UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-22407
SVB Financial Services, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-3438058
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
103 West End Avenue, Somerville, New Jersey 08876
(Address of principal executive officers) (Zip Code)
(908) 704-1188
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
As of August 10, 1999, there were 2,786,024 shares of common stock, $2.09 par
value outstanding.
<PAGE>
SVB FINANCIAL SERVICES, INC.
FORM 10-QSB
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements and Notes to Consolidated
Financial Statements 3
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 13
ITEM 2 - Changes in Securities 13
ITEM 3 - Defaults Upon Senior Securities 13
ITEM 4 - Submission of Matters to a Vote of Security Holders 13
ITEM 5 - Other Information 13
ITEM 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS June 30, December 31,
June 30, 1999 and December 31, 1998 1999 1998
---------- -----------
(in thousands) (Unaudited)
<S> <C> <C>
ASSETS
Cash & Due from Banks $ 9,114 $ 8,358
Federal Funds Sold 11,825 10,325
Other Short Term Investments 73 965
--------- ---------
Total Cash and Cash Equivalents 21,012 19,648
--------- ---------
Interest Bearing Time Deposits 5,683 4,090
Securities
Available for Sale, at Market Value 25,329 21,523
Held to Maturity 6,706 15,052
--------- ---------
Total Securities 32,035 36,575
--------- ---------
Loans 135,781 121,474
Allowance for Possible Loan Losses (1,334) (1,211)
Unearned Income (108) (87)
--------- ---------
Net Loans 134,339 120,176
--------- ---------
Premises & Equipment, Net 3,180 2,303
Other Assets 2,577 2,435
--------- ---------
Total Assets $ 198,826 $ 185,227
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Non-interest Bearing $ 32,887 $ 27,897
NOW Accounts 29,089 24,502
Savings 14,505 13,836
Money Market Accounts 22,861 20,226
Time
Greater than $100,000 14,521 14,088
Less than $100,000 69,216 69,165
--------- ---------
Total Deposits 183,079 169,714
--------- ---------
Obligations Under Capital Lease 435 438
Other Liabilities 660 710
--------- ---------
Total Liabilities 184,174 170,862
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS June 30, December 31,
June 30, 1999 and December 31, 1998 1999 1998
---------- -----------
(in thousands) (Unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Common Stock $2.09 Par Value: 20,000,000 5,823 5,794
Shares Authorized; 2,786,024 Shares in 1999 and
2,759,624 Shares in 1998 Issued and Outstanding
Additional Paid-in Capital 5,538 5,502
Accumulated Other Comprehensive (Loss)/Income (320) 7
Retained Earnings 3,611 3,062
--------- ---------
Total Shareholders' Equity 14,652 14,365
--------- ---------
Total Liabilities and Shareholders' Equity $ 198,826 $ 185,227
========= =========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME For the Three Months For the Six Months
For the Period Ended June 30, Ended Ended
(in thousands) 1999 1998 1999 1998
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 2,806 $ 2,497 $ 5,428 $ 4,860
Securities Available for Sale 366 194 678 358
Securities Held to Maturity 124 258 328 562
Federal Funds Sold 74 84 158 166
Time Deposits Due from Banks 76 4 139 4
Other Short Term Investments 1 8 9 11
------- ------- ------- -------
Total Interest Income 3,447 3,045 6,740 5,961
------- ------- ------- -------
INTEREST EXPENSE
Deposits 1,461 1,370 2,929 2,689
Federal Funds Purchased 1 -- 2 --
Obligations Under Capital Lease 9 10 18 19
------- ------- ------- -------
Total Interest Expense 1,471 1,380 2,949 2,708
------- ------- ------- -------
Net Interest Income 1,976 1,665 3,791 3,253
PROVISION FOR POSSIBLE LOAN LOSSES 100 70 180 135
------- ------- ------- -------
Net Interest Income after Provision For Possible Loan Losses 1,876 1,595 3,611 3,118
------- ------- ------- -------
OTHER INCOME
Service Charges on Deposit Accounts 92 70 172 134
Gain on the Sale of Loans 51 69 84 119
Gain on the Sale of Securities, Available for Sale (6) -- (5) --
Other Income 39 27 90 57
------- ------- ------- -------
Total Other Income 176 166 341 310
------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME For the Three Months For the Six Months
For the Period Ended June 30, Ended Ended
(in thousands) 1999 1998 1999 1998
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OTHER EXPENSE
Salaries and Employee Benefits 794 679 1,537 1,352
Occupancy Expense 210 160 413 309
Equipment Expense 106 95 207 180
Other Expenses 493 407 930 775
------- ------- ------- -------
Total Other Expense 1,603 1,341 3,087 2,616
------- ------- ------- -------
Income Before Provision for Income Taxes 449 420 865 812
Provision for Income Taxes 168 170 316 328
------- ------- ------- -------
NET INCOME $ 281 $ 250 $ 549 $ 484
======= ======= ======= =======
EARNINGS PER COMMON SHARES - Basic $ 0.10 $ 0.09 $ 0.20 $ 0.18
======= ======= ======= =======
EARNINGS PER COMMON SHARES - Diluted $ 0.10 $ 0.08 $ 0.19 $ 0.17
======= ======= ======= =======
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME For the Three Months Ended For the Six Months Ended
For the Period Ended June 30, 1999 1998 1999 1998
---- ---- ---- ----
(in thousands) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $ 281 $ 250 $ 549 $ 484
Other Comprehensive Income, Net of Tax
Unrealized Gains/(Losses) Arising in the Period (256) 4 (327) (17)
----- ----- ----- -----
Comprehensive Income $ 25 $ 254 $ 222 $ 467
===== ===== ===== =====
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
STATEMENTS OF CASH FLOW
For the Period Ended June 30, 1999 1998
--------- ---------
(in thousands) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 549 $ 484
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Possible Loan Losses 180 135
(Gains) on the Sale of Loans (84) (119)
Depreciation and Amortization 219 185
(Accretion) of Securities Discount (33) (7)
Losses on the Sale of Securities Available for Sale, Net 5 --
Decrease/(Increase) in Other Assets 16 (86)
(Decrease)/Increase in Other Liabilities (46) 24
Increase in Unearned Income 21 8
-------- --------
Net Cash Provided By Operating Activities 827 624
-------- --------
INVESTING ACTIVITIES
Proceeds from Sale of Securities Available for Sale 4,006 --
Proceeds from Maturities of Securities
Available for Sale 3,504 3,996
Held to Maturity 12,200 9,257
Purchases of Securities
Available for Sale (11,841) (7,282)
Held to Maturity (3,797) (2,748)
(Increase) in Interest Bearing Time Deposits (1,593) (998)
(Increase) in Loans (14,280) (8,176)
Capital Expenditures (1,089) (237)
-------- --------
Net Cash (Used for) Investing Activities (12,890) (6,188)
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
STATEMENTS OF CASH FLOW
For the Period Ended June 30, 1999 1998
--------- ---------
(in thousands) (unaudited)
<S> <C> <C>
FINANCING ACTIVITIES
Net Increase in Demand Deposits 9,577 7,809
Net Increase in Savings Deposits 669 832
Net Increase in Money Market Deposits 2,635 2,620
Net Increase in Time Deposits 484 2,719
(Decrease) in Federal Funds Purchased -- (500)
(Decrease) in Obligation Under Capital Lease (3) (3)
Proceeds from the Issuance of Common Stock, Net 65 57
-------- --------
Net Cash Provided by Financing Activities 13,427 13,534
-------- --------
Increase in Cash and Cash Equivalents, Net 1,364 7,970
CASH AND CASH EQUIVALENTS, Beginning of Year 19,648 5,983
-------- --------
CASH AND CASH EQUIVALENTS, End of Period $ 21,012 $ 13,953
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for Interest $ 2,944 $ 2,743
======== ========
Cash Paid During the Year for Federal Income Taxes $ 360 $ 360
======== ========
</TABLE>
6
<PAGE>
SVB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (UNAUDITED)
1. 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. Effective April 16, 1998, the Company
declared a 2 for 1 stock split, resulting in a $2.09 par value common stock, and
a change in the authorized shares to $20 million.
The consolidated financial statements included herein have been
prepared without an 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. The results for the six months ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999.
The consolidated financial statements include the accounts of Somerset
Valley Bank. All significant inter-company accounts and transactions have been
eliminated.
2. Loans
At June 30, 1999 and December 31, 1998 the composition of outstanding
loans is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Secured by Real Estate:
Residential Mortgage $ 39,597 $ 30,577
Commercial Mortgage 49,884 42,703
Construction 7,376 6,256
Commercial and Industrial 22,462 22,308
Loans to Individuals 7,341 8,864
Loans to Individuals for Automobiles 9,067 10,298
Other Loans 54 468
-------- --------
$135,781 $121,474
======== ========
</TABLE>
<PAGE>
There were no loans restructured during 1999 or 1998. There were no
loans past due 90 days or more and still accruing at June 30, 1999 and $5,000 at
December 31, 1998. Loans in a non-accrual status totaled $298,000 at June 30,
1999 and $96,000 at December 31, 1998.
-7-
<PAGE>
3. 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>
Six Months
Ended Year Ended
June 30, December 31,
(in thousands) 1999 1998
- ------------------------ ------- --------
<S> <C> <C>
Balance January 1, $ 1,211 $ 982
Provision Charged to Operations 180 300
Charge Offs (63) (80)
Recoveries 6 9
------- -------
Balance End of Period $ 1,334 $ 1,211
======= =======
</TABLE>
4. New Accounting Pronouncement
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This standard requires entities presenting a complete set
of financial statements to include details of comprehensive income.
Comprehensive income consists of net income or loss for the current period and
income, expenses, gains, and losses that bypass the income statement and are
reported directly in a separate component of equity. These financial statements
have been reclassified to reflect the provisions of SFAS No. 130.
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 redefines
how operating segments are determined and requires disclosure of certain
financial and descriptive information about a Company's operating segments.
Management has concluded that under current conditions, the Company will report
one business segment, community banking.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of
derivative (gains and losses) depends on the intended use of the derivative and
resulting designation. Subsequent to SFAS No. 133, the FASB issued SFAS No. 137,
which amended the effective date of SFAS No. 133 to be all fiscal quarters of
all fiscal years beginning after June 15, 2000. Based on the Company's minimal
use of derivatives at the current time, management does not anticipate the
adoption of SFAS No. 133 to have a significant impact on the earnings or
financial position of the Company. However, the impact of adopting SFAS No. 133
will depend on the nature and purpose of the derivative instruments in use by
the Company at that time.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management of SVB Financial Services, Inc. (the "Company") is not aware
of any known trends, events or uncertainties that will have or are reasonably
likely to have a material effect on the Company's liquidity, capital resources
or results of operations. The following discussion and analysis should be read
in conjunction with the
-8-
<PAGE>
detailed information and consolidated financial statements, including notes
thereto, included elsewhere in this report. The consolidated financial condition
and results of operations of the Company are essentially those of the Bank.
Therefore, the analysis that follows is directed to the performance of the Bank.
Such financial condition and results of operations are not intended to be
indicative of future performance.
In addition to historical information, this discussion and analysis
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as the date hereof. The
Company undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
With regard to the Year 2000 disclosure, these "forward-looking
statements" include, but are not limited to, estimates of capital expenditures,
costs of remediation and testing, the timetable for implementing the remediation
and testing phases of Year 2000 planning, the possible impact of third parties'
Year 2000 issues on the Company, management's assessment of contingencies and
possible scenarios in its Year 2000 planning. The "forward-looking statements"
in this report reflect what we currently anticipate will happen in each case.
What actually happens could differ materially from what we currently anticipate
will happen. We are not promising to make any public announcement when we think
"forward-looking statements" in this document are no longer accurate, whether as
a result of new information, what actually happens in the future or for any
other reason.
Results of Operation
- --------------------
Net income for the first six months of 1999 was $549,000, an increase
of $65,000 or 13% as compared to the same period in 1998. Earnings per
share-Basic were $.20 in 1999 as compared to $.18 in 1998. Earnings
per share - Diluted were $.19 in 1999 and $.17 in 1998.
A detailed discussion of the major components of net income follows:
Net Interest Income
- -------------------
Net interest income for the first six months of 1999 was $3.8 million
compared to $3.3 million in 1998, an increase of $538,000 or 17%.
Almost all of the increase can be attributed to an increase in average
earnings assets. Average earning assets for the first six months of 1999 were
$175.8 million an increase of $31.1 million or 21% from the first six months of
1998. Loans accounted for 67% of this increase as loans averaged $128.3 million
during the six months. The increase in loan balances caused interest income to
increase $849,000. Partially offsetting this, the yield on loans decreased from
9.11%, to 8.53%, mainly due to two quarter point drops in the prime rate in the
latter half of 1998 and increased competition in the market place. The decrease
in the yield caused interest income on loans to decrease $281,000. Overall,
interest income increased $779,000. The yield on earning assets was 7.73% for
1999 and 8.30% for 1998.
<PAGE>
The overall cost of interest-bearing liabilities decreased forty-seven
basis points from 4.68% to 4.21%, which resulted in a decrease in interest
expense of $167,000. Offsetting this, total interest bearing deposits increased
$24.6 million during the six months of 1999 to $140.8 million, of which time
deposits accounted for 40% of this increase. The increase in deposits caused
interest expense to increase $407,000. Overall, interest expense increased
$241,000, however, the cost of funding earning assets decreased from 3.77% in
1998 to 3.38% in 1999.
-9-
<PAGE>
The net result of the change in net interest income for the first six
months of 1999 versus the first six months of 1998 was an increase of $538,000.
The net interest margin decreased eighteen points from a 4.53% to a 4.35%.
Provision for Loan Possible Losses
- ----------------------------------
The provision for possible loan losses was $180,000 in the first six
months of 1999 as compared to $135,000 in the first six months of 1998. The
increase in provision can be attributed to an increase in loans which
experienced a net increase of $21.1 million since June 30, 1998.
Other Income
During the first six months of 1999, other income increased $31,000 or
10% over the same period in 1998. Service charges on deposit accounts increased
$38,000 or 28% from the same period last year. The growth in the number of
commercial and consumer checking accounts resulted in increased overdraft,
account maintenance and wire transfer fees. Foreign transaction fees at the
Company's ATM machines accounted for 35% of the increase in service charges on
deposits.
Gains on the sale of loans decreased $35,000. 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. The amount of gains recognized on SBA loans is dependent on the
volume of new SBA loans generated each quarter. The amounts can vary greatly
from quarter to quarter and from year to year.
The Company had a net $5,000 in loss from the sale of securities during
the first six months of 1999. The Company will periodically sell some of its
available for sale securities for varying reasons. These reasons include
achieving additional liquidity to meet increasing loan demand. Such was the case
during the past quarter.
Other income increased $33,000 or 58% compared to 1998. The Company was
approved by FNMA to sell mortgage loans late in the third quarter of 1998, which
resulted in an increase of $17,000 or 280% in mortgage fees. Additionally fees,
related to the servicing of SBA loans as described above, increased 43% over the
same period for last year.
Other Expense
- -------------
Other expenses for the six months ended June 30, 1999 increased
$471,000 or 18% from the same period in 1998. In the first quarter of 1998, the
Company opened two branches, one located on Gaston Avenue in Somerville and one
in the assisted living facility in Arbor Glen in Bridgewater. A new branch in
Manville was opened in the first quarter of 1999. Additionally, expenses
involved with the plans for two more branches; one in Aberdeen, and one in
Bernards Township, have been incurred. Expenses have been impacted by additional
personnel, occupancy costs and other expenses related to the opening of the new
branches. Consequently, total assets have grown $36.3 million or 22% since June
30, 1998. Because of the growth in assets and in offices, the Company has also
had to hire additional lending and back-office personnel to better service its
<PAGE>
customer base. These additions combined with normal salary increases caused
salary and benefits expense to increase $185,000 or 14% from last year. Rent on
the newly opened locations and the potential branch site locations coupled with
depreciation on other facilities resulted in a $104,000 or 34% increase in
occupancy expenses. Purchases of equipment for new employees and the additional
branches increased equipment expense $27,000 or 15% from last year. Other
expenses increased from last year $155,000 or 20%. Much of this increase was
related to the growth of the Company which affected many areas, but especially
data processing costs, and other outsourced services.
-10-
<PAGE>
Financial Condition
June 30, 1999 compared to December 31, 1998
- -------------------------------------------
Total assets increased $13.6 million or 7% from December 31, 1998.
Total loans increased $14.3 million. Loans secured by real estate increased
$17.3 million. Residential mortgage loans increased $9.0 million. Commercial
mortgages increased $7.2 million. Loans to individuals declined by $2.8 million.
Deposits increased $13.4 million or 8% during the first six months. All
deposit categories have increased at June 30, 1999 compared to December 31,
1998. The two largest increases were demand deposits at $5.0 million and NOW
accounts at $4.6 million.
Investment securities decreased $4.5 million. The current treasury
yield curve, anticipated loan growth, and fluctuation in demand deposit balances
has caused a shift from securities to short term investments, such as Federal
Funds sold and time deposits due from banks.
Asset Quality
There were no loans past due 90 days or more and still accruing as of
June 30, 1999. Loans past due 90 days or more and still accruing as of December
31, 1998 were $5,000.
Loans in a non-accrual status totaled $298,000 at June 30, 1999 and
$96,000 at December 31, 1998 and represented .22% of total loans as of June 30,
1999 and .08% as of December 31, 1998.
Loans considered to be impaired totaled $863,000 at June 30, 1999, a
valuation reserve of $26,000 is attributed to these loans.
The Company had no other real estate owned at June 30, 1999.
Allowance for Possible Loan Losses
- ----------------------------------
The allowance for possible loan losses is maintained at a level
considered adequate to provide for potential loan losses. The level of the
allowance is based on management's evaluation of potential losses in the
portfolio, after consideration of risk characteristics of the loans and
prevailing and anticipated economic conditions. The allowance is increased by
provisions charged to expense and reduced by charge-offs, net of recoveries.
At June 30, 1999, the allowance for loans losses was $1,334,000 and
represented .98% of total loans and 448% of non-performing loans compared to an
allowance for loan losses at December 31, 1998 of $1,211,000 or 1.00% of total
loans and 1,261% of non-performing loans at December 31, 1998.
Charge-offs for the first six months of 1999 totaled $63,000 compared
to $80,000 for the year ended December 31, 1998.
Capital Resources
- -----------------
Total Shareholders' Equity was $14,652,000 at June 30, 1999 compared to
$14,365,000 at December 31, 1998.
Under the FDIC Improvement Act of 1991, banks are required to maintain
a minimum ratio of total capital
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<PAGE>
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,
1999 1998
----- ------
Tier I Capital to Risk Weighted Assets 9.64% 10.24%
Total Capital to Risk Weighted Assets 10.55% 11.14%
Leverage Ratio 7.32% 8.54%
Liquidity
- ---------
Cash and cash equivalents totaled $21.0 million at June 30, 1999 an
increase of $1.4 million, since December 31, 1998.
The increase in Cash and Cash Equivalents was primarily attributable to
an increase in deposits which contributed to an increase in cash provided by
financing activities of $13.4 million. Demand deposits experienced the largest
increase for the six month period of $9.6 million.
Investing activities for the six months included proceeds from the sale
of securities and maturity of securities which totaled $19.7 million. Offsetting
these proceeds $32.6 million in funds were used to generate loans and purchase
securities, interest bearing time deposits and fixed assets. Overall, investing
activities resulted in a decrease in cash of $12.9 million.
Year 2000 Disclosure
- --------------------
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format as opposed to four digits to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which cause a
system failure or other computer errors, leading to the disruptions in
operations.
In 1997, the Company formed a Year 2000 Committee to develop a plan to
address the issue. The first phase of the plan called for identifying all date
reliant hardware, including computers, check encoders, vaults, A/C & heating
systems, lighting systems, etc. and computer software by performing an inventory
and contacting all vendors for information regarding the Y2K compliance of their
products. The second phase of the plan called for the replacement or upgrade of
non-compliant hardware or software to Y2K compliant status. The third phase
called for the testing of mission critical hardware and software to ascertain
Y2K compliance. In addition, contingency plans are being written to allow the
continuation of operations in case of system failures.
Phase I (Inventory/Assessment) has been completed. Phase II
(Renovation/Implementation) has been completed except for the replacement of
check encoder hardware which will take place in the fourth quarter 1999. Phase
III (Validation/Testing) is completed. Contingency plans will continue to be
updated as necessary through year end.
Most of the Company's major computer applications (loans, deposits,
general ledger, etc.) are outsourced to Fiserv, one of the largest bank data
processing servicers in the country. Fiserv has a Year 2000 Plan, is performing
testing on all mission critical systems and interfaces, and has developed its
<PAGE>
own contingency plans. Fiserv has completed testing of its systems. We have been
provided access to all its documentation and test results. As of this point, all
applications served by Fiserv have been certified Year 2000 compliant by an
independent auditor, hired by Fiserv's client group.
The Company expects to spend $200,000 for equipment upgrades and
$30,000 for direct expense items
-12-
<PAGE>
to cover additional Y2K charges. As of June 30, 1999, the Company has spent
$45,000 in equipment upgrades. Direct expenses for Y2K were $8,000 for 1998 and
$325 for 1999.
The Company has also made several mailings to its retail and commercial
customers to apprise them of the Y2K problem. Y2K risk assessment has been made
a part of the Bank's commercial loan underwriting procedures. The commercial
portfolio has been reviewed and a Y2K risk assessment made of customers. These
customers have been contacted and asked to complete a questionnaire regarding
their Y2K effort.
PART II-OTHER INFORMATION
-------------------------
Item 1 - Legal Proceedings
-----------------
The Company is party in the ordinary course of business to
litigation involving collection matters, contract claims and
other miscellaneous causes of action arising from its
business. Management does not consider that such proceedings
depart from usual routine litigation and, in its judgment, the
Company's financial position and results of operations will
not be affected materially by such proceedings.
Item 2 - Changes in Securities
---------------------
None.
Item 3 - Defaults upon Senior Securities
-------------------------------
None.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5 - Other Information
-----------------
On July 6, 1998, the common stock of the Company began trading
on the Nasdaq National Market, under the trading symbol SVBF.
On June 30, 1999, the closing bid of the Company's common
stock was $9.25 per share.
Effective in July 1999, the Company has a website and can be
located on www.svbfs.com.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
3(i) Articles of Incorporation
-------------------------
Certificate of Incorporation of the Company is incorporated by
reference to the Company's Registration Statement on Form SB-2
File Number 333-12305 Amendment No. 2, Filed November 4, 1996.
<PAGE>
3(ii) Bylaws
------
Bylaws of the Company are incorporated by reference to the
Company's Registration Statement on Form SB-2 File No.
333-12305 Amendment No. 2, Filed November 4, 1996.
(b) Form 8-K
--------
There has been no Form 8-K filed during the second quarter of
1999.
(27) Financial Data Schedule
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SVB FINANCIAL SERVICES, INC.
----------------------------
(Registrant)
Dated: August 10, 1999 By: /s/Keith B. McCarthy
--------------------
Keith B. McCarthy
Executive Vice President
Chief Accounting Officer
-14-
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