateral securing the loans, such as
possible deterioration in value of the collateral or environmental
contaminataion of the collateral.
35
<PAGE>
Commercial mortgages are made to small businesses and professionals in
the market area to purchase commercial real estate for use in their businesses.
The Company will generally not finance in excess of 70% of appraised value. In
reviewing a borrower's qualifications, the Company pays particular attention to
cash flow. In addition, the Company frequently requires personal guarantees.
Risk factors associated with these loans include general economic performance
which will affect vacancy rates for commercial properties and the ability of
businesses to maintain cash flows as well as the resale value which may be
yielded on a particular property.
The Company originates and retains residential mortgage loans. They are
generally written with a three or five year fixed rate which adjusts annually
therafter for the life of the loan, which may be up to 30 years. The Company
does not lend in excess of 80% of the appraised value. Risks inherent in these
loans include the employment stability and earnings potential of the borrower as
well as potential resale values associated with the collateral securing these
loans.
The Company makes construction loans to individuals with expertise in
the industry or to owner occupied projects. The loans are generally on projects
for which a sales contract has been executed and for which permanent mortgage
financing is in place. The Company does not finance the purchase of raw land and
will lend up to 70% of the appraised completed value of the project. Risks
inherent with these loans include performance of the general economy which will
affect whether the sale of the project actually closes despite its contracted
status and the risk inherent with whether the construction of a project will
actually be completed and completed within budget. Environmental factors may
affect whether a project can be completed and the cost associated with its
completion.
Consumer loans are made on a secured and unsecured basis for the
purpose of financing the purchase of consumer goods. Employment, income and
credit rating are the risk factors inherent in these loans.
36
<PAGE>
The following table summarizes the composition of the Company's
nonperforming assets as of the dates indicated.
<TABLE>
<CAPTION>
June 30, Dec. 31, Dec. 31,
1996 1995 1994
------- --------- --------
<S> <C> <C> <C>
Nonperforming assets (1):
Nonaccruing loans
Commercial and construction .............. $ -- $ -- $ --
Real Estate - mortgage ................... 41,099 -- --
Installment .............................. -- -- --
------- --------- --------
Total nonaccrual loans .................. 41,099 -- --
Restructured loans ........................ -- -- --
------- --------- --------
Total nonperforming loans ............... 41,099 -- --
Other real estate owned ................... -- -- --
------- --------- --------
Total nonperforming loans ............... $41,099 $ -- $ --
======= ========= ========
Loans past due 90 days or more (2) ........ $ -- $ -- $ --
======= ========= ========
Nonperforming loans to total loans ........ 0.05% NA NA
Nonperforming assets to total assets ...... 0.04% NA NA
Allowance for loan losses to
nonperforming loans ..................... 1612.76% NA NA
(1) Nonperforming assets excludes loans past due 90 days or more and still
accruing.
(2) Loans past due 90 days or more and still accruing.
</TABLE>
In addition to the loans listed above, there were two commercial loans
totalling $39,861 that, although not past due on June 30, 1996, were considered
potential problem loans. Both of these loans were charged off in August 1996.
37
<PAGE>
The following table summarizes the activity in the allowance for
possible loan losses for the period indicated.
<TABLE>
<CAPTION>
Six months Years Ended
Ended Dec. 31,
June 30, 1996 1995 1994
------------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of period ............. $ 527,019 $ 372,062 $ 231,035
Loans charged off
Commercial and construction ............. (2,375) (43,969) --
Real Estate - mortgage .................. -- -- --
Installment ............................. (9,331) (7,074) (15,846)
--------- --------- ---------
Total charge offs ...................... (11,706) (51,043) (15,846)
--------- --------- ---------
Recoveries of loans previously charged off
Commercial and construction ............. -- -- --
Real Estate - mortgage .................. -- -- --
Installment ............................. 2,514 -- 873
--------- --------- ---------
Total recoveries ....................... 2,514 0 873
--------- --------- ---------
Net loans charged off .................... (9,192) (51,043) (14,973)
--------- --------- ---------
Provision charged to expense ............. 145,000 206,000 156,000
--------- --------- ---------
Balance, end of period ................... $ 662,827 $ 527,019 $ 372,062
========= ========= =========
Net charge offs as a percentage of
average loans outstanding during
the period............................... 0.01% 0.10% 0.04%
Allowance for loan losses to total
loans ................................... 0.85% 0.88% 0.82%
Allowance for loan losses to
nonaccrual loans ....................... 1612.76% NA NA
</TABLE>
The Company attempts to maintain an allowance for possible loan losses
at a sufficient level to provide for potential losses in the portfolio. Loan
losses are charged directly to the allowance as they occur and any recoveries
are credited to the allowance. The allowance for possible loan losses is
increased periodically through charges to earnings in the form of a provision
for loan losses.
38
<PAGE>
Factors that influence management's judgment in determining the amount
of the provision for loan losses include an ongoing review of the overall
quality of the loan portfolio by the Company's credit analyst who has no lending
authority, management's continuing evaluation of loans and the assignment of a
specific risk rating to all nonconsumer borrowing, an evaluation of prevailing
and anticipated economic conditions and their related effects on the existing
portfolio, loan classifications and evaluations as a result of periodic
examinations by Federal and State supervisory authorities and comments and
recommendations of the Company's independent public accountants as a result of
their annual audit of the financial statements. It is management's practice to
review the allowance on a monthly basis to determine the provision to be made.
The increases in the Company's provision for loan losses during the
periods indicated are primarily a result of increases in the outstanding loan
balances and not a deterioration of credit quality. As noted in the table above
the company had no nonperforming loans in either 1995 or 1994, and non
performing loans as of June 30, 1996 totaled $41,099 or .05% of total loans. As
noted in the table above the company's charge off history shows relatively small
percentages of net charge-offs.
The following table depicts an approximate allocation of the allowance
for loan losses as of the dates indicated:
<TABLE>
<CAPTION>
Balance at June 30, Percent of December 31, Percent of December 31, Percent
End of Period 1996 Loans to 1995 Loans to 1994 Loans to
Applicable to: Amount Total Loans Amount Total Loans Amount Total Loans
-------------- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial and construction ... $474,915 63.12% $434,775 61.26% 306,940 67.32%
Real Estate ................... 31,897 21.60% 33,547 26.37% 23,683 26.11%
Installment ................... 156,015 15.98% 58,697 12.37% 41,439 6.57%
-------- ------ -------- ------ ------- ------
$662,827 100.00% $527,019 100.00% 372,062 100.00%
======== ====== ======== ====== ======= ======
</TABLE>
39
<PAGE>
INTEREST RATE SENSITIVITY:
Management of interest rate sensitivity is an important element of
both earnings performance and maintaining sufficient liquidity. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. A gap is positive when the amount of interest-earning assets
maturing or repricing exceeds the amount of interest-bearing liabilities
maturing or repricing within that same period and is negative when the amount of
interest-bearing liabilities maturing or repricing exceeds the amount of
interest-earning assets maturing or repricing within the same period.
Accordingly, during a period of rising interest rates, an institution with a
negative gap position would not be in as favorable a position, compared to an
institution with a positive gap, to invest in higher yielding assets. A negative
gap may result in the yield on an institution's interest-earning assets
increasing at a slower rate than the increase in an institution's cost of
interest-bearing liabilities than if it had a positive gap. During a period of
falling interest rates, an institution with a negative gap would experience a
repricing of its interest-earning assets at a slower rate than its
interest-bearing liabilities which, consequently, may result in its net interest
income growing at a faster rate than an institution with a positive gap
position.
The Company's Asset/Liability Management Committee is composed of
certain officers of the Company (the "ALCO Committee") and controls
asset/liability management procedures. The purpose of the ALCO Committee is to
review and monitor the volume and mix of the interest sensitive assets and
liabilities consistent with the Company's overall liquidity, capital, growth and
profitability goals.
40
<PAGE>
The following table reflects, as of June 30, 1996, the interest
sensitivity gap position of the Company and the repricing of interest-earning
assets and interest-bearing liabilities in accordance with their contractual
terms in given time periods:
<TABLE>
<CAPTION>
Maturity or Repricing in (2)
Due in Between After Non-
90 Days 91 Days - One Interest
or Less One Year Year Bearing Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Securities ............................................. $ 8,156 $ 4,934 $ 7,187 $ -- $ 20,277
Federal Funds Sold ..................................... 5,225 -- -- -- 5,225
Loans .................................................. 32,112 12,660 32,905 46 77,723
Valuation Reserve (1) .................................. -- -- -- (763) (763)
Non-interest earning assets ............................. -- -- -- 7,674 7,674
--------- --------- --------- --------- ---------
Total Assets .......................................... $ 45,493 $ 17,594 $ 40,092 $ 6,957 $ 110,136
--------- --------- --------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Interest-bearing liabilities:
Money market accounts ................................. $ 10,273 $ -- $ -- $ -- $ 10,273
NOW accounts .......................................... 6,830 -- -- -- 6,830
Other savings deposits ................................ 6,943 -- -- -- 6,943
Time CD's over $100,000 ............................... 4,993 3,809 816 -- 9,618
Other time deposits ................................... 13,744 26,659 8,928 -- 49,331
--------- --------- --------- --------- ---------
Total interest-bearing liabilities ................... 42,783 $ 30,468 $ 9,744 0 82,995
--------- --------- --------- --------- ---------
Non-interest-bearing liabilities ........................ -- -- -- 17,824 17,824
Other liabilities ....................................... -- -- -- 388 388
Stockholder's equity .................................... -- -- -- 8,929 8,929
--------- --------- --------- --------- ---------
Total Liabilities and Stockholder's Equity ............ $ 42,783 $ 30,468 $ 9,744 $ 27,141 $ 110,136
--------- --------- --------- --------- ---------
Interest Rate Sensitivity Gap ........................... $ 2,710 $ (12,874) $ 30,348 $ (20,184)
--------- --------- --------- --------- ---------
Cumulative Gap .......................................... $ 2,710 $ (10,164) $ 20,184
Cumulative Gap to Total Assets .......................... 2.46% (9.23%) 18.33% -- --
--------- --------- --------- --------- ---------
(1) Valuation Reserves include allowance for loan losses and deferred loan fees.
(2) The following are the assumptions that were used to prepare the Gap
analysis:
(A) Securities "available for sale" are placed in due in 90 days or less
since they can be sold at any time.
(B) Callable securities are spread based on their actual maturity date.
41
<PAGE>
<CAPTION>
(C) Loans are spread based on the earlier of their actual maturity date or
the date of their first potential rate adjustment.
(D) Money market accounts, NOW accounts, and other savings account are
subject to immediate withdrawal.
(E) Time deposits are spread based on their actual maturity date.
</TABLE>
It is managements policy to maintain the Company's cumulative gap
ratios at +/-10% for 90 days or less, +/-20% for between 91 days and one year.
While gap analyis is a general indicator of the potential effect that
changing inerest rates may have on net interest income, the gap itself does not
present a complete picture of interest rate sensitivity. First, changes in the
general level of interest rates do not affect all categories of assets and
liabilities equally or simultaneously. Second, assumptions must be made to
construct a gap analysis. Money-market deposits, for example, which have no
contractual maturity, are assigned a repricing interval of 90 days. Management
can influence the actual repricing of the deposits independent of the gap
assumption. Third, the gap analysis represents a one-day position and cannot
incorporate a changing mix of assets and liabilities over time as interest rates
change. Volatility in interest rates can also result in disintermediation, which
is the flow of funds away from financial institutions into direct investments,
such as U.S. Government and corporate securities and other investment vehicles,
including mutual funds, which, because of the absence of federal insurance
premiiums and reserve requirements, generally pay higher rates of return than
financial institutions. See "Management's Discussion of Financial Condition and
Results of Operations."
Deposits
Following is the average balances and rates paid on deposits for the periods
indicated.
<TABLE>
<CAPTION>
Six Months Ended: Years Ended:
June 30, 1996 December 31,
1995 1994
Average Average Average
Balance Rate Balance Rate Balance Rate
----------- ---- ----------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits ..........................$14,099,185 -- $10,838,744 -- $ 8,901,103 --
Savings Deposits ......................... 6,218,195 3.15% 5,942,451 3.26% 7,611,311 3.31%
Money Market Deposit Accounts ............ 9,497,291 3.19% 8,366,762 3.54% 8,619,199 3.12%
NOW Accounts ............................. 5,514,953 2.47% 4,417,143 2.31% 4,445,435 2.35%
Time Deposits ............................ 52,439,095 5.42% 41,703,884 5.46% 27,492,118 4.15%
----------- ---- ----------- ---- ----------- ----
Total ...................................$87,768,719 3.96% $71,268,984 4.03% $57,069,166 3.09%
=========== ==== =========== ==== =========== ====
</TABLE>
42
<PAGE>
Following is the maturity distribution of time certificates of deposit
$100,000 and over at June 30, 1996:
Three months or less $4,993,000
Over three months through twelve months 3,809,000
Over 1 year through five years 816,000
----------
$9,618,000
==========
LIQUIDITY:
The Company's liquidity is dependent on the successful management of
its assets and liabilities so as to meet the needs of both its deposit and
credit customers. The Company's liquidity needs arise principally to accommodate
possible deposit outflows and meet loan demand.
The Company's liquidity represented by cash and cash equivalents is a
product of its operating investing and financing activities. During the six
months ended June 30, 1996, the Company generated a negative cash flow from
operations of $138,818. This was primarily attributed to an increase in other
assets of $510,651.
Net cash used in investing activities was $17,805,144. Almost all of
this amount was used to fund loan demand as the Company has experienced
significant loan demand during 1996. Proceeds from the sale of securities of
$1,994,043 and the maturities of securities of 7,095,727 were used to purchase
securities totaling 9,589,210.
The net increases in loans were funded by cash provided by financing
activities which totaled $21,148,946. Increases in time deposits of $12,990,712
represented the majority of the increase while non interest bearing and interest
bearing demand deposits provided $5,948,327.
A total increase in cash and cash equivalents of $3,204,984 during the
period. In addition to cash and cash equivalents, the Company's primary
liquidity includes securities available for sale and securities held to maturity
that mature in one year or less. These totaled $23,009,234 inclusive of cash and
cash equivalents at June 30, 1996 and represent 20.9% of total assets. The
Company believes its liquidity position is sufficient to provide funds to meet
future loan demand or the possible outflow of deposits.
43
<PAGE>
Return on Assets and Return on Equity:
The following table depicts returns on average assets and returns on
average equity for the periods indicated:
<TABLE>
<CAPTION>
Six Months Years Ended
Ended: December 31,
June 30, 1996 (1) 1995 1994
----------------- ---- ----
<S> <C> <C> <C>
Return on Average Assets ..................................... .51% .83% 1.30%
Return on Average Equity ..................................... 5.68% 8.16% 13.50%
Average Equity to Average Assets.............................. 9.03% 10.17% 9.65%
(1) annualized
</TABLE>
The decline in the return on average assets and return on average
equity was the result of the additional expenses from the opening of the
Hillsborough Office in February 1996. See "Results of Operations". It is also
important to note that if the one time tax benefit taken in 1994 were excluded
the return on average assets in 1994 would have been .82% and the return on
average equity would have been 8.50%.
CAPITAL RESOURCES
Under the FDIC Improvement Act of 1991 banks are required to maintain
a minimum ratio of total capital to risk based assets of 8% of which at least 4%
must be in the Form of Tier I capital (primarily shareholders equity). The
following are the Company's capital ratios at the end of the periods indicated.
June 30, December 31,
1996 1995 1994
---- ---- ----
Total Capital to Risk Weighted Assets ...... 11.44% 14.28% 14.03%
Tier I Capital ............................. 10.64% 13.46% 13.28%
Leverage Ratio ............................. 7.98% 9.50% 9.21%
It is the Company's intentions to retain its earnings in order to
provide adequate capital to continue to support its growth. The Company has
never paid a dividend.
DISCLOSURE REGARDING INDEMNIFICATION
Pursuant to the Company's By-laws, directors, officers and certain
other controlling persons are granted indemnification by the Company against
certain expenses and other costs incurred in connection with a threatened,
pending or contemplated action against them to the full extent permitted by New
Jersey law. Such persons are also entitled to advances from the Company against
such expenses and costs to the fullest extent permitted under New Jersey law.
44
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
BUSINESS
General
The Company is a New Jersey Business Company and a bank holding
company. The Company was incorporated on February 7, 1996 for the purpose of
acquiring Somerset Valley Bank (the Bank) and thereby enabling the Bank to
operate within a holding company structure. On May 30, 1996, the shareholders of
the Bank approved the acquisition by the Company. On September 3, 1996, the
shares of the Company were exchanged for those of the Bank.
The Bank is a New Jersey commercial bank and was granted a charter by
the New Jersey Department of Banking on February 21, 1990. The Bank opened for
business on December 20, 1991 at its Somerville facility after obtaining the
necessary capital in its initial offering and the approval of the Federal
Deposit Insurance Corporation (FDIC). On June 30, 1996, the Bank had Total
Assets of $110.1 million and is considered a small bank relative to other banks
in New Jersey. On February 6, 1996, the Bank opened its first branch office in
Hillsborough Township, New Jersey. The Hillsborough office is a full service
branch with drive-through banking and an ATM.
The Bank received approval from the Township of Bridgewater to
construct a branch office on North Bridge Street, Bridgewater, New Jersey,
adjacent to the Post Office. Approvals have also been received from the FDIC and
the New Jersey Department of Banking for this branch office. The Bridgewater
office will be a full service branch with drive-through banking and an ATM.
North Bridge Street is a major thoroughfare in Bridgewater Township and provides
access to Routes 22 and 202/206 as well as the Bridgewater Commons Mall. There
is significant residential development along the length of the road.
The Bank provides a wide range of commercial and consumer banking
services.
Deposit services include business and personal checking accounts,
interest-bearing NOW accounts, Money Market Deposit Accounts, Savings Accounts
and Certificates of Deposit. In order to compete with the larger banks for
deposit accounts, the Bank gives favorable terms (interest rates, minimum
balances, service charges, etc.). As of June 30, 1996, the Bank had $100.8
million in deposits and approximately 6,900 deposit accounts.
The Bank makes secured and unsecured loans to small and mid-sized
businesses and professionals in its market area. Because Somerville is the
county seat of Somerset County and home to Somerset Medical Center, the Bank is
uniquely positioned to provide loans and other services to the medical,
accounting and legal professionals. Small and medium-sized businesses and
professionals make up the primary focus of the Bank's lending efforts. The Bank
is also a preferred SBA lender and as such it originates SBA loans and sells the
government guaranteed portion in the secondary market while retaining the
servicing of such loans.
45
<PAGE>
Secured and unsecured personal loans to finance the purchase of
consumer goods are also available. Through its relationship with nine local
automobile dealerships, the Bank indirectly finances automobile loans.
Residential and commercial mortgages are also provided by the Bank.
Residential mortgages are currently written by the Bank with a three or
five year fixed rate which adjusts annually thereafter for the life of the loan
which may be up to 30 years. Long term fixed rate mortgages are provided through
a correspondent bank.
As of June 30, 1996, the Bank had approximately 1,900 loans of all
types totalling $77.0 million.
Other services provided by the Bank include wire transfers, safe
deposit boxes, money orders, travelers cheques, direct deposit of payroll and
social security checks, ACH origination and Visa/Mastercard merchant processing.
The Bank has two ATM machines and the Bank is a member of the MAC network. The
Bank currently employs three licensed agents to sell annuities. A messenger
service is provided by the Bank for pick-up of non-cash deposits for selected
customers.
The Bank's data processing services are provided by FISERV. FISERV is
one of the leading data processing service providers to financial institutions
in the United States. As such, the Bank has access to many banking products and
services that are technologically competitive with other Banks. Not all of these
services, however, are economically feasible to the Bank at this time.
Market Area
The Bank's market area is primarily Somerset County which is located
midway between New York and Philadelphia. Somerset County is considered an
affluent suburban area with significant commercial and residential activity. A
number of large national firms such as AT&T, Metropolitan Life and Johnson and
Johnson companies located their offices in Somerset County. The County is
crisscrossed by five major highways including interstate Routes 78 and 287 and
U.S. Routes 22, 202 and 206, adding to its desirability as a commercial center.
A large regional shopping mall is located in Bridgewater Township with several
small shopping centers located throughout the County.
Although the Bank serves primarily Somerset County, it also draws
business from the contiguous counties of Hunterdon, Middlesex, Union and Mercer.
Competition
All phases of the Bank's business are highly competitive. As of June
30, 1995 (the latest date for which figures are available), Somerset County had
27 financial institutions with 101 offices with a total of $4.3 billion in
deposits. In just 3 1/2 years and having only one location, the Bank was ranked
16th in terms of total deposits with 1.7% share of the market. The leading Bank
has 16.0% with 14 offices. It is important to note that since June 30, 1995, 10
of the 28 banks or savings banks have experienced some type of merger activity.
In one instance, three banks having 28 offices within the County merged together
and five institutions were purchased by large out-of-state regional banks. These
mergers will result in the closing of several branch locations throughout the
Bank's market area. Part of the proceeds of this offering may be used to
purchase one or more existing branches from these banks. A possibility exists
46
<PAGE>
that there will be competition for acquisition of one or more of these existing
branches. Such competition could come from not only New Jersey financial
institutions but, under recent amendments to New Jersey banking statutes, also
from out-of-state and foreign banks as well.
Management of the Bank believes that loans to small and mid-size
businesses and professionals are not always of primary importance to the larger
banking institutions, whereas they represent the main commercial loan business
of the Bank. The Bank can compete for this segment of the market because it
provides responsive personalized services, local decision-making and knowledge
of its customers and their businesses.
By virtue of their greater total capital certain commercial banks have
substantially higher lending limits. These Banks can also finance wide-ranging
advertising campaigns. Accordingly, there are certain Borrowers that the Bank
will not be able to service and others who will be reached by the more extensive
advertising of larger competing banks.
Employees
On June 30, 1996, the Company employed 35 full time and two part time
employees. None of these employees is covered by a collective bargaining
agreement and the Company believes that its employee relations are good. The
Company offers its employees health, life, dental benefits, as well as a 401K
Plan. See "Management - Benefit Plans".
Properties
The Company presently owns no properties. The Bank leases its banking
facilities at 103 West End Avenue and its back-office facility at 117 West End
Avenue in Somerville from a partnership consisting of all of the members of its
Board of Directors and one non-director. The lease for 103 West End Avenue
expires in July of 2001, but contains four five year renewal options allowing
the Bank to extend the lease. The lease for 117 West End Avenue expires in 2003.
The Bank also leases property from the partnership described above located at 48
North Middaugh Street, Somerville on a month-to-month basis for possible future
expansion. The lease for 103 West End Avenue, was reviewed by both the FDIC and
the Department of Banking prior to the Bank's opening to determine that the
terms of the lease are comparable to those the Bank would receive in an arms
length transaction with an unaffiliated third party. The office space at 117
West End Avenue is also leased at such comparable terms.
The Hillsborough office located at 649 Route 206, Belle Mead, New
Jersey, is leased from an unaffiliated partnership and the lease expires in 2004
with two five-year renewal options.
The Bank is currently leasing the land for the construction of the
Bridgewater office on North Bridge Street on a month-to-month basis from an
unaffiliated partnership. A long-term lease will be established when final
construction costs are determined.
47
<PAGE>
Legal Proceedings
The Bank is periodically a party, to or otherwise involved in, legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of real property loans, and
other issues incident to the Bank's business. There are no pending legal
proceedings to which the Company is a party nor has it been threatened with any
litigation. Management does not believe that there is any pending or threatened
proceeding against the Company or the Bank which, if determined adversely, would
have a material effect on the business or financial position of the Company or
the Bank.
SUPERVISION AND REGULATION
Both the Company and the Bank are extensively regulated under both
Federal and State law. The major intent of these laws and regulations is to
protect depositors, not shareholders. Any part of the following discussion
regarding statutory and regulatory provisions is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
the applicable law or regulation may have a substantial impact upon the business
and outlook of the Company and the Bank. See "Risk Factors - Supervision and
Regulation".
Bank Holding Company Act Of 1956
As a bank holding company, the Company is subject to the supervision
and regulation of the Federal Reserve Board (the "FRB") pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act").
With certain exceptions, the Act limits the business in which a bank
holding company may engage to banking, managing or controlling banks, furnishing
or performing services for the banks controlled by it, and activities determined
by the Board to be closely related to banking. The Act prohibits bank
acquisitions in other states, unless such acquisitions by an out-of-state bank
holding company are specifically authorized by statute of the state in which the
acquired bank is located.
Among the activities permitted to bank holding companies by 1970
through 1994 amendments to the Act is the ownership of shares of any Company the
activities of which the Board determines are so closely related to banking or
managing or controlling banks as to be a proper incident thereto. The Board has
found a number of activities to be closely related to banking, and has proposed
others for consideration. Such activities include leasing real or personal
property under certain conditions; operating as a mortgage finance or factoring
company; servicing loans and other extensions of credit; acting as a fiduciary;
acting as investment or financial advisor under certain conditions; acting as
insurance agent or broker principally in connection with extension of credit by
the bank holding company or any subsidiary; acting as underwriter for credit
life insurance and credit accident and health insurance which is directly
related to extension of credit by the bank holding company or any subsidiary;
providing bookkeeping or data processing services for the bank holding company,
its affiliates, other financial institutions and others, with certain
limitations; making certain equity and debt investments in community
rehabilitation and development corporations; and providing certain kinds of
management consulting advice to unaffiliated banks. Management of the Company
has no present intention of expanding its activities beyond commercial banking
in the foreseeable future.
48
<PAGE>
The Federal Reserve Act imposes restrictions on extensions of credit by
subsidiary banks of a bank holding company to the bank holding company or any of
its subsidiaries, on investments in the stock or other securities thereof, and
on the taking of such stock or securities as collateral for loans to any
borrower. Further, under Section 106 of the 1970 amendments to the Act and the
Board's regulations, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
The Company will be required to file annual reports and to provide such
information as may be required by the FRB. The FRB will have the authority to
examine the Company and its subsidiaries.
As a newly formed bank holding company, the Company anticipates filing
its first annual report with the FRB during 1997 covering the year ended -
December 31, 1996.
Banking Regulations
The Bank is a state-chartered bank and thereby subject to supervision
and regular examination by the New Jersey Department of Banking. In addition,
the Bank is a member of the Federal Deposit Insurance Corporation ("FDIC") and
is thereby subject to the provisions of the Federal Deposit Insurance Act. As an
insured bank not a member of the Federal Reserve system, the Bank is subject to
regular examination by the FDIC.
Federal and state banking laws and regulations regulate, among other
things, the scope of a bank's business, the investments a bank may make, the
reserves against deposits a bank must maintain, the nature and amount of and
collateral for certain loans a bank makes, the maximum interest rates on
deposits a bank may pay and the activities of a bank with respect to mergers and
consolidations, and the establishment of branches. The FDIC has the authority
under the Financial Institution Supervisory Act to prevent a bank from engaging
in an unsafe or an unsound practice in conducting its business. The payment of
dividends, depending upon the financial condition of a bank, could be deemed
such a practice.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any other subsidiaries, on investments in the stock
or other securities of the bank holding company or any of its securities, and on
taking such stock or securities as collateral for loans borrowed. Legislation
and Federal Reserve regulations place certain limitations and reporting
requirements on extensions of credit by banks to principal shareholders of their
parent holding companies, among others, and to related interests of such
principal shareholders. In addition, such legislation and regulations may affect
the terms upon which any person becoming a "principal shareholder" of the
Company may obtain credit from banks with which the Bank maintains a
correspondent relationship. A "principal shareholder" generally would be any
person owning more than ten percent of the Company's shares. From time to time,
various types of federal and state legislation have been proposed which would
result in additional regulation of, and restrictions on, the business of the
Bank. It cannot be predicted whether any such legislation will be adopted or how
such legislation would affect consolidated operating results or business of the
Company.
49
<PAGE>
The Bank is also subject to various state laws such as usury laws and
to various consumer and commercial laws and other consumer protection laws.
MANAGEMENT
Directors/Principal Shareholders
In accordance with the Bylaws of the Bank, its Board of Directors
shall, from time to time, fix the exact number of directors, up to 25. The
number is presently fixed at 15. All named below, except as noted, are presently
members of the Board and have served since the Company's incorporation except
Dr. Gold who was appointed in July, 1996. They have all been members of the
Board of the Bank since 1990 with the exception of Mr. Bernstein, who has been a
member since 1991 and Dr. Gold who was one of the original Board Members and
incorporators of the Bank and was reappointed to the Board in August, 1996.
The following table presents the name, age and address of each
Director/Executive Officer, the number of shares and the percentage of the
outstanding shares of common stock of the Bank beneficially owned, directly or
indirectly, by each of them as of June 30, 1996. The shares owned as well as any
stock options have been adjusted for the 6 for 5 exchange of the Bank's common
stock for that of the Company on September 3, 1996. There is no one other than
the persons listed below who owns beneficially 5% or more of the outstanding
common stock.
<TABLE>
<CAPTION>
Shares % of
Beneficially Total
Name & Address & Position Age Owned Shares
- ------------------------- --- ----- ------
<S> <C> <C> <C>
Bernard Bernstein 59 40,262 3.43%
Director
200 Industrial Parkway
Branchburg, NJ 08876
Robert P. Corcoran 55 5,760(1) .49%
President, CEO & Director
12 Harvest Court
Flemington, NJ 08822
Mark S. Gold, MD 47 65,880 5.61%
Director
University of Florida
College of Medicine
Gainesville, FL 32610-0244
Raymond L. Hughes 64 32,997(2) 2.81%
Director
20 West End Avenue
Somerville, NJ 08876
S. Tucker S. Johnson 31 19,860 1.69%
Director
P.O. Box 675
Oldwick, NJ 08858
50
<PAGE>
<CAPTION>
Shares % of
Beneficially Total
Name & Address & Position Age Owned Shares
- ------------------------- --- ----- ------
<S> <C> <C> <C>
John K. Kitchen 52 22,339(3) 1.92%
Chairman of Board & Director
P.O. Box 421
Somerville, NJ 08876
Willem Kooyker 53 110,398(4) 9.40%
Director
2 Worlds Fair Drive
Somerset, NJ 08875
Frank Orlando 62 58,080(5) 4.94%
Director
786 Princeton Avenue
Brick, NJ 08724
Gilbert E. Pittenger 71 27,192(6) 2.31%
Director
R.D. 1, Box 91
New Ringgold, PA 17960
Frederick D. Quick 64 81,000(7) 6.90%
Director
924 River Road
Neshanic Station, NJ 08853
Anthony J. Santye, Jr. (10) 45 22,176(8) 1.89%
Director
36 East Main Street
Somerville, NJ 08876
G. Robert Santye (10) 42 13,824(9) 1.18%
Vice Chairman & Director
36 East Main Street
Somerville, NJ 08876
Donald Sciaretta 40 28,800 2.45%
Director
P.O. Box 808
Far Hills, NJ 07931
Herman C. Simonse 64 15,600 1.33%
Director
93 Douglass Avenue
Bernardsville, NJ 07924
Donald R. Tourville 59 50,792 4.32%
Director
P.O. Box 38
Raritan, NJ 08869
51
<PAGE>
<CAPTION>
Shares % of
Beneficially Total
Name & Address & Position Age Owned Shares
- ------------------------- --- ----- ------
<S> <C> <C> <C>
Keith B. McCarthy (11) 39 3,600 .31%
Chief Operating Officer
501 Red School Lane
Phillipsburg, NJ 08865
Arthur E. Brattlof (12) 52 1,498 .13%
Executive Vice President
Senior Lending Officer
9 Steeple Chase Court
Bedminster, NJ 07921
Total shares owned by Directors
and Principal Shareholders: 600,058 51.08%
</TABLE>
(1) In addition to the shares listed in the Table, Mr. Corcoran has options
to purchase 15,600 shares of common stock at $8.33 per share. See
"Management - Stock Option Plan."
(2) Includes 13,440 shares owned by Hughes/Plumer and Associates Profit
Sharing Pension Plan, 2,400 shares owned by Hughes/Plumer Associates
Pension Fund, and 1,698 shares owned by his wife.
(3) Includes 1,680 shares owned by his wife as custodian for his children
over which he has no voting rights and 259 shares owned for the benefit
of his children.
(4) Includes 15,120 shares owned by his wife for the benefit of his
children and 15,120 shares under a trust for the benefit of his
children.
(5) Includes 32,400 shares owned by 8 Mountain Trail, Inc.,
Employees Profit Sharing Plan.
(6) Includes 1,920 shares owned by Effective Controls, Inc., over which he
has voting authority, and 4,452 shares under an irrevocable trust for
the benefit of his grandchildren over which he has voting authority.
(7) Includes 19,200 shares owned by Hesco Pension Trust and 15,000 shares
owned by Hesco Electric Supply.
(8) Includes 2,160 shares owned by his wife as custodian for his children
over which he has no voting rights, 1,680 shares owned by his wife over
which he has no voting rights, and 6,960 shares owned by A.J. Santye &
Co., P.A. Profit Sharing Plan over which G. Robert Santye also has
voting rights.
52
<PAGE>
(9) Includes 2,400 shares owned by his wife over which he has no voting
rights and 1,440 as custodian for his children. G. Robert Santye also
shares voting rights on 8,352 shares owned by A.J. Santye & Co., P.A.
Profit Sharing Plan which are not included in his total shares.
(10) A.J. Santye, Jr. and G. Robert Santye are brothers.
(11) Includes 432 shares owned for the benefit of his children. In addition
to the shares listed, Mr. McCarthy has options to purchase 16,800
shares of common stock at $8.33 per share. See "Management - Stock
Option Plan."
(12) In addition to the shares listed, Mr. Bratloff has options to purchase
6,240 shares at $8.33 per share, see "Management - Stock Option Plan."
Biographical Information
Set forth below is certain information regarding the Directors and
Executive Officers of the Bank, including their business experience during the
last five years.
BERNARD BERNSTEIN is President and CEO of Mid-State Lumber Corp., a
wholesaler lumber distributor.
ROBERT P. CORCORAN has been President and Director of the Bank since
1990 and President of the Company since 1996. He has over 30 years of banking
experience in administration, lending and operations of which 23 years was with
another Somerville based financial institution.
MARK S. GOLD, M.D. is a professor and author. He is currently on the
faculty of the University of Florida, College of Medicine.
RAYMOND L. HUGHES is President of New Jersey Risk Managers &
Consultants.
S. TUCKER S. JOHNSON is a farmer.
JOHN K. KITCHEN has been Chairman of the Bank since 1990 and Chairman
of the Company since 1996. He is President of Title Central Agency, a title
insurance firm.
WILLEM KOOYKER is Chairman of Tricon Holding Ltd., an international
commodities firm.
FRANK ORLANDO is retired.
GILBERT E. PITTENGER is retired.
FREDERICK D. QUICK is President of Hesco Electric Supply Co., a
lighting and electrical supply firm.
ANTHONY J. SANTYE, JR. is the managing partner of A.J. Santye and Co.,
an accounting and consulting firm.
53
<PAGE>
G. ROBERT SANTYE has served as Vice Chairman of the Bank since 1991 and
Vice Chairman of the Company since 1996. He is Director of Real Estate and
business valuation services for A.J. Santye and Co.
DONALD SCIARETTA is President of Claremont Construction Group, Inc.
HERMAN C. SIMONSE is Executive Vice President of Belle Mead Development
Corporation, a real estate development firm.
DONALD TOURVILLE is Chairman and CEO of Zeus Scientific, Inc., a
manufacturer of diagnostic test kits.
KEITH B. McCARTHY is Executive Vice President and Treasurer of the
Company. He has been Chief Operating Officer of the Bank since 1996. Prior to
that he was Executive Vice President of the Bank since 1990. He has 20 years of
banking experience in the areas of investments, finance, operations, and
auditing, including 14 years with another Somerville based financial
institution.
ARTHUR E. BRATTLOF has been Executive Vice President since 1996. Prior
to that he was Senior Vice President since 1992. He has over 30 years banking
experience including branch operations and commercial lending, most of which was
spent within the Bank's market area.
Executive Compensation
The following table summarizes all compensation earned in the past
three complete fiscal years for services performed in all capacities for the
Company and the Bank with respect to the Executive Officers:
<TABLE>
<CAPTION>
Name All
and Annual Compensation Other
Position Year Salary Bonus Compensation
- -------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Robert P. Corcoran ........ 1995 $125,000 $ 31,250 (2) $9,089
President & CEO of ........ 1994 $115,000 $ 5,750 (1) $2,415
the Company and ........... 1993 $105,000 $ -- (1) $ 646
the Bank
Keith B. McCarthy ......... 1995 $ 93,000 $ 13,350 (1) $2,672
Treasurer of the .......... 1994 $ 85,000 $ 4,250 (1) $1,784
Company ................... 1993 $ 77,900 $ -- (1) $ 479
Chief Operating
Officer of the
Bank
Arthur E. Brattlof ........ 1995 $ 78,000 $ 11,700 (1) $2,271
Executive Vice ............ 1994 $ 73,000 $ 3,660 (1) $1,537
President of the .......... 1993 $ 68,200 $ -- (1) $ 419
Bank
</TABLE>
54
<PAGE>
(1) Represents matching amounts contributed by the Bank to the 401(k)
Plan.
(2) In addition to the Bank's contributions to the 401(k) Plan of $3,706,
Mr. Corcoran received fees as a member of the Board of Directors of
$1,800 and had term life insurance premiums paid by the Bank of $3,583.
Salaries and bonuses of the Bank's Executive Officers are determined by
the compensation committee of which none of the Executive Officers is a
member.
The Bank also maintains various medical, life and disability benefit
plans covering all its full-time employees. The Bank also provides automobiles
to the three executive officers mentioned in the table above and one other
officer of the bank. Such officers have some personal use of those vehicles such
as commuting to and from the Bank.
Stock Option Plan
During 1994, the Shareholders of the Bank approved the 1994 Somerset
Valley Bank Stock Option Plan (the "Plan"). The Plan was intended to enable the
bank to attract and retain capable officers and key employees and to provide
them with incentives to promote the best interest of the Bank by enabling and
encouraging them through the grant of incentive stock options and nonqualified
stock options (collectively, the "Options") to acquire Bank stock.
The Plan was administered by a Committee of the Board of Directors of
the Bank which is composed of at least three (3) members of the Board. No member
of the Committee is eligible to participate in the Plan for a period of at least
one (1) year prior to his or her election to serve on the Committee.
The persons eligible to participate in the Plan shall be officers and
key employees of the Bank and its subsidiaries who may be designated by the
Board of Directors upon recommendation by the Committee.
There were 42,841 shares of Bank common stock available for the
granting of options under the Plan. During 1994, Messrs. Corcoran and McCarthy
were granted options to purchase 10,000 shares each at a price of $10.00 per
share for a five-year period expiring August 1999. No options were granted
during 1995. No options were exercised during 1994 or 1995. Mr. Corcoran
exercised 1,000 of these options during 1996.
During 1996, 22,000 options were granted under the plan to 12 officers
including the three executive officers named in the table above who received
13,200 or 61% of the options granted. The executive officers received the
following amounts: Mr. Corcoran 4,000 options, Mr. McCarthy 4,000 options and
Mr. Brattlof 5,200 options. All options were granted at $10.00 per share and
expire April 30, 2001.
The Company intends to transfer and assume the options for Bank stock
under the Plan. Under the terms of the Plan the number of options will be
adjusted for the six for five exchange of stock after which there will be a
total of 49,200 options outstanding. The option price will adjust to $8.33 per
share.
55
<PAGE>
Certain Agreements
The Bank has entered into employment agreements with Messrs. Corcoran,
McCarthy and Brattlof. The agreements set their base salary and benefits for
1996 and provide for the payment of bonuses as determined by the compensation
committee of the Board of Directors, see "Bonus Plan". The agreements provide
for severance payments in the event the officers are terminated without cause or
resign with good reason. Such benefits are equivalent to two times the base
salary for Mr. Corcoran payable over 24 months and one times the base salary for
Messrs. McCarthy and Brattlof payable over 12 months. In the event of a change
of control all three officers would receive a severance payment equal to two
times base salary payable over 24 months plus an annual payment for two years
equivalent to the average bonus paid during the last three years of employment.
Director Compensation
During 1995, Directors of the Bank received compensation for service on
the Board of Directors of $150 per Board of Directors meeting attended. John K.
Kitchen as Chairman of the Board received compensation of $10,000 in addition to
his other per meeting fees.
During 1996, Directors of the Bank will receive $250 for Board of
Directors meetings attended and $100 for Committee meetings attended.
Mr. Kitchen will receive $6,000 as Chairman.
No compensation will be paid for Board of Directors meetings of the
Company.
Benefit Plans
The Bank maintains a 401(k) plan covering substantially all employees.
Under the terms of the plan, the Bank will match 50% of an employee's
contribution, up to 6% of the employee's salary. Employees become fully vested
in the Bank's contribution after five years of service. The Bank contributed
$19,159 to the plan in 1995.
Bonus Plan
During 1996, the Compensation Committee of the Board of Directors has
approved a bonus plan for the three executive officers listed in the table
above. Under the terms of the plan, cash bonuses will be paid to the executive
officers based upon a formula that includes the Company achieving certain
predetermined financial goals, the officers achieving certain predetermined
personal objectives, and the performance of the Bank in comparison to the
results of a group of 10 similar banks as chosen by the Committee.
Bonuses may be paid to all other employees of the Company based on the
achievement of certain predetermined financial goals.
Transactions with Related Persons
It is currently the policy of the Bank not to extend credit or make
loans to any of its Directors or their affiliates.
56
<PAGE>
A partnership made up of, among others, the Bank's Directors owns and
leases the premises to the Bank at 103 West End Avenue as well as additional
office space in the adjacent 117 West End Avenue. The lease for 103 West End
Avenue, which is the principal banking facility, was reviewed by both the FDIC
and the Department of Banking prior to the Bank's opening to determine that the
terms of the lease are comparable to those the Bank would have received in an
arms length transaction with an unaffiliated third party. Neither the FDIC nor
the Department of Banking objected to the terms of the lease. The office space
at 117 West End Avenue is also leased at such comparable terms.
DESCRIPTION OF SECURITIES
The securities offered under this Prospectus are shares of common stock
of the Company, each with a par value of $4.17. The offering price of
$13.00/share has been determined arbitrarily, see "Risk Factors - Arbitrary
Determination of Offering Price". The Company's current total authorized stock
as set forth in its Certificate of Incorporation is 10,000,000 shares and there
are 1,174,632 shares outstanding (without giving effect to the shares which may
be issued under this offering). Subject to certain provisions of New Jersey law,
the Board of Directors may divide authorized but unissued shares into different
classes or series in such numbers and with such relative rights as the Board
would determine. At the present time, there are no shares other than common
stock outstanding as further discussed below. There are no current plans to
issue any stock other than Common Stock. See "Voting Rights" and "Special
Provisions" below for a discussion of the anti-takeover provisions of the
Company's Certificate of Incorporation and By-laws.
Dividend and Liquidation Rights
The holders of the Company's common stock are entitled to share pro
rata in such dividends as may be declared by the Board of Directors out of funds
legally available for such purposes. Initially, funds for the payment of
dividends would be derived largely from dividends of the Bank. However, there
are no current plans for the Bank or the Company to pay dividends and there are
certain general regulatory limitations on payment of dividends by financial
institutions such as the Bank. See "Supervision and Regulation - Banking
Regulations". Funds for payment of dividends may also be limited by the
obligation of the Company to make payments on any future loans and to provide
additional capital for the Bank.
Upon liquidation or dissolution, the holders of common stock share pro
rata in the assets remaining after payments to creditors.
Voting Rights
The holders of common stock are entitled to one vote for each share
held of record. Cumulative voting is not allowed in the election of directors or
any other purpose. However, the Board of Directors is classified and divided
into three classes (as nearly equal in number as possible) with each class
successively standing for election per year.
57
<PAGE>
Staggering the terms of the members of the Board of Directors tends to
discourage unsolicited or unfriendly offers to acquire the Company. Even if a
potential acquiror were to purchase a majority of the outstanding shares in the
Company, it could not be assured of electing a majority of the Board of
Directors at the next annual meeting of shareholders since only 1/3 of the
Directors are elected in any one year.
No Assessments or Preemptive Rights
All of the Company's shares issued and outstanding, as well as those
offered hereby once purchased, are fully paid and nonassessable. Holders of
common stock have no preemptive rights to subscribe for additional shares of
stock or other securities of the Company. The common stock is not convertible,
redeemable or entitled to the benefit of any sinking fund.
Related Information
At the present time, no options to purchase any securities of the
Company are outstanding. However, the Company intends to transfer and assume
options for bank stock previously issued to certain key executives and other
officers. Upon completion of such a transfer and assumption the aggregate number
of shares subject to such options would be 49,200. See "Management-Stock Option
Plan".
Currently, there is no public market for the common stock of the
Company and there are no present plans to apply for listing on any exchange or
to be quoted on NASDAQ.
The registrar and transfer agent for the common stock of the Company is
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New
Jersey 07016.
Special Provisions
The "Greenmail" provisions prohibit the Company (or any subsidiary)
from purchasing shares of Common Stock through negotiation from an "Interested
Stockholder" at a price in excess of "Fair Market Value" unless a majority of
all of the shares of the Company entitled to vote approve the transaction.
"Interested Stockholder" is defined as a holder, or group of holders, acting in
concert, of more than 5% of the Company's Common Stock. "Fair Market Value" is
determined in good faith by majority vote of the Board of Directors until the
Company's stock is quoted on NASDAQ or listed on an exchange, in which case a 30
day average closing bid is to be used.
58
<PAGE>
In most cases, a two-thirds majority of the voting stock is required to
approve an acquisition of the Company. This acts to discourage a potential
acquiror from offering a premium price for a bare majority of the voting stock
and a lesser amount for the balance (a "Two Tier Tender Offer").
The major exceptions to this two-thirds majority requirement are:
(a) The proposed per share consideration complies with
defined fair pricing standards set forth in the
Certificate of Incorporation and is to be received by
all of the holders of the series or type of stock to
be acquired; or
(b) The transaction is approved by a majority of those
members of the Board of Directors who satisfy pre-
defined standards designed to guard against the
potential acquiror possibly packing the Board with
new members friendly to its acquisition.
Other Anti-takeover Provisions
Under the Federal Change in Bank Control Act (the "Control Act"), a 60
day prior written notice must be submitted to the Federal Reserve Board ("FRB")
if any person, or any group acting in concert, seeks to acquire 10% or more of
any class of outstanding voting securities of the Company, unless the FRB
determines that the acquisition will not result in a change of control of the
Company. Under the Control Act, the FRB has 60 days within which to act on such
notice taking into consideration certain factors, including the financial and
managerial resources of the acquiror, the convenience and needs of the community
served by the bank holding company and its subsidiary banks and the antitrust
effects of the acquisition. Under the BHCA, a company is generally required to
obtain prior approval of the FRB before it may obtain control of a bank holding
company. Control is generally described to mean the beneficial ownership of 25%
or more of all outstanding voting securities of a company.
A provision of New Jersey law, the New Jersey Shareholders Protection
Act (the "Shareholders Act") prohibits certain transactions involving an
"interested stockholder" and a corporation. An "interested stockholder" is
generally defined as one who is the beneficial owner, directly or indirectly, of
10% or more of the voting power of the outstanding stock of the corporation. The
Shareholders Act prohibits certain business combinations between an interested
stockholder and a New Jersey corporation subject to the Shareholders Act for a
period of five years after the date the interested stockholder acquired his
stock, unless the transaction was approved by the corporation's board of
directors prior to the time the interested stockholder acquired his stock. After
the five year period expires, the prohibition on business combinations with an
interested stockholder continues unless certain conditions are met. The
conditions include (i) that the business combination is approved by the Board of
Directors of the target corporation; (ii) that the business combination is
approved by a vote of two-thirds of the voting stock not owned by the interested
stockholder; and (iii) that the stockholders of the corporation receive a price
in accordance with a fair price formula set forth in the statute. The
Shareholders Act as applicable to the Company could inhibit unsolicited offers
to acquire the Company.
59
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996 and as adjusted to give effect, after offering expenses, to the
sale by the Company of the 200,000 shares offered hereby at an offering price of
$13.00 per share. The Company anticipates receiving $2,540,000 from this
offering net of offering expenses of $60,000.
<TABLE>
<CAPTION>
Shareholder's Equity1 Actual As Adjusted
- --------------------- ------ -----------
<S> <C> <C>
Common Stock, $4.17 par value,
authorized 10,000,000 shares;
issued and outstanding 1,174,632
shares(1) $4,893,211 $ 5,727,211
Additional Paid in Capital 3,774,511 5,480,511
Retained Earnings 284,373 284,373
Unrealized Loss on Securities
Available for Sale (23,079) (23,079)
---------- -----------
Total Shareholders' Equity $8,929,016 $11,469,016
========== ===========
Book Value Per Share $ 7.60 $ 8.34
========== ============
Shares Outstanding 1,174,632 1,374,632
- --------
(1)Retroactively adjusted for the 6 for 5 exchange of common stock between the
Company and the Bank and assuming all shareholders participated in the exchange.
</TABLE>
LEGAL MATTERS
The validity of the shares offered hereby has been passed upon for the
Company by Mauro, Savo, Camerino & Grant, Attorneys at Law, 75-77 North Bridge
Street, P.O. Box 1277, Somerville, New Jersey 08876.
EXPERTS
The consolidated financial statements of SVB Financial Services, Inc.
as of December 31, 1995 and 1994 and for each of the years in the three year
period ended December 31, 1995, included herein, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements of the Company
Consolidated Statement of Condition as of June 30, 1996
Consolidated Statements of Income for the Six Months Ended June 30,
1996 and 1995
Consolidated Statements of Cash Flows for the Six Months Ended June
30, 1996 and 1995.
Audited Consolidated Financial Statements of the Company
Consolidated Statements of Condition as of December 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
61
<PAGE>
<TABLE>
<CAPTION>
SVB Financial Services, Inc. and Subsidiary
Consolidated Statement of Condition
(Unaudited)
June 30,
1996
-------------
<S> <C>
ASSETS
Cash & Due From Banks ......................................... $ 5,639,252
Federal Funds Sold ............................................ 5,225,000
Other Short Term Investments .................................. 325,672
-------------
Total Cash and Cash Equivalents ............................... 11,189,924
Securities
Available for Sale ............................................ 3,828,786
Held to Maturity (market value 16,049,205)..................... 16,123,067
-------------
Total Investment Securities ................................... 19,951,853
Loans ......................................................... 77,310,310
Allowance for Possible Loan Losses ............................ (662,827)
Unearned Income ............................................... (100,370)
-------------
Net Loans ..................................................... 76,547,113
Premises & Equipment, Net ..................................... 792,925
Organizational Costs, Net ..................................... 20,533
Other Assets Including Deferred Income Taxes, Net ............. 1,633,445
-------------
Total Assets .................................................. $ 110,135,793
=============
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Noninterest Bearing ........................................... $ 17,823,692
NOW Accounts .................................................. 6,829,756
Savings ....................................................... 6,943,166
Money Market Accounts ......................................... 10,272,622
Time
Greater than $100,000 ......................................... 9,618,458
Less than $100,000 ............................................ 49,331,044
-------------
TOTAL DEPOSITS ................................................ 100,818,738
Accrued Expenses & Other Liabilities .......................... 388,039
-------------
Total Liabilities ............................................. 101,206,777
-------------
62
<PAGE>
<CAPTION>
SVB Financial Services, Inc. and Subsidiary
Consolidated Statement of Condition
(Unaudited)
At June 30,
1996
-------------
<S> <C>
SHAREHOLDERS' EQUITY
Common Stock $4.17 PAR VALUE, 10,000,000
Authorized; 1,174,632 Shares in 1996 And 1,173,432 in 1995
Issued and Outstanding ........................................ 4,898,215
Additional Paid in Capital .................................... 3,769,507
Retained Earnings.............................................. 284,373
Unrealized Loss on Securities Available For Sale .............. (23,079)
-------------
Total Shareholders' Equity .................. 8,929,016
-------------
Total Liabilities And Shareholders' Equity .. $ 110,135,793
=============
See accompanying notes to consolidated financial statements.
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
SVB Financial Services, Inc.
Consolidated Statements of Income
(Unaudited)
For The Six Months Ended June 30,
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME
Interest on Loans ......................................... $ 3,038,992 $ 2,266,624
Interest on Investment Securities Available For Sale ...... 150,008 86,685
Interest on Investment Securities Held to Maturity ........ 476,709 506,521
Interest on Federal Funds Sold ............................ 96,874 67,631
Interest on Other Short Term Investments .................. 14,021 4,630
----------- -----------
Total Interest Income ................... 3,776,604 2,932,091
INTEREST EXPENSE
Interest on Deposits ...................................... 1,723,480 1,309,657
Interest on Federal Funds Purchased ....................... 0 170
----------- -----------
Total Interest Expense .................. 1,723,480 1,309,827
Net Interest Income ..................... 2,053,124 1,622,264
PROVISION FOR POSSIBLE LOAN LOSSES ........................ 145,000 90,000
----------- -----------
Net Interest Income After Provision
For Possible Loan Losses ................ 1,908,124 1,532,264
----------- -----------
OTHER INCOME
Service Charges on Deposit Accounts ....................... 79,009 52,461
Gain on the Sale of Investment Securities ................. (2,117) 2,336
Gain on the Sale of Loans ................................. 43,513 101,696
Other Income .............................................. 37,636 30,009
----------- -----------
Total Other Income ...................... 158,041 186,502
----------- -----------
Other Expenses
Salaries and Employee Benefits ............................ 853,241 604,201
Occupancy Expense ......................................... 188,483 113,600
Equipment Expense ......................................... 114,653 82,923
Other Expense ............................................. 493,719 426,076
----------- -----------
Total Other Expense ..................... 1,650,096 1,226,800
----------- -----------
Net Income Before Income Taxes .......... 416,069 491,966
Provision for Income Taxes .............. 167,746 190,826
----------- -----------
Net Income .............................. $ 248,323 $ 301,140
=========== ===========
Net Income Per Share ...................................... $ .21 $ .26
=========== ===========
Weighted Average Shares Outstanding ....................... 1,174,394 1,173,432
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
SVB Financial Services, Inc.
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
(unaudited)
OPERATING ACTIVITIES:
1996 1995
----------- -----------
<S> <C> <C>
Net income................................................................................ $ 248,323 $ 301,140
Adjustments to reconcile net income to
net cash from operating activities:
Provision for possible loan losses ............................................... 145,000 90,000
Depreciation and amortization .................................................... 118,103 83,017
Amortization (accretion) of investment securities premium/discount ............... (48,404) (151,579)
(Gains)/Losses on sales of investment securities, net ............................ 2,117 (2,336)
Gains on sales of loans .......................................................... (43,513) (101,696)
(Increase)/decrease in interest receivable ....................................... (93,077) (53,461)
(Increase)/decrease in other assets .............................................. (510,651) (16,038)
Increase in accrued interest payable.............................................. 34,299 11,107
Increase (decrease) in accrued expenses and other liabilities) ................... (2,143) 223,419
Increase (decrease) in unearned income) .......................................... 11,128 (2,300)
----------- -----------
Net cash provided by operating activities ............................ (138,818) 381,273
----------- ------------
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale...................................... 1,994,043 490,909
Proceeds from maturities of securities
Available for sale...................................................................... 2,498,833 612,531
Held to maturity........................................................................ 4,596,894 18,669,959
Purchases of securities
Available for sale...................................................................... (3,467,617) (971,247)
Held to maturity........................................................................ ( 6,121,593) (16,959,916)
Increase in loans ........................................................................ (17,131,561) (5,864,386)
Capital expenditures ..................................................................... (174,143) (71,486)
----------- -----------
Net cash used for investing activities ................................ (17,805,144) (4,093,636)
----------- -----------
FINANCING ACTIVITIES:
Net increase in demand deposits .......................................................... 5,948,327 (298,622)
Net increase (decrease) in savings deposits .............................................. 1,242,663 (1,031,627)
Net increase in money market deposits .................................................... 957,244 146,036
Net increase in time deposits ............................................................ 12,990,712 5,529,017
Proceeds from the issuance of common stock, net .......................................... 10,000 1,173,160
----------- -----------
Net cash provided by financing activities ............................. 21,148,946 5,517,964
----------- -----------
Increase in cash and cash equivalents, net ............................ 3,204,984 1,805,601
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 7,984,940 6,043,304
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ................................................. $11,189,924 $ 7,848,905
65
<PAGE>
<CAPTION>
SVB Financial Services, Inc.
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
(unaudited)
(continued)
1996 1995
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest ............................................... $ 1,689,181 $ 1,298,720
Cash paid during the period for income taxes ........................................... 155,000 0
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
66
<PAGE>
SVB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 (UNAUDITED)
SVB Financial Services, Inc., (the "Company"), a bank holding
company, was incorporated on February 7, 1996 with authorized capital of
10,000,000 shares of $4.17 par value common stock. On September 3, 1996, the
Company acquired 100 percent of the shares of Somerset Valley Bank (the "Bank")
by exchanging 6 shares of its Common Stock for each 5 shares of the Bank. This
exchange has been accounted for as a reorganization of entities under common
control, similar to a pooling of interests, which resulted in no changes to the
underlying carrying amounts of assets and liabilities.
The consolidated financial statements included herein have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. The accompanying condensed consolidated financial statements
reflect all adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. These consolidated condensed
financial statements should be read in conjunction with the audited financial
statements and the notes thereto included elsewhere herein. The results for the
six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996.
The consolidated financial statements include the accounts of
SOMERSET VALLEY BANK. All significant inter-company accounts and transactions
have been eliminated.
67
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31, 1995 and 1994
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash & Due from Banks ............................. $ 2,814,877 $ 2,417,643
Federal Funds Sold ................................ 4,575,000 3,150,000
Other Short Term Investments ...................... 595,063 475,661
------------ ------------
Total Cash and Cash Equivalents ................... 7,984,940 6,043,304
Securities (Notes 2 and 3)
Available for Sale, at Market Value ............... 4,874,738 3,473,951
Held to Maturity, (market value $14,649,141 in
1995 and $17,812,688 in 1994) 14,580,823 18,091,163
Total Securities .................................. 19,455,561 21,565,114
Loans (Notes 2, 4 & 5) ............................ 60,144,428 45,465,027
Allowance for Possible Loan Losses ................ (527,019) (372,062)
Unearned Income ................................... (89,242) (104,496)
------------ ------------
Net Loans ......................................... 59,528,167 44,988,469
Premises & Equipment, Net (Notes 2 & 6) ........... 716,215 450,620
Other Assets ...................................... 1,059,031 1,028,178
------------ ------------
Total Assets ...................................... $ 88,743,914 $ 74,075,685
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Noninterest Bearing .............................. $ 12,829,836 $ 10,347,426
NOW Accounts ..................................... 5,875,285 5,892,502
Savings ........................................... 5,700,503 6,958,242
Money Market Accounts ............................. 9,315,378 7,971,793
Time
Greater than $100,000 ........................... 5,202,055 7,956,461
Less than $100,000 .............................. 40,756,735 27,927,393
------------ ------------
Total Deposits .................................... 79,679,792 67,053,817
Accrued Expenses & Other Liabilities .............. 360,946 202,469
------------ ------------
Total Liabilities ................................. 80,040,738 67,256,286
------------ ------------
68
<PAGE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
As of December 31, 1995 and 1994
(continued)
1995 1994
------------ ------------
<S> <C> <C>
Commitments and Contingencies (Note 8)
SHAREHOLDERS' EQUITY (Notes 2, 11 and 12)
Common Stock, $4.17 Par Value, 10,000,000 Shares
Authorized:1,173,432 Shares in 1995 and 1,032,270
Shares in 1994 Issued and Outstanding ............ 4,893,211 4,304,566
Additional Paid in Capital ........................ 3,764,511 3,179,996
Retained Earnings (Deficit) ....................... 36,050 (627,167)
Unrealized Gain (Loss) on Securities Available
for Sale, Net of Income Taxes .................... 9,404 (37,996)
------------ ------------
Total Shareholders' Equity ........................ 8,703,176 6,819,399
------------ ------------
Total Liabilities and Shareholders' Equity ........ $ 88,743,914 $ 74,075,685
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME (Note 2)
Interest on Loans .......................................................... $ 4,850,687 $ 3,508,379 $ 2,221,693
Interest on Securities Available for Sale .................................. 205,413 189,260 82,255
Interest on Securities Held to Maturity .................................... 1,013,811 558,076 305,495
Interest on Other Short Term Investments ................................... 14,798 32,746 28,650
Interest on Federal Funds Sold ............................................. 211,302 107,863 65,695
----------- ----------- -----------
Total Interest Income ...................................................... 6,296,011 4,396,324 2,703,788
----------- ----------- -----------
INTEREST EXPENSE
Interest on Deposits ....................................................... 2,870,715 1,765,501 1,092,806
Interest on Federal Funds Purchased ........................................ 169 406 --
----------- ----------- -----------
Total Interest Expense ..................................................... 2,870,884 1,765,907 1,092,806
----------- ----------- -----------
Net Interest Income ........................................................ 3,425,127 2,630,417 1,610,982
----------- ----------- -----------
PROVISION FOR POSSIBLE LOAN LOSSES (Notes 2 and 6) ......................... 206,000 156,000 130,000
----------- ----------- -----------
Net Interest Income after Provision For Possible Loan Losses ............... 3,219,127 2,474,417 1,480,982
----------- ----------- -----------
OTHER INCOME
Service Charges on Deposit Accounts ........................................ 120,411 108,060 65,867
Gain on the Sale of Securities ............................................. 2,336 -- 20,486
Gain on the Sale of Loans .................................................. 181,599 59,358 38,720
Other Income ............................................................... 58,474 40,224 67,010
----------- ----------- -----------
Total Other Income ......................................................... 362,820 207,642 192,083
----------- ----------- -----------
OTHER EXPENSE
Salaries and Employee Benefits ............................................. 1,269,371 1,055,231 827,772
Occupancy Expense .......................................................... 240,049 221,109 193,979
Equipment Expense .......................................................... 174,985 152,552 142,286
Other Expenses (Note 7) .................................................... 810,935 733,765 577,859
----------- ----------- -----------
Total Other Expense ........................................................ 2,495,340 2,162,657 1,741,896
----------- ----------- -----------
Net Income (Loss) Before Provision (Benefit) for Income Taxes .............. 1,086,607 519,402 (68,831)
Provision (Benefit) for Income Taxes (Notes 2 and 10) ...................... 423,390 (307,752) --
----------- ----------- -----------
NET INCOME (LOSS) .......................................................... $ 663,217 $ 827,154 $ (68,831)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE ................................................ $ .58 $ .80 $ (.07)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 2) ............................... 1,152,408 1,029,048 927,509
=========== =========== ===========
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
Additional Retained Unrealized Gain Total
Common Paid in Earnings (Loss) on Securities Shareholders'
Stock Capital (Deficit) Available For Sale Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 ................. $ 3,010,932 $ 1,929,526 $(,385,490) $ -- $ 3,554,968
----------- ----------- ----------- ----------- -----------
Issuance of Common Stock,
Net of Related Issuance Costs ............ 1,276,370 1,233,234 -- -- 2,509,604
Exercise of Warrants ....................... 250 250 500
Net Loss - 1993 ............................ -- -- (68,831) (68,831)
Change in Unrealized Gain (Loss)
on Securities Available for Sale ......... -- -- -- (7,155) (7,155)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 ................. 4,287,552 3,163,010 (1,454,321) (7,155) 5,989,086
----------- ----------- ----------- ----------- -----------
Exercise of Warrants ....................... 17,014 16,986 -- -- 34,000
Net Income - 1994 .......................... -- -- 827,154 -- 827,154
Change in Unrealized Gain (Loss)
on Securities Available for Sale ......... -- -- -- (30,841) (30,841)
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 ................. 4,304,566 3,179,996 (627,167) (37,996) 6,819,399
----------- ----------- ----------- ----------- -----------
Exercise of Warrants ....................... 588,645 584,515 -- -- 1,173,160
Net Income - 1995 .......................... -- -- 663,217 -- 663,217
Change in Unrealized Gain (Loss)
on Securities Available for Sale ......... -- -- -- 47,400 47,400
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 ................. $ 4,893,211 $ 3,764,511 $ 36,050 $ 9,404 $ 8,703,176
=========== =========== =========== =========== ===========
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) ................................... $ 663,217 $ 827,154 $ (68,831)
Adjustments to Reconcile Income (Loss) to Net
Cash Provided By Operating Activities
Provision for Possible Loan Losses .................. 206,000 156,000 130,000
Depreciation and Amortization ....................... 170,619 150,205 144,969
Amortization (Accretion) of Securities
Premium/Discount ................................... (208,496) (116,405) 27,540
Gains on Sales of Securities, Net ................... (2,336) -- (20,486)
Gains on Sales of Loans ............................. (181,599) (59,358) (38,720)
Increase in Interest Receivable ..................... (127,991) (199,507) (130,278)
(Increase) Decrease in Other Assets ................. 35,338 (482,300) 26,157
Increase in Accrued Interest Payable ................ 43,438 55,824 10,186
Increase (Decrease) in Accrued Expenses and
Other Liabilities .................................. 109,976 197,459 (13,078)
Increase (Decrease) in Unearned Income .............. (14,414) 12,823 45,431
------------ ------------ ------------
Net Cash Provided By Operating Activities ........... 693,752 541,895 112,890
------------ ------------ ------------
INVESTING ACTIVITIES
Proceeds from Sales of Securities available for sale. 490,909 -- 1,274,468
Proceeds from Maturities of Securities
Available for Sale................................. 2,501,243 2,028,129 4,873,098
Held to Maturity................................... 27,278,825 12,051,718 3,445,899
Purchases of Securities
Available for Sale................................. (3,233,692) (243,083) (9,198,269)
Held to Maturity................................... (24,643,976) (23,592,446) (4,068,514)
Increase in Loans ................................... (14,549,686) (10,082,582) (17,260,833)
Capital Expenditures ................................ (394,874) (75,682) (86,310)
------------ ------------ ------------
Net Cash Used for Investing Activities .............. (12,551,251) (19,913,946) (21,020,461)
------------ ------------ ------------
72
<PAGE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(continued)
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net Increase in Demand Deposits ..................... 2,465,193 4,404,103 3,059,027
Net Increase (Decrease) in Savings Deposits ......... (1,257,739) (1,418,946) 1,977,934
Net Increase in Money Market Deposits ............... 1,343,585 629,857 4,077,137
Net Increase in Time Deposits ....................... 10,074,936 16,834,189 7,679,655
Proceeds from the Issuance of Common Stock, Net ..... 1,173,160 34,000 2,510,104
------------ ------------ ------------
Net Cash Provided by Financing Activities ........... 13,799,135 20,483,203 19,303,857
------------ ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents, Net 1,941,636 1,111,152 (1,603,714)
Cash and Cash Equivalents, beginning of year ........ 6,043,304 4,932,152 6,535,866
------------ ------------ ------------
Cash and Cash Equivalents, end of year .............. $ 7,984,940 $ 6,043,304 $ 4,932,152
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest .............. $ 2,914,732 $ 1,710,083 $ 1,082,620
============ ============ ============
Cash Paid During the Year for Income Taxes .......... $ 225,000 $ 5,675 $ --
============ ============ ============
</TABLE>
73
<PAGE>
SVB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1: ORGANIZATION AND NATURE OF OPERATIONS
SVB Financial Services, Inc., (the "Company"), a bank holding company, was
incorporated on February 7, 1996 with authorized capital of 10,000,000 shares of
$4.17 par value common stock. On September 3, 1996, the Company acquired 100
percent of the shares of Somerset Valley Bank (the "Bank") by exchanging 6
shares of its common stock for each 5 shares of the Bank. This exchange of
shares has been accounted for as a reorganization of entities under common
control, similar to a pooling of interests, which resulted in no changes to the
underlying carrying accounts of assets and liabilities.
The Bank was granted a charter by the New Jersey Department of Banking and
commenced operations on December 20, 1991. The Bank is a full service community
bank and operates at one location in Somerville, New Jersey. The Bank's
customers are predominately small and middle market businesses and
professionals. The Bank's market area is primarily Somerset County.
The consolidated financial statements include the accounts of the Bank. All
significant intercompany accounts and transactions have been eliminated.
2: SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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.
SECURITIES: A portion of the Bank's securities are carried at cost adjusted for
amortization of premiums and accretion of discounts using the interest method.
These securities are carried at amortized cost because the Bank has the ability
and intent to hold the securities to maturity.
The remainder of the Bank's securities are held for indefinite periods of time
which management intends to use as part of its asset/liability strategy, or that
may be sold in response to changes in interest rates, changes in prepayment
risk, increased capital requirements or other similar factors, are classified as
available for sale. These securities are carried at market value. Unrealized
gains and losses, net of tax effect, are reflected as a component of
shareholders' equity. Realized gains and or losses on securities available for
sale are determined on a specific identification basis.
The Bank had no securities held for trading purposes at December 31, 1995 and
1994.
ALLOWANCE FOR POSSIBLE LOAN LOSSES: The Bank's process for evaluating the
adequacy of the allowance for possible loan losses has three basic elements:
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First, the identification of problem loans when they occur; second, the
establishment of appropriate allowance for possible loan losses once specific
problem loans are identified; and third, a methodology for establishing general
loan loss allowances.
The identification of problem loans is achieved mainly through review of
specific major loans based on delinquency criteria, size of loan and location
and value of collateral property. Specific loss reserves are established for
identified problem loans based on reviews of current operating financial
information and fair value appraisals. A range of loss allowances is estimated
based upon consideration of past experience of originated loans by loan type,
year of origination, location of collateral property and loan-to-value ratios.
Based upon this process, consideration of the current economic environment and
other factors, management determines what it considers to be an appropriate
allowance for possible loan losses. Although Bank management believes it has a
sound basis for this estimation, actual write-offs incurred in the future are
highly dependent upon future events, including the economy of the area in which
the Bank lends.
SALE OF LOANS: The Bank periodically sells certain commercial loans to other
financial institutions without recourse to the Bank. Recognition of gains on
such sales are delayed for 90 days during which time, if the borrower defaults,
the premium paid is refunded to the purchaser of the loan. The gains and losses
are recognized in an amount which approximates the present value of the
difference between the effective interest rate to the Bank and the net yield to
the purchaser, excluding normal future loan servicing fees, when applicable,
over the estimated remaining lives of the loans sold.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed primarily on the straight-line method over the shorter of the estimated
useful lives of the assets (three to ten years) or the term of the related
lease.
INTEREST ON LOANS: Interest on loans is credited to operations primarily based
upon the principal amount outstanding. When management believes there is
sufficient doubt as to the ultimate collectability of interest on any loan, the
accrual of applicable interest is discounted.
Loan origination fees are deferred and are recognized over the estimated life of
the related loans as an adjustment of the loan yield, and are included in
interest on loans in the accompanying statements of operations.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
noninterest bearing amounts due from banks, Federal funds sold and other
short-term investments. Generally, Federal funds are sold for a 60-day period or
less.
INCOME TAXES: Deferred income taxes are recognized for tax consequences of
"temporary differences" by applying enacted statutory tax rates to differences
between the financial reporting and the tax basis of existing assets and
liabilities.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is computed by dividing
net income by the weighted average shares outstanding each year, adjusted for
common stock equivalents, if dilutive.
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<PAGE>
NEW FINANCIAL ACCOUNTING STANDARDS: The Financial Accounting Standards Boards
(FASB) issued SFAS No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of." in March 1995. This statement is
effective for the year ended December 31, 1996. Statement No. 121 requires the
long-lived assets to be held and used by the company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company has evaluated the impact of
Statement No. 121 on its financial statements and determined that it is not
material.
SFAS No. 122, "Accounting for Mortgage Servicing Rights" was issued in May 1995
and amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities."
This statement is effective for 1996 and requires the recognition of a separate
asset for the rights to service mortgage loans for others. The Company does not
service mortgage loans for others and will therefore not be impacted by this
statement.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995 and must be adopted by the Company effective January 1, 1996. SFAS No. 123,
requires entities that have employee stock option plans to estimate the value of
grants awarded to employees and disclose, in a pro forma footnote, the impact on
the entities' earnings per share as if the estimated option value were expensed
over the vesting period of the grants. Adoption of the disclosure requirements
of this new accounting standard will not have an impact on the Company's results
of operations or financial condition.
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<PAGE>
3: SECURITIES
Information relative to the Bank's securities portfolio at December 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
Gross
Gross Unrealized Estimated
Amortized Unrealized Amortized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1995
AVAILABLE FOR SALE
U.S. Treasury Securities ........ $ 3,543,131 $ 12,088 $ -- $ 3,555,219
U.S. Government Agency Securities 791,688 -- (350) 791,338
Mortgaged-Backed Securities ..... 525,452 2,729 -- 528,181
------------ ------------ ------------ ------------
$ 4,860,271 $ 14,817 $ (350) $ 4,874,738
============ ============ ============ ============
HELD TO MATURITY
U.S. Treasury Securities ........ $ 6,263,561 $ 50,008 $ (3,412) $ 6,310,157
U.S. Government Agency Securities 6,094,722 37,156 (5,265) 6,126,613
Other Securities ................ 496,147 10,728 -- 506,875
Mortgage-Backed Securities ...... 1,726,393 -- (20,897) 1,705,496
------------ ------------ ------------ ------------
$ 14,580,823 $ 97,892 $ (29,574) $ 14,649,141
============ ============ ============ ============
1994
AVAILABLE FOR SALE
U.S. Treasury Securities ........ $ 1,244,970 $ -- $ (13,238) $ 1,231,732
U.S. Government Agency Securities 1,505,934 -- (22,841) 1,483,093
Mortgage-Backed Securities ...... 781,503 -- (22,377) 759,126
------------ ------------ ------------ ------------
$ 3,532,407 $ -- $ (58,456) $ 3,473,951
============ ============ ============ ============
HELD TO MATURITY
U.S. Treasury Securities ........ $ 10,451,824 $ -- $ (121,871) $ 10,329,953
U.S. Government Agency Securities 4,337,200 -- (24,493) 4,312,707
Other Securities ................ 1,293,804 -- (21,996) 1,271,808
Mortgage-Backed Securities ...... 2,008,335 -- (110,115) 1,898,220
------------ ------------ ------------ ------------
$ 18,091,163 $ -- $ (278,475) $ 17,812,688
============ ============ ============ ============
</TABLE>
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<PAGE>
In October, 1995, the Financial Accounting Standards Board issued an
interpretation which permitted companies to make a one-time reclassification of
any portion of the held to maturity debt security portfolio without tainting the
remaining held to maturity portfolio. In connection therewith, the Bank
transferred securities with an amortized cost of $2,051,775 from the held to
maturity portfolio to the available for sale portfolio. The Bank recorded an
unrealized holding gain of $7,444 associated with the securities transferred.
The amortized cost and estimated value of securities at December 31, 1995, by
contractual maturity, are shown in the following table for securities to be held
to maturity and available for sale. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
------------ ------------
<S> <C> <C>
AVAILABLE FOR SALE
Due in 1 year or less $ 4,334,818 $ 4,346,557
Mortgage-Backed Securities 525,453 528,181
------------ ------------
$ 4,860,271 $ 4,874,738
============ ============
HELD TO MATURITY
Due in 1 year of less $ 3,352,200 $ 3,355,633
Due after 1 year through 5 years 9,502,231 9,588,012
Mortgage-Backed Securities 1,726,392 1,705,496
------------ ------------
$ 14,580,823 $ 14,649,141
============ ============
</TABLE>
At December 31, 1995, securities having a book value of approximately $2,028,000
were pledged to secure public deposits and for other purposes as required by
law.
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<PAGE>
4: LOANS
At December 31, 1995 and 1994, the composition of outstanding loans is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Secured by Real Estate
Residential Mortgage $ 21,466,489 $ 17,507,136
Commercial Mortgage 15,700,266 12,825,013
Construction 2,812,000 3,234,618
Commercial & Industrial 12,554,205 7,525,585
Loans to Individuals 7,611,468 4,372,675
------------ ------------
$ 60,144,428 $ 45,465,027
============ ============
</TABLE>
There were no loans restructured during 1995 or 1994. There were no loans past
due ninety days or more as to principal or interest or in a non-accrual status
as of December 31, 1995 and 1994. Loans to Executive officers totalled $147,984
at December 31, 1995 and $144,280 at December 31, 1994, all of which were
current as to principal and interest. There were no loans to Directors or their
affiliated interests.
During 1995, the Bank adopted the provisions of Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan"
(SFAS No. 114) and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," as of January 1, 1995. SFAS No. 114
requires that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loans original effective interest
rate. As a practical expedient, impairment may be measured based on the loans
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance. This statement is not applicable to large groups of
smaller-homogeneous loans, such as residential mortgage loans and consumer
loans, which are collectively evaluated for impairment.
A loan is considered to be impaired when it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of non-accrual loans but may include
performing loans to the extent that situations arise which would reduce the
probability of collection in accordance with the contractual terms.
The Bank had previously measured the allowance for possible loan losses using
methods similar to those prescribed in SFAS No. 114. As a result of adopting
these statements, no additional allowance for possible loan losses was required
and there is no impact on the comparability of years prior to 1995.
As of December 31, 1995 the Bank had no loans which were deemed impaired.
Interest payments received on impaired loans will be recorded as interest income
unless collection of the remaining recorded investment is doubtful at which time
payments received will be recorded as reductions of principal.
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<PAGE>
5: ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based on estimates and ultimate losses
may vary from the current estimates. These estimates are reviewed periodically,
and as adjustments become necessary, they are reflected in operations in the
period in which they become known. An analysis of the allowance for possible
loan losses is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1, ................ $ 372,062 $ 231,035 $ 107,000
Provision Charged to Operations ...... 206,000 156,000 130,000
Charge Offs .......................... (51,043) (15,846) (5,965)
Recoveries ........................... -- 873 --
--------- --------- ---------
Balance at December 31, .............. $ 527,019 $ 372,062 $ 231,035
========= ========= =========
</TABLE>
6: PREMISES AND EQUIPMENT
Premises and equipment consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Premises & Improvements .................. $ 187,322 $ 188,775
Furniture & Equipment .................... 700,548 573,063
Construction in Progress ................. 227,451 --
----------- -----------
1,115,321 761,838
----------- -----------
Less: Accumulated Depreciation ........... (399,106) (311,218)
----------- -----------
$ 716,215 $ 450,620
=========== ===========
</TABLE>
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<PAGE>
7: OTHER EXPENSE
The major components of other expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Data Processing Services ................... $131,038 $111,272 $ 99,020
Marketing & Business Development ........... 94,597 73,682 49,840
Stationery Forms & Supplies ................ 80,453 62,144 60,055
Insurance .................................. 62,773 65,539 58,543
Amortization of Organizational Costs ....... 41,340 41,340 38,220
Legal, Examination & Accounting ............ 83,847 90,857 67,027
FDIC Insurance Assessment .................. 74,332 110,153 66,467
Other, Net ................................. 242,555 178,778 138,687
-------- -------- --------
$810,935 $733,765 $577,859
======== ======== ========
</TABLE>
8: COMMITMENTS AND CONTINGENCIES
The Bank leases its banking facilities under operating leases which expire in
1996 and 2004, but which contain certain renewal options. The Somerville
facilities are leased from a partnership consisting of all but one of the Bank's
Directors and two non-director shareholders. As of December 31, 1995, future
minimum rental payments, including the renewal options under these leases for
the subsequent five years are as follows:
1996 $ 261,286
1997 $ 263,178
1998 $ 271,146
1999 $ 273,194
2000 $ 275,248
The above amounts represent minimum rentals not adjusted for possible future
increases due to escalation provisions and assumes that all option periods will
be exercised by the Bank. Rent expenses aggregated $153,618, $139,808 and
$132,734, for the years ended December 31, 1995, 1994 and 1993, respectively.
The Bank had outstanding commitments to extend credit of 9,177,000 at December
31, 1995 and $7,168,000 at December 31, 1994. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since a portion of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the customer. There is no material difference between the notional amount and
estimated fair value of off-balance sheet unfunded loan commitments as of
December 31, 1995.
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<PAGE>
9: BENEFIT PLAN
The Bank has a 401(K) Savings Plan covering substantially all employees. Under
the terms of the Plan, the Bank will match 50% of an employee's contribution, up
to 6% of the employee's salary. Employees become fully vested in the Bank's
contribution after five years of service. The Bank contributed $19,159, $12,700
and $3,600 to the Plan in 1995, 1994 and 1993, respectively.
10: INCOME TAXES
The components of the provision (benefit) for income taxes in 1995 and 1994 are
as follows:
There was no provision for income taxes in 1993.
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Federal
Current ....................... $ 239,708 $ 18,170
Deferred ...................... 122,338 (325,922)
State............................. 61,344 --
--------- ---------
$ 423,390 $(307,752)
========= =========
</TABLE>
Deferred income taxes are provided for the financial differences between the
financial reporting basis and the tax basis of the Bank's assets and
liabilities. Cumulative temporary differences at December 31, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Net Operating Loss Carry Forward............... $ -- $ 160,618
Start-up and Organization Costs ............... 27,309 60,420
Depreciation .................................. 2,219 (13,176)
Accretion of Securities Discount .............. (5,708) (8,493)
Provision for Possible Loan Losses ............ 179,774 126,553
--------- ---------
Deferred Tax Asset, Net ....................... $ 203,594 $ 325,922
========= =========
</TABLE>
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<PAGE>
A reconciliation of income taxes calculated at the U.S. statutory rate of 34% to
the actual income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Statutory provision (benefit) ..... $ 369,446 $ 176,596 ($ 23,402)
State taxes on income, net
of Federal tax benefit .......... 61,344 -- --
(Reversal) establishment of
valuation allowance on deferred
tax asset ....................... -- (473,453) 23,402
Other ............................. (7,390) (10,895) --
--------- --------- ---------
$ 423,390 ($307,752) $ --
========= ========= =========
</TABLE>
During 1994, the Bank achieved income before taxes of approximately $519,000.
The Bank's forecast for 1995 is for continued profitablility. Based on this
profitability, the Bank will utilize its net operating loss carryforwards over
the next few years.
As such, under the new accounting standard for income taxes, the Bank reversed
its valuation allowance and recognized substantially all of a net benefit during
the year ended December 31, 1994.
11: COMMON STOCK
During 1995, there were no options granted under the Bank's stock option plan.
During 1994, the Bank granted an aggregate of 12,000 options each for the
purchase of its common stock to two executive officers. The options are
exercisable over a five-year period at a price of $8.33 per share. No options
were exercised in 1995 or 1994.
12: CAPITAL REQUIREMENTS
Under the FDIC Improvement Act of 1991, banks are required to maintain a minimum
ratio of total capital to risk weighted assets of 8% of which at least 4% must
be in the form of Tier 1 capital (primarily shareholders equity) and a leverage
ratio of 4%. At December 31, 1995, the Bank had a ratio of total capital to risk
weighted assets of 14.28% of which 13.46% was in the form of Tier 1 capital and
a leverage ratio of 9.50%.
13: ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires the disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate value.
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<PAGE>
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
a forced or liquidation sale. It is the Bank's intent and general practice to
hold its financial instruments to maturity and not to engage in trading
activities. Therefore, significant estimations were used by the Bank for the
purposes of this disclosure.
Estimated fair values have been determined by the Bank using the best available
data and estimation methodology suitable for each category of financial
instruments and are as follows:
For short term investments, such as cash and cash equivalents and short term
deposits, the carrying amount is a reasonable estimate of fair value.
Fair Value Book Value
Cash and Cash Equivalents $ 7,984,940 $ 7,984,940
------------ ------------
For securities held in the Bank's investment portfolio, fair value was
determined by reference to quoted market prices as of December 31, 1995.
Fair Value Book Value
Available for Sale Securities $ 4,874,738 $ 4,860,271
------------ ------------
Held to Maturity Securities $ 14,649,141 $ 14,580,823
------------ ------------
For long term assets and liabilities, such as loans and deposits, the Bank's
policy is to hedge its interest rate exposure on deposits with earning assets
with matching maturities. Fair value of loans were estimated using the percent
value of future cash flows expected to be received. Loan rates currently offered
by the Bank were used in determining the appropriate discount rate. Deposits
with stated maturities have been valued using a present value discounted cash
flow with a discount rate approximating current market for similar maturities.
Deposits with no stated maturities have an estimated fair value equal to the
amount payable on demand.
Fair Value Book Value
Loans, Net $ 60,612,000 $ 60,144,428
------------ ------------
Deposits $ 80,039,000 $ 79,679,792
------------ ------------
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<PAGE>
(Letterhead)
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of SVB Financial Services, Inc.
We have audited the accompanying consolidated statements of condition of SVB
Financial Services, Inc. (a New Jersey corporation) and subsidiary as of
December 31, 1995 and 1994 and the related statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SVB Financial
Services, Inc. and subsidiary as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Princeton, New Jersey
January 18, 1996
(Except with respect to the matter
discussed in Note 1, as to which
the date is September 3,1996)
85
<PAGE>
200,000 SHARES
PROSPECTUS
, 1996
86
<PAGE>
No person is authorized to give any information or make any representation other
than as contained in this Prospectus and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction where such offer would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implications that there had been no change in the
affairs of the Company since any of the dates of which information is furnished
herein or since the date hereof.
TABLE OF CONTENTS
SVB FINANCIAL SERVICES, INC.
Available Information.......................
Prospectus Summary..........................
Selected Consolidated Financial Data........
Investment Considerations...................
The Offering................................
Use of Proceeds.............................
Dilution....................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................
Disclosure Regarding Indemnification........
Business....................................
Supervision and Regulation..................
Management..................................
Description of Securities...................
Capitalization..............................
Legal Matters...............................
Experts.....................................
Index to Consolidated Financial Statements..
Consolidated Financial Statements...........
87
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
(a) Section 14A:3-5 of the New Jersey Revised Statutes, as amended, provides as
follows:
(1) As used in this section.
(a) "Corporate agent" means any person who is or was
a director, officer, employee or agent of the indemnifying
corporation or of any constituent corporation absorbed by the
indemnifying corporation in a consolidation or merger and any
person who is or was a director, officer, trustee, employee or
agent of any other enterprise, serving as such at the request
of the indemnifying corporation, or of nay such constituent
corporation, or the legal representative of any such director,
officer, trustee, employee or agent;
(b) "Other enterprise" means any domestic or foreign
corporation, other than the indemnifying corporation and any
partnership, joint venture, sole proprietorship, trust or
other enterprise, whether or not for profit, served by a
corporate agent;
(c) "Expenses" means reasonable costs, disbursements
and counsel fees;
(d) "Liabilities" means amounts paid or incurred in
satisfaction of settlements, judgments, fines and penalties;
(e) "Proceeding" means any pending, threatened or
completed civil, criminal, administrative or arbitrative
action, suit or proceeding, and any appeal therein and any
inquiry or investigation which could lead to such action, suit
or proceeding; and
(f) References to "other enterprises" include
employee benefit plans, references to "fines" include any
excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the
indemnifying corporation" include any service as a corporate
agent which imposes duties on, or involves services by, the
corporate agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good
faith and in a manner the person reasonably believed to be in
the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation"
as referred to in this section.
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<PAGE>
(2) Any corporation organized for any purpose under any
general or special law of this State shall have the power to
indemnify a corporate agent against his expenses and
liabilities in connection with any proceeding involving the
corporate agent by reason of his being or having been such a
corporate agent, other than a proceeding by or in the right of
the corporation, if
(a) such corporate agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the
best interests of the corporation; and
(b) with respect to any criminal proceeding, such
corporate agent had no reasonable cause to believe his conduct
was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not of itself create a
presumption that such corporate agent did not meet the
applicable standards of conduct set forth in paragraphs
14A:3-5(2)(a) and 14A:3- 5(2)(b).
(3) Any corporation organized for any purpose under any
general or special law of this State shall have the power to
indemnify a corporate agent against his expenses in connection
with any proceeding by or in the right of the corporation to
procure a judgment in its favor which involves the corporate
agent by reason of his being or having been such corporate
agent, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation. However, in such proceeding no indemnification
shall be provided in respect of any claim, issue or matter as
to which such corporate agent shall have been adjudged to be
liable to the corporation, unless and only to the extent this
the Superior Court or the court in which such proceeding was
brought shall determine upon application that despite the
adjudication of liability, but in view of all circumstances of
the case, such corporate agent is fairly and reasonably
entitled to indemnity for such expenses as the Superior Court
or such other court shall deem proper.
(4) Any corporation organized for any purpose under any
general or special law of this State shall indemnify a
corporate agent against expenses to the extent that such
corporate agent has been successful on the merits or otherwise
in any proceeding referred to in subsections 14A:3-5(2) and
14A:3-5(3) or in defense of any claim, issue or matter
therein.
(5) Any indemnification under subsection 14A:3-5(2) and,
unless ordered by a court, under subsection 14A:3-5(3) may be
made by the corporation only as authorized in a specific case
upon a determination that indemnification is proper in the
circumstances because the corporate agent met the applicable
standard of conduct set forth in subsection 14A:3-5(2) or
subsection 14A:3-5(3). Unless otherwise provided in the
certificate of incorporation or bylaws, such determination
shall be made
89
<PAGE>
(a) by the board of directors or a committee thereof,
acting by a majority vote of a quorum consisting of directors
who were not parties to or otherwise involved in the
proceeding; or
(b) if such a quorum is not obtainable or, even if
obtainable and such quorum of the board of directors or
committee by a majority vote of the disinterested directors so
directs, by independent legal counsel, in a written opinion,
such counsel to be designated by the board of directors; or
(6) Expenses incurred by a corporate agent in connection with
a proceeding may be paid by the corporation in advance of the
final disposition of the proceeding and authorized by the
board of directors upon receipt of an undertaking by or on
behalf of the corporate agent to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified as provided in this section.
(7) (a) If a corporation upon application of a corporate agent
has failed or refused to provide indemnification as required
under subsection 14A:3-5(4) or permitted under subsections
14A:3-5(2), 14A:3-5(3) and 14A:3-5(6), a corporate agent may
apply to court for an award of indemnification by the
corporation, and such court
(i) may award indemnification to the extent
authorized under subsections 14A:3-5(2) and
14A:3-5(3) and shall award indemnification to the
extent required under subsection 14A:3-5(4),
notwithstanding any contrary determination which may
have been made under subsection 14A:3-5(5); and
(ii) may allow reasonable expenses to the
extent authorized by, and subject to the provisions
of, subsection 14A:3-5(6), if the court shall find
that the corporate agent has by his pleadings or
during the course of the proceeding raised genuine
issues of fact or law.
(b) Application for such indemnification may be made
(i) in the civil action in which the expenses
were or are to be incurred or other amounts were or
are to be paid; or
(ii) to the Superior Court in a separate
proceeding. If the application is for indemnification
arising out of a civil action, it shall set forth
reasonable cause for the failure to make application
for such relief in the action or proceeding in which
the expenses were or are to be incurred or other
amounts were or are to be paid.
90
<PAGE>
The application shall set forth the
disposition of any previous application for
indemnification and shall be made in such manner and
form as may be required by the applicable rules of
court or, in the absence thereof, by direction of the
court to which it is made. Such application shall be
upon notice to the corporation. The court may also
direct that notice shall be given at the expense of
the corporation to the shareholders and such other
persons as it may designate in such manner as it may
require.
(8) The indemnification and advancement of expenses provided
by or granted pursuant to the other subsections of this
section shall not include any other rights, including the
right to be indemnified against liabilities and expenses
incurred in proceedings by or in the right of the corporation,
to which a corporate agent may be entitled under a certificate
of incorporation, bylaw, agreement, vote of shareholders, or
otherwise, provided that no indemnification shall be made to
or on behalf of a corporate agent if a judgment or other final
adjudication adverse to the corporate agent establishes that
his acts or omissions
(a) were in breach if his duty of loyalty to the
corporation or its shareholders, as defined in subsection (3)
of N.J.S. 14A:2-7, (b) were not in good faith or involved a
knowing violation of law or (c) resulted in receipt by the
corporate agent of an improper personal benefit.
(9) Any corporation organized for any purpose under any
general or special law of this State shall have the power to
purchase and maintain insurance on behalf of any corporate
agent against any expenses incurred in any proceeding and any
liabilities asserted against him by reason of his being or
having been a corporate agent, whether or not the corporation
would have the power to indemnify him against such expenses
and liabilities under the provisions of this section. The
corporation may purchase such insurance from or such insurance
may be reinsured in whole or in part by, an insurer owned by
or otherwise affiliated with the corporation, whether or not
such insurer does business with other insureds.
(10) The powers granted by this section may be exercised by
the corporation, notwithstanding the absence of any provision
in its certificate of incorporation or bylaws authorizing the
exercise of such powers.
91
<PAGE>
(11) Except as required by subsection 14A:3-5(4), no
indemnification shall be made or expenses advanced by a
corporation under this action, and none shall be ordered by a
court, if such action would be inconsistent with a provision
of the certificate of incorporation, a bylaw, a resolution of
the board of directors or of the shareholders, an agreement or
other proper corporate action, in effect at the time of the
accrual of the alleged cause of action asserted in the
proceeding, which prohibits, limits or otherwise conditions
the exercise of indemnification powers by the corporation or
the rights of indemnification to which a corporate agent may
be entitled.
(12) This section does not limit a corporation's power to pay
or reimburse expenses incurred by a corporate agent in
connection with the corporate agent's appearance as a witness
in a proceeding at a time when the corporate agent has not
been made a party to the proceeding.
(b) The Bylaws of the Company provide as follows:
ARTICLE VIII
Indemnification
Section 1. Indemnification. Subject to the provisions of Section 3, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or contemplated action, suit or proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, trustee, or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall be indemnified by the Corporation
against expenses (including attorneys' fees), judgments, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the full extent permitted by
the laws of the State of New Jersey as in effect at the time of such
indemnification.
Section 2. Advances. Subject to the provisions of Section 3, any person
claiming indemnification within the scope of Section 1 shall be entitled to
advances from the corporation for payment of the expenses to defend actions
against such person in the manner and to the full extent permissible under the
laws of the State of New Jersey as in effect at the time of such
indemnification.
92
<PAGE>
Section 3. Procedure. Any indemnification under Section 1 or advance
under Section 2 may be made by the corporation in the specific case upon
findings and a determination that indemnification is proper under the
circumstances. Such determination shall be made (a) by the Board of Directors or
a committee thereof, acting by a majority vote of a quorum consisting of
directors who were not parties to or otherwise involved in the proceeding, or
(b) if such a quorum is not obtainable, or, even if obtainable and such quorum
of the Board of Directors or committee by a majority vote of the disinterested
directors so directs, by independent legal counsel designated by the Board of
Directors in a written opinion, or (c) by the shareholders.
Section 4. Other Rights. The indemnification provided by these By-Laws
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any insurance or other agreement, vote of
shareholders or disinterested directors, or otherwise both as to actions in
their official capacity and as to actions in another capacity while holding an
office, and shall continue as to a person who has ceased to be a corporate agent
and shall inure to the benefit of the legal representation of such a person.
Section 5. Insurance. The Corporation shall have the power, but shall
not be obligated, to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee, trustee, or agent of the Corporation
against any expenses incurred in any proceeding and any liabilities asserted
against him or her and incurred by him or her in any such capacity or arising
out of his or her status as such, whether or not the Corporation would have the
power to indemnify him or her against such expenses and liabilities under the
provisions of these By-Laws.
93
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
Item Amount
Securities and Exchange Commission
filing fee $ 896.56
Blue Sky (e) 2,500.00
Legal (e) 22,000.00
Accounting (e) 20,000.00
Postage (e) 1,000.00
Printing (e) 5,000.00
Advertising & Marketing (e) 8,603.44
----------
TOTAL $60,000.00
(e) Estimated
Item 26. Recent Sales of Unregistered Securities
As of June 30, 1996, there were sold a total of 121,285 unregistered
shares within the three year period prior to that date.
In connection with the Bank's issuance of common stock in May of 1993,
warrants were granted which entitled the holders to receive in the aggregate
127,535 shares of common stock in exchange for a $10 payment per share. The
warrants were exercisable through March 1, 1995. The warrants exercised in each
year totaled 50 in 1993, 3,400 in 1994 and 117,835 in 1995 for total of 121,285
shares.
There were no professional underwriters used in this issuance and the
securities were sold to existing shareholders.
These securities were sold without prior registration in reliance upon
Section 3(a)(2) of the Securities Act of 1933, as amended (the "Act"). That
provision exempts certain classes of securities from the provisions of the Act,
including: "...any security issued or guaranteed by any bank;".
That same section defines "bank" as "...any national bank, or any
banking institution organized under the laws of any state...."
The unregistered warrants and shares of common stock were those of the
Bank, which is a New Jersey chartered commercial bank. Accordingly, Section
3(a)(2) applies and no registration was required.
94
<PAGE>
Item 27. Exhibits
The following table lists all exhibits to the Registration Statement.
Several exhibits are incorporated by reference to a registration statement
previously filed by the Registrant, as more fully set forth below:
Exhibit Description
3.1 Certificate of Incorporation To be filed by
of SVB Financial Services, Inc. Amendment
3.2 By-Laws of SVB Financial To be filed by
Services, Inc. Amendment
4.1 Specimen Stock Certificate To be filed by
Amendment
4.2 Pages 3, 4, 5, 6, 7, 8, 9, 10 Page II - 4
and 11 from Certificate of
Incorporation of SVB Financial
Services, Inc. defining rights
of shareholders
4.3 Pages 1, 2, 3, 9, 10, 11, 14 Page II - 5
and 15 from the By-Laws of
SVB Financial Services, Inc.
5.1 Opinion of Counsel Page II - 6
10.1 Employment Agreements To be filed by
Amendment
10.2 Leases for Offices of the P
Bank and the Company
21 Subsidiary of Registrant Page II - 8
23 Consent of Experts and Counsel Page II - 9
27 Financial Data Schedule Page II - 10
99 Subscription Agreement Page II - 11
95
<PAGE>
Item 28. Undertakings
The Company hereby undertakes as follows:
1. The Company shall file, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement to:
(a) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) reflect in the prospectus any facts or events which
individually or together, represent fundamental change in the information in the
registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total value of securities
offered would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
the Registration Fee" table in the effective registration statement;
(c) include any additional or changed material information on
the plan of distribution.
2. The Company shall, for determining liability under the Securities
Act, treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
3. The Company shall file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
96
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on September , 1996.
Dated: October 25, 1996 SVB FINANCIAL SERVICES, INC.
By: /s/ Keith B. McCarthy
-------------------------
Keith B. McCarthy,
Treasurer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in capacities
and at the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
John K. Kitchen Director and October 25, 1996
--------------- Chairman of the Board
John K. Kitchen
/s/Robert P. Corcoran President and Chief October 25, 1996
------------------ Executive Officer and
Robert P. Corcoran Director
/s/Keith B. McCarthy Executive V.P. and October 25, 1996
----------------- Treasurer
Keith B. McCarthy
Bernard Bernstein Director October 25, 1996
-----------------
Bernard Bernstein
Mark S. Gold, MD Director October 25, 1996
----------------
Mark S. Gold, MD
S. Tucker S. Johnson Director October 25, 1996
--------------------
S. Tucker S. Johnson
/s/Willem Kooyker Director October 25, 1996
--------------
Willem Kooyker
/s/Frank Orlando Director October 25, 1996
-------------
Frank Orlando
97
<PAGE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/Gilbert E. Pittenger Director October 25, 1996
--------------------
Gilbert E. Pittenger
/s/Frederick D. Quick Director October 25, 1996
------------------
Frederick D. Quick
/s/Anthony J. Santye, Jr. Director October 25, 1996
----------------------
Anthony J. Santye, Jr.
/s/G. Robert Santye Director October 25, 1996
----------------
G. Robert Santye
/s/Donald Sciaretta Director October 25, 1996
----------------
Donald Sciaretta
Herman C. Simonse Director October 25, 1996
-----------------
Herman C. Simonse
Donald R. Tourville Director October 25, 1996
-------------------
Donald R. Tourville
Raymond L. Hughes Director October 25, 1996
-----------------
Raymond L. Hughes
</TABLE>
98
III. A. The aggregate number of shares of stock which the
Corporation shall have authority to issue is 10,000,000 shares of stock, with a
par value of $4.17 per share.
B. Subject to and in accordance with the provisions of Section
2 of Chapter 7 of Title 14A of the New Jersey Statutes, the Board of Directors
of the Corporation shall have authority to divide the authorized but unissued
shares of stock of the Corporation into such classes or series of stock with
such designations, in such numbers and with such relative rights, preferences
and limitations as the Board of Directors shall determine. The Board of
Directors shall also have authority to change the designation or number of
shares, or the relative rights, preferences or limitations of the shares of any
theretofore established class or series, no shares of which have been issued.
The Board shall also have power under Sections 1 and 9 of Chapter 7 of Title 14A
of the New Jersey Statutes to create from the authorized but unissued. shares of
stock of the Corporation classes or series of convertible bonds or debentures.
C. No holder of any shares of the Corporation shall have any
preemptive right to purchase, subscribe for or otherwise acquire any shares of
the Corporation of any class now or hereafter authorized, or any securities
exchangeable for or convertible into such shares, or any warrants or other
instruments evidencing rights or options to subscribe for, purchase, or
otherwise acquire such shares.
IV. The Board of Directors of the Corporation shall be
classified and the directors shall be divided into three classes, as nearly
equal in number as possible. In the election of directors at the First Annual
Meeting of Stockholders, the term of office of the first class shall expire at
the Second Annual Meeting of Stockholders, the term of office of the second
class shall expire at the Third Annual Meeting of Stockholders, and the term of
office of the third class shall expire at the Fourth Annual Meeting of
Stockholders. At each Annual Meeting of Stockholders following such initial
classification and election, the number of directors equal to the number of the
class whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding Annual Meeting of Stockholders. Each director
shall hold office until his successor is elected and qualified, or until his
earlier resignation or removal.
Notwithstanding any other provisions of the Certificate of
Incorporation or ByLaws of the Corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, the other provisions of this
Certificate of Incorporation, or the By-Laws of the Corporation), and in
addition to any requirement of the Business Corporation Act of New Jersey, the
affirmative vote of the stockholders holding not less than three-fourths of the
outstanding shares of common stock of the Corporation, voted as a single class,
shall be required to amend or repeal, or to adopt any provisions inconsistent
with this Article; provided, however, that the preceding provision shall not be
applicable to any amendment or repeal or adoption of any provision inconsistent
with this Article I, and such amendment or repeal or adoption of any provision
inconsistent with this Article I shall require only such affirmative vote as
required by law and any other provisions of this Certificate of Incorporation,
if such amendment or repeal or adoption shall have been approved by a majority
vote of the Board of Directors.
V. The total number of directors which constitutes the Board
of Directors of the Corporation shall not be less than five (5) or more than
twenty-five (25), the total number to be fixed by the vote of a majority of the
total number of authorized directors in advance of the Annual Meeting of
Stockholders.
<PAGE>
A. During the period between Annual Meetings of Stockholders,
the Board of Directors may increase or decrease the number of directors in
office by no more than two (2) directors.
B. At the Annual Meeting of Stockholders, the stockholders of
the Corporation shall be entitled to increase or decrease the number of
directors, to a greater or lesser number than that set by the Board of
Directors, by the affirmative vote of at least 75% of the shares of the
Corporation then entitled to be voted in an election of directors.
C. Any increase or decrease in the number of directors shall
be apportioned among the classes of directors so as to maintain the size of each
class as nearly equal as possible.
D. Any vacancy on the Board of Directors,whether resulting
from death, resignation, removal, increase in number of directors, or other
cause, may be filled only by a vote of two-thirds of the directors then in
office at any regular or special meeting of the Board of Directors called for
that purpose. Any director so elected shall serve until the next election of the
class for which such director shall have been chosen and until his successor
shall be elected and qualified.
E. Any director on the Board of Directors may be removed for
cause as set forth in this Section E. Except as may otherwise be provided by
law, cause for removal shall be construed to exist only if:
(1) the director whose removal is proposed has been
convicted, or where a director was granted immunity to testify
where another has been convicted, of a felony by a court of
competent jurisdiction and such conviction is no longer
subject to direct appeal;
(2) such director has been adjudicated by a court of
competent jurisdiction to be liable for negligence, or
misconduct, in the performance of his duty to the Corporation
in a matter of substantial importance to the Corporation and
such adjudication is no longer subject to direct appeal;
(3) such director has become mentally incompetent, whether
or not so adjudicated, which mental incompetency directly
affects his ability as a director of the Corporation;
(4) such director ceases to fulfill the qualification
requirements set forth in the By-Laws of the Corporation; or
(5) such director's actions or failure to act are deemed
by the Board of Directors to be in derogation of the
director's duties.
F. Removal for cause, as cause is defined in (1) and (2)
above, must be approved by at least a two-thirds vote of the total number of
directors and the action for removal must be brought within one year of such
conviction or adjudication. Removal for cause as cause is defined in (3), (4)
and (5) above, must be approved by at least two-thirds of the total number of
directors. For purposes of this paragraph, the total number of directors shall
not include the director who is the subject of the removal determination, nor
will such director be entitled to vote thereon.
G. No director may be removed by the Board of Directors or by
the stockholders without cause.
<PAGE>
H. Notwithstanding any other provisions of the Certificate of
Incorporation or By-Laws of the Corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, the other provisions of this
Certificate of Incorporation, or the By-Laws of the Corporation), and in
addition to any requirement of the Business Corporation Act of New Jersey, the
affirmative vote of the stockholders holding not less than three-fourths of the
outstanding shares of common stock of the Corporation, voted as a single class,
shall be required to amend or repeal, or to adopt any provisions inconsistent
with this Article; provided, however, that the preceding provision shall not be
applicable to any amendment or repeal or adoption of any provision inconsistent
with this Article, and such amendment or repeal or adoption of any provision
inconsistent with this Article shall require only such affirmative vote as
required by law and any other provisions of this Certificate of Incorporation,
if such amendment or repeal or adoption shall have been approved by a majority
vote of the Board of Directors.
VI. No action required to be taken or which may be taken at
any meeting of stockholders of the Corporation may be taken by written consent
without a meeting, except that any such action may be taken without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all
the stockholders of the Corporation entitled to vote thereon, except as may be
provided by law.
Notwithstanding any other provisions of the Certificate of
Incorporation or ByLaws of the Corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, the other provisions of this
Certificate of Incorporation, or the By-Laws of the Corporation), and in
addition to any requirement of the Business Corporation Act of New Jersey, the
affirmative vote of the stockholders holding not less than three-fourths of the
outstanding shares of common stock of the Corporation, voted as a single class,
shall be required to amend or repeal, or to adopt any provisions inconsistent
with this Article; provided, however, that the preceding provision shall not be
applicable to any amendment or repeal or adoption of any provision inconsistent
with this Article, and such amendment or repeal or adoption of any provision
inconsistent with this Article shall require only such affirmative vote as
required by law and any other provisions of this Certificate of Incorporation,
if such Amendment or repeal or adoption shall have been approved by a majority
vote of the Board of Directors.
VII. Except as expressly permitted in sub-paragraph A below,
any purchase by the corporation, or any subsidiary of the Corporation, of shares
of common stock from a person or group of persons known by the Corporation to be
an Interested Stockholder (as hereinafter defined) at a per share price in
excess of the Fair Market Value (as hereinafter defined) at the time of such
purchase of the shares so purchased, shall require the affirmative vote of not
less than a majority of the votes entitled to be cast by the holders of all then
outstanding shares of common stock, voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage or separate class vote may be specified by
law, or otherwise.
A. The provisions of this Article shall not be applicable to
any purchase of shares of common stock, if such purchase is pursuant to:
(1) an offer, made available on the same terms, to the
holders of all of the outstanding shares of the same class as
those purchased; or
<PAGE>
(2) a purchase program effected on the open market and not
the result of a privately-negotiated transaction.
B. For purposes of this Article:
(1) The term "Interested Stockholder" shall mean a holder,
or group of holders acting in concert, of more than five
percent (5%) of the common stock of the Corporation; and
(2) The term "Fair Market Value" shall mean the average
closing bid quotations with respect to a share of common stock
for the 30 day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated
Quotation System or any system or exchange on which the stock
is then listed or quoted, or if no such quotation is
available, the value of a share of common stock as determined
in good faith by a majority vote of the Board of Directors.
C. Notwithstanding any other provisions of the Certificate of
Incorporation or By-Laws of the Corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, the other provisions of this
Certificate of Incorporation, or the By-laws of the Corporation), and in
addition to any requirement of the Business Corporation Act of New Jersey, the
affirmative vote of the stockholders holding not less- than three-fourths of the
outstanding shares of common stock of the Corporation, voted as a single class,
shall be required to amend or repeal, or to adopt any provisions inconsistent
with this Article; provided, however, that the preceding provision shall not be
applicable to any amendment or repeal or adoption of any provision inconsistent
with this Article, and such amendment or repeal or adoption of any provision
inconsistent with this Article shall require only such affirmative vote as
required by law and any other provisions of this Certificate of Incorporation,
if such amendment or repeal or adoption shall have been approved by a majority
vote of the Board of Directors.
VIII. The affirmative vote or consent of the holders of not
less than two-thirds of the outstanding shares of Voting Stock (as hereinafter
defined) of the Corporation held by stockholders other than the Acquiring Person
(as hereinafter defined) with which or by or on whose behalf, directly or
indirectly, a "Business Combination" (as hereinafter defined) is proposed,
voting as a single class, shall be required for the approval or authorization of
such Business Combination. Notwithstanding the foregoing, the above two-thirds
voting requirement shall not be applicable if such Business Combination is
approved by a majority vote of the Continuing Directors (as hereinafter defined)
or if the cash or fair market value of the property, securities, or other
consideration to be received per share by all holders of shares of each class or
series of Voting Stock in such Business Combination, as of the date of
consummation thereof, is an amount not less than the higher of (a) the Highest
Per Share Price (as hereinafter defined) paid by such Acquiring Person in
acquiring any of its holdings of Voting Stock, and (b) the Fair Market Price (as
hereinafter defined) of such class of Voting Stock determined on the date the
proposal for such Business Combination was first publicly announced, and such
consideration shall be in the same form and of the same kind as the
consideration paid by such Acquiring Person in acquiring the shares of Voting
Stock it already owns. If the Acquiring Person had paid for shares of Voting
Stock with varying forms of consideration, the form of consideration to be
received by the holders of Voting Stock shall be in the form used to acquire the
largest number of shares of Voting Stock acquired by the Acquiring Person. If
the Continuing Directors have not approved the Business Combination by a
majority vote, then other conditions which must be met if the two-thirds voting
requirement is not to be applicable to the subject Business Combination are:
<PAGE>
(i)after the Acquiring Person has obtained 5% of the
Corporation's voting Stock and prior to the consummation of the Business
Combination (except as approved by a vote of a majority of the Continuing
Directors) there shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividend (whether or not cumulative) on any
outstanding preferred stock of the Corporation; there shall have been
(1) no reduction in the annual rate of dividends, if any,
paid on the common stock (except as necessary to reflect any
subdivision of the common stock), except as approved by a
majority vote of the Continuing Directors, and
(2) an increase in such annual rate of dividends as
necessary to prevent any such reduction in the event of any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding
shares of common stock, unless the failure so to increase such
annual rate is approved by a majority vote of the Continuing
Directors; and such Acquiring Person shall not have become the
beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such
Acquiring Person owning 5 % or more of the Voting Stock;
(ii)after such Acquiring Person has become an Acquiring
Person, such Acquiring Person shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise, except as approved by a
majority vote of the Continuing Directors;
(iii) a proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended (the "Act"), shall be mailed to stockholders of
the Corporation at least 30 days prior to the consummation of such Business
Combination (whether such proxy or information statement is required to be
mailed pursuant to the Act or the rules promulgated thereunder (the "Rules");
(iv) if deemed advisable by a majority vote of Continuing
Directors, the proxy or information statement shall contain either a
recommendation by a majority of Continuing Directors as to the advisability (or
inadvisability) of the Business Combination or an opinion by an investment
banking firm, selected by a majority of the Continuing Directors, as to the
fairness (or unfairness) of the Business Combination to the stockholders of the
Corporation other than the Acquiring Person, or both; and
(v) all per share prices referred to in this Article shall
have been appropriately adjusted to reflect any intervening stock splits, stock
dividends, recapitalization, reclassification (including any reverse stock
splits), reorganizations or any similar transactions.
A. For purposes of this Article:
(1) "Acquiring Person" shall mean any individual, corporation (other
than the Corporation), partnership, other person or entity which, together with
its affiliates and associates (as defined in the Act or the Rules thereunder. as
amended), and with any other individual, corporation (other than the
<PAGE>
Corporation), partnership, person or entity with which it or they have any
agreement,arrangement, or understanding with respect to acquiring, holding,
voting or disposing of Voting Stock, beneficially owns (within the meaning of
the Act or the Rules) in the aggregate 5% or more of the outstanding Voting
Stock of the Corporation. "Acquiring Person" shall also include any assignee of
or person or entity which has succeeded to any shares of Voting Stock which were
at any time prior to the date of assignment or succession beneficially owned by
a 5% owner, or an affiliate or associate of a 5% owner, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933, as amended. A person or entity, its affiliates and
associates, assignees and successors, and all such other persons or entities
with whom they have any such agreement, arrangement, or understanding shall be
deemed a single Acquiring Person for purposes of this Article. For purposes of
this Article, the Continuing Directors shall by majority vote have the power to
determine, on the basis of information known to the Board, if and when there is
an Acquiring Person. Any such determination shall be conclusive and binding for
all purposes of this Article.
(2) "Business Combination" shall mean (a) any merger or consolidation
of the Corporation or a subsidiary of the Corporation with or into an Acquiring
Person, (b) any sale, lease, exchange, transfer or other disposition, including,
without limitation, a mortgage or other security device, in a single transaction
or related series of transactions, of all or any Substantial Part (as
hereinafter defined of the assets either of the Corporation (including without
limitation any voting securities of a subsidiary) or of a subsidiary of the
Corporation to an Acquiring Person, (c) any merger or consolidation of an
Acquiring Person with or into the Corporation or a subsidiary of the
Corporation, (d) any sale, lease, exchange, transfer or other disposition,
including without limitation a mortgage or other security device, in a single
transaction or related series of transactions, of all or any Substantial Part of
the assets of an Acquiring Person to the Corporation or a subsidiary of the
Corporation, (e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to an Acquiring Person, (f) any recapitalization,
merger or consolidation that would have the effect of increasing the voting
power of an Acquiring Person, (g) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed, directly or indirectly,
by or on behalf of an Acquiring Person, (h) any merger or consolidation of the
Corporation with a subsidiary of the Corporation proposed by or on behalf of an
Acquiring Person, unless approved by a majority vote of the Continuing
Directors; (i) any agreement, contract, or other arrangement providing for any
of the transactions described in this definition of Business Combination, and
(j) any other transaction with an Acquiring Person which requires the approval
of the stockholders under the Business Corporation Act of New Jersey. A person
who is an Acquiring Person as of (k) the time any definitive agreement relating
to a Business Combination is entered into, (1) the record date for the
determination of stockholders entitled to notice of and to vote on a Business
Combination, or (m) immediately prior to the consummation of a Business
Combination, shall be an Acquiring Person for purposes of this definition.
(3) "Continuing Directors" of the Corporation shall mean a director
who was a member of the Board of Directors of the Corporation on or about
February 1, 1996 and is still a director, together with each director who was a
member of the Board of Directors immediately prior to the time that the
Acquiring Person involved in a Business Combination became an Acquiring Person
and any successor to such Continuing Director who was nominated or elected by a
majority of the then Continuing Directors or any director nominated or approved
for nomination to the Board of Directors by a majority of the then Continuing
Directors and elected by the stockholders. A majority vote of the Continuing
<PAGE>
Directors shall mean a vote of the majority of the Continuing Directors then in
office, provided that at least two Continuing Directors are then in office and
participate in such vote.
(4) "Fair Market Price" shall mean for any class or series of Voting
Stock the highest closing bid quotation with respect to a share of such class or
series of stock as determined in good faith by a majority vote of the Continuing
Directors.
(5) "Highest Per Share Price" shall mean the following: If there is
only one class and series of Voting Stock of the Corporation - issued and
outstanding, the Highest Per Share Price shall mean the highest per share price
that can be determined to have been paid at or after the time the Acquiring
Person by or on whose behalf, directly or indirectly, the Business Combination
has been proposed, for any share or shares of that class and series of Voting
Stock. If there is more than one class or series of Voting Stock issued and
outstanding. as to each class or series, the Highest Per Share Price shall mean
the higher of (i) the highest per share price that can be determined to have
been paid at any time by the Acquiring Person by or on whose behalf, directly or
indirectly, the Business Combination has been proposed for any share or shares
of that class or series, (ii) the highest Preferential amount per share to which
the holders of such class or series of Voting Stock would be entitled in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, (iii) if convertible into a class or series of Voting Stock
which the Acquiring Person has purchased the highest price for such class or
series of convertible stock determined by multiplying the number of shares of
the class into which such Voting Stock is convertible by the highest per share
price paid by the Acquiring Person for a share of the class or series of stock
into which such class or series of convertible stock is convertible, or (iv) the
equivalent price for such class or series as determined in good faith by a
majority vote of the Continuing Directors. In determining the Highest Per Share
Price, all purchases by an Acquiring Person shall be taken into account after
the Acquiring Person became an Acquiring Person. Further, the Highest Per Share
Price shall include any brokerage commissions, transfer taxes and soliciting
dealers fees paid by the Acquiring Person with respect to the shares of Voting
Stock of the Corporation acquired by the Acquiring Person. The Highest Per Share
Price shall be appropriately adjusted to take into account stock dividends,
subdivisions, combinations, reclassification and similar events or transactions.
(6) "Voting Stock" shall mean all of the outstanding shares of capital
stock of the Corporation entitled to vote in the election of directors
(considered for purposes of voting in accordance with this Article as one
class), and each reference to a percentage of shares of Voting Stock shall refer
to such percentage of the votes entitled to be cast by such shares.
B. The Continuing Directors, acting by majority vote, shall
have the power and duty to determine. on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance with this
Article, including without limitation (i) whether a person is an Acquiring
Person, (ii) the number of shares of Voting Stock beneficially owned by any
person, (iii) whether a person is an affiliate or associate of another, (iv) the
"Highest Per Share Price" as used in definition (5) of this Article, (v) whether
all requirements and conditions of this Article have been met with respect to
any Business Combination, and (vi) whether the assets which are the subject of
any Business Combination are a substantial part of the Corporation's assets. The
good faith determination by a majority vote of the Continuing Directors on such
matters shall be conclusive and binding for all purposes of this Article.
<PAGE>
Nothing contained in this Article shall be construed to
relieve the Board of Directors or any Acquiring Person from any fiduciary
obligation imposed by law.
C. Notwithstanding any other provisions of the Certificate of
Incorporation or By-Laws of the Corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, the other provisions of this
Certificate of Incorporation, or the By-Laws of the Corporation), and in
addition to any requirement of the Business Corporation Act of New Jersey, the
affirmative vote of the stockholders holding not less than three-fourths of the
outstanding shares of Voting Stock of the Corporation held by stockholders other
than an Acquiring Person shall be required to amend or repeal, or to adopt any
provisions inconsistent with this Article; provided, however, that the preceding
provision shall not be applicable to any amendment or repeal or adoption of any
provision inconsistent with this Article, and such amendment or repeal or
adoption of any provision inconsistent with this Article shall require only such
affirmative vote as required by law and any other provisions of this Certificate
of Incorporation, if such amendment or repeal or adoption shall have been
approved by a majority vote of the Continuing Directors.
IX. The address of the Corporation's initial registered office
is 103 West End Avenue, Somerville, New Jersey 08876 and the name of the
Corporation's initial registered agent is Keith B. McCarthy.
X. The names and addresses of the fourteen (14) persons
constituting the first Board of Directors of the Corporation until the First
Annual Meeting of stockholders are:
Name Address
- ---- -------
Robert P. Corcoran 12 Harvest Ct., Flemington, NJ 08822
Raymond L. Hughes 180 Cowperthwaite Rd., Bedminster, NJ 07921
Frank J. Orlando 786 Princeton Ave., Brick, NJ 08724
Donald Sciaretta 61 Spring Hollow Rd., Far Hills, NJ 07931
Gilbert E. Pittenger RD 1, Box 91, New Ringgold, PA 17960
Herman C. Simonse 93 Douglass Ave., Bernardsville, NJ 07924
S. Tucker S. Johnson PO Box 675, Oldwick, NJ 08858
G. Robert Santye 138 Fairview Rd., Skillman, NJ 08558
John K. Kitchen 475 Burnt Mills Rd., Bedminster, NJ 07921
Frederick D. Quick 924 River Rd., Neshanic, NJ 08853
Anthony J. Santye, Jr. 140 Fairview Rd., Skillman, NJ 08558
Donald B. Tourville 182V Old Driftway, Lebanon, NJ 08833
Bernard Bernstein 122 Tappen Ave., North Plainfield, NJ 07060
Willem Kooyker Sunnybranch Rd., Box 953, Far Hills, NJ 07931
<PAGE>
IN WITNESS WHEREOF, the undersigned, the incorporators of the Corporation
hereinabove referred to, have signed this instrument this 25 day of January,
1996.
/s/Robert P. Corcoran
------------------
Robert P. Corcoran
/s/Raymond L. Hughes
-----------------
Raymond L. Hughes
/s/Frank J. Orlando
----------------
Frank J. Orlando
/s/Donald Sciaretta
----------------
Donald Sciaretta
/s/Gilbert E. Pittenger
--------------------
Gilbert E. Pittenger
/s/Herman C. Simonse
-----------------
Herman C. Simonse
/s/S. Tucker S. Johnson
--------------------
S. Tucker S. Johnson
/s/G. Robert Santye
----------------
G. Robert Santye
/s/John K. Kitchen
---------------
John K. Kitchen
/s/Frederick D. Quick
------------------
Frederickk D. Quick
/s/Anthony J. Santye, Jr.
----------------------
Anthony J. Santye, Jr.
/s/Donald B. Tourville
-------------------
Donald B. Tourville
/s/Bernard Bernstein
-----------------
Bernard Bernstein
/s/Willem Kooyker
--------------
Willem Kooyker
EX-4.3
BYLAWS
OF
SVB FINANCIAL SERVICES, INC.
A New Jersey Corporation
ARTICLE I
Offices
The Corporation shall maintain its principal office in the State of New
Jersey. The Corporation may also have offices in such other places, either
within or without the state of New Jersey, as the Board of Directors may from
time to time designate or as the busienss of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place. Meetings of the stockholders of the Corporation shall
be held at such place, either within or without the State of New Jersey, as may
from time to time be designated by the Board of Directors and stated in the
notice of the meeting.
Section 2. Annual Meeting. An annual meeting of the stockholders of the
Corporation shall be held in each year on the last Tuesday in April (or if that
be a legal holiday, then on the next business day) for the election of directors
and for the transaction of such other business as may properly be brought before
the meeting.
Section 3. Special Meetings. Special meetings of the stockholders may
be called on the order of the President or of a majority of the Board of
Directors.
Section 4. Notice. Written notice of all meetings of stockholders shall
be mailed postage prepaid to each stockholder at least ten (10) days prior to
the meeting. Notice of any special meeting shall state in general terms the
purposes for which the meeting is to be held.
Section 5. Quorum. The holders of a majority of the issued and
outstanding shares of the capital stock of the Corporaton entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaciton of business at all meetings of the stockholders except as
may otherwise be provided by law, by the Certificate of Incorporation, or by
these Bylaws; but if there be less than a quorum, the holders of a majority of
the stock so present or represented may adjourn the meeting from time to time. A
majority of the votes cast shall decide every question or matter submitted to
the stockholders at any meeting, unless otherwise provided by law or by the
Certificate of Incorporation.
Section 6. Voting. All elections of directors shall be managed by three
Inspectors, who shall be appointed by the Board of Directors. The Inspectors of
election shall hold and conduct the election at which they are appointed to
serve, and, after the election, they shall file with the Secretary a certificate
under their hand, certifying the result thereof and the names of the directors
elected. The Inspectors of election, at the request of the Chairman of the
<PAGE>
meeting, shall act as tellers of any other vote by ballot taken at such meeting
and shall certify the result therof.
At all meetings of stockholders, every registered owner of shares
entitled to vote may vote in person or by proxy and shall have one vote for each
such share standing in his, her, or its name on the books of the Corporation.
Section 7. Proxies. Stockholders may vote at any meeting of the
stockholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting, to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 8. Conduct of Meetings. The Chairman of the Board of the
corporation shall act as Chairman of the meeting and the Vice-Chairman of the
board of the Corporation shall act as Vice-Chairman of the meeting. In the
absence of the Chairman and Vice-Chairman, the President of the Corporation
shall act as Chairman of the meeting. The Secretary of the Corporation shall act
as Secretary of the meeting. In his absence, the Chairman shall appoint an
officer of the Corporation to act as Secretary of the meeting.
ARTICLE III
Board of Directors
Section 1. Powers. The Board of Directors shall have the power to
manage and administer the business and affairs of the Corporation. Except as
expressly limited by law, all powers of the Corporation shall be vested in and
may be exercised by the Board.
Section 2. Number. The Board shall consist of not less than five (5)
nor more than twenty-five (25) and shall be divided into three (3) classes all
as set forth in Article IV and Article V of the Certificate of Incorporation
which articles are incorporated herein by reference.
Section 3. Organization Meeting. The Chairman of the meeting, upon
receiving the certificate of Inspectors of the result of any election, shall
notify the directors-elect of their election and of the time and place at which
they are required to meet for the purpose of organizing the new Board and
electing and appointing officers of the Corporation for the succeeding year.
Such meeting shall be scheduled to be held on the day of the election or as soon
thereafter as practicable and, in any event, within thirty (30) days thereof.
If, at the time fixed for such meeting, there shall not be a quorum present, the
directors present may adjourn the meeting, from time to time, until a quorum is
obtained.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at the principal office of the Corporation, or such other office
of the Corporation as may be designated by the Board, at least once per month,
unless otherwise ordered by the Board, on such day and at such times the Board
may specify. When any regular meeting of the Board falls upon a holiday, the
meeting shall be held on the next business day, unless the Board shall designate
some other day.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the Vice-Chairman of the Board, the
President or the Secretary and shall be called by the Chairman, President or
Secretary upon written request of three (3) Directors, all upon two (2) business
days notice by fax or overnight mail to each Director.
<PAGE>
Section 6. Conduct of Meetings. At meetings of the Board of Directors,
the Chairman of the Board, or in his absence, the Vice-Chairman, the President,
or a designated Director shall preside. A majority of the members of the Board
of directors shall constitute a quorum for the transaction of business, but less
than a quorum may adjourn any meeting from time to time until a quorum shall be
present, whereupon the meeting may be held, as adjourned without further notice.
At any meeting at which every director shall be present, even though without any
notice, any business may be transacted.
Section 7. Vacancies. Any vacancy which occurs on the Board shall be
filled in accordance with Article V Section D of the Certificate of
Incorporation which Section is incorporated herein by reference.
Section 8. Compensation. The Directors shall receive such compensation
for their services as directors and as members of any committee appointed by the
Board as may be prescribed by the Board of Directors and shall be reimbursed by
the Corporation for ordinary and reasonable expenses incurred in the performance
of their duties.
Section 9. Removal of Directors or Officers. The Board of Directors
shall have power to remove any Director from office, but only in accordance with
Article V Section E, F, and G of the Certificate of Incorporation which Sections
are incorporated herein by reference.
The Board may remove any officer for any cause or without cause by a
majority vote of the entire Board.
ARTICLE IV
Committees of the Board
Section 1. Executive Committee. The Board of Directors shall appoint an
Executive Committee consisting of the Chairman of the Board and five (5) members
thereof appointed by the Board. During all periods when the Board is not in
session, the Executive Committee shall have and may exercise all the authority
of the Board except with respect to the filling of vacancies on the Board or in
any committee or remove any officer or Director; the fixing of compensation of
the Directors for serving on the Board or on any committee; the amendment or
repeal of Bylaws or the adoption of new Bylaws; the amendment or repeal of any
resolution of the Board which by its express terms is not so amendable or
repealable; the appointment of other committees of the Board or the members
thereof.
Section 2. Establishment of Committees. The Board of Directors may
appoint, from time to time, from its own members, such other committees of one
or more persons, for such purposes and with such powers as the Board may
determine.
Section 3. Committee Organization. The chairman of each committee shall
be recommended by the Chairman and approved by the Board of Directors. Each
committee shall determine its own time and place of meetings and rules of
procedure unless otherwise directed by the Board.
Section 4. Committee Reports. Actions taken at a meeting of any
committee shall be reported to the Board at its next meeting following such
committee meeting; except that, when the meeting of the Board is held within two
(2) days after the committee meeting, such report shall, if not made at the
first meeting, be made to the Board at its second meeting following such
committee meeting.
<PAGE>
ARTICLE V
Officers and Employees
Section 1. Chairman of the Board. The Board of Diretors shall appoint
one of its members to be Chairman of the Board, to serve at the pleasure of the
Board, who shall preside at all meetings of the Board and perform such other
duties as may be prescribed from time to time by th Board of Directors or by the
Bylaws. The Board may also appoint a Vice-Chairman of the Board, who will
preside at all of its meetings in the absence of the Chairman.
Section 2. President. The Board of Directors shall appoint a President
of the Corporation who may be a member of the Board. In the absence of the
Chairman and Vice-Chairman, he shall preside at any meeting of the Board. The
President shall be the Chief Executive Officer of the Corporation, and shall
have and may exercise any and all powers and duties normally pertaining to the
office of President of the Corporation. He shall also have and may exercise such
further powers and duties as from time to time may be conferred upon or assigned
to him by the Board of Directors or by these Bylaws.
Section 3. Vice-President. The Board of Directors may appont one or
more Vice-Presidents, one or more of whom may be designated Executive
Vice-President, who may be a member of the Board, or Senior Vice-President. Each
Vice-President shall have such powers and duties as may be assigned to him by
the Board and the President.
Section 4. Secretary. The Board of Directors shall appoint a Secretary
who shall keep the minutes of all meetings of the stockholders and the Board of
Directors, and, to the extent ordered by the Board of Directors or the
President, the minutes of meetings of all committees. He shall cause notice to
be given of meetings of stockholders, of the Board of Directors, and of any
committee appointed by the Board. He shall have custody of the corporate seal
and general charge of the records of the Corporation. He may sign or execute
contracts with the President or a Vice-President thereunto authorized, in the
name of the Corporation and affix the seal of the Corporation thereto. He shall
perform all duties normally incident to the office of Secretary and such other
duties as may be prescribed from time to time by the Board of Directors or by
the Bylaws.
Section 5. Treasurer. The Board of Directors shall appoint a Treasurer
who shall have general custody of all the funds and securities of the
Corporation and have general supervision of the collection and disbursement of
funds of the Corporation. He may sign, with the President, or such otehr person
or persons as may be designated for the purpose by the Board of Directors, all
financial instruments of the Corporation. He shall perform all duties normally
incident to the office of Treasurer and such other duties as may be prescribed
from time to time by the Board of Directors or by the Bylaws.
Section 6. Other Officers. The Board of Directors may appoint one or
more Assistant Vice-Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers and such other officers as, from time to time, may appear
to the Board to be requried or desirable to transact the business of the
Corporation. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices or as may be conferred upon or
assigned to them by the Board or President.
Section 7. Tenure of Office. The Chairman of the Board, Vice-Chairman,
<PAGE>
and any officer who may be required or permitted by these Bylaws to be a member
of the Board of Directors, shall hold his office for the current year for which
the Board of which he shall be a member was elected, unless he shall resign,
become disqualified, or be removed. Any vacancy occurring in the office of
President shall be filled promptly by the Board at any regular or special
meeting.
Section 8. Vacancies. In case any office shall become vacant, the Board
of Directors shall have power to fill such vacancies. In case of the absence or
disability of any officer, the Board of Directors may delegate the powers or
duties of any officer to another officer or a director for the time being.
Section 9. Exercise of Rights as Stockholders. Unless otherwise ordered
by the Board of Directors, the Presidnet or a Vice-President therunto duly
authorized by the President shall have full power and authority on behalf of the
Corporation to attend and to vote at any meeting of stockholders of any
corporation of which this Corporation may hold stock, and may exercise on behalf
of this Corporation any all all of the rights and powers incident to the
ownership of such stock at any such meeting, and shall have power and authority
to execute and deliver proxies and consents on behalf of this Corporation in
connection with the exercise by this corportaion of the rights and powers
incident to the ownership of such stock. The Board of Directors, from time to
time, may confer like powers upon any other person or persons.
Section 10. Surety Bonds. Each officer and employee of the Corporation
may be covered by bond of such amount and with such security as shall be
approved by the Board of Directors, conditioned for the honest and faithful
discharge of his duties as such officer or employee. At the discretion of the
Board, such bonds may be schedule or blanket form and the premiums shall be paid
by the Corporation.
ARTICLE VI
Stock and Stock Certificates
Section 1. Transfers. Shares of stock shall be transferable on the
books of the Corporation, and a transfer book shall be kept in which all
transfers of stock shall be recorded. Every person becoming a stockholder by
such transfer shall, in proportion to his shares, succeed to all rights and
liabilities of the prior holder of such shares. The transfer book may be
computerized so long as it is convertible into written form within a reasonable
time.
Section 2. Stock Certificates. Certificates of stock shall be in such
form as may from time to time be prescribed by the Board of Directors and shall
be signed in the name of the Corporation by the Chairman of the Board, or the
President or a Board designated Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant secretary, and the seal of
the Corporation or a facsimile thereof shall be placed thereon.
Section 3. Transfer Agent. The Board of Directors shall have power to
appoint one or more Transfer Agents and Registrars for the transfer and
registration of certificates of stock of any class, and may require that stock
certificates shall be countersigned and registered by one or more of such
Transfer Agents.
Section 4. Transfer of Stock. Shares of capital stock of the
Corporation shall be transferable on the books of the corporation only by the
<PAGE>
holder of record thereof personally, or by a duly authorized attorney, upon
surrender and cancellation of certificates for a like number of shares.
Section 5. Lost Certificates. In case any certificate for the capital
stock of the Corporation shall be lost, stolen, or destroyed, the Corporation
may require such proof of the fact and such indemnity and costs to be given to
it and to its Transfer Agent and Registrar, if any, as shall be deemed necessary
or advisable by it.
Section 6. Holder of Record. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder thereof in
fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
Section 7. Closing of Books. The Board of Directors shall have the
power to close the stock transfer books of the Corporation for a period not more
than sixty (60) nor less than ten (10) days preceding the date of any meeting of
stockholders or the date for payment of any dividend or the date for the
allotment of rights or the date when any change or conversion or exchange of
capital stock shall go into effect.
ARTICLE VII
Corporate Seal
The corporate seal of the Corporation shall be in appropriate form and
shall contain the designation SVB Financial Services, Inc. 1996, New Jersey
ARTICLE VIII
Indemnification
Section 1. Indemnification. Subject to the provision of Section 3, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or contemplated action, suit or proceedings, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, trustee, or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall be indemnified by the Corporation
against expenses (including attorneys' fees), judgments, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the full extent permitted by
the laws of the State of New Jersey as in effect at the time of such
indemnification.
Section 4. Emergencies. In the event of an emergency declared by the
President of the United States or the person performing his function, the Bylaws
of this corporation and the operation thereof shall be temporarily suspended and
in place thereof the officers and employees of this Corporation will continue to
conduct the affairs of the Corporation and its subsidiaries under the authority
of resolutions duly adopted by the Board of Directors, to become operative in
such emergencies.
Section 5. Word Clarification. The use of the word "he", or any pronoun
referring to such word, as used in these Bylaws shall be construed as masculine,
<PAGE>
feminine or neuter or in the singular or plural as the sense requires.
ARTICLE X
Bylaws
Section 1. Inspection. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the principal
office of the Corporation and shall be open for inspection to all stockholders
during normal business hours.
Section 2. Amendments. These Bylaws may be amended upon vote of a
majority of the entire Board of directors at any meeting of the Board, provided
two days' notice of the proposed amendment has been given to each member of the
Board of Directors. In the case of any Bylaw, the provisions of which are
prescribed by law or the Certificate of Incorporation, no amendment may be made
unless the Bylaw, as amended, is consistent with the requirements of law or the
Certificate of Incorporation. The shareholders may alter or repeal any provision
of the Bylaws by the vote of a majority of the shareholders at any meeting,
except as otherwise provided by the Certificate of Incorporation, provided that
a statement of the proposed action shall have been included in the notice of
such meeting of stockholders.
ARTICLE XI
Mergers
1. No merger, consolidation or other business combination, nor any
sale, lease, or exchange of substantially all of the assets of this Corporation
may be effected except in accordance with all appropriate provisions of the
Certificate of Incorpation, which provisions are hereby incorporated herein by
reference.
2. In the event of a tender offer or other offer for the securities of
the Corporation, the Board of Directors shall consider all relevant factors with
respect to the impact of the offer upon the stockholders, employees, customers
of the Corporation, and upon the Corporation's subsidiaries and the communities
served by such subsidiaries, and all relevant financial, legal and other issues
raised by the proposed offer. The Board shall have the discretion to promote
acceptance or encourage rejection of an offer by all lawful means in the best
interests of the Corporation, and the interests taken into account in reaching
its determination, subject to all applicable provisions of the Certificate of
Incorporation.
STATEMENT
The foregoing Bylaws, consisting of fifteen (15) pages, were adopted by
the Board of Directors at the organizational meeting of SVB FINANCIAL SERVICES,
INC. on February 29, 1996.
/s/ Marguerite Eppler
---------------------
Marguerite Eppler
Secretary
MAURO, SAVO, CAMERINO & GRANT
Counsellors at Law
77 North Bridge Street
P.O. Box 1277
Somerville, New Jersey 08876
---
(908) 526-0707
Telecopier (908) 725-8483
October 25, 1996
Board of Directors
SVB Financial Services, Inc.
103 West End Avenue
Somerville, NJ 08876
Re: Legality of Securities Issued
Registration Statement Form SB-2
Dear Sirs:
I have acted as Counsel to SVB Financial Services, Inc., a New Jersey
corporation (the "Company"), in connection with the Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended (the "Registration
Statement") filed with the Securities and Exchange Commission on September 19,
1996. The Registration Statement relates to the offering for sale of 200,000
shares of the Company's common stock, par value $4.17 per share (the "common
stock").
In so acting, I have examined and relied upon the originals or copies,
certified or otherwise identified to may satisfaction, of such corporate
records, documents, certificates or other instruments as in my judgment are
necessary or appropriate to enable me to render the opinion set forth below.
I am of the opinion that the shares of the common stock to be issued have
been fully authorized and when issued will be legally issued, fully paid and
nonassesssable.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. In giving such consent, I do not hereby admit that I am
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the Rules and Regulations of the Securities and
Exchange Commission thereunder.
Yours very truly,
/s/ Mark F. Strauss
---------------
Mark F. Strauss
Counsel
MFS/lb
The subsidiaries of Registrant are as follows:
Name Percent Owned
Somerset Valley Bank 100%
(letterhead)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SVB Financial Services, Inc.
As independent public accountants, we hereby consent to the use of our report
dated January 18, 1996 (except with regard to the matter discussed in Note 1, as
to which the date is September 3, 1996) and to all references to our Firm
included in or made a part of this amendment to Registration Statement on Form
SB-2.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen
Roseland, New Jersey
October 23, 1996
<PAGE>
MAURO, SAVO, CAMERINO & GRANT
Counsellors at Law
77 North Bridge Street
P.O. Box 1277
Somerville, New Jersey 08876
---
(908) 526-0707
Telecopier (908) 725-8483
October 25, 1996
SVB Financial Services, Inc.
103 West End Avenue
Somerville, NJ 08876
Re: Consent of Counsel
Registration Statement Form SB-2
Dear Sirs:
As Counsel to SVB Financial Services, Inc., we hereby consent to the use of
our name in the Registration Statement on Form SB-2 in the section entitled
"Legal Matters".
Mauro, Savo, Camerino &Grant
By:/s/ Mark F. Strauss
----------------
Mark F. Strauss
Counsel
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,639,252
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,225,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,828,786
<INVESTMENTS-CARRYING> 16,123,067
<INVESTMENTS-MARKET> 16,049,564
<LOANS> 77,310,310
<ALLOWANCE> (662,827)
<TOTAL-ASSETS> 110,135,793
<DEPOSITS> 100,818,738
<SHORT-TERM> 0
<LIABILITIES-OTHER> 388,039
<LONG-TERM> 0
0
0
<COMMON> 4,898,215
<OTHER-SE> 8,929,016
<TOTAL-LIABILITIES-AND-EQUITY> 110,135,793
<INTEREST-LOAN> 3,038,992
<INTEREST-INVEST> 626,717
<INTEREST-OTHER> 110,895
<INTEREST-TOTAL> 3,776,604
<INTEREST-DEPOSIT> 1,723,480
<INTEREST-EXPENSE> 1,723,480
<INTEREST-INCOME-NET> 2,053,124
<LOAN-LOSSES> 145,000
<SECURITIES-GAINS> (2,117)
<EXPENSE-OTHER> 1,650,096
<INCOME-PRETAX> 416,069
<INCOME-PRE-EXTRAORDINARY> 416,069
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,323
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 4.52
<LOANS-NON> 41,099
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 39,861
<ALLOWANCE-OPEN> 527,019
<CHARGE-OFFS> 11,706
<RECOVERIES> 9,192
<ALLOWANCE-CLOSE> 662,827
<ALLOWANCE-DOMESTIC> 662,827
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
SUBSCRIPTION AGREEMENT
TO: SVB Financial Services, Inc.
103 West End Avenue
Somerville, New Jersey 08876
Ladies and Gentlemen:
With regard to a Prospectus dated October , 1996 (such Prospectus,
including any amendments and supplements thereto, is herein called the
"Prospectus") from SVB Financial Services, Inc. (the "Company"), pertaining to
the offering of shares of common stock, par value $4.17 per share, of the
Company at a price of $13.00 per shares. A copy of the Prospectus has been
received by the undersigned.
This Subscription Agreement sets forth our agreement concerning my
purchase and ownership of such shares subject to your right to accept or reject
this Subscription in whole or in part, in your complete discretion.
1. Subscription.
A. Shares and Price
I hereby offer to purchase from the Bank, upon the terms and conditions
contained in this Subscription Agreement and the Prospectus, the number of
shares, at the purchase price of $13.00 per share, which are set forth below.
Number of Shares Price Per Share Purchase Price
X $13.00 = $
B. Form of Payment
Payment of the subscription price for the shares which I am offering to
purchase from the Company is being made in the following manner and amounts:
( ) Cash in the amount of $ .
( ) Check, bank draft or money order payable to the order of
Summit as Escrow Agent for SVB Financial Services, Inc.
2. Representations and Warranties.
In order to induce the Company to sell the shares to me, I represent
and warrant that:
A. I have received the Prospectus;
B. I agree to the terms and conditions set forth in the
Prospectus;
C. I understand that there are (and will continue to be)
significant risk factors associated with my
investment in the Company's securities which are more
fully described in the Prospectus under "Risk
Factors";
<PAGE>
D. I UNDERSTAND THAT THE COMPANY'S SECURITIES ARE NOT
SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION;
AND
E. I understand and agree that my rights under this
Subscription Agreement may not be assigned without
the written consent of the Company.
3. Additional:
I understand that:
A. The validity, construction and performance of this
Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of
New Jersey.
B. This Subscription Agreement shall constitute an offer
by me to purchase the shares set forth herein, which
offer may be accepted by the Company by executing a
copy of this Subscription Agreement in the space
provided below and delivering it to the undersigned.
C. In the event of a material change to the offering,
the Company will send me, a copy of the amended
Prospectus, by first class mail to the address I set
forth below, and will allow me no less than ten (10)
business days after the amended Prospectus is sent,
to withdraw or modify my Subscription. In the event
of any such withdrawal or modification reducing my
Subscription, I will promptly receive an appropriate
refund.
Please PRINT OR TYPE exact name in which undersigned desires Units to be
registered:
Please indicate form of ownership the undersigned desires for the Units:
( ) Individual
( ) Joint Tenants with right of survivorship
( ) Tenants in Common
( ) Trust
( ) Corporation
( ) Partnership
( ) Uniform Gifts to Minors
( ) Other
<PAGE>
Address
Social Security Number of
Federal Taxpayer Identification Number
Signature(s)*
*When signing as attorney, trustee administrator or guardian, please give your
full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. In case of joint tenants or tenants in
common, all parties must sign.
Dated:
TO BE COMPLETED BY SVB FINANCIAL SERVICES, INC.
Accepted as of , 1996 as to Shares.
SVB FINANCIAL SERVICES, INC.
BY:
<PAGE>
