UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 10, 1999, there were 2,776,424 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 9
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings 14
ITEM 2 - Changes in Securities 14
ITEM 3 - Defaults Upon Senior Securities 14
ITEM 4 - Submission of Matters to a Vote of Security Holders 14
ITEM 5 - Other Information 14
ITEM 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS March 31, December 31,
March 31, 1999 and December 31, 1998 1999 1998
--------- ---------
(Unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Cash & Due from Banks $ 8,697 $ 8,358
Federal Funds Sold 18,975 10,325
Other Short Term Investments 73 965
--------- ---------
Total Cash and Cash Equivalents 27,745 19,648
--------- ---------
Interest Bearing Time Deposits 4,991 4,090
Securities
Available for Sale, at Market Value 23,468 21,523
Held to Maturity 9,225 15,052
--------- ---------
Total Securities 32,693 36,575
--------- ---------
Loans 126,463 121,474
Allowance for Possible Loan Losses (1,250) (1,211)
Unearned Income (110) (87)
--------- ---------
Net Loans 125,103 120,176
--------- ---------
Premises & Equipment, Net 3,135 2,303
Other Assets 3,059 2,435
--------- ---------
Total Assets $ 196,726 $ 185,227
========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Non-interest Bearing $ 39,996 $ 27,897
NOW Accounts 22,435 24,502
Savings 13,717 13,836
Money Market Accounts 19,444 20,226
Time
Greater than $100,000 19,235 14,088
Less than $100,000 66,050 69,165
--------- ---------
Total Deposits 180,877 169,714
--------- ---------
Obligation Under Capital Lease 437 438
Other Liabilities 845 710
--------- ---------
Total Liabilities 182,159 170,862
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS March 31, December 31,
March 31, 1999 and December 31, 1998 1999 1998
--------- ---------
(Unaudited)
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Common Stock $2.09 Par Value: 20,000,000 5,796 5,794
Shares Authorized; 2,773,424 Shares in 1999 and
2,759,624 Shares in 1998 Issued and Outstanding
Additional Paid-in Capital 5,505 5,502
Accumulated Other Comprehensive (Loss)/Income (64) 7
Retained Earnings 3,330 3,062
--------- ---------
Total Shareholders' Equity 14,567 14,365
--------- ---------
Total Liabilities and Shareholders' Equity $ 196,726 $ 185,227
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended
For the Period Ended March 31, 1999 1998
------ ------
(in thousands except per share data) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Loans $2,622 $2,363
Securities Available for Sale 312 164
Securities Held to Maturity 204 304
Federal Funds Sold 84 81
Time Deposits Due from Banks 63 0
Other Short Term Investments 8 4
------ ------
Total Interest Income 3,293 2,916
------ ------
INTEREST EXPENSE
Deposits 1,468 1,319
Federal Funds Purchased 1 0
Obligation Under Capital Lease 9 9
------ ------
Total Interest Expense 1,478 1,328
------ ------
Net Interest Income 1,815 1,588
PROVISION FOR POSSIBLE LOAN LOSSES 80 65
Net Interest Income after Provision For Possible Loan Losses 1,735 1,523
------ ------
OTHER INCOME
Service Charges on Deposit Accounts 80 64
Gain on the Sale of Loans 33 51
Gain on the Sale of Securities, Available for Sale 1 0
Other Income 51 30
------ ------
Total Other Income 165 145
------ ------
OTHER EXPENSE
Salaries and Employee Benefits 743 674
Occupancy Expense 203 149
Equipment Expense 101 85
Other Expenses 437 367
------ ------
Total Other Expense 1,484 1,275
------ ------
Income Before Provision for Income Taxes 416 393
Provision for Income Taxes 148 159
------ ------
Net Income $ 268 $ 234
====== ======
EARNINGS PER COMMON SHARES - Basic $ 0.10 $ 0.09
====== ======
EARNINGS PER COMMON SHARES - Diluted $ 0.09 $ 0.09
====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME For the Three Months Ended
For the Period Ended March 31, 1999 1998
----- -----
(in thousands) (Unaudited)
<S> <C> <C>
Net Income $ 268 $ 234
Other Comprehensive Income, Net of Tax
Unrealized (Losses) Arising in the Period (71) (32)
----- -----
Comprehensive Income $ 197 $ 202
===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Period Ended March 31, 1999 1998
-------- --------
(unaudited)
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 268 $ 234
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for Possible Loan Losses 80 65
Depreciation and Amortization 103 88
Accretion of Securities Discount (26) (16)
(Gains) on the Sale of Securities Available for Sale, Net (1) 0
(Increase)/Decrease in Other Assets (595) 10
Increase in Other Liabilities 139 147
Increase/(Decrease) in Unearned Income 23 (6)
-------- --------
Net Cash (Used for)/Provided By Operating Activities (9) 522
-------- --------
INVESTING ACTIVITIES
Proceeds from Sales of Securities, Available for Sale 2,510 0
Proceeds from Maturities of Securities
Available for Sale 2,706 3,204
Held to Maturity 7,369 7,335
Purchases of Securities
Available for Sale (6,980) (3,571)
Held to Maturity (1,804) (2,248)
Increase in Interest Bearing Time Deposits (901) 0
(Increase)/Decrease in Loans (5,030) 330
Capital Expenditures (931) (151)
-------- --------
Net Cash (Used for)/Provided By Investing Activities (3,061) 4,899
-------- --------
FINANCING ACTIVITIES
Net Increase in Demand Deposits 10,032 3,915
Net (Decrease)/Increase in Savings Deposits (119) 387
Net (Decrease)/Increase in Money Market Deposits (782) 2,104
Net Increase in Time Deposits 2,032 2,048
Decrease in Federal Funds Purchased 0 (500)
Decrease in Obligation Under Capital Lease (1) (1)
Proceeds from Issuance of Common Stock, Net 5 56
-------- --------
Net Cash Provided by Financing Activities 11,167 8,009
-------- --------
Increase in Cash and Cash Equivalents 8,097 13,430
Cash and Cash Equivalents, Beginning of Year 19,648 5,983
-------- --------
Cash and Cash Equivalents, End of Year $ 27,745 $ 19,413
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Period Ended March 31, 1999 1998
-------- --------
(unaudited)
(in thousands)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Paid During the Year for Interest $ 1,490 $ 1,368
======== ========
Cash Paid During the Year for Federal Income Taxes $ 30 $ 40
======== ========
</TABLE>
<PAGE>
SVB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three months ended March
31, 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 March 31, 1999 and December 31, 1998 the composition of outstanding
loans is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Secured by Real Estate:
Residential Mortgage $ 33,808 $ 30,577
Commercial Mortgage 46,872 42,703
Construction 6,273 6,256
Commercial and Industrial 21,199 22,308
Other Loans to Individuals 8,587 8,864
Loans to Individuals for Automobiles 9,671 10,298
Other Loans 53 468
-------- --------
$126,463 $121,474
======== ========
</TABLE>
There were no loans restructured during 1999 or 1998. There were no
loans past due 90 days or more and still accruing at March 31, 1999. and $5,000
at December 31, 1998. Loans in a non-accrual status totaled $375,000 at March
31, 1999 and $96,000 at December 31, 1998.
<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>
Three Months
Ended Year Ended
March 31, December 31,
(in thousands) 1999 1998
------- -------
<S> <C> <C>
Balance January 1, $ 1,211 $ 982
Provision Charged to Operations 80 300
Charge Offs (46) (80)
Recoveries 5 9
------- -------
Balance End of Period $ 1,250 $ 1,211
======= =======
</TABLE>
4. New Accounting Pronouncement
On January 1, 1998, the Company adopted Statements of Financial
Accounting Standards (SFAS) No. 129, "Disclosure Information about Capital
Structure." SFAS No. 129 summarizes previously issued disclosure guidance
contained within APB Opinion No. 10 and No. 15, as well as SFAS No. 47. The
Company's current disclosures were not affected by the adoption of SFAS No. 129.
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards to provide prominent
disclosure of comprehensive income items. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Prior period amounts have been
restated to conform to the provisions of SFAS No. 130. The adoption of SFAS 130
did not have a material impact on the Company's financial position or results of
operations.
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 requires
that public business enterprises report certain information about operating
segments in a complete set of financial statements of the enterprise and in
condensed financial statements of interim periods issued to shareholders. It
also requires the reporting of certain information about their product and
services, the geographic area in which they operate, and their major customers.
The adoption of SFAS No. 131 did not have an impact on the Company's financial
position or results of operations.
The American Institute of Certified Public Accountants (AICPA)
executive committee has issued Statement of Position (SOP) 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. The SOP
was issued to provide authoritative guidance on the subject of accounting for
the cost associated with the purchase or development of computer software. The
statement is effective for fiscal years beginning after December 15, 1998 for
costs incurred in those fiscal years for all projects, including projects in
progress when the SOP is adopted. The adoption of SOP 98-1 is not expected to
have a material impact on the Company's financial position or results of
operations.
<PAGE>
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. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Earlier application is permitted
only as of the beginning of any fiscal quarter. The Company is currently
reviewing the provisions of SFAS No. 133.
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 result 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.
<PAGE>
Results of Operation
- --------------------
Net income for the first three months of 1999 was $268,000, an increase
of $34,000 or 15% as compared to the same period in 1998. Earnings per
share-Basic were $.10 in 1999 as compared to $.09 in 1998. Earnings per share -
Diluted were $.09 in 1999 and $.09 in 1998.
A detailed discussion of the major components of net income follows:
Net Interest Income
- -------------------
Net interest income for the first three months of 1999 was $1.8 million
compared to $1.6 million in 1998, an increase of $227,000 or 14%.
Almost all of the increase can be attributed to an increase in average
earnings assets. Average earning assets for the first three months of 1999 were
$172.5 million an increase of $30.7 million or 22% from the first three months
of 1998. Loans accounted for 64% of this increase as loans averaged $124.4
million during the three months. The increase in loan balances caused interest
income to increase $399,000. Partially offsetting this, the yield on loans
decreased from 9.16%, to a 8.54%, 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 yield caused interest income to decrease $142,000.
Overall, interest income increased $377,000. Most all of this amount was due to
the increase in average balances. The yield on earning assets was 7.74% for 1999
and 8.34% for 1998.
The overall cost of interest-bearing liabilities decreased forty basis
points from 4.70% to 4.30%, which resulted in a decrease in interest expense of
$67,000. Offsetting this, total interest bearing deposits increased $24.8
million during the three months of 1999 to $139.0 million, of which time
deposits accounted for 44% of this increase. The increase in deposits caused
interest expense to increase $216,000. Overall, interest expense increased
$149,000, however, the cost of funding earning assets decreased from 3.80% in
1998 to 3.47% in 1999, also resulting from lower interest rates.
The net result of the change in net interest income for the first three
months of 1999 versus the first three months of 1998 was an increase of
$227,000. The net interest margin decreased twenty seven points from a 4.54% to
a 4.27%.
Provision for Loan Possible Losses
- ----------------------------------
The provision for possible loan losses was $80,000 in the first three
months of 1999 as compared to $65,000 in the first three months of 1998. The
increase in provision can be attributed to an increase in loans which
experienced a net increase of $20.3 million since March 31, 1998.
Other Income
- ------------
During the first three months of 1999, other income increased $20,000
or 14% over the same period in 1998. Service charges on deposit accounts
increased $16,000 or 25% 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 24% of the increase in service
charges on deposits.
<PAGE>
Gains on the sale of loans decreased $18,000. 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.
Other income increased $21,000 or 69% 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 $12,000 or 60% in mortgage fees. Additionally fees
related to the servicing of SBA loans as described above increased 36% over the
same period for last year.
Other Expense
- -------------
Other expenses for the three months ended March 31, 1999 increased
$209,000 or 16% 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 $39.8 million or 25% since March
31, 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 $70,000 or 10% from last year. Rent on
the newly opened locations and the potential branch site locations coupled with
depreciation on other facilities resulted in a $54,000 or 27% increase in
occupancy expenses. Purchases of equipment for new employees and the additional
branches increased equipment expense $16,000 or 16% from last year. Other
expenses increased from last year $69,000 or 19%. 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
March 31, 1999 compared to December 31, 1998
- --------------------------------------------
Total assets increased $11.5 million or 6% from December 31, 1998.
Total loans increased $5.0 million. Loans secured by real estate increased $7.4
million. Commercial mortgages increased $4.2 million. Residential mortgage loans
increased $3.2 million. Loans to individuals for automobiles, declined by $.6
million.
Deposits increased $11.2 million or 7% during the first three months.
Demand deposits increased $12.1 million while some of the other deposit
categories had decreased. The demand deposit increase was due to increased
deposit in commercial accounts at the end of the quarter, and new commercial
accounts at the Manville Office.
Investment securities decreased $3.9 million. The current treasury
yield curve, anticipated loan growth, and fluctuations in demand deposit
balances has caused a shift from longer term securities to shorter term
investments.
<PAGE>
Asset Quality
- -------------
There were no loans past due 90 days or more and still accruing as of
March 31, 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 $375,000 at March 31, 1999 and
$96,000 at December 31, 1998 and represented .29% of total loans as of March 31,
1999 and .08% as of December 31, 1998.
Loans considered to be impaired totaled $788,000 at March 31, 1998, a
valuation reserve of $31,000 is attributed to these loans.
The Company had no other real estate owned at March 31, 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 March 31, 1999, the allowance for loans losses was $1,250,000 and
represented .98% of total loans and 333% 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 three months of 1999 totaled $46,000 compared
to $80,000 for the year ended December 31, 1998.
Capital Resources
- -----------------
Total Shareholders' Equity was $14,567,000 at March 31, 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>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Tier I Capital to Risk Weighted Assets 9.92% 10.24%
Total Capital to Risk Weighted Assets 10.81% 11.14%
Leverage Ratio 7.61% 8.54%
</TABLE>
<PAGE>
Liquidity
- ---------
Cash and cash equivalents totaled $27.7 million at March 31, 1999 an
increase of $8.1 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 $11.2 million. Demand deposits experienced the largest
increase for the three month period of $10.0 million.
Investing activities for the three months included proceeds the sale of
securities which were $2.5 million, and net cash provided from security and
interest bearing time deposit transactions of $390,000. These funds generated
were more than offset by an increase in loans which resulted in net cash used
for investing activities of $3.1 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 mid 1999. Phase III
(Validation/Testing) is in progress and will be completed by June 30, 1999.
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. In addition, a third
party auditor has been hired by Fiserv's clients to review Fiserv's Y2K plan and
provide status reports. At this writing, Fiserv has substantially completed the
validation and testing of the major computer applications and is currently
testing application interfaces.
The Company expects to spend $200,000 for equipment upgrades and
$30,000 for direct expense items to cover additional Y2K charges.
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.
<PAGE>
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
---------------------------------------------------
Proxies were mailed to shareholders of the Company on March
29, 1999 for the Annual Meeting of Shareholders on April 29,
1999. The purpose was the election of Directors for a term of
three years.
Following are the results of the voting:
The following candidates were nominated for a term to
continue to the 2002 Annual Meeting.
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Willem Kooyker 2,032,791 480
Frank Orlando 1,845,471 187,800
Gilbert E. Pittenger 1,845,471 187,800
Frederick D. Quick 2,032,791 480
Donald Sciaretta 2,032,791 480
</TABLE>
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 March 31, 1999, the closing bid of the Company's common
stock was $10.00 per share.
<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 first quarter of
1999.
(27) Financial Data Schedule
<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: May 10, 1999 By: /s/Keith B. McCarthy
--------------------
Keith B. McCarthy
Executive Vice President
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 8,697
<INT-BEARING-DEPOSITS> 4,991
<FED-FUNDS-SOLD> 18,975
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,468
<INVESTMENTS-CARRYING> 9,225
<INVESTMENTS-MARKET> 9,239
<LOANS> 126,353
<ALLOWANCE> 1,250
<TOTAL-ASSETS> 196,726
<DEPOSITS> 180,877
<SHORT-TERM> 0
<LIABILITIES-OTHER> 845
<LONG-TERM> 437
0
0
<COMMON> 5,796
<OTHER-SE> 8,771
<TOTAL-LIABILITIES-AND-EQUITY> 196,726
<INTEREST-LOAN> 2,622
<INTEREST-INVEST> 516
<INTEREST-OTHER> 155
<INTEREST-TOTAL> 3,293
<INTEREST-DEPOSIT> 1,468
<INTEREST-EXPENSE> 1,478
<INTEREST-INCOME-NET> 1,815
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 1,484
<INCOME-PRETAX> 416
<INCOME-PRE-EXTRAORDINARY> 268
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 268
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
<YIELD-ACTUAL> 4.27
<LOANS-NON> 375
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,211
<CHARGE-OFFS> 46
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,250
<ALLOWANCE-DOMESTIC> 1,250
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
