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 September 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 November 10, 1999, there were 2,805,824 shares of common stock, $2.09 par
value outstanding.
2
<PAGE>
SVB FINANCIAL SERVICES, INC.
----------------------------
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 9
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 13-14
SIGNATURES 14
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS September 30, December 31,
September 30, 1999 and December 31, 1998 1999 1998
------------------------------
(in thousands) (Unaudited)
<S> <C> <C>
ASSETS
Cash & Due from Banks $9,513 $ 8,358
Federal Funds Sold - 10,325
Other Short Term Investments - 965
------------------------------
Total Cash and Cash Equivalents 9,513 19,648
------------------------------
Interest Bearing Time Deposits 6,480 4,090
Securities
Available for Sale, at Market Value 27,569 21,523
Held to Maturity 7,185 15,052
------------------------------
Total Securities 34,754 36,575
------------------------------
Loans 145,947 121,474
Allowance for Possible Loan Losses (1,447) (1,211)
Unearned Income (184) (87)
------------------------------
Net Loans 144,316 120,176
------------------------------
Premises & Equipment, Net 3,435 2,303
Other Assets 2,696 2,435
==============================
Total Assets $201,194 $185,227
==============================
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS September 30, December 31,
September 30, 1999 and December 31, 1998 1999 1998
------------------------------
(in thousands) (Unaudited)
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Non-interest Bearing $34,674 $27,897
NOW Accounts 27,990 24,502
Savings 15,665 13,836
Money Market Accounts 22,546 20,226
Time
Greater than $100,000 15,421 14,088
Less than $100,000 68,538 69,165
-----------------------------
Total Deposits 184,834 169,714
-----------------------------
Obligations Under Capital Lease 434 438
Other Liabilities 792 710
-----------------------------
Total Liabilities 186,060 170,862
-----------------------------
SHAREHOLDERS' EQUITY
Common Stock $2.09 Par Value: 20,000,000 5,864 5,794
Shares Authorized; 2,805,824 Shares in 1999 and
2,772,224 Shares in 1998 Issued and Outstanding
Additional Paid-in Capital 5,586 5,502
Accumulated Other Comprehensive (Loss)/Income (343) 7
Retained Earnings 4,027 3,062
-----------------------------
Total Shareholders' Equity 15,134 14,365
-----------------------------
Total Liabilities and Shareholders' Equity $201,194 $185,227
=============================
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS FOR THE NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30, ENDED ENDED
(in thousands) 1999 1998 1999 1998
---------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,072 $ 2,682 $ 8,500 $ 7,542
Securities Available for Sale 397 182 1,075 541
Securities Held to Maturity 100 214 428 776
Federal Funds Sold 104 85 262 248
Time Deposits Due from Banks 94 17 233 21
Other Short Term Investments 1 3 10 16
---------------------------------------------------------
Total Interest Income 3,768 3,183 10,508 9,144
---------------------------------------------------------
INTEREST EXPENSE
Deposits 1,548 1,417 4,477 4,106
Federal Funds Purchased 1 - 3 -
Obligations Under Capital Lease 10 9 28 28
---------------------------------------------------------
Total Interest Expense 1,559 1,426 4,508 4,134
---------------------------------------------------------
Net Interest Income 2,209 1,757 6,000 5,010
PROVISION FOR POSSIBLE LOAN LOSSES 150 90 330 225
---------------------------------------------------------
Net Interest Income after Provision For Possible Loan Losses 2,059 1,667 5,670 4,785
---------------------------------------------------------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
(in thousands) 1999 1998 1999 1998
---------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OTHER INCOME
Service Charges on Deposit Accounts 106 77 277 211
Gain on the Sale of Loans 100 144 184 264
(Loss)/Gain on the Sale of Securities, Available for Sale (3) 4 (8) 4
Other Income 27 35 117 92
---------------------------------------------------------
Total Other Income 230 260 570 571
---------------------------------------------------------
OTHER EXPENSE
Salaries and Employee Benefits 832 678 2,368 2,031
Occupancy Expense 216 162 629 470
Equipment Expense 110 98 317 278
Other Expenses 456 384 1,386 1,159
------------------------------------------- - --------------
Total Other Expense 1,614 1,322 4,700 3,938
------------------------------------------- - --------------
Income Before Provision for Income Taxes 675 605 1,540 1,418
Provision for Income Taxes 258 238 575 567
------------------------------------------- - --------------
NET INCOME $ 417 $ 367 $ 965 $ 851
=========================================== = ==============
EARNINGS PER COMMON SHARES - BASIC (1) $ 0.14 $ 0.12 $ 0.33 $ 0.29
=========================================== = ==============
EARNINGS PER COMMON SHARES - DILUTED (1) $ 0.14 $ 0.12 $ 0.32 $ 0.29
=========================================== = ==============
</TABLE>
(1) Amounts have been restated to show the effects of a 5% stock dividend which
was declared October 29, 1999.
5
<PAGE>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
For the Period Ended September 30, 1999 1998 1999 1998
-----------------------------------------------------------------
(in thousands) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $417 $367 $ 965 $851
Other Comprehensive Income, Net of Tax
Unrealized Gains/(Losses) Arising in the Period (23) 34 (350) 16
-----------------------------------------------------------------
Comprehensive Income $394 $401 $ 615 $867
=================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
STATEMENTS OF CASH FLOW
1999 1998
For the Period Ended September 30, ---------------------------------------
(in thousands) (unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 965 $ 851
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Possible Loan Losses 330 225
(Gains) on the Sale of Loans (184) (264)
Depreciation and Amortization 341 283
(Accretion)/Amortization of Securities Discount (35) 2
Losses/(Gains) on the Sale of Securities Available for Sale, Net 8 (4)
(Increase) in Other Assets (95) (103)
Increase in Other Liabilities 86 131
Increase in Unearned Income 97 2
---------------------------------------
Net Cash Provided By Operating Activities 1,513 1,123
---------------------------------------
INVESTING ACTIVITIES
Proceeds from Sale of Securities Available for Sale 6,512 2,504
Proceeds from Maturities of Securities
Available for Sale 4,302 5,324
Held to Maturity 13,233 12,888
Purchases of Securities
Available for Sale (16,845) (8,282)
Held to Maturity (5,296) (2,748)
Equity Securities (589) -
(Increase) in Interest Bearing Time Deposits (2,390) (2,194)
Proceeds from the sale of Loans - 6,941
(Increase) in Loans (24,383) (17,198)
Capital Expenditures (1,462) (307)
---------------------------------------
Net Cash Used for Investing Activities (26,918) (3,072)
---------------------------------------
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
STATEMENTS OF CASH FLOW
1999 1998
For the Period Ended September 30, ---------------------------------------
(in thousands) (unaudited)
<S> <C> <C>
FINANCING ACTIVITIES
Net Increase in Demand Deposits 10,265 8,376
Net Increase in Savings Deposits 1,829 3,377
Net Increase in Money Market Deposits 2,320 1,694
Net Increase in Time Deposits 706 9,803
(Decrease) in Federal Funds Purchased - (500)
(Decrease) in Obligation Under Capital Lease (4) (4)
Proceeds from the Issuance of Common Stock, Net 154 91
---------------------------------------
Net Cash Provided by Financing Activities 15,270 22,837
---------------------------------------
(Decrease)/Increase in Cash and Cash Equivalents, Net (10,135) 20,888
CASH AND CASH EQUIVALENTS, Beginning of Year 19,648 5,983
=======================================
CASH AND CASH EQUIVALENTS, End of Period $ 9,513 $ 26,871
=======================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for Interest $ 4,502 $ 4,133
=======================================
Cash Paid During the Year for Federal Income Taxes $ 540 $ 490
=======================================
</TABLE>
6
<PAGE>
SVB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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.
<PAGE>
2. LOANS
At September 30, 1999 and December 31, 1998 the composition of outstanding
loans is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ---------------
<S> <C> <C>
(in thousands)
Secured by Real Estate:
Residential Mortgage $ 39,896 $ 30,577
Commercial Mortgage 49,490 42,703
Construction 9,893 6,256
Commercial and Industrial 29,060 22,308
Loans to Individuals 8,662 8,864
Loans to Individuals for Automobiles 8,545 10,298
OTHER LOANS 401 468
----------- ------------
$145,947 $121,474
======== =========
</TABLE>
There were no loans restructured during 1999 or 1998. Loans past due 90
days or more and still accruing totalled $255,000 at September 30, 1999 and
$5,000 at December 31, 1998. Loans in a non-accrual status totaled $284,000 at
September 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>
Nine Months
Ended Year Ended
September 30, December 31,
<S> <C> <C> <C>
(in thousands) 1999 1998
- ---------------------------------------------- ------- -------
Balance January 1, $ 1,211 $ 982
Provision Charged to Operations 330 300
Charge Offs (101) (80)
RECOVERIES 7 9
------- -------
BALANCE END OF PERIOD $ 1,447 $ 1,211
======= =======
</TABLE>
<PAGE>
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.
5. STOCK DIVIDEND
On October 29, 1999, the Company declared a 5% stock dividend to
shareholders of record as of November 4, 1999. Net income per share and weighted
average shares outstanding have been restated to reflect the stock dividend.
8
<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 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 nine months of 1999 was $965,000, an increase
of $114,000 or 13% as compared to the same period in 1998. Earnings per
share-Basic were $.33 in 1999 as compared to $.29 in 1998. Earnings per share -
Diluted were $.32 in 1999 and $.29 in 1998.
A detailed discussion of the major components of net income follows:
NET INTEREST INCOME
- -------------------
Net interest income for the first nine months of 1999 was $6.0 million
compared to $5.0 million in 1998, an increase of $1.0 million or 20%.
<PAGE>
Almost all of the increase can be attributed to an increase in average
earnings assets. Average earning assets for the first nine months of 1999 were
$180.9 million an increase of $33.3 million or 23% from the first nine months of
1998. Loans accounted for 64% of this increase as loans averaged $132.8 million
during the nine months. The increase in loan balances caused interest income to
increase $1.3 million. Partially offsetting this, the yield on loans decreased
from 9.04%, to 8.56%, mainly due to two quarter point drops in the prime rate in
the latter half of 1998 and increased competition in the market place. However,
the yield on loans for the nine month period in 1999 increased 3 basis points
from the six month yield of 1999 and will most likely continue to improve due to
two quarter point increases in the prime rate during the third quarter of 1999.
The decrease in the yield caused interest income on loans to decrease $372,000.
Overall, interest income increased $1.4 million. The yield on earning assets was
7.77% for 1999 and 8.28% for 1998.
9
<PAGE>
The overall cost of interest-bearing liabilities decreased fifty-two
basis points from 4.66% to 4.14%, which resulted in a decrease in interest
expense of $231,000. Offsetting this, total interest bearing deposits increased
$26.7 million during the nine months of 1999 to $144.9 million, of which NOW
Account and time deposits accounted for 36% and 33% of the increase,
respectively. The increase in deposits caused interest expense to increase
$602,000. Overall, interest expense increased $374,000, however, the cost of
funding earning assets decreased from 3.74% to 3.33% in 1999.
The net result of the change in net interest income for the first nine
months of 1999 versus the first nine months of 1998 was an increase of $1.0
million. The net interest margin decreased eleven points from 4.54% to 4.43%.
PROVISION FOR LOAN POSSIBLE LOSSES
- ----------------------------------
The provision for possible loan losses was $330,000 in the first nine
months of 1999 as compared to $225,000 in the first nine months of 1998. The
increase in provision can be attributed to an increase in loans which
experienced a net increase of $29.0 million since September 30, 1998.
OTHER INCOME
- ------------
During the first nine months of 1999, other income was almost equal to
the same period last year. Service charges on deposit accounts increased $66,000
or 31% 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 10% of the increase in service charges on deposits.
Gains on the sale of SBA loans decreased $108,000 for the same period
last year. 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. Offsetting the
decrease in SBA loan sale activity, the Company earned $29,000 for the sale of
FNMA mortgage loans. The Company was approved by FNMA to sell mortgage loans
late in the third quarter of 1998. Overall, gains on the sale of loans decreased
$80,000 from the same period in 1998.
<PAGE>
The Company had a net $8,000 in loss from the sale of securities during
the first nine 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 $25,000 or 27% compared to 1998. Over half of
this increase or 52% was related to fees generated from the sale of FNMA
mortgage loans. Additionally fees, related to the servicing of SBA loans as
described above, increased 26% over the same period for last year.
10
<PAGE>
OTHER EXPENSE
- -------------
Other expenses for the nine months ended September 30, 1999 increased
$762,000 or 19% 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 three more branches and a new Operations Center in
Somerville have been incurred. The branches are located in Aberdeen Township,
Bernards Township and Edison Township. 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 $28.8 million or 17% since
September 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 customer base. These additions combined with normal salary increases
caused salary and benefits expense to increase $337,000 or 17% from last year.
Rent on the newly opened locations and the potential branch site locations
coupled with depreciation on other facilities resulted in a $159,000 or 34%
increase in occupancy expenses. Purchases of equipment for new employees, the
additional branches and the new Operations Center increased equipment expense
$39,000 or 14% from last year. Other expenses increased from last year $227,000
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.
FINANCIAL CONDITION
SEPTEMBER 30, 1999 COMPARED TO DECEMBER 31, 1998
- ------------------------------------------------
Total assets increased $16.0 million or 9% from December 31, 1998.
Total loans increased $24.5 million. Loans secured by real estate increased
$19.7 million. Residential mortgage loans increased $9.3 million. Commercial
mortgages and commercial and industrial loans both increased $6.8 million.
Deposits increased $15.1 million or 9% during the first nine months.
The two largest increases were non interest bearing deposits at $6.8 million and
NOW accounts at $3.5 million.
Investment securities decreased $1.8 million. 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.
<PAGE>
ASSET QUALITY
Loans past due 90 days or more and still accruing as of September 30, 1999
were $255,000. 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 $284,000 at September 30, 1999 and
$96,000 at December 31, 1998 and represented .19% of total loans as of September
30, 1999 and .08% as of December 31, 1998.
Loans considered to be impaired totaled $349,000 at September 30, 1999, a
valuation reserve of $20,000 is attributed to these loans.
The Company had no other real estate owned at September 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 September 30, 1999, the allowance for loans losses was $1,447,000 and
represented .99% of total loans and 510% 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 nine months of 1999 totaled $101,000 compared to
$80,000 for the year ended December 31, 1998.
11
<PAGE>
CAPITAL RESOURCES
- -----------------
Total Shareholders' Equity was $15,134,000 at September 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 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.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Tier I Capital to Risk Weighted Assets 9.39% 10.24%
Total Capital to Risk Weighted Assets 10.32% 11.14%
Leverage Ratio 7.14% 8.54%
</TABLE>
LIQUIDITY
- ---------
Cash and cash equivalents totaled $9.5 million at September 30, 1999 a
decrease of $10.1 million, since December 31, 1998.
The decrease in Cash and Cash Equivalents was primarily attributable to
an increase in loans of $24.4 million. Interest bearing time deposits increased
$2.4 million.
On the financing side, deposits generated $15.1 million in funds, with
non interest bearing deposits and Now accounts experiencing the largest increase
of $10.3 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.
<PAGE>
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.
12
<PAGE>
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
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
application 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 to cover additional Y2K charges. As of
September 30, 1999, the Company has spent $45,000 in equipment upgrades. Direct
expenses for Y2K were $8,000 for 1998 and $2,600 as of September 30, 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
OnJuly 6, 1998, the common stock of the Company began trading
on the Nasdaq National Market, under the trading symbol
SVBF. On September 30, 1999, the closing bid of the
Company's common stock was $8.875 per share.
Effective in July 1999, the Company has a website and can be
located on www.svbfs.com.
In September 1999, the Bank became a member of the Federal
Home Loan Bank.
13
<PAGE>
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.
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 third quarter of
1999.
(27) FINANCIAL DATA SCHEDULE
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: NOVEMBER 10, 1999 BY: Keith B. McCarthy
-------------------------------
Keith B. McCarthy
Executive Vice President
Chief Accounting Officer
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<PERIOD-END> SEP-30-1999
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0
0
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