UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 333-12305
SVB Financial Services, Inc.
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(Name of Small Business Issuer in Its Charter)
New Jersey 22-3438058
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
103 West End Avenue, Somerville, NJ 08876
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(Address of Principal Executive Offices) (Zip Code)
(908) 704-1188
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
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NASDAQ National Market System
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock $2.09 par value
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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.
Yes [ X ] No [ ]
<PAGE>
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the most recent fiscal year were $15,199,000.
The aggregate market value of voting stock held by non affiliates of the
registrant as of March 15, 2000 was $13,677,100.
The number of shares of the registrants common stock as of March 15,
2000 was 2,958,526.
The following documents are incorporated by reference.
The Annual Report to security holders for the fiscal year
ended December 31, 1999.
The Proxy Statement for the annual meeting of security holders
April 27, 2000.
<PAGE>
PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
General
SVB Financial Services, Inc. (the "Company") is a New Jersey business
company and a bank holding company. The Company was incorporated on February 7,
1996 for the purpose of acquiring Somerset Valley Bank (the "Bank") and thereby
enabling the Bank to operate within a holding company structure. On May 30,
1996, the shareholders of the Bank approved the acquisition by the Company. On
September 3, 1996, the shares of the Company were exchanged for those of the
Bank. The Bank is the Company's only subsidiary.
The Bank is a New Jersey commercial bank and was granted a charter by
the New Jersey Department of Banking on February 21, 1990. The Bank opened for
business on December 20, 1991 at its Somerville facility after obtaining the
necessary capital in its initial offering and the approval of the Federal
Deposit Insurance Corporation (FDIC). At December 31, 1999, the Bank had total
assets of $206.1 million. Based on total deposits as of June 30, 1999, the Bank
was ranked 80 of 165 banks and savings banks in New Jersey. In 1996, the Bank
opened its first full service branch office in Hillsborough Township, New
Jersey. During 1997, the Bank opened a full service branch in Bridgewater
Township, New Jersey. In 1998 a banking office staffed by one part time person
was opened at the Arbor Glen Retirement Community in Bridgewater Township, New
Jersey and a mini branch with a drive through on Gaston Avenue in Somerville,
New Jersey. In 1999, the Bank opened its sixth banking facility, a full service
branch in the Borough of Manville. Two full service offices will open early in
2000, Aberdeen Township in January 2000 and Bernards Township in February 2000.
Additionally, the Bank received approval for a ninth full service office located
in the Township of Edison, which is expected to open in late 2000.
The Bank provides a wide range of commercial and consumer banking
services.
Deposit services include business and personal checking accounts,
interest-bearing NOW accounts, Money Market deposit accounts, savings accounts
and certificates of deposit. In order to compete with the larger banks for
deposit accounts, the Bank gives favorable terms (interest rates, minimum
balances, service charges, etc.). As of December 31, 1999, the Bank had $189.6
million in deposits and approximately 14,200 deposit accounts.
The Bank makes secured and unsecured loans to small and mid-sized
businesses and professionals in its market area. Because Somerville is the
county seat of Somerset County and home to Somerset Medical Center, the Bank is
uniquely positioned to provide loans and other services to the medical,
accounting and legal professionals. Bridgewater Township, Hillsborough Township
and the Borough of Manville are also areas of significant small and mid-size
business activity. Small and medium sized businesses and professionals make up
the primary focus of the Bank's lending efforts. The Bank is also a preferred
SBA lender and as such it originates SBA loans and sells the government
guaranteed portion in the secondary market while retaining the servicing of such
loans.
Secured and unsecured personal loans to finance the purchase of
consumer goods are also available. Through its relationship with local
automobile dealerships, the Bank indirectly finances automobile loans.
Residential and commercial mortgages are also provided by the Bank.
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Residential mortgages are currently written by the Bank with a three,
five or ten year fixed rate which adjusts annually thereafter for the life of
the loan which may be up to 30 years. The Bank is an approved Federal National
Mortgage Association (FNMA) lender for origination and servicing of mortgages.
Long term fixed rate mortgages are originated and sold in the secondary market.
As of December 31, 1999, the Bank had approximately 3,300 loans of all
types totaling $153.2 million. Other services provided by the Bank include wire
transfers, safe deposit boxes, money orders, travelers
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cheques, direct deposit of payroll and social security checks, ACH origination
and Visa/MasterCard processing. The Bank has seven ATM machines and the Bank is
a member of the MAC network.
The Bank offers customers access to their accounts through a telephone
or personal computer via the Internet at www.somersetvalleybank.com. Customers
can check balances, monitor account activity, make transfers and pay bills. A
MasterMoney debit card is also offered allowing customers to access funds
anywhere MasterCard is accepted. During 2000, the web site will offer access to
the National Discount Brokers web site which will allow customers to buy and
sell stocks.
The Bank's data processing services are provided by Fiserv, which is
one of the leading data processing service providers to financial institutions
in the United States. As such, the Bank has access to many banking products and
services that are technologically competitive with other Banks. Not all of these
services, however, are economically feasible to the Bank at this time.
The Company has formed a joint venture subsidiary, Somerset Valley
Financial LLC, with International Planning Alliance of Somerset, New Jersey.
This arrangement will allow the Bank to share in revenues through the sale of
life insurance, medical insurance, financial planning, executive benefits and
retirement products. Currently, five Bank employees are licensed to sell
insurance.
Market Area
The Bank's market area is primarily Somerset County which is located
midway between New York and Philadelphia. Somerset County is considered an
affluent suburban area with significant commercial and residential activity. A
number of large national firms such as ATT, Metropolitan Life and Johnson and
Johnson companies locate their offices in Somerset County. The county is
crisscrossed by five major highways including interstate Routes 78 and 287 and
U.S. Routes 22, 202 and 206, adding to its desirability as a commercial center.
A large regional shopping mall is located in Bridgewater Township with several
small shopping centers located throughout the county.
During 2000 the Bank will open offices in Aberdeen Township in Monmouth
County and Edison Township in Middlesex County. Both areas are of significant
commercial and residential activity.
The Bank also obtains business from adjacent counties of Hunterdon,
Mercer and Morris.
Competition
All phases of the Bank's business are highly competitive. As of June
30, 1999 (the latest date for which figures are available), Somerset County had
26 FDIC insured banks and saving banks with 100 offices. The Bank was ranked 8
of 26 in terms of total deposits, with 4.44% of the Somerset County market.
Somerset County has experienced significant merger activity in recent years.
These mergers have resulted in the closing of several branch locations
throughout the Bank's market area. A possibility exists that there will be
competition for acquisition of one or more of these branches. Such competition
could come from not only New Jersey financial institutions but, under recent
amendments to New Jersey banking statutes, also from out-of-state and foreign
banks as well, thereby increasing competition.
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Management of the Bank believes that loans to small and mid-size
businesses and professionals are not always of primary importance to the larger
banking institutions, whereas they represent the main commercial loan business
of the Bank. The Bank can compete for this segment of the market because it
provides responsive personalized services, local decision-making and knowledge
of its customers and their businesses. By virtue of their greater total capital,
certain commercial banks have substantially higher lending limits.
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These banks can also finance broad advertising campaigns and with lower average
overhead ratios can be very competitive in pricing. Accordingly, there are
certain borrowers that the Bank will not be able to service and others who will
be reached by the more extensive advertising of larger competing banks. The
Bank's current lending limit is $2.1 million.
Employees
At December 31, 1999, the Company employed 72 full time and 13 part
time employees. None of these employees are covered by a collective bargaining
agreement and the Company believes that its employees' relations are good. The
Company offers its employees health, life, dental benefits, as well as a 401(k)
Plan. During 1999, the Company established a Supplemental Executive Retirement
Plan, which covers three of the Company's executive officers.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company presently owns no properties. The Bank leases its banking
facilities at 103 West End Avenue and a facility at 117 West End Avenue in
Somerville from a partnership consisting of all but one of the members of its
Board of Directors and one non director. The lease for 103 West End Avenue
expires in July of 2001, but contains four five-year renewal options allowing
the Bank to extend the lease. The lease for 117 West End Avenue expires in 2003.
The lease for 103 West End Avenue, was reviewed by both the FDIC and the
Department of Banking prior to the Bank's opening to determine that the terms of
the lease are comparable to those the Bank would receive in an arms length
transaction with an unaffiliated third party. Neither the FDIC nor the
Department of Banking objected to the terms of the lease. The office space at
117 West End Avenue is also leased at such comparable terms.
The Hillsborough office located at 649 Route 206, Belle Mead, New
Jersey, is leased from an unaffiliated partnership and the lease expires in 2004
with two five-year renewal options.
The Bridgewater office located at 481 North Bridge Street, Bridgewater,
New Jersey, is leased from an unaffiliated partnership and the lease expires in
2027, with an initial five-year term lease with five five-year renewal options.
The Gaston Avenue office is located at 91 North Gaston Avenue,
Somerville, New Jersey. The Company owns the building and the land is leased
with a forty-two-month lease expiring in 2001 with one five-year renewal at the
landlord's option.
The Arbor Glen office located at 100 Monroe Street, Bridgewater, New
Jersey, has a lease with an original term of three years expiring in 2001, with
three five-year renewal options.
The Manville office located at 40 North Main Street, Manville, New
Jersey has a lease on the land from an unaffiliated third party. The lease
expires in 2023, with an initial ten-year renewal option and five additional
five-year renewal options.
The Bank relocated its Executive Offices and Operations Center to 58-72
East Main Street, Somerville, New Jersey late 1999. This office space is leased
from an unaffiliated third party. The lease has an initial term of five years
with three five-year renewal options.
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The Bank has leases for the following Bank sites which will open during
2000:
o The Aberdeen office is located at 231 State Highway
34, Matawan, New Jersey. The lease has an initial
term of ten years and five year options through 2033.
This branch opened in January 2000.
o The Bernards Township office at the Bernards Village
Center at the intersection of Allen and Hanson Roads
in Bernards Township, New Jersey, is leased from an
unaffiliated third party. The initial term of the
lease is fifteen years with three five year renewal
options. The Bernards Township office opened in
February 2000.
o The Edison branch will be constructed on land located
at 1959 Oak Tree Road, Edison, New Jersey from an
unaffiliated third party. The lease has an initial
term of seven years with four five-year renewal
options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of real property loans, and
other issues incident to the Company's business. There are no pending legal
proceedings to which the Company is a party nor has it been threatened with any
litigation. Management does not believe that there is any pending or threatened
proceeding against the Company which, if determined adversely, would have a
material effect on the business or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted for a vote of the Registrant's shareholders
during the fourth quarter of 1999.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company began trading on the NASDAQ National
Market System under the trading symbol SVBF. Following are the high and low
prices for the third and fourth quarters of 1998 and all of 1999:
<TABLE>
<CAPTION>
1999 (1) 1998 (1)
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High Low High Low
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<S> <C> <C> <C> <C>
First Quarter $10.000 $8.930 (2) (2)
Second Quarter $ 9.520 $8.570 (2) (2)
Third Quarter $ 9.290 $8.450 $12.380 $8.570
Fourth Quarter $ 9.250 $8.450 $10.480 $8.450
</TABLE>
<PAGE>
(1) Prices have been retroactively adjusted for the 5% stock dividend paid
November 19, 1999.
(2) Prior to July 6, 1998, there was no established public trading for the
shares of the Company.
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There are approximately 411 holders of the Company's common stock.
The Company paid a 5% stock dividend on November 19, 1999. The Company
has never paid a cash dividend and there are no plans to pay a cash dividend at
this time.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information is incorporated by reference from the Company's 1999
Annual Report to Shareholders on pages 18-31 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Independent Auditors Report thereon is incorporated by reference
from pages 3-17 of the 1999 Annual Report to Shareholders.
PART III
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ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference from
pages 2-5 under the caption "Directors/Principal Shareholders/Executive Officers
and Director Committees" of the Company's Proxy Statement for its 2000 Annual
Meeting of Shareholders.
ITEM 10. EXECUTIVE COMPENSATION.
This information required by this item is incorporated by reference
from pages 6-7 under the caption "Executive Compensation" of the Company's Proxy
Statement for its 2000 Annual Meeting of Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
pages 2-4 under the caption "Directors/Principal Shareholders/Executive
Officers" of the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information required by this item is incorporated by reference
from page 8 under the caption "Transactions with Related Persons" of the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
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PART IV
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ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules
The following documents are filed as part of this report:
1. Financial Statements of SVB Financial Services, Inc.
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years Ended December 31,
1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income - Years Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended December
31, 1999 and 1998
Report of Independent Accountants
These statements are incorporated by reference to the Company's Annual
Report to Shareholders for the year ended December 31, 1999.
2. All schedules are omitted because either they are inapplicable
or not required, or because the information required therein
is included in the Consolidated Financial Statements and Notes
thereto.
3. Exhibits
Exhibit
Number Description
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3(i) Certificate of Incorporation (1)
3(ii) By-Laws(1)
4.1 Specimen Stock Certificate (1)
4.2 Pages 3, 4, 5, 6, 7, 8, 9, 10 and 11
from the Certificate of Incorporation of
SVB Financial Services, Inc. (1)
4.3 Pages 1, 2, 3, 9, 10, 11, 14 and 15
from the By-Laws of SVB Financial Services,
Inc. (1)
10.1 Employment Agreements (1)
10.2 SVB Financial Services, Inc. Nonstatutory Stock
Option Plan (2)
10.3 SVB Financial Services, Inc. Restated Incentive
Stock Option Plan (3)
10.4 Somerset Valley Bank Deferred Compensation Plan
13 Annual Report to Security-Holders
20 Proxy Statement for the 2000 Annual Meeting of
Shareholders
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Registration
Statement on SB-2. Registration Number 333-12305.
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(2) Incorporated by reference to the Company's Registration
Statement on Form S-8. Registration Number 333-66131.
(3) Incorporated by reference to the Company's Registration
Statement on Form S-8. Registration Number 333-66165.
(b) Reports on Form 8-K
A Form 8-K was filed on December 30, 1999 under Item 5 "Other
Matters" regarding the resignation of Mark S. Gold, M.D.,
Director.
7
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SVB FINANCIAL SERVICES, INC.
INDEX TO EXHIBITS
Exhibit Page
Number Description Number
- ------ ----------- ------
10.4 Somerset Valley Bank Deferred Compensation Plans
13 Annual Report to Security-Holders
20 Proxy Statement for the 2000 Annual Meeting of Shareholders
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
/s/Keith B. McCarthy
--------------------
Keith B. McCarthy
Principal Financial Officer and
Principal Accounting Officer
March 23, 2000
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/John K. Kitchen
- ------------------- Director and Chairman of the Board March 23, 2000
John K. Kitchen
/s/Robert P. Corcoran President and Chief Executive Officer March 23, 2000
- ---------------------- and Director
Robert P. Corcoran
/s/Keith B. McCarthy Chief Financial Officer/Chief March 23, 2000
- -------------------- Accounting Officer
Keith B. McCarthy
/s/Bernard Bernstein Director March 23, 2000
- --------------------
Bernard Bernstein
Raymond L. Hughes Director March 23, 2000
- --------------------
Raymond L. Hughes
Tucker S. Johnson Director March 23, 2000
- -----------------------
Tucker S. Johnson
/s/Willem Kooyker Director March 23, 2000
- -----------------
Willem Kooyker
</TABLE>
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<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/Frank Orlando Director March 23, 2000
- ----------------
Frank Orlando
/s/Gilbert E. Pittenger Director March 23, 2000
- -----------------------
Gilbert E. Pittenger
/s/Frederick D. Quick Director March 23, 2000
- ---------------------
Frederick D. Quick
/s/Anthony J.Santye, Jr. Director March 23, 2000
- ------------------------
Anthony J. Santye, Jr.
/s/G. Robert Santye Director March 23, 2000
- -------------------
G. Robert Santye
/s/Donald Sciaretta Director March 23, 2000
- -------------------
Donald Sciaretta
/s/Herman C. Simonse Director March 23, 2000
- --------------------
Herman C. Simonse
/s/Donald R. Tourville Director March 23, 2000
- ----------------------
Donald R. Tourville
</TABLE>
10
Somerset Valley Bank Deferred Compensation Plan
SOMERSET VALLEY BANK
Deferred Compensation Plan
THIS AGREEMENT made this first day of January 1, 2000 by and between SOMERSET
VALLEY BANK, with its principal offices located at 58-72 East Main Street, The
Hamon Building, Somerville, New Jersey 08876 (herein referred to as the "Bank"),
and ROBERT P. CORCORAN residing at 12 Harvest Court, Flemington, New Jersey,
08822 (herein referred to as the "Executive").
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed for it
by the Executive and wishes to encourage his continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to a
certain amount of compensation for some definite period of time from and after
his retirement from active service with the Bank, or other termination of such
employment whether by reason of his death or otherwise; and
WHEREAS, the parties hereto wish to provide the terms and conditions upon which
the Bank shall pay such additional compensation to the Executive or his family
after his retirement or such termination of his employment;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
1. In consideration of the Executive's remaining in its employ, the Bank
agrees that the Bank shall thereafter pay the Executive the sum of $70,000
per annum (the "benefit") for a period of ten (10) years from and after the
occurrence of an event entitling the Executive to payments hereunder,
payable in equal monthly installments, commencing with the first day of the
first month following the occurrence of such event.
2. The benefit payable hereunder shall be paid to each Executive, or
applicable Beneficiary designated by or for such Executive, on account of
any of the following events: (a) termination of employment; (b) death; (c)
retirement; (d) disability; or (e) an approved financial hardship due to an
unforeseeable emergency.
(A) TERMINATION OF EMPLOYMENT.
If an Executive terminates his relationship with the Bank, or is
terminated without cause, before the commencement of Retirement and not
due to a disability, the benefit shall continue to defer
<PAGE>
until Retirement.
(B) DEATH BENEFITS.
If an Executive dies before the termination of his relationship with
the Bank and before Retirement and the Executive was not previously
disabled, the participant's then named beneficiary shall be paid the
benefit payable in accordance with Paragraph 1.
Upon the death of an Executive after the commencement of Retirement or
receipt of Disability Retirement benefits, but before the Executive has
received all payments under the Plan, the remaining payments shall
continue to the person or persons designated in the last designation of
beneficiary form received by the Bank from the Executive prior to the
Executive's death.
(C) RETIREMENT.
At Retirement, an Executive shall be entitled to receive payments under
the Plan, provided that the Executive ceases to provide services as an
employee to the Bank after such date. "Retirement" shall be defined as
age sixty-five (65), of which the Board may adjust annually as it sees
fit. A change in the age of retirement shall not be effective until the
calendar year following such change and will not be effective if the
Executive has commenced payments herein.
(D) DISABILITY.
The Executive shall be entitled to receive payments hereunder prior to
Retirement, if the Executive becomes eligible to receive and actually
commences receipt of benefit payments under the Bank's Group Long Term
Disability Insurance Policy. If the Executive is not covered under the
Policy, a determination as to whether the Executive can no longer
perform duties required of an Executive because of ill health,
accident, or general inability because of age of the Executive shall be
made by a duly licensed physician selected by the Bank. Should it be
determined that the Executive is rendered totally or permanently unable
to perform in accordance with the terms and conditions of the
Executive's contract with the Bank and the contract is terminated, the
Bank shall immediately commence payment of benefits to the Executive in
accordance with Paragraph 1.
(E) UNFORESEEABLE EMERGENCY.
An unforeseeable emergency means a severe financial hardship to the
Executive resulting from a sudden and unexpected illness or accident of
the Executive or of a dependent of the Executive, loss of the
Executive's property due to casualty, or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond
the control of the Executive. The circumstances that constitute an
"Unforeseeable Emergency" would depend upon the facts of each case,
but, in any case, payment may not be made in the event that such
hardship is or may be relieved (1) through reimbursement or
compensation by insurance or otherwise, or (2) liquidation of the
Executive's assets, to the extent that liquidation of such assets would
not itself cause severe financial hardship. The need to send a
Executive's child to college or the desire to purchase a home shall not
be construed as an Unforeseeable Emergency.
An Executive may request a distribution due to an Unforeseeable
Emergency by submitting a written request to the Bank accompanied by
evidence to demonstrate that the circumstances being
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experienced qualify as an Unforeseeable Emergency. The Bank shall have
the authority to require such evidence as it deems necessary to
determine if a distribution is warranted. If an application for a
hardship distribution due to an Unforeseeable Emergency is approved,
the distribution shall be limited to both the amount sufficient to meet
the emergency and the Executive's accrued account balance. The
allowable distribution shall be payable in a method determined by the
Bank as soon as possible after approval of such distribution.
Distributions made for an Unforeseeable Emergency will directly reduce
the benefit on a proportionate basis over the payment period.
An Executive who has commenced receiving benefits under the Plan may
request acceleration of such payments in the event of an Unforeseeable
Emergency. The Bank may permit accelerated payments to the extent such
accelerated payment does not exceed the amount necessary to meet the
emergency.
3. In consideration of the foregoing agreements of the Bank and of the
payments to be made by the Bank pursuant thereto, the Executive hereby
agrees that, so long as he remains in the active employ of the Bank, he
will devote substantially all of his time, skill, diligence and attention
to the business of the Bank, and will not actively engage, either directly
or indirectly, in any business or other activity which is or may be deemed
to be in any way competitive with or adverse to the best interests of the
business of the Bank.
4. a. Nothing contained in this Agreement, and no action taken pursuant to
its provisions by either party hereto shall create, or be construed to
create, a trust of any kind, or a fiduciary relationship between the
Bank and the Executive, his designated beneficiary, other beneficiaries
of the Executive or any other person.
b. The payments to the Executive or his designated beneficiary or any
other beneficiary hereunder shall be made from assets which shall
continue, for all purposes, to be a part of the general assets of the
Bank, and no person shall have, by virtue of the provisions of this
Agreement, any interest in such assets. To the extent that any person
acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured
general creditor of the Bank.
5. In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Executive to allow the Bank to
recover the cost of providing the benefits, in whole, or in part,
hereunder, neither the Executive, his designated beneficiary nor any other
beneficiary shall have any rights whatsoever therein; the Bank shall be the
sole owner and beneficiary thereof and shall possess and may exercise all
incidents of ownership therein.
6. Nothing contained herein shall be construed to be a contract of employment
for any term of years, nor as conferring upon the Executive the right to
continue in the employ of the Bank in any capacity. It is expressly
understood by the parties hereto that this Agreement relates exclusively to
additional
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compensation for the Executive's services, payable after termination of his
employment with the Bank, and is not intended to be an employment contract.
7. Neither the Executive, his spouse, nor any other beneficiary under this
Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate or otherwise encumber any part or all of the amounts payable
hereunder, nor shall such amounts be subject to seizure by any creditor of
any such beneficiary, by a proceeding at law or in equity, and no such
benefit shall be transferable by operation of law in the event of
bankruptcy, insolvency or death of the Executive, his spouse, or any other
beneficiary hereunder. Any such attempted assignment or transfer shall be
void and shall terminate this Agreement, and the Bank shall thereupon have
no further liability hereunder.
8. a. The Bank is hereby designated as the named fiduciary under this
Agreement. The named fiduciary shall have authority to control and
manage the operation and administration of this Agreement, and it
shall be responsible for establishing and carrying out a funding
policy and method consistent with the objectives of this
Agreement.
b. The Bank shall make all determinations as to rights to benefits
under this Agreement. Any decision by the Bank denying a claim by
the Executive or his beneficiary for benefits under this Agreement
shall be stated in writing and delivered or mailed to the
Executive or such beneficiary. Such decision shall set forth the
specific reasons for the denial, written to the best of the Bank's
ability in a manner that may be understood without legal or
actuarial counsel. In addition, the Bank shall afford a reasonable
able opportunity to the Executive or such beneficiary for a full
and fair review of the decision denying such claim.
c. Subject to the foregoing, the Board of Directors of the Bank
shall have full power and authority to interpret, construe and
administer this Agreement. The interpretation and construction of
this Agreement by the Board of Directors of the Bank, and any
action taken thereunder, shall be binding and conclusive upon all
parties in interest. No member of the Board of Directors of the
Bank shall, in any event, be liable to any person for any action
taken or omitted to be taken in connection with the
interpretation, construction or administration of this Agreement,
so long as such action or omission to act be made in good faith.
9. This Agreement may not be amended, altered or modified, except by a written
instrument signed by the parties hereto, or their respective successors or
assigns, and may not be otherwise terminated except as provided herein.
10. This Agreement shall be binding upon and inure to the benefit of the Bank
and its successors and assigns, and the Executive, his successors, assigns,
heirs, executors, administrators and beneficiaries.
11. Any notice, consent or demand required or permitted to be given under the
provisions of this Agreement shall be in writing, and shall be signed by
the party giving or making the same. If such notice, consent or demand is
mailed to a party hereto, it shall be sent by United States certified mail,
postage prepaid, addressed to such party's last known address as shown on
the records of the Bank. The date of such mailing shall be deemed the date
of notice, consent or demand.
4
<PAGE>
12. This Agreement, and the rights of the parties hereunder, shall be governed
by and construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized officers and Executive has hereunto set his hand and seal as of
the date first above written.
SOMERSET VALLEY BANK
By /s/John K. Kitchen
------------------
John K. Kitchen
Chairman
ATTEST:
/s/Bedzaida Rodriguez
- ---------------------
Bedzaida Rodriguez
Assistant Secretary
/s/Robert P. Corcoran
---------------------
Robert P. Corcoran
5
<PAGE>
Somerset Valley Bank Deferred Compensation Plan
Page 5 of 5
SOMERSET VALLEY BANK
Deferred Compensation Plan
THIS AGREEMENT made this first day of January 1, 2000 by and between SOMERSET
VALLEY BANK, with its principal offices located at 58-72 East Main Street, The
Hamon Building, Somerville, New Jersey 08876 (herein referred to as the "Bank"),
and ARTHUR E. BRATTLOF residing at 9 Steeple Chase Court, Bedminster, New
Jersey, 07921 (herein referred to as the "Executive").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1. The Bank agrees to employ the Executive and the Executive agrees to serve
the Bank in such capacity as the Board of Directors of the Bank (the
"Board") may designate from time to time, beginning from the date of this
agreement and continuing until terminated by either party on at least 90
days prior written notice to the other.
2. During the term of his employment, the Executive shall devote all of his
time, attention skill and efforts to the performance of his duties for the
Bank.
3. The Bank shall pay the Executive, during the term of his employment
hereunder, such salary payable monthly as the Board may from time to time
determine, together with deferred compensation payable as provided in
paragraph 5 below, unless forfeited by the occurrence of any of the events
of forfeiture specified in paragraph 7, below.
4. (a) The Bank shall credit to a book reserve to a Deferred Compensation
Account (the "Account") established for this purpose, $27,000 on the
last day of December, 1999, and on the last day of December each year
thereafter continuing until the Executive's retirement. "Retirement"
shall be defined as age sixty-five (65), of which the Board may adjust
annually as it sees fit. A change in the age of retirement shall not be
effective until the calendar year following such change.
(b) Any such funds so credited to the Account may be kept in cash or
invested and reinvested in mutual funds, stocks, bonds, securities or
any other assets as may be selected by the Board in its discretion. In
the exercise of the foregoing discretionary investment powers, the
Board may engage investment counsel and, if it so desires, may delegate
to such counsel full or limited authority to select the assets in which
the funds are to be invested.
(c) The Bank agrees to credit a fixed rate of interest equal to 7%,
compounded at least monthly, to the Executive's Account. Such interest
rate may be adjusted annually as the Board shall determine.
<PAGE>
(d) Title to and beneficial ownership of any assets, whether cash or
investments which the Bank may earmark to pay the contingent deferred
compensation hereunder, shall at all times remain in the Bank and the
Executive and his designated beneficiary shall not have any property
interest whatsoever in any specific assets of the Bank.
5. The benefits to be paid as deferred compensation (unless they are forfeited
by the occurrence of any of the events of forfeiture specified in paragraph
7, below) are as follows:
TERMINATION PRIOR TO RETIREMENT
(a) If the Executive's employment hereunder is terminated for any reason
other than death and disability before the Executive shall have reached
retirement, then the Executive shall receive the Account in 10 annual
installments, said installments to be adjusted annually in accordance
with paragraph 5(b). Notwithstanding the foregoing, if before reaching
retirement the Executive should die, or if before reaching retirement
the Executive should become disabled, then payments shall be made in
the same manner and to the same extent as set forth in paragraph 5(e)
and 5(f), respectively.
RETIREMENT
(b) In the calendar year prior to reaching retirement, the Executive shall
have the option either to receive the full value of the Account in one
lump sum or to receive the Account in 10 annual installments in an
amount equal to the fair market value of the assets in the Account as
of such date. If the Executive fails to make a timely election, he will
receive the Account in 10 annual installments in accordance with the
provisions contained herein.
Notwithstanding anything to the contrary, if the Executive chooses to
receive annual payments the total amount payable to the Executive shall
be appropriately increased or decreased as the case may be, but not
more than semi-annually, to reflect the appreciation or depreciation in
value and the net income or loss on the funds which remain invested in
the Account.
DEATH OR DISABILITY
(c) If the Executive's employment is terminated because of disability or
death before any payments from the Account have been made, then the
Bank shall pay in one lump sum an amount equal to the fair market value
of the assets in the Account as of such date, to the Executive (in the
event of his disability) or his designated beneficiary (in the event of
his death).
If the Executive is receiving payments and should die before a total of
10 annual payments are made by the Bank, then the remaining value of
the Account shall be determined as of the date of the death and shall
be paid as promptly as possible in one lump sum to the Executive's then
designated beneficiary.
If the Executive is receiving payments and should become disabled
before a total of 10 annual payments are made by the Bank, then said
payments shall continue and be adjusted until all payments have been
made in accordance with paragraph 5(b).
2
<PAGE>
The beneficiary referred to in this paragraph may be designated or
changed by the Executive (without the consent of any prior beneficiary)
on a form provided by the Bank and delivered to the Bank before his
death. If no such beneficiary shall have been designated, or if no
designated beneficiary shall survive the Executive, the lump sum
payable under paragraph 5(c) shall be payable to the Executive's
estate.
The Executive shall be deemed to have become disabled for purposes of
paragraph 5(c) if said Executive is deemed disabled under the Bank's
group long-term disability plan (if any) or if the Board shall find on
the basis of medical evidence satisfactory to the Board that the
Executive is totally disabled, mentally or physically, so as to be
prevented from engaging in further employment by the Bank and that such
disability will be permanent and continuous during the remainder of his
life.
UNFORESEEABLE EMERGENCY
(d) The Executive may request a distribution due to an Unforeseeable
Emergency by submitting a written request to the Bank accompanied by
evidence to demonstrate that the circumstances being experienced
qualify as an Unforeseeable Emergency. The Bank shall have the
authority to require such evidence as it deems necessary to determine
if a distribution is warranted. If an application for a hardship
distribution due to an Unforeseeable Emergency is approved, the
distribution shall be limited to both the amount sufficient to meet the
emergency and the Executive's accrued account balance. The allowable
distribution shall be payable in a method determined by the Bank as
soon as possible after approval of such distribution.
An Executive who has commenced receiving benefits under the Plan may
request acceleration of such payments in the event of an Unforeseeable
Emergency. The Bank may permit accelerated payments to the extent such
accelerated payment does not exceed the amount necessary to meet the
emergency.
An "Unforeseeable Emergency" means a severe financial hardship to the
Executive resulting from a sudden and unexpected illness or accident of
the Executive or of a dependent of the Executive, loss of the
Executive's property due to casualty, or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond
the control of the Executive. The circumstances that constitute an
"Unforeseeable Emergency" would depend upon the facts of each case,
but, in any case, payment may not be made in the event that such
hardship is or may be relieved (1) through reimbursement or
compensation by insurance or otherwise, or (2) liquidation of the
Executive's assets, to the extent that liquidation of such assets would
not itself cause severe financial hardship. The need to send a
Participant's child to college or the desire to purchase a home shall
not be construed as an Unforeseeable Emergency.
6. The Installment payments to be made to the Executive under paragraphs 5(a)
and 5(c) shall commence on the first day of the month next following the
date of the termination of his employment. The installment payments to be
made to the designated beneficiary under the provisions of paragraph 5
shall commence on a date to be selected by the Bank but within six months
from the date of death of the Executive.
3
<PAGE>
Notwithstanding anything herein contained to the contrary, the Board shall
have the right in its sole discretion to vary or adjust the manner and
timing of installment distributions provided in this paragraph and may make
such distributions in lump sums or over a shorter or longer period of time
than 10 years as it may find appropriate, so long as such variation or
adjustment does not impose a hardship upon the Executive or his designated
beneficiary.
7. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Bank and the
Executive, his designated beneficiary or any other person. Any funds which
may be invested under the provisions of this Agreement shall continue for
all purposes to be a part of the general funds of the Bank and no person
other than the Bank shall by virtue of the provisions of this Agreement
have any interest in such funds. To the extent that any person acquires a
right to receive payments from the Bank under this agreement, such right
shall be no greater than the right of any unsecured general creditor of the
Bank.
8. Notwithstanding anything herein contained to the contrary, no payment of
any unpaid installments of deferred compensation shall be made and all
rights under the Agreement of the Executive, his designated beneficiary,
executors of administrators, or any other person, to receive payments
thereof shall be forfeited if the Executive shall engage in any activity or
conduct which is illegal or, in the opinion of the Board, is inimical to
the best interests of the Bank.
9. The right of the Executive or any other person to the payment of deferred
compensation or other benefits under this Agreement shall not be assigned,
transferred, pledged or encumbered except by will or by the laws of descent
and distribution.
10. If the Board shall find that any person to whom any payment is payable
under this Agreement is unable to care for his affairs because of illness
or accident, or is a minor, any payment due (unless a prior claim therefor
shall have been made by a duly appointed guardian, committee or other legal
representative) may be paid to the spouse, a child, a parent, or a brother
or sister, or to any person deemed by the Board to have incurred expense
for such person otherwise entitled to payment, in such manner and
proportions as the Board may determine. Any such payment shall be a
complete discharge of the liabilities of the Bank under this agreement.
11. Nothing contained herein shall be construed as conferring upon the
Executive the right to continue in the employ
of the Bank as an executive or in any other capacity.
12. Any deferred compensation payable under this Agreement shall not be deemed
salary or other compensation to the Executive for the purpose of computing
benefits to which he may be entitled under any pension plan or other
arrangement of the Bank for the benefit of its employees.
13. The Board shall have full power and authority to interpret, construe, and
administer this Agreement and the Board's interpretations and construction
thereof, and actions thereunder, including any valuation of the Account, or
the amount or recipient of the payment to be made therefrom, shall be
4
<PAGE>
binding and conclusive on all persons for all purposes. No member of the
Board shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Agreement
unless attributable to his own willful misconduct or lack of good faith.
14. This agreement shall be binding upon and inure to the benefit of the Bank,
its successors and assigns, and the Executive and his heirs, executors,
administrators, and legal representatives.
15. This Agreement shall be construed in accordance with and governed by the
law of the State of New Jersey.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized officers and Executive has hereunto set his hand and seal as of
the date first above written.
SOMERSET VALLEY BANK
By /s/John K. Kitchen
------------------
John K. Kitchen
Chairman
ATTEST:
/s/Bedzaida Rodriguez
- ---------------------
Bedzaida Rodriguez
Assistant Secretary
/s/Arthur E. Brattlof
---------------------
Arthur E. Brattlof
5
<PAGE>
Somerset Valley Bank Deferred Compensation Plan
SOMERSET VALLEY BANK
Deferred Compensation Plan
THIS AGREEMENT made this first day of January 1, 2000 by and between SOMERSET
VALLEY BANK, with its principal offices located at 58-72 East Main Street, The
Hamon Building, Somerville, New Jersey 08876 (herein referred to as the "Bank"),
and KEITH B. MCCARTHY residing at 501 Red School Lane, Phillipsburg, New Jersey,
08865 (herein referred to as the "Executive").
WITNESSETH THAT:
In consideration of the agreements hereinafter contained the parties hereto
agree as follows:
1. The Bank agrees to employ the Executive and the Executive agrees to serve
the Bank in such capacity as the Board of Directors of the Bank (the
"Board") may designate from time to time, beginning from the date of this
agreement and continuing until terminated by either party on at least 90
days prior written notice to the other.
2. During the term of his employment, the Executive shall devote all of his
time, attention skill and efforts to the performance of his duties for the
Bank.
3. The Bank shall pay the Executive, during the term of his employment
hereunder, such salary payable monthly as the Board may from time to time
determine, together with deferred compensation payable as provided in
paragraph 5 below, unless forfeited by the occurrence of any of the events
of forfeiture specified in paragraph 7, below.
4. (a) The Bank shall credit to a book reserve to a Deferred Compensation
Account (the "Account") established for this purpose, $6,700 on the
last day of December, 1999, and on the last day of December each year
thereafter continuing until the Executive's retirement. "Retirement"
shall be defined as age sixty-five (65), of which the Board may adjust
annually as it sees fit. A change in the age of retirement shall not be
effective until the calendar year following such change.
(b) Any such funds so credited to the Account may be kept in cash or
invested and reinvested in mutual funds, stocks, bonds, securities or
any other assets as may be selected by the Board in its discretion. In
the exercise of the foregoing discretionary investment powers, the
Board may engage investment counsel and, if it so desires, may delegate
to such counsel full or limited authority to select the assets in which
the funds are to be invested.
(c) The Bank agrees to credit a fixed rate of interest equal to 7%,
compounded at least monthly, to the Executive's Account. Such interest
rate may be adjusted annually as the Board shall determine.
<PAGE>
Regardless of any provision contained herein, the Account shall equal
the greater of the accrued balance including principal deposits and
interest credited thereto or $100,000.
(d) Title to and beneficial ownership of any assets, whether cash or
investments which the Bank may earmark to pay the contingent deferred
compensation hereunder, shall at all times remain in the Bank and the
Executive and his designated beneficiary shall not have any property
interest whatsoever in any specific assets of the Bank.
5. The benefits to be paid as deferred compensation (unless they are forfeited
by the occurrence of any of the events of forfeiture specified in paragraph
7, below) are as follows:
TERMINATION PRIOR TO RETIREMENT
(a) If the Executive's employment hereunder is terminated for any reason
other than death and disability before the Executive shall have reached
retirement, then the Executive shall receive the Account in 10 annual
installments, said installments to be adjusted annually in accordance
with paragraph 5(b). Notwithstanding the foregoing, if before reaching
retirement the Executive should die, or if before reaching retirement
the Executive should become disabled, then payments shall be made in
the same manner and to the same extent as set forth in paragraph 5(e)
and 5(f), respectively.
RETIREMENT
(b) In the calendar year prior to reaching retirement, the Executive shall
have the option either to receive the full value of the Account in one
lump sum or to receive the Account in 10 annual installments in an
amount equal to the fair market value of the assets in the Account as
of such date. If the Executive fails to make a timely election, he will
receive the Account in 10 annual installments in accordance with the
provisions contained herein.
Notwithstanding anything to the contrary, if the Executive chooses to
receive annual payments the total amount payable to the Executive shall
be appropriately increased or decreased as the case may be, but not
more than semi-annually, to reflect the appreciation or depreciation in
value and the net income or loss on the funds which remain invested in
the Account.
DEATH OR DISABILITY
(c) If the Executive's employment is terminated because of disability or
death before any payments from the Account have been made, then the
Bank shall pay in one lump sum an amount equal to the fair market value
of the assets in the Account as of such date, to the Executive (in the
event of his disability) or his designated beneficiary (in the event of
his death).
If the Executive is receiving payments and should die before a total of
10 annual payments are made by the Bank, then the remaining value of
the Account shall be determined as of the date of the death and shall
be paid as promptly as possible in one lump sum to the Executive's then
designated beneficiary.
2
<PAGE>
If the Executive is receiving payments and should become disabled
before a total of 10 annual payments are made by the Bank, then said
payments shall continue and be adjusted until all payments have been
made in accordance with paragraph 5(b).
The beneficiary referred to in this paragraph may be designated or
changed by the Executive (without the consent of any prior beneficiary)
on a form provided by the Bank and delivered to the Bank before his
death. If no such beneficiary shall have been designated, or if no
designated beneficiary shall survive the Executive, the lump sum
payable under paragraph 5(c) shall be payable to the Executive's
estate.
The Executive shall be deemed to have become disabled for purposes of
paragraph 5(c) if said Executive is deemed disabled under the Bank's
group long-term disability plan (if any) or if the Board shall find on
the basis of medical evidence satisfactory to the Board that the
Executive is totally disabled, mentally or physically, so as to be
prevented from engaging in further employment by the Bank and that such
disability will be permanent and continuous during the remainder of his
life.
UNFORESEEABLE EMERGENCY
(d) The Executive may request a distribution due to an Unforeseeable
Emergency by submitting a written request to the Bank accompanied by
evidence to demonstrate that the circumstances being experienced
qualify as an Unforeseeable Emergency. The Bank shall have the
authority to require such evidence as it deems necessary to determine
if a distribution is warranted. If an application for a hardship
distribution due to an Unforeseeable Emergency is approved, the
distribution shall be limited to both the amount sufficient to meet the
emergency and the Executive's accrued account balance. The allowable
distribution shall be payable in a method determined by the Bank as
soon as possible after approval of such distribution.
An Executive who has commenced receiving benefits under the Plan may
request acceleration of such payments in the event of an Unforeseeable
Emergency. The Bank may permit accelerated payments to the extent such
accelerated payment does not exceed the amount necessary to meet the
emergency.
An "Unforeseeable Emergency" means a severe financial hardship to the
Executive resulting from a sudden and unexpected illness or accident of
the Executive or of a dependent of the Executive, loss of the
Executive's property due to casualty, or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond
the control of the Executive. The circumstances that constitute an
"Unforeseeable Emergency" would depend upon the facts of each case,
but, in any case, payment may not be made in the event that such
hardship is or may be relieved (1) through reimbursement or
compensation by insurance or otherwise, or (2) liquidation of the
Executive's assets, to the extent that liquidation of such assets would
not itself cause severe financial hardship. The need to send a
Participant's child to college or the desire to purchase a home shall
not be construed as an Unforeseeable Emergency.
3
<PAGE>
6. The Installment payments to be made to the Executive under paragraphs 5(a)
and 5(c) shall commence on the first day of the month next following the
date of the termination of his employment. The installment payments to be
made to the designated beneficiary under the provisions of paragraph 5
shall commence on a date to be selected by the Bank but within six months
from the date of death of the Executive.
Notwithstanding anything herein contained to the contrary, the Board shall
have the right in its sole discretion to vary or adjust the manner and
timing of installment distributions provided in this paragraph and may make
such distributions in lump sums or over a shorter or longer period of time
than 10 years as it may find appropriate, so long as such variation or
adjustment does not impose a hardship upon the Executive or his designated
beneficiary.
7. Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Bank and the
Executive, his designated beneficiary or any other person. Any funds which
may be invested under the provisions of this Agreement shall continue for
all purposes to be a part of the general funds of the Bank and no person
other than the Bank shall by virtue of the provisions of this Agreement
have any interest in such funds. To the extent that any person acquires a
right to receive payments from the Bank under this agreement, such right
shall be no greater than the right of any unsecured general creditor of the
Bank.
8. Notwithstanding anything herein contained to the contrary, no payment of
any unpaid installments of deferred compensation shall be made and all
rights under the Agreement of the Executive, his designated beneficiary,
executors of administrators, or any other person, to receive payments
thereof shall be forfeited if the Executive shall engage in any activity or
conduct which is illegal or, in the opinion of the Board, is inimical to
the best interests of the Bank.
9. The right of the Executive or any other person to the payment of deferred
compensation or other benefits under this Agreement shall not be assigned,
transferred, pledged or encumbered except by will or by the laws of descent
and distribution.
10. If the Board shall find that any person to whom any payment is payable
under this Agreement is unable to care for his affairs because of illness
or accident, or is a minor, any payment due (unless a prior claim therefor
shall have been made by a duly appointed guardian, committee or other legal
representative) may be paid to the spouse, a child, a parent, or a brother
or sister, or to any person deemed by the Board to have incurred expense
for such person otherwise entitled to payment, in such manner and
proportions as the Board may determine. Any such payment shall be a
complete discharge of the liabilities of the Bank under this agreement.
11. Nothing contained herein shall be construed as conferring upon the
Executive the right to continue in the employ of the Bank as an executive
or in any other capacity.
4
<PAGE>
12. Any deferred compensation payable under this Agreement shall not be deemed
salary or other compensation to the Executive for the purpose of computing
benefits to which he may be entitled under any pension plan or other
arrangement of the Bank for the benefit of its employees.
13. The Board shall have full power and authority to interpret, construe, and
administer this Agreement and the Board's interpretations and construction
thereof, and actions thereunder, including any valuation of the Account, or
the amount or recipient of the payment to be made therefrom, shall be
binding and conclusive on all persons for all purposes. No member of the
Board shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Agreement
unless attributable to his own willful misconduct or lack of good faith.
14. This agreement shall be binding upon and inure to the benefit of the Bank,
its successors and assigns, and the Executive and his heirs, executors,
administrators, and legal representatives.
15. This Agreement shall be construed in accordance with and governed by the
law of the State of New Jersey.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized officers and Executive has hereunto set his hand and seal as of
the date first above written.
SOMERSET VALLEY BANK
By /s/John K. Kitchen
------------------
John K. Kitchen
Chairman
ATTEST:
/s/Bedzaida Rodriguez
- ---------------------
Bedzaida Rodriguez
Assistant Secretary
/s/Keith B. McCarthy
---------------------
Keith B. McCarthy
Table of Contents
1: Selected Consolidated Financial Information
2: Letter to the Shareholders
3: Consolidated Balance Sheets
4: Consolidated Statements of Income
5: Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income
6: Consolidated Statements of Cash Flow
7: Notes to Consolidated Financial Statements
17: Report of Independent Certified Public Accountants
18: Management's Discussion and Analysis of Financial Condition
and Results of Operations
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Selected Consolidated Financial Information
At or For the Years Ended
- ---------------------------------------------------------------------------------------------------------
(in thousands except per share data) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest Income $ 14,412 $ 12,466 $ 10,754 $ 8,383 $ 6,296
Interest Expense 6,093 5,665 4,880 3,813 2,871
- ---------------------------------------------------------------------------------------------------------
Net Interest Income 8,319 6,801 5,874 4,570 3,425
Provision for Loan Losses 440 300 280 310 206
- ---------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 7,879 6,501 5,594 4,260 3,219
Non-Interest Income 787 770 561 372 363
Non-Interest Expense 6,496 5,302 4,303 3,427 2,495
- ---------------------------------------------------------------------------------------------------------
Income Before Income Taxes 2,170 1,969 1,852 1,205 1,087
Income Tax Expense 815 766 749 485 424
- ---------------------------------------------------------------------------------------------------------
Net Income $ 1,355 $ 1,203 $ 1,103 $ 720 $ 663
- ---------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total Assets $206,107 $185,227 $148,550 $124,995 $ 88,744
Federal Funds Sold and Other
Short Term Investments 2,400 11,290 188 7,213 5,170
Interest Bearing Time Deposits 5,283 4,090 -- -- --
Securities Available For Sale 27,216 21,523 11,266 8,727 4,875
Securities Held To Maturity 5,122 15,052 22,102 13,989 14,581
Loans, Net 151,425 120,176 105,389 86,992 59,528
Deposits 189,562 169,714 133,930 112,521 79,680
Shareholders' Equity 15,364 14,365 13,096 11,910 8,703
- ---------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS:
Return on Average Assets .69% .75% .80% .67% .83%
Return on Average Equity 9.19% 8.82% 8.89% 8.07% 8.16%
Net Interest Margin 4.53% 4.46% 4.52% 4.51% 4.53%
- ----------------------------------------------------------------------------------------------------------
ASSET QUALITY:
Loans Past Due Over 90 Days $ -- $ 5 $ -- $ 21 $ --
Non-Accrual Loans 692 96 63 24 --
Net Charge Offs 101 71 81 53 51
Allowance for Loan Losses To Total Loans 1.01% 1.00% .92% .89% .88%
- ---------------------------------------------------------------------------------------------------------
PER SHARE DATA (1)
Earnings Per Share - Basic $ .46 $ .42 $ .39 $ .30 $ .28
Earnings Per Share - Diluted .45 .40 .38 .29 .28
Book Value 5.21 4.93 4.54 4.15 3.53
- ---------------------------------------------------------------------------------------------------------
CAPITAL RATIOS:
Total Risked-Based Capital 10.17% 11.14% 12.81% 13.40% 14.11%
Tier I Risked-Based Capital 9.21% 10.24% 11.89% 12.56% 13.29%
Leverage Capital 7.56% 8.54% 8.72% 9.58% 9.89%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) All data has been retroactively restated for stock splits and stock
dividends.
<PAGE>
Dear Shareholders,
Last year in our Annual Report, in addition to providing you with the financial
results of the Company's operations, we also articulated a significant number of
goals we sought to reach and challenges we had to address in keeping the Company
on its path of continued growth and success. We are proud to report that most of
our goals were reached or surpassed and the challenges successfully overcome.
The dire predictions of widespread bank operating system failures because of the
"Y2K" bug never transpired due to the cooperative efforts of the industry, its
regulators, utility and service providers and of course the cooperation and
loyalty of our customers and employees. It is a chapter in our business
experience that was costly, time consuming and happily placed behind us.
On March 19, 1999, Somerset Valley Bank opened its sixth banking facility, a
full service branch in the Borough of Manville. Despite the devastating effects
of the worst flood in at least a half-century, the branch grew to $17 million in
deposits in only nine months of operation, becoming the fastest growing
financial institution in the borough. We are proud to be a member of the
Manville community and look forward to being a part of the positive economic
changes occurring there.
The construction of our branches in Bernards Township and Aberdeen Township has
been completed and Grand Opening dates have been set for January 2000 in
Aberdeen and February 2000 in Bernards Township, bringing our branch network up
to six full service facilities and two mini branches (Gaston Avenue in
Somerville and Arbor Glen Retirement Community in Bridgewater). Additionally, we
have entered into a lease for a ninth office on Oak Tree Road in a mixed
residential/commercial area in the Township of Edison, which we expect to open
in late 2000 or early 2001. Strategically, we have focused on growing our branch
delivery system in demographically attractive, convenient locations in
economically viable municipalities. Our marketing efforts and banking philosophy
have proven very successful in our integration into these communities and our
short term results and long term prospects are extremely positive.
After completing our eighth year of operation, the Bank has exceeded $200
million in assets ending the year at $206,107,000, an increase of $20,880,000 or
11.3% over the previous year. Our deposits increased by almost $20 million in
1999, growing from $169,714,000 to $189,562,000 or 11.7%. In an excellent
economy our net loans grew by $31,249,000 to $151,425,000 or 26.0% while
non-performing loans remained well below state and nationwide averages at .45%
of the total portfolio. Asset quality remains an important element of the Bank's
overall lending philosophy and a strong hedge against any potential unexpected
economic downturns. We maintain a distinct advantage in keeping our asset
quality strong with our thorough knowledge of our client base and by limiting
the number of loans that fall beyond the communities within which we operate.
Despite our aggressive growth strategy, the Bank's earnings in 1999 were at a
record high of $1,355,000 or an increase of 12.6% over the previous year and the
shift toward a broader base of retail accounts fueled by our additional branch
locations has provided a sustained increase in non-interest income. As the Bank
matures and the new branches begin to support their start-up expenses by
producing revenues in excess of operating costs, profitability should increase
significantly and provide a much stronger revenue base to support additional
expansion.
Although the market value of stock has remained relatively flat in 1999, the
stock price remained constant at between $8.45 and $9.25 per share following a
5% stock dividend that was issued on November 19, 1999. On an industry wide
basis, financial stocks in general performed poorly and many of the major
<PAGE>
financial institutions watched their stock values evaporate by as much as
30-50%. At year-end, SVB Financial Services, Inc. was selling at $9.00 per
share, or 19.6 times 1999 earnings and 1.7 times book value of $5.21 per share.
We are extremely confident that if we continue on our path of aggressive growth
along with conservative lending policies, a reputation for quality service and
competitive financial product offerings, our stock price will perform in
accordance with our expectations.
As we proceed toward taking the Bank to a more regional level in the Central New
Jersey marketplace, our focus will remain on convenience, a strong commitment to
personal service and increased technological capabilities. In view of the
rapidly increasing acceptance and popularity of the Internet, we have begun the
process of enhancing our existing web site by adding a more user friendly
navigation system, along with non-traditional banking services, such as,
discount brokerage and insurance products to further serve the needs of our
customers. We welcome our shareholders to join us on our web site and follow our
progress as we explore this additional exciting option in providing quality
banking services.
In accordance with our strategy of offering new financial services, the Company
has entered into an agreement with National Discount Brokers to provide an
Internet link that will enable our customers to carry out discounted securities
trading from our web site. This agreement will provide Internet customers with a
value-added service while enabling the Bank to participate in a revenue sharing
arrangement with National Discount Brokers.
Additionally, the Company has formed a joint venture subsidiary, Somerset Valley
Financial LLC, with International Planning Alliance of Somerset, New Jersey,
that will allow the Bank to share in revenues through the sale of life
insurance, medical insurance, financial planning, executive benefits and
retirement products. A number of Bank officials are licensed insurance providers
and will engage in developing insurance sales opportunities in conjunction with
our affiliate in this enterprise.
Looking forward, SVB Financial Services, Inc. will remain committed to providing
a high level of banking services, personally at our branch sites,
technologically through electronic media, and responsively through our community
involvement. We strongly feel that this type of effort will be required in order
to attain the Company's goal of continued growth and enhanced stock value. As
always, we thank you for your continued support.
Very truly yours,
/s/John K. Kitchen /s/Robert P. Corcoran
- ------------------ ---------------------
John K. Kitchen Robert P. Corcoran
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
2
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
As of December 31, 1999 and 1998
- --------------------------------------------------------------------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash & Due from Banks $ 7,028 $ 8,358
Federal Funds Sold 2,400 10,325
Other Short Term Investments -- 965
- --------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 9,428 19,648
Interest Bearing Time Deposits 5,283 4,090
Securities
Available for Sale, at Fair Value 26,377 21,273
Held to Maturity, (Fair Value $5,041 in 1999
and $15,101 in 1998) 5,122 15,052
Equity Securities 839 250
- --------------------------------------------------------------------------------------
Total Securities 32,338 36,575
- --------------------------------------------------------------------------------------
Loans 153,151 121,474
Allowance for Loan Losses (1,550) (1,211)
Unearned Income (176) (87)
- --------------------------------------------------------------------------------------
Net Loans 151,425 120,176
Premises & Equipment, Net 4,789 2,303
Other Assets 2,844 2,435
- --------------------------------------------------------------------------------------
Total Assets $ 206,107 $ 185,227
======================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Non-interest Bearing $ 32,020 $ 27,897
NOW Accounts 27,025 24,502
Savings 16,618 13,836
Money Market Accounts 25,446 20,226
Time
Greater than $100,000 13,486 14,088
Less than $100,000 74,967 69,165
- --------------------------------------------------------------------------------------
Total Deposits 189,562 169,714
- --------------------------------------------------------------------------------------
Obligation Under Capital Lease 432 438
Other Liabilities 749 710
- --------------------------------------------------------------------------------------
Total Liabilities 190,743 170,862
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SHAREHOLDERS' EQUITY
Common Stock, $2.09 Par Value: 20,000,000
Shares Authorized; 2,946,556 Shares in 1999 and
2,772,224 Shares in 1998 Issued and Outstanding 6,158 5,794
Additional Paid-in Capital 6,496 5,502
Retained Earnings 3,215 3,062
Accumulated Other Comprehensive (Loss)/Income (505) 7
Total Shareholders' Equity 15,364 14,365
- --------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 206,107 $ 185,227
======================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Income
For the years ended December 31, 1999 and 1998
- ----------------------------------------------------------------------------------------------
(in thousands except per share data) 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans $11,787 $10,210
Securities Available for Sale 1,469 763
Securities Held to Maturity 511 966
Dividends on Equity Securities 13 --
Other Short Term Investments 10 67
Interest Bearing Time Deposits 314 69
Federal Funds Sold 308 391
- ----------------------------------------------------------------------------------------------
Total Interest Income 14,412 12,466
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 6,048 5,628
Other Short Term Borrowings 8 --
Obligation Under Capital Lease 37 37
- ----------------------------------------------------------------------------------------------
Total Interest Expense 6,093 5,665
- ----------------------------------------------------------------------------------------------
Net Interest Income 8,319 6,801
PROVISION FOR LOAN LOSSES 440 300
Net Interest Income after Provision For Loan Losses 7,879 6,501
- ----------------------------------------------------------------------------------------------
OTHER INCOME
Service Charges on Deposit Accounts 393 298
(Losses)/Gains on the Sale of Securities Available for Sale (8) 4
Gains on the Sale of Loans 253 334
Other Income 149 134
- ----------------------------------------------------------------------------------------------
Total Other Income 787 770
- ----------------------------------------------------------------------------------------------
OTHER EXPENSE
Salaries and Employee Benefits 3,291 2,713
Occupancy Expense 872 652
Equipment Expense 432 378
Other Expenses 1,901 1,559
- ----------------------------------------------------------------------------------------------
Total Other Expense 6,496 5,302
- ----------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 2,170 1,969
Provision for Income Taxes 815 766
- ----------------------------------------------------------------------------------------------
NET INCOME $ 1,355 $ 1,203
==============================================================================================
EARNINGS PER SHARE - BASIC (1) $ .46 $ .42
==============================================================================================
EARNINGS PER SHARE - DILUTED (1) $ .45 $ .40
==============================================================================================
</TABLE>
<PAGE>
(1) Amounts have been restated for stock splits and stock dividends
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
For the years ended December 31, 1999 and 1998
- -----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
(in thousands) STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY INCOME
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 5,726 $ 5,473 $ 1,859 $ 38 $ 13,096
- --------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock, Net 54 43 97
Adjustment for Stock Split 14 (14)
Net Income 1,203 1,203 $ 1,203
Accumulated Other Comprehensive
Income/(Loss) Net of
Reclassification Adjustments and Taxes -- -- -- (31) (31) (31)
--------
Total Comprehensive Income $ 1,172
==========================================================================================================================
BALANCE, DECEMBER 31, 1998 5,794 5,502 3,062 7 14,365
- --------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock, Net 71 85 156
5% Stock Dividend 293 909 (1,202)
Net Income 1,355 1,355 $ 1,355
Accumulated Other Comprehensive
Income/(Loss) Net of
Reclassification Adjustments and Taxes -- -- -- (512) (512) (512)
Total Comprehensive Income $ 843
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $6,158 $ 6,496 $ 3,215 $ (505) $ 15,364
==========================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
SVB FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------------
(in thousands) 1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 1,355 $ 1,203
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities
Provision for Loan Losses 440 300
Depreciation and Amortization 463 383
Accretion of Securities Discount (30) (3)
Losses/(Gains) on Sale of Securities
Available for Sale 8 (4)
Gains on the Sale of Loans (253) (334)
Increase in Other Assets (164) (370)
Increase in Other Liabilities 43 145
Increase/(Decrease) in Unearned Income 89 (13)
- --------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 1,951 1,307
======================================================================================
INVESTING ACTIVITIES
Increase in Interest Bearing Time Deposits (1,193) (4,090)
Proceeds from Sales of Securities Available for Sale 6,512 2,504
Proceeds from Maturities of Securities
Available for Sale 4,906 6,633
Held to Maturity 15,296 15,797
Purchases of Securities
Available for Sale (17,345) (19,214)
Held to Maturity (5,296) (8,717)
Equity Securities (589) (250)
Increase in Loans, Net (31,525) (14,741)
Capital Expenditures (2,935) (939)
- --------------------------------------------------------------------------------------
Net Cash Used for Investing Activities (32,169) (23,017)
======================================================================================
FINANCING ACTIVITIES
Net Increase in Demand Deposits 6,646 17,419
Net Increase in Savings Deposits 2,782 4,793
Net Increase in Money Market Deposits 5,220 3,999
Net Increase in Time Deposits 5,200 9,572
Decrease in Federal Funds Purchased - (500)
Decrease in Obligation Under Capital Lease (6) (5)
Proceeds from the Issuance of Common Stock, Net 156 97
- --------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 19,998 35,375
(Decrease)/Increase in Cash and Cash Equivalents (10,220) 13,665
Cash and Cash Equivalents, Beginning of Year 19,648 5,983
- --------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 9,428 $ 19,648
======================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for Interest $ 5,997 $ 5,640
======================================================================================
Cash Paid During the Year for Federal Income Taxes $ 840 $ 620
======================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
1: ORGANIZATION AND NATURE OF OPERATIONS
SVB Financial Services, Inc., (the "Company"), a bank holding company, was
incorporated on February 7, 1996 and owns 100 percent of the shares of Somerset
Valley Bank (the "Bank"). The Bank owns 100 percent of Somerset Valley
Investment Company, Inc.
The Bank was granted a charter by the New Jersey Department of Banking and
commenced operations on December 20, 1991. The Bank is a full service community
bank and operates at locations in Somerville, Hillsborough, Bridgewater and
Manville, New Jersey. During 1998, approval was received from banking regulatory
authorities to open branches in Aberdeen and Bernards Township, New Jersey.
These branches will open in early 2000. During 1999, the Bank received approval
to open a branch in Edison. The branch is expected to open in late 2000. The
Bank's customers are predominately small and middle market businesses and
professionals. The Bank's market area is primarily Somerset County, but it does
obtain business from the adjacent counties of Middlesex, Hunterdon, Monmouth,
Mercer and Morris.
The Bank competes with other banking and financial institutions in their primary
market area, including financial institutions with resources substantially
greater than their own. Commercial banks, savings banks, savings and loan
associations, credit unions and money market funds actively compete for deposits
and for all types of loans. Such institutions, as well as consumer finance and
insurance companies, may be considered competitors of the Bank with respect to
one or more of the services they render. In addition to being subject to
competition from other financial institutions, the Bank is subject to federal
and state laws and to regulations of certain federal agencies, and accordingly,
it is periodically examined by those regulatory agencies.
The consolidated financial statements include the accounts of the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation and certain reclassifications are made when necessary to conform
the previous years' financial statements to the current year's presentation.
2: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION: The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The principal estimate that is particularly susceptible to significant change in
the near term relates to the allowance for loan losses. The evaluation of the
adequacy of the allowance for loan losses includes an analysis of the individual
loans and overall risk characteristics and size of the different loan
portfolios, and takes into consideration current economic and market conditions,
the capability of specific borrowers to pay specific loan obligations and
current loan collateral values. However, actual losses on specific loans, which
are also encompassed in the analysis, may vary from estimated losses. These
estimates are reviewed periodically, and as adjustments become necessary, they
are reflected in operations in the period in which they become known.
<PAGE>
SECURITIES: The Company accounts for securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." A portion of the Company's
securities are carried at cost adjusted for amortization of premiums and
accretion of discounts using the interest method. These securities are carried
at amortized cost because the Company has the ability and intent to hold the
securities to maturity. The remainder of the Company's securities are held for
indefinite periods of time which management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, increased capital requirements or other
similar factors, are classified as available for sale. These securities are
carried at market value with unrealized gains and losses excluded from earnings
and reported as Other Comprehensive Income/(Loss) in a separate component of
shareholders' equity, net of income taxes. The net effect of unrealized gains or
losses, caused by marking an available for sale portfolio to market, could cause
fluctuations in the level of shareholders' equity and equity-related financial
ratios as market interest rates cause the market value of fixed rate securities
to fluctuate. Realized gains and or losses on securities available for sale are
determined on a specific identification basis and are included in the
consolidated statements of income. The Company had no securities held for
trading purposes at December 31, 1999 and 1998.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity" was issued. Subsequent to this statement, SFAS No. 137 was issued,
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 will have a significant impact on earnings or the
financial position of the Company. However, the impact from adopting SFAS No.
133 will depend on the nature and purpose of the derivative instruments in use
by the Company at that time.
LOANS: Loans, which management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
principal, adjusted for any charge-offs, the allowance for loan losses and any
deferred fees or costs on originated loans. Loans are stated at the principal
amount outstanding. Net loans represent the principal loan amount outstanding
reduced by unearned income and allowance for loan losses.
The Company accounts for impaired loans under SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures." This
standard requires that a creditor measure impairment based on the present value
of expected future cash flows discounted at the loan's effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. Regardless of the measurement method, a creditor
must measure impairment based on the fair value of the collateral when the
creditor determines that foreclosure is probable.
The Company accounts for its transfers and servicing financial assets in
accordance with SFAS No. 125, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provision of SFAS No. 125." This
standard provides accounting guidance on transfers of financial assets,
servicing of financial assets and extinguishments of liabilities.
The Company periodically sells certain commercial and mortgage loans to other
financial institutions without recourse to the Company. The gains and
7
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
losses are recognized in an amount which approximates the present value of the
difference between the effective interest rate to the Company and the net yield
to the purchaser, excluding normal future loan servicing fees, when applicable,
over the estimated remaining lives of the loans sold.
Interest on loans is credited to operations primarily based upon the principal
amount outstanding. When management believes there is sufficient doubt as to the
ultimate collectability of interest on any loan, the accrual of applicable
interest is discontinued.
Loan origination fees and direct loan origination costs are deferred and are
recognized over the estimated life of the related loans as an adjustment of the
loan yield. The net loan origination fees recognized as yield adjustments are
reflected in total interest income in the consolidated statements of income and
the unamortized balance of such net loan origination fees is reported in the
consolidated balance sheets as part of unearned income.
ALLOWANCE FOR LOAN LOSSES: The Company's process for evaluating the adequacy of
the allowance for loan losses has three basic elements: First, the
identification of problem loans when they occur; second, the establishment of
appropriate allowance for loan losses once specific problem loans are
identified; and third, a methodology for establishing general loan loss
allowances. The identification of problem loans is achieved mainly through
review of specific major loans based on delinquency criteria, size of loan and
location and value of collateral property. Specific loss reserves are
established for identified problem loans based on reviews of current operating
financial information and fair value appraisals. A range of loss allowances is
estimated based upon consideration of past experience of originated loans by
loan type, year of origination, location of collateral property and
loan-to-value ratios. Based upon this process, consideration of the current
economic environment and other factors, management determines what it considers
to be an appropriate allowance for loan losses. Although Company's management
believes it has a sound basis for this estimation, actual write-offs incurred in
the future are highly dependent upon future events, including the economy of the
area in which the Company lends. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgment of information available to
them at the time of their examination.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed primarily on the straight-line method over the shorter of the estimated
useful lives of the assets or the term of the related lease.
The Company accounts for long-lived assets in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." This statement provides guidance on when assets should be
reviewed for impairment, how to determine whether an asset or group of assets is
impaired, how to measure an impairment loss and the accounting for long-lived
assets that a company plans to dispose of.
<PAGE>
INCOME TAXES: The Company accounts for income taxes under the liability method
specified by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The principal types of accounts, resulting in differences between
assets and liabilities for financial statements and tax return purposes, are the
allowance for loan losses, depreciation and accretion of securities discounts.
EARNINGS PER SHARE: The Company accounts for earnings per share under the
provisions of SFAS No. 128, "Earnings Per Share." SFAS No. 128 eliminated
primary and fully diluted earnings per share and requires presentation of basic
and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised and converted into common stock.
OTHER REAL ESTATE OWNED: Other real estate owned includes foreclosed real estate
which is carried at the lower of cost (lesser of carrying value of loan or fair
value at date of acquisition) or estimated fair value less selling costs. Any
write-down, at or prior to the dates the real estate is considered foreclosed,
is charged to the allowance for loan losses. Subsequent write-downs are recorded
in other expenses, and expenses incurred in connection with holding such assets
and any gains or losses upon their sale are included in other income and
expenses.
STOCK OPTIONS: The Company accounts for stock options under SFAS No. 123,
"Accounting for Stock-Based Compensation," which contains a fair value-based
method for valuing stock-based compensation that entities may use, which
measures compensation cost at the grant date based on the fair value of the
award. Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, the standard permits entities to continue
accounting for employee stock options and similar instruments under Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair-value based method of accounting defined in
SFAS No. 123 had been applied. The Company's stock option plans are accounted
for under APB Opinion No. 25.
ADVERTISING COSTS: The Company expenses advertising costs as incurred.
STATEMENT OF CASH FLOWS: For purposes of the consolidated statements of cash
flows, the Company considers cash, non-interest bearing amounts due from banks,
Federal funds sold and other short term investments to be cash equivalents.
Generally, Federal funds are sold for a 60 day period or less.
COMPREHENSIVE INCOME/(LOSS): 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 or loss. 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.
8
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
The income tax effects allocated to comprehensive income/(loss) at December 31,
is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1999 1998
Before Tax Net Before Net
Tax Benefit of Tax Tax TAX of Tax
(in thousands) Amount (Expense) Amount Amount Benefit Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized Gains/(Losses) on Securities
Unrealized Holding Gains/(Losses)
Arising During Period $(774) $ 267 $(507) $ (52) $ 18 $ (34)
Less Reclassification
Adjustment for Losses/(Gains)
Realized in Net Income 8 (3) 5 (4) 1 (3)
- --------------------------------------------------------------------------------------------------------
Other Comprehensive
Income/(Loss), Net $(782) $ 270 $(512) $ (48) $ 17 $ (31)
========================================================================================================
</TABLE>
SEGMENT REPORTING: 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.
3: SECURITIES
Information relative to the Company's securities portfolio are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
AVAILABLE FOR SALE
U.S. Government Agency Securities $14,249 $ -- $ 358 $13,891
Mortgage-Backed Securities 11,596 11 359 11,248
Other Securities 1,296 -- 58 1,238
- ---------------------------------------------------------------------------------
$27,141 $ 11 $ 775 $26,377
HELD TO MATURITY
U.S. Treasury Securities $ 501 $ -- $ 1 $ 500
U.S. Government Agency Securities 3,750 -- 69 3,681
Mortgage-Backed Securities 871 1 12 860
- ---------------------------------------------------------------------------------
$ 5,122 $ 1 $ 82 $ 5,041
=================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
AVAILABLE FOR SALE
U.S. Treasury Securities $ 3,511 $ 4 $ -- $ 3,515
U.S. Government Agency Securities 9,261 13 31 9,243
Mortgage-Backed Securities 8,491 38 14 8,515
- ---------------------------------------------------------------------------------
$21,263 $ 55 $ 45 $21,273
- ---------------------------------------------------------------------------------
HELD TO MATURITY
U.S. Treasury Securities $ 2,001 $ 7 $ -- $ 2,008
U.S. Government Agency Securities 10,235 40 1 10,274
Other Securities 2,002 -- -- 2,002
Mortgage-Backed Securities 814 4 1 817
- ---------------------------------------------------------------------------------
$15,052 $ 51 $ 2 $15,101
=================================================================================
</TABLE>
9
<PAGE>
SVB FINANCIAL SERVICES, INC
Notes to Consolidated Financial Statements
There are no significant concentrations of securities (greater than 10% of
shareholders' equity) in any individual security issue.
The amortized cost and fair value of securities at December 31, 1999, by
contractual maturity, are shown in the following table for securities to be held
to maturity and available for sale. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
(in thousands) COST VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
AVAILABLE FOR SALE
Due in 1 year or less $ 2,499 $ 2,491
Due after 1 year through 5 years 13,046 12,638
Mortgage-Backed Securities 11,596 11,248
- ---------------------------------------------------------------------------------
$27,141 $26,377
=================================================================================
HELD TO MATURITY
Due in 1 year or less $ 1,001 $ 999
Due after 1 year through 5 years 3,250 3,182
Mortgage-Backed Securities 871 860
- ---------------------------------------------------------------------------------
$ 5,122 $ 5,041
=================================================================================
</TABLE>
At December 31, 1999, securities having a book value of approximately $1,008,000
were pledged to secure public deposits and for other purposes as required by
law.
4: LOANS
The composition of outstanding loans is summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Secured by Real Estate:
Residential Mortgage $41,727 $30,577
Commercial Mortgage 48,349 42,703
Construction 11,943 6,256
Commercial & Industrial 32,628 22,308
Loans to Individuals
for Automobiles 7,907 10,298
Loans to Individuals 10,062 8,864
Other Loans 535 468
- ---------------------------------------------------------------------------------
$153,151 $121,474
=================================================================================
</TABLE>
<PAGE>
There were no loans restructured during 1999 or 1998. There were no loans past
due 90 days or more as to principal and interest and $692,000 in a non-accrual
status as of December 31, 1999. There were $5,000 in loans past due 90 days or
more as to principal and interest and $96,000 in a non-accrual status as of
December 31, 1998.
A loan is considered to be impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of non-accrual loans but may include
performing loans to the extent that situations arise which would reduce the
probability of collection in accordance with the contractual terms. As a general
rule, a loan that is in arrears in excess of 120 days will be charged off unless
circumstances exist that would make charge off unnecessary such as the borrower
is in the process of refinancing elsewhere or is liquidating collateral within a
short period of time.
As of December 31, 1999 there were $776,000 of loans deemed to be impaired, a
valuation reserve of $66,000 was recorded for these loans. As of December 31,
1998, there were $583,000 of loans deemed to be impaired, a valuation reserve of
$25,000 was recorded for these loans.
The Company has no concentration of loans to borrowers engaged in similar
activities which exceeded 10% of total loans at December 31, 1999 and 1998. The
Company continues to pursue new lending opportunities while seeking to maintain
a portfolio that is diverse as to industry concentration, type and geographic
distribution. The Company's geographic lending area is primarily concentrated in
Somerset County, but also includes Middlesex, Hunterdon, Mercer, Morris and
Monmouth counties.
5: ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, $ 1,211 $ 982
Provision Charged to Operations 440 300
Charge Offs (115) (80)
Recoveries 14 9
- ---------------------------------------------------------------------------------
Balance at December 31, $ 1,550 $ 1,211
=================================================================================
</TABLE>
<PAGE>
6: PREMISES AND EQUIPMENT
Premises and equipment consists of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
ESTIMATED
(in thousands) USEFUL LIVES 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction in Progress -- $ 1,764 $ 695
Premises & Improvements 5-30 years 2,693 1,205
Furniture & Equipment 3-10 years 1,762 1,441
- --------------------------------------------------------------------------------
6,219 3,341
Less: Accumulated Depreciation
and Amortization (1,430) (1,038)
- --------------------------------------------------------------------------------
$ 4,789 $ 2,303
=================================================================================
</TABLE>
Depreciation and amortization charged to operations was $463,000 and $383,000
for the years ended December 31, 1999 and 1998 respectively.
10
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
7: DEPOSITS
At December 31, 1999, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
Over Three Over One Year
Three Months or Months Through Through Three Over Three
(in thousands) Less Twelve Months Years Years Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$100,000 or more $ 8,063 $ 4,023 $ 1,300 $ 100 $13,486
Less than $100,000 22,896 42,332 9,063 676 74,967
====================================================================================================
</TABLE>
8: OTHER EXPENSES
The major components of other expenses are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------
Data Processing Services $ 367 $ 285
Marketing & Business Development 206 147
Stationery, Forms & Supplies 206 175
Insurance 82 85
Legal, Examination & Accounting 167 129
Postage & Telephone 175 131
FDIC Insurance Assessment 20 16
Other, Net 678 591
- --------------------------------------------------------------------------------
$1,901 $1,559
================================================================================
</TABLE>
9: COMMITMENTS AND CONTINGENCIES
Based on consultation with the Company's legal counsel, management is not aware
of any litigation that would have a material adverse effect on the consolidated
financial position of the Company. There are no proceedings pending other than
the ordinary routine litigation incident to the business of the Company and its
subsidiaries. In addition, no material proceedings are pending or are known to
be threatened or contemplated against the Company or its subsidiaries by
government authorities. The Company leases its banking facilities under
operating leases which expire at various dates through 2004, but which contain
certain renewal options. The Somerville facilities are leased from a partnership
consisting of all but one of the Company's Directors. As of December 31, 1999,
future minimum rental payments, including the renewal options under these leases
for the subsequent five years are as follows: (in thousands)
<PAGE>
- --------------------------------------------------------------------------------
Lease Year Minimum Rental Payments
- --------------------------------------------------------------------------------
2000 $ 792
2001 801
2002 804
2003 806
2004 809
- --------------------------------------------------------------------------------
$ 4,012
================================================================================
The above amounts represent minimum rentals not adjusted for possible future
increases due to escalation provisions and assumes that all option periods will
be exercised by the Company. Rent expenses aggregated $500,000 and $391,000 for
the years ended December 31, 1999 and 1998.
The Bank and Investment Company have not entered into any interest rate swaps,
caps or floors and are not party to any forward or future transactions. However,
the Bank is party to various other financial instruments which are not included
in the financial statements, but are required in the normal course of business
to meet the financing needs of its customers and to assist in managing its
exposure to changes in interest rates. Management does not expect any material
losses from these transactions, which include standby letters of credit and
commitments to extend credits.
The Company had outstanding commitments to extend credit of $33,825,000 and
$27,177,000 at December 31, 1999 and December 31, 1998, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a portion of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the customer. There is no material difference between the
notional amount and estimated fair value of off-balance sheet unfunded loan
commitments as of December 31, 1999.
10: BENEFIT PLAN
The Company has a 401(k) Savings Plan covering substantially all employees.
Under the terms of the Plan, the Company matched 67% of an employee's
contribution in 1999 and 1998, up to 6.0% of the employee's salary. Employees
become fully vested in the Company's contribution after five years of service.
The Company contributed $66,000 and $57,000 to the Plan in 1999 and 1998,
respectively.
On January 1, 1999, the Bank adopted SFAS No. 132, "Employer Disclosures about
Pensions and Other Postretirement Benefits," which revised employers disclosures
about pension and other postretirement benefit plans. It eliminated certain
current disclosures and requires additional information about changes in the
benefit obligation and the fair value of plan assets. It also standardizes the
requirements for pensions and other postretirement benefit plans to the extent
<PAGE>
possible, and illustrates combined formats for the presentation of pension plan
and other postretirement benefit plan disclosures.
During 1999, the Company established a Supplemental Executive Retirement Plan.
The Plan covers three of the Company's executive officers. One officer is
covered under a defined benefit plan while the remaining two officers are
covered under a defined contribution plan. The Company expensed $25,000 in
connection with these plans in 1999.
11
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
11: INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Current
Federal $ 886 $ 744
State 109 178
Deferred Benefit (180) (156)
- --------------------------------------------------------------------------------
$ 815 $ 766
================================================================================
</TABLE>
Deferred income taxes are provided for the differences between the financial
reporting basis and the tax basis of the Company's asset and liabilities.
Cumulative temporary differences at December 31, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Start-up and Organization Costs $ (1) $ (1)
Depreciation 117 74
Accretion of Securities Discount (13) (12)
Allowance for Loan Losses 636 498
Net Deferred Tax Asset, Included in
- --------------------------------------------------------------------------------
Other Assets $ 739 $ 559
================================================================================
</TABLE>
A reconciliation of income taxes calculated at the statutory rate of 34% to the
actual income tax provision is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Statutory Provision $ 738 $ 669
State Taxes on Income,
Net of Federal Tax Benefit 72 117
Other 5 (20)
- --------------------------------------------------------------------------------
$ 815 $ 766
================================================================================
</TABLE>
<PAGE>
12: SHAREHOLDERS' EQUITY
On March 27, 1998, the Company declared a two-for-one split on its common stock
to shareholders of record as of April 16, 1998. On October 29, 1999, the Company
declared a 5% stock dividend to shareholders of record as of November 4, 1999.
Accordingly, earnings per share, options and weighted-average shares of common
stock outstanding have been restated to reflect the stock split and stock
dividend.
13: STOCK OPTION PLANS
At December 31, 1999, the Company had two stock option plans.
In 1997, the Company's shareholders approved the 1997 Restated Incentive Stock
Option Plan, a non-qualified stock option plan. This Plan had the effect of
restating the previously existing 1994 Stock Option Plan. Under this Plan, the
Board of Directors may grant options to officers to purchase the Company's
stock. Stock options are issued at prices equal to the market price at the date
of grant. The stock options have a vesting period of one year from the date of
issuance. Shares totaling 173,048 are reserved for issuance under this Plan
including 96,727 shares outstanding at December 31, 1999.
In 1997, the Company's shareholders also approved the 1997 Directors Stock
Option Plan, a non-qualified stock option plan. Under this Plan, stock options
are granted to Directors at the fair value at the date of grant. The stock
options have a vesting period of one year from the date of issuance. Shares
totaling 114,660 are reserved for issuance under this Plan, all of which were
outstanding at December 31, 1999.
Had compensation cost for the plan year been determined based on the fair value
of options at the grant dates consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and earnings
per share, basic and diluted, would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Income
As reported $1,355 $ 1,203
Pro forma 1,011 798
Earnings per share - Basic
As reported $ .46 $ .42
Pro forma $ .35 $ .28
Earnings per share - Diluted
As reported $ .45 $ .40
Pro forma $ .34 $ .27
================================================================================
</TABLE>
12
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
A summary of the status of the Company's option plans as of December 31 are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1999 1998 (1)
- -------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 249,270 $ 5.51 275,730 $ 5.41
Options granted -- -- -- -
Options exercised 35,783 4.36 23,310 4.27
Options expired or canceled 2,100 6.19 3,150 6.19
Outstanding at end of year 211,387 $ 5.69 249,270 $ 5.51
=======================================================================================================
Options exercisable at year end 211,387 $ 5.69 249,270 $ 5.51
=======================================================================================================
</TABLE>
(1) Amounts have been restated to show effects of a stock dividend
The following table summarizes information about non-qualified stock options at
December 31, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING AND EXERCISABLE
------------------------------------------
RANGE OF OUTSTANDING AND WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE EXERCISABLE AT REMAINING EXERCISE
PRICES DECEMBER 31, 1999 CONTRACTUAL LIFE PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3.967 - $ 5.950 47,377 1.30 years $ 3.967
$6.190 - $10.000 164,010 2.62 years $ 6.190
-------
211,387
============================================================================================
</TABLE>
14: FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," requires
the disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
value.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
a forced or liquidation sale. It is the Company's intent and general practice to
hold its financial instruments to maturity and not to engage in trading
activities. Therefore, significant estimations were used by the Company for the
purposes of this disclosure.
<PAGE>
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the wide
range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in
estimating financial instrument fair values.
Estimated fair values have been determined by the Company using the best
available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodology used, the estimated fair
values and the recorded book balances at December 31, 1999 and 1998 are outlined
below.
For short term investments, such as cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------
(in thousands) FAIR VALUE CARRYING VALUE FAIR VALUE CARRYING VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 9,428 $ 9,428 $ 19,648 $ 19,648
- --------------------------------------------------------------------------------------------------
</TABLE>
For securities held in the Company's investment portfolio fair value was
determined by reference to quoted market prices as of December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------
(in thousands) FAIR VALUE CARRYING VALUE FAIR VALUE CARRYING VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale Securities $ 26,377 $ 26,377 $ 21,273 $ 21,273
Held to Maturity Securities 5,041 5,122 15,101 15,052
- --------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
For long term assets and liabilities, such as loans and deposits, the Company's
policy is to hedge its interest rate exposure on deposits with earning assets
with matching maturities. Fair values of loans were estimated using the percent
value of future cash flows expected to be received. Loan rates currently offered
by the Company were used in determining the appropriate discount rate. Deposits
with stated maturities have been valued using a present value discounted cash
flow with a discount rate approximating current market for similar maturities.
Deposits with no stated maturities have an estimated fair value equal to the
amount payable on demand.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------
(in thousands) FAIR VALUE CARRYING VALUE FAIR VALUE CARRYING VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans $152,450 $153,151 $126,830 $121,474
Deposits 189,879 189,562 170,871 169,714
- --------------------------------------------------------------------------------------------------
</TABLE>
There was no material difference between the notational amount and the estimated
fair value of off-balance-sheet items, which totaled approximately $33,825,000
and $27,177,000, at December 31, 1999 and 1998, respectively, and primarily
comprise unfunded loan commitments, which are generally priced at market at the
time of funding.
15: REGULATORY MATTERS
The Company and its subsidiary Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios, set forth in the
following tables, of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the
Company and its subsidiary Bank meets all capital adequacy requirements to which
they are subject.
As of December 31, 1999 the most recent notification from the Bank's regulatory
authority categorized the Bank as adequately capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized the Bank must maintain minimum total risk-based; Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<PAGE>
The Company and its subsidiary Bank's actual capital amounts and ratios are
presented in the following tables.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SVB FINANCIAL SERVICES, INC. AND SOMERSET VALLEY BANK
- ------------------------------------------------------------------------------------------------------------------------
TO BE ADEQUATELY TO BE WELL
($ in thousands) ACTUAL CAPITALIZED CAPITALIZED
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------------------------
SVB FINANCIAL SERVICES, INC.
As of December 31, 1999
<S> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets $16,386 10.17% >$12,885 >8.00% -- --
Tier I Capital to Risk Weighted Assets $14,836 9.21% >$ 6,442 >4.00% -- --
Tier I Capital to Average Assets $14,836 7.56% >$ 7,847 >4.00% -- --
As of December 31, 1998
Total Capital to Risk Weighted Assets $14,935 11.14% >$10,726 >8.00% -- --
Tier I Capital to Risk Weighted Assets $13,724 10.24% >$ 5,363 >4.00% -- --
Tier I Capital to Average Assets $13,724 8.54% >$ 6,455 >4.00% -- --
SOMERSET VALLEY BANK
- ------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999
Total Capital to Risk Weighted Assets $15,525 9.61% >$12,293 >8.00% >$16,153 >10.00%
Tier I Capital to Risk Weighted Assets $13,975 8.65% >$ 6,461 >4.00% >$ 9,692 > 6.00%
Tier I Capital to Average Assets $13,975 7.13% >$ 7,835 >4.00% >$ 8,069 > 5.00%
- ------------------------------------------------------------------------------------------------------------------------
As of December 31, 1998
Total Capital to Risk Weighted Assets $14,189 10.61% >$10,698 >8.00% >$13,374 >10.00%
Tier I Capital to Risk Weighted Assets $12,978 9.70% >$ 5,349 >4.00% >$ 8,024 > 6.00%
Tier I Capital to Average Assets $12,978 8.04% >$ 6,455 >4.00% >$ 8,069 > 5.00%
</TABLE>
14
<PAGE>
SVB FINANCIAL SERVICES, INC
Notes to Consolidated Financial Statements
16: CONDENSED FINANCIAL INFORMATION FOR
SVB FINANCIAL SERVICES, INC. (PARENT COMPANY) IS AS FOLLOWS:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
BALANCE SHEET (in thousands) DECEMBER 31, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 563 $ 436
Other Assets 73 99
Investment in Subsidiary 14,478 13,580
Equity Securities 250 250
Total Assets $ 15,364 $ 14,365
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Common Stock $ 6,158 $ 5,794
Additional Paid-in Capital 6,496 5,502
Retained Earnings 3,215 3,062
Accumulated Other Comprehensive (Loss)/Income (505) 7
- --------------------------------------------------------------------------------------------------
Total Shareholders' Equity 15,364 14,365
- --------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 15,364 $ 14,365
- --------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED
STATEMENT OF INCOME (in thousands) DECEMBER 31, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING INCOME
Interest Income $ 13 $ 18
- --------------------------------------------------------------------------------------------------
Total Income 13 18
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSE
Other Expense 68 41
- --------------------------------------------------------------------------------------------------
Total Expense 68 41
- --------------------------------------------------------------------------------------------------
Loss Before Equity in Undistributed Income of Subsidiary (55) (23)
Equity in Undistributed Income of Subsidiary 1,410 1,226
- --------------------------------------------------------------------------------------------------
NET INCOME $1,355 $1,203
==================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED
STATEMENT OF CASH FLOWS (in thousands) DECEMBER 31, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,355 $ 1,203
Adjustments to Reconcile Net Income to Net Cash
Used In Operating Activities:
Equity in Undistributed Income of Subsidiary (1,410) (1,226)
Amortization of Organization Costs 13 14
Decrease/(Increase) in Other Assets 13 (43)
- ---------------------------------------------------------------------------------------------------
Net Cash Used In Operating Activities (29) (52)
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of Equity Securities -- (250)
- ---------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities -- (250)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from Stock Issuance, Net 156 97
- ---------------------------------------------------------------------------------------------------
Increase/(Decrease) in Cash and Cash Equivalents 127 (205)
Cash and Cash Equivalents, Beginning of Year 436 641
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 563 $ 436
===================================================================================================
</TABLE>
15
<PAGE>
SVB FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
17: EARNINGS PER SHARE
The following table illustrates of the reconciliation of the numerators and
denominators of the basic and diluted EPS computations:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 PER SHARE
(in thousands except per share data) INCOME WEIGHTED-AVERAGE SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS PER SHARE - BASIC
Income available to Common Shareholders $1,355 2,927 $ .46
Effect of Dilutive Securities
Stock Options -- 79 (.01)
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - DILUTED
Income available to Common Shareholders plus
assumed conversions $1,355 3,006 $ .45
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 PER SHARE
(in thousands except per share data) INCOME WEIGHTED-AVERAGE SHARES AMOUNT
EARNINGS PER SHARE - BASIC
<S> <C> <C> <C>
Income available to Common Shareholders $1,203 2,900 $ .42
Effect of Dilutive Securities
Stock Options - 86 (.02)
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - DILUTED
Income available to Common Shareholders plus
assumed conversions $1,203 2,986 $ .40
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
16
(1) Adjusted for the stock dividend.
<PAGE>
SVB FINANCIAL SERVICES, INC
Notes to Consolidated Financial Statements
[GRAPHIC-LETTERHEAD GRANT THORNTON LLP]
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Shareholders
SVB Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of SVB
Financial Services, Inc. and subisidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in shareholders' equity
and comprehensive income and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SVB Financial
Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in a conformity with generally accepted accounting
principles.
/s/Grant Thornton LLP
- ---------------------
Grant Thornton LLP
Philadelphia, Pennsylvania
January 18, 2000
17
<PAGE>
SVB FINANCIAL SERVICES, INC.
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 of 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.
RESULTS OF OPERATIONS
Net income for the year ended December 31, 1999 was $1,355,000 an increase of
$152,000 or 13% from the previous year and represents the largest net income in
the Company's eight year history.
Growth in net interest income was the major reason for the net income increase.
Net interest income increased $1,518,000 or 22% as a result of the growth in the
Company's earning assets, especially its loan portfolio.
Non-interest income increased $17,000 or 2% in 1999. Service charges on deposits
were significantly higher than 1998. With the addition of the Manville branch in
March of 1999, the Company now has six banking locations providing the Company
with a larger customer base from which to derive service charge income. Much of
the increase, however, was offset by a decline in gains on the sale of loans.
Non-interest expenses increased $1,194,000 or 23%. Additional personnel, banking
facilities, back-office space, equipment and general expenses associated with
the continued growth of the Company contributed to these increases.
A more detailed discussion of the major components of net income follows.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on the
Company's earning assets and the interest paid on its interest-bearing
liabilities. It is the Company's principal source of revenue.
The following table sets forth for the periods indicated the daily average
balances of certain balance sheet items, the interest earned on earning assets
and the average interest rate paid on interest bearing liabilities, net interest
income and the net interest margin. The net interest margin is a major indicator
of the profitability of the Company's earning assets.
18
<PAGE>
<TABLE>
<CAPTION>
Summary of Net Interest Income
Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
1999 1998
AVERAGE AVERAGE AVERAGE AVERAGE
($ in thousands) BALANCE Rate Interest Balance Rate Interest
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold $ 6,159 5.00% $ 308 $ 7,286 5.37% $ 391
Other Short Term Investments 216 4.63% 10 1,393 4.81% 67
Interest Bearing Time Deposits 5,719 5.49% 314 1,227 5.62% 69
Securities
Available for Sale 25,155 5.84% 1,469 13,185 5.79% 763
Held to Maturity 8,931 5.72% 511 15,786 6.12% 966
Other Securities 444 2.93% 13 21 -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Securities 34,530 5.77% 1,993 28,992 5.96% 1,729
Loans (1) 137,150 8.59% 11,787 113,482 9.00% 10,210
- --------------------------------------------------------------------------------------------------------------------------
Total Interest Earning Assets 183,774 7.84% 14,412 152,380 8.18% 12,466
Cash and Due from Banks 9,064 6,022
Allowance for Loan Losses (1,337) (1,074)
Premises and Equipment 3,380 1,854
Other Assets 2,337 2,198
- --------------------------------------------------------------------------------------------------------------------------
Total Assets $ 197,218 $161,380
==========================================================================================================================
Liabilities and Shareholders' Equity:
Deposits
Savings Deposits $ 14,998 2.91% $ 437 $ 10,992 3.17% $ 348
Money Market Deposit Accounts 22,695 3.31% 751 18,288 3.38% 618
NOW Accounts 24,656 2.35% 579 14,684 2.61% 383
Time Deposits 85,044 5.03% 4,281 78,296 5.47% 4,279
- --------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Deposits 147,393 4.10% 6,048 122,260 4.60% 5,628
Other Short Term Borrowings 142 5.63% 8 3 -- --
Obligations Under Capital Lease 435 8.51% 37 441 8.39% 37
- --------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities 147,970 4.12% 6,093 122,704 4.62% 5,665
Demand Deposits 33,765 24,416
Accrued Expenses and Other Liabilities 733 632
Cost to Fund Earning Assets 3.31% 3.72%
Shareholders' Equity 14,750 13,628
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 197,218 $ 161,380
==========================================================================================================================
Net Interest Income $ 8,319 $ 6,801
==========================================================================================================================
Net Interest Margin (2) 4.53% 4.46%
==========================================================================================================================
</TABLE>
(1) Non-accrual loans are included in the Average Loan Balances, but interest on
non-accrual loans has not been included for purposes of determining interest
income.
(2) Net interest margin is defined as net interest income divided by total
average earning assets.
19
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table presents the changes in net interest income attributable to
either a change in volume or a change in rate.
<TABLE>
<CAPTION>
Years Ended December 31,
1999 vs 1998
Increase (Decrease) Due to Changes in:
(in thousands) Volume Rate Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Federal Funds Sold $ (57) $ (26) $ (83)
Other Short Term Investments (53) (4) (57)
Interest Bearing Time Deposits 247 (2) 245
Securities
Securities Available for Sale 712 (6) 706
Securities Held to Maturity (396) (59) (455)
Equity Securities -- 13 13
Total Securities 316 (52) 264
- --------------------------------------------------------------------------------
Loans 2,008 (431) 1,577
Total Interest Income 2,461 (515) 1,946
- --------------------------------------------------------------------------------
Interest Expense:
Deposits
Savings Deposits 114 (25) 89
Money Market Deposit Accounts 146 (13) 133
NOW Accounts 230 (34) 196
Time Deposits 25 (23) 2
- --------------------------------------------------------------------------------
Total Interest Bearing Deposits 515 (95) 420
Other Short Term Borrowings 8 -- 8
Obligation Under Capital Lease -- -- --
- --------------------------------------------------------------------------------
Total Interest Expense 523 (95) 428
- --------------------------------------------------------------------------------
Change in Net Interest Income $ 1,938 $ (420) $ 1,518
================================================================================
</TABLE>
Net interest income increased $1,518,000 or 22% in 1999 as a result of a $31.4
million increase in average earning assets. Loan growth continued to remained
strong in 1999 as average loans accounted for 75% or $23.7 million of the
earning assets growth. Loan volume generated $2,008,000 in interest income.
Deposit growth was the primary funding source for the increase in earning
assets. Growth occurred in all major categories of deposits. Transaction
accounts experienced most of the growth in 1999 with over half of the increase
taking place in NOW accounts and demand deposits. Average NOW accounts increased
$10.0 million or 68% in 1999 and average demand deposits increased $9.3 million
or 38% in 1999. In addition to the Manville office which opened in 1999, the
Company also experienced growth at its Hillsborough, Bridgewater and Arbor Glen
offices.
<PAGE>
Interest rates also have an impact on net interest income. Although, there were
several increases in market rates in the second half of 1999, the average
interest rates for the year were lower compared to 1998. For example, the New
York Prime Lending Rate upon which many of the Company's commercial loans base
their pricing, averaged 8.00% in 1999 compared to 8.35%
20
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
in 1998. As a result, the average yield on loans was 8.59% in 1999 compared to
9.00% in 1998. In addition to the lower average rates, increased competition
from other banks also contributed to the lower yield earned on loans. Overall,
the yield earned on earning assets was 7.84% for 1999 compared to 8.18% for
1998, which had a negative impact on interest income of $515,000. Total interest
income increased $1,946,000.
On the funding side of the balance sheet, the cost of interest bearing
liabilities dropped 50 basis points to 4.12% and the cost to fund earning assets
dropped 41 basis points to 3.31%. This resulted from the overall decline in
average interest rates and a change in the mix of deposits towards transaction
accounts which carry a lower cost than time deposits.
The overall change in net interest margin resulted in an increase of 7 basis
points from 4.46% to 4.53%.
OTHER INCOME
A comparison of the major components of other income is included in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Service Charges on
Deposit Accounts $ 393 $ 298
(Losses)/Gains on the Sale
of Securities (8) 4
Gains on the Sale of Loans 253 334
Other Income 149 134
- --------------------------------------------------------------------------------
$ 787 $ 770
================================================================================
</TABLE>
Other income increased $17,000 or 2% during 1999 in comparison to 1998. Service
charges on deposit accounts increased $95,000 or 32% . Growth in the number of
both commercial and consumer checking accounts continued as the sixth banking
office located in Manville was added in March of 1999.
The Company has experienced a change in the deposit mix resulting in growth in
transaction accounts, which include NOW accounts, money market accounts, savings
and demand deposits. These types of deposits caused services charges on deposit
accounts to increase. Fees were also raised during the fourth quarter of 1999 to
remain in line with competition.
Gains on the sale of loans were $253,000 in 1999 compared to $334,000 in 1998, a
decrease of $81,000 or 24%. The Company is a preferred SBA lender and as such,
originates SBA loans and sells the guaranteed portion in the secondary market
while retaining the servicing. The Company also originates and sells 1-4 family
mortgage loans. SBA loans are not the primary focus of the Company and
consequently, sales of these loans can vary from period to period depending upon
the volume of SBA loans generated. Sales of mortgage loans can also vary with
changes in interest rates and economic conditions.
Other income increased $15,000 or 11% during 1999. A major portion of this
increase was related to the servicing of SBA and mortgage loans as described
above.
21
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OTHER EXPENSE
A comparison of the major components of other expense is included in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Salaries and Employee
Benefits $3,291 $2,713
Occupancy Expense 872 652
Equipment Expense 432 378
Other Expenses 1,901 1,559
- --------------------------------------------------------------------------------
$6,496 $5,302
================================================================================
</TABLE>
Total other expense increased $1,194,000 or 23% in comparison to 1998. Expenses
were impacted by additional personnel, occupancy costs and other expenses
related to the opening of new branches and expanded back-office facilities. In
addition to the Manville office, which opened in the first quarter of 1999, two
additional offices will open early in 2000, Aberdeen Township in January 2000
and Bernards Township in February 2000. The Company moved its back-office
operations to a larger facility in Somerville which will accommodate the
continuing growth of the Company.
Salaries and Benefits expense increased $578,000 or 21% from 1998 levels.
Because of the 11% growth in assets and the opening of the new offices, the
Company has had to hire additional personnel to better service its customer
base, especially in the area of lending as loan growth continued to receive
major emphasis from management in 1999. Additional personnel were also needed to
staff the new branches. Full time equivalent employees were 79 at December 31,
1999 compared to 60 at December 31, 1998. The increase in employees combined
with annual salary increases, accounted for the variance from 1998.
Occupancy expense increased $220,000 or 34% from 1998. Most of the increase
resulted from rent for the new locations.
Equipment expenses increased $54,000 or 14% during 1999. In addition to
equipping the new branches and employees, the Company incurred expense to remain
current with technology and ensure upgrades were in place for the Year 2000.
Other expenses increased $342,000 or 22%. Much of the increase was related to
the growth in assets experienced by the Company, which affected many areas,
especially data processing costs and other outsourced services, which are
sensitive to asset growth. These expenses increased $82,000 and $32,000,
respectively. Advertising and business development expenses as well as
stationery and supplies included costs associated with the promotion of the new
branches as well as the introduction of the Company's web site, and new banking
products, such as, "Business Advantage Checking."
<PAGE>
INVESTMENT PORTFOLIO
The Company's investment portfolio is made up of securities available for sale
and securities which it has the ability and the intent to hold to maturity. The
securities available for sale are to be used to fund increases in loan demand or
possible outflows of deposits. The securities held to maturity may be matched
against maturing liabilities in order to attempt to maintain a balance in the
repricing of the Company's earning assets and interest bearing liabilities.
Maturing securities may also be used to fund increases in loan demand or allow
for the outflow of deposits with which they are matched.
22
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table sets forth the amortized cost and estimated market values of
securities in the investment portofolios as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999 1998
--------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
(in thousands) COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury Securities $ -- $ -- $3,511 $ 3,515
U.S. Government Agency Securities 14,249 13,891 9,261 9,243
Mortgage-Backed Securities (1) 11,596 11,248 8,491 8,515
Other Securities 1,296 1,238 -- --
- ------------------------------------------------------------------------------------------
$27,141 $26,377 $21,263 $21,273
==========================================================================================
HELD TO MATURITY:
U.S. Treasury Securities $ 501 $ 500 $ 2,001 $ 2,008
U.S. Government Agency Securities 3,750 3,681 10,235 10,274
Mortgage-Backed Securities (1) 871 860 814 817
Other Securities -- -- 2,002 2,002
- ------------------------------------------------------------------------------------------
$ 5,122 $ 5,041 $15,052 $15,101
==========================================================================================
</TABLE>
Note: (1) With regard to mortgage-backed securities, the Company does not hold
any private issue CMO.
As of December 31, 1999, there was not one issuer where the aggregate book value
or aggregate market value exceeds ten percent of shareholders' equity.
The maturity distribution and weighted average yield of the Company's securities
portfolio as of December 31, 1999 is as follows:
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DUE IN DUE AFTER ONE
ONE YEAR Year THROUGH
($ in thousands) OR LESS FIVE YEARS TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Government Agency Securities (2)
Market Value $ 2,491 $11,400 $ 13,891
Yield 5.39% 5.72% 5.66%
Mortgage-Backed Securities
Market Value $11,248 -- -- $ 11,248
Yield 5.45% -- -- 5.45%
Other Securities
Market Value $ 1,238 $ 1,238
Yield 5.82% 5.82%
=====================================================================================================
Held to Maturity:
U.S. Treasury Securities
Book Value $ 501 -- $ 501
Yield 4.97% -- 4.97%
U.S. Government Agency Securities (2)
Book Value $ 500 $ 3,250 $ 3,750
Yield 5.03% 6.26% 6.02%
Mortgage-Backed Securities (1)
Book Value $ 871 -- -- $ 871
Yield 6.66% -- -- 6.66%
=====================================================================================================
</TABLE>
Note: (1) Mortgage-backed securities are not included because expected
maturities will differ from contractual maturities. Borrowers may have
the right to prepay or call obligations with or without call or
prepayment penalties.
(2) U.S. Government Agency Securities which are callable before their
stated maturity are included in the table at their stated maturity.
23
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
LOANS
The following table summarizes the Company's loan portfolio as of December 31,
1999 and 1998.
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured by Real Estate:
Residential Mortgage $ 41,727 $ 30,577
Commercial Mortgage 48,349 42,703
Construction 11,943 6,256
Commercial & Industrial (1) 32,628 22,308
Loans to Individuals for
Automobiles 7,907 10,298
Other Loans to Individuals 10,062 8,864
Other Loans 535 468
- --------------------------------------------------------------------------------
$153,151 $121,474
================================================================================
</TABLE>
Note: (1) The Company's commercial loans are not concentrated within a single
industry or group of related industries.
The Company had strong growth in the loan portfolio in 1999. The loan portfolio
increased by $31.7 million or 26% in 1999.
The Company targets small to medium sized businesses and professionals in its
lending market. With the ever changing composition of the marketplace, the
Company has tried to remain competitive in its pricing of loans, but will not
sacrifice loan quality to capture business. It is important to note that 29% of
the loans secured by residential real estate as of December 31, 1999, were for
commercial purposes. It is common for small business owners to secure commercial
loans with their personal residences.
The Central New Jersey market has experienced significant commercial and
residential construction. The Company had a $5.7 million or 91% increase in
construction loans. Please see "Asset Quality" for a discussion of the Company's
practices with respect to construction lending.
The following table sets forth the Company's total loans by maturity and
interest rate sensitivity as of December 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MATURITY AFTER
WITHIN ONE THROUGH AFTER
(in thousands) ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans with fixed rates $ 13,497 $ 63,063 $ 2,702 $ 79,262
Loans with floating rates 36,188 8,425 29,276 73,889
- --------------------------------------------------------------------------------
Total $ 49,685 $ 71,488 $ 31,978 $ 153,151
================================================================================
</TABLE>
24
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
ASSET QUALITY
Various degrees of credit risk are associated with substantially all investing
activities. The lending function, however, carries the greatest risk of loss.
Risk elements include loans past due, non-accrual loans, renegotiated loans,
other real estate owned and loan concentrations. The Company closely monitors
its loan portfolio to minimize the risk of delinquency and problem credits. As a
general rule a loan that is past due for principal or interest in excess of
ninety days is placed on a non-accrual basis unless circumstances exist that
would lead management to find that non-accrual is unnecessary (i.e., liquidation
of collateral or the borrower has the ability to bring the loan current as to
principal and interest).
The Company's loan portfolio consists of commercial loans, commercial mortgages,
real estate construction loans, residential mortgage loans and consumer loans.
The Company's commercial loans are primarily made to small businesses and
professionals in its market area with maturities between one and five years. The
majority of these loans are collateralized by real estate consisting of single
family homes or commercial properties, and/or the assets of the businesses and
further secured by personal guarantees. The Company primarily requires that
there be a loan to value ratio not exceeding 80% on these loans. The Company
also reviews borrowers' cash flows in analyzing loan applications. Risks
inherent in these loans include risks that a borrower's cash flow generated from
its business may not be sufficient to repay the loans, either because of general
economic conditions, downturns specific to the borrower's business or interest
rate changes which cause deterioration in a borrower's cash flow as well as
risks associated with the collateral securing the loans, such as possible
deterioration in value of the collateral.
Commercial mortgages are made to small businesses and professionals in the
market area to purchase commercial real estate for use in their businesses. The
Company will generally not finance in excess of 75% of appraised value. In
reviewing a borrower's qualifications, the Company pays particular attention to
cash flow. In addition, the Company frequently requires personal guarantees.
Risk factors associated with these loans include general economic performance
which will affect vacancy rates for commercial properties and the ability of
businesses to maintain cash flows as well as the resale value which may be
yielded on a particular property.
The Company originates and retains residential mortgages loans. They are
generally written with a three, five or ten year fixed rate which adjusts
annually thereafter for the life of the loan, which may be up to 30 years. The
Company generally does not lend in excess of 80% of the appraised value. Risks
inherent in these loans include the employment stability and earnings potential
of the borrower as well as potential resale values associated with the
collateral securing these loans.
The Company makes construction loans to individuals with expertise in the
industry or to owner occupied projects. The loans are generally on projects for
which a sale contract has been executed and for which permanent mortgage
financing is in place. The Company will generally lend up to 75% of the
appraised completed value of the project. Risks inherent with these loans
include performance of the general economy which will affect whether the sale of
the project actually closes despite its contracted status and the risk inherent
<PAGE>
with whether the construction of a project will actually be completed and
completed within budget. Environmental factors may affect whether a project can
be completed. However, the Company does environmental due diligence prior to
closing. An environmental risk factor is the risk that a site may be
contaminated by toxic chemicals, oil, gasoline or like substance. In the event
that this occurs environmental audits must be performed to determine the extent
of the problem and cost of cleanup. Excessive cleanup costs may endanger the
completion of the project.
The Company makes consumer loans on an unsecured basis as personal loans to
finance various consumer goods. Automobile loans are also made on a direct basis
and through the Company's relationship with area car dealers. Employment,
income, credit rating, as well as the potential resale values of automobiles,
are the risk factors inherent in these loans.
The Company attempts to maintain an allowance for loan losses at a sufficient
level to provide for potential losses in the portfolio. Loan losses are charged
directly to the allowance as they occur and any recoveries are credited to the
allowance. The allowance for loan losses is increased periodically through
charges to earnings in the form of a provision for loan losses.
Factors that influence management's judgment in determining the amount of the
provision for loan losses include an ongoing review of the overall quality of
the loan portfolio by the Company's credit analysts who have no lending
authority, management's continuing evaluation of loans and the assignment of a
specific risk rating to all non-consumer borrowing, an evaluation of prevailing
and anticipated economic conditions and their related effects on the existing
portfolio, loan classifications and evaluations as a result of periodic
examinations by Federal and State supervisory authorities and comments and
recommendations of the Company's independent public accountants as a result of
their annual audit of the financial statements. It is management's practice to
review the allowance on a monthly basis to determine the provision to be made.
25
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table summarizes the composition of the Company's non-performing
assets as of the dates indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Non-performing assets (1):
Non-accruing loans
Commercial and Construction $ 599 $ 56
Real Estate -- --
Installment 93 40
Total non-accrual loans 692 96
Restructured loans -- --
Total non-performing loans 692 96
Other real estate owned -- --
Total non-performing assets $692% $ 96
- --------------------------------------------------------------------------------
Loans past due 90 days or more (2) $ -- $ 5
- --------------------------------------------------------------------------------
Non-performing loans to total loans 0.45% 0.08%
Non-performing assets to total assets 0.34% 0.05%
Allowance for loan losses to non-performing loans 223.99% 1,261.46%
================================================================================
</TABLE>
(1) Non-performing assets excludes loans past due 90 days or more and still
accruing, of which there are none.
(2) Loans past due 90 days or more and still accruing.
As noted in the previous table, the Company's charge off history shows
relatively small percentages of net charge offs. The following table depicts an
approximate allocation of the allowance for loan losses as of the dates
indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1999 1998
---------------------------- ----------------------------
PERCENT OF PERCENT OF
($ in thousands) AMOUNT LOANS TO TOTAL AMOUNT LOANS TO TOTAL
<S> <C> <C> <C> <C>
Commercial and Construction $1,345 60.67% $ 986 58.67%
Real Estate 57 27.25% 41 25.17%
Installment 148 12.08% 184 16.16%
- -----------------------------------------------------------------------------------------------------
$1,550 100.00% $1,211 100.00%
=====================================================================================================
</TABLE>
26
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table summarizes the activity in the allowance for loan
losses for the period indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1999 1998
<S> <C> <C>
Balance, beginning of period $ 1,211 $ 982
Loans charged off
Commercial and Construction -- --
Real Estate -- --
Installment (115) (80)
Total charge offs (115) (80)
Recoveries of loans previously charged off
Commercial and Construction -- 8
Real Estate -- --
Installment 14 1
Total recoveries 14 9
Net Loans charged off (101) (71)
Provision charged to expense 440 300
Balance, end of period $ 1,550 $ 1,211
Net charge offs as a percentage of average loans 0.07% 0.06%
Allowance for loan losses to total loans 1.01% 1.00%
Allowance for loan losses to non-performing loans 223.99% 1,261.46%
</TABLE>
DEPOSITS
Following is the average balances and rates paid on deposits for the periods
indicated:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------
1999 1998
---------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
($ in thousands) BALANCE RATE BALANCE RATE
<S> <C> <C> <C> <C>
Demand $ 33,765 -- $ 24,416 --
Savings 14,998 2.91% 10,992 3.17%
Money Market 22,695 3.31% 18,288 3.38%
NOW 24,656 2.35% 14,684 2.61%
Time 85,044 5.03% 78,296 5.47%
- ----------------------------------------------------------------------------------------
$181,158 3.34% $146,676 3.84%
========================================================================================
</TABLE>
<PAGE>
Following is the maturity distribution of time certificates of deposit $100,000
and over at December 31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------
<S> <C>
(in thousands)
Three months or less $ 8,063
Over three months through six months 1,910
Over six months through twelve months 2,113
Over one through three years 1,300
Over three through five years 100
- --------------------------------------------------
$13,486
==================================================
</TABLE>
27
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
LIQUIDITY
The Company's liquidity needs arise principally to accommodate possible deposit
outflows and meet loan demand. The Company's liquidity is dependent on the
successful management of its assets and liabilities so as to meet these needs of
both its deposit and loan customers.
Liquidity, as represented by cash and cash equivalents, is a product of its
operating, investing and financing activities.
During 1999, the Company generated $1,951,000 cash flow from operations.
Net cash used in investing activities was $32,169,000, of which $31,525,000 was
in the form of loans. Purchases of securities available for sale totaled
$17,345,000, while purchases of securities held to maturity totaled $5,296,000.
These were funded mostly by maturities available for sale and securities held to
maturity of $4,906,000 and $15,296,000, respectively. Funds were also generated
by the sale of available for sale securities which totaled $6,512,000. In
addition to loans and investments, the Company also invested $1,193,000 in time
deposits due from banks.
Funding for investment activities resulted from an increase in financing
activities of $19,998,000. Demand deposits showed the largest increase of
$6,646,000 with comparable increases in money market deposits and time deposits
of $5,220,000 and $5,200,000 respectively.
Cash and cash equivalents decreased $10,220,000 in 1999. The Company also has
additional sources of liquidity. First as a member of the Federal Home Loan
Bank, the Company can borrow up to $11,700,000 million at December 31, 1999 and
has lines of credit at correspondent banks of $3,500,000 million.
The Company believes its liquidity position is sufficient to provide funds to
meet future loan demand or possible outflow of deposits.
ASSET AND LIABILITY MANAGEMENT
Interest rate risk is defined as the sensitivity of the Company's current and
future earnings as well as its capital to changes in the level of market
interest rates. The Company's exposure to interest rate risk results from, among
other things, the difference in maturities on interest earning assets and
interest bearing liabilities. The relationship between the interest rate
sensitivity of the Bank's assets and liabilities is continually monitored by the
Bank's Asset/Liability Management Committee (the "ALCO"). The purpose of the
ALCO is to review and monitor the volume, mix and pricing of the interest
sensitive assets and liabilities consistent with the Bank's overall liquidity,
capital, growth and profitability goals.
Loans make up the largest portion of the Bank's assets. In making commercial
loans, the emphasis is placed on either floating rate loans tied to the prime
lending rate or fixed rate loans depending upon the Bank's overall rate
sensitivity position. Fixed rate commercial loans are generally written so that
the rates can be adjusted within 3-7 years with payouts up to 25 years. Mortgage
loans are currently written to be adjusted annually after the first 3, 5 or 10
<PAGE>
year term with payouts up to 30 years. Home equity loans are tied to the prime
lending rate although special promotions may offer a fixed rate for periods of
not greater than one year. Installment loans are written at fixed rates from 3
to 5 years.
The Bank utilizes its securities to manage its liquidity and rate sensitivity.
Fixed rate securities are purchased for terms of less than 5 years. Adjustable
rate securities require an estimated average life at time of purchase of 10
years or less. Callable securities are also purchased for terms of 5 years or
less with call period of three months to 2 years. Fixed rate mortgage-backed
securities are also purchased with estimated average lives at the time of
purchase of not more than 5 years. The Bank also invests in CDs of other
financial institutions with maturities of six months to three years for amounts
up to $100,000.
A significant portion of the Bank's assets have been funded with CDs including
jumbo CDs. Unlike other deposit products, such as, checking and savings
accounts, CDs carry a high degree of interest rate sensitivity and therefore,
their renewal will vary based on the competitiveness of the Bank's interest
rates. The Bank has attempted to price its CDs competitively.
As members of the Federal Home Loan Bank, the Company can borrow advances at a
fixed or floating rate and on a non amortizing or amortizing basis. These
advances can be for terms ranging from overnight to up to 30 years. The advances
can be matched against various earning assets. There were no advances
outstanding at December 31, 1999.
The nature of the Bank's current operations is such that it is not subject to
foreign currency exchange or commodity price risk. Additionally, neither the
Company nor the Bank owns any trading assets. At December 31, 1999, the Bank did
not have any hedging transactions in place.
INTEREST RATE SENSITIVITY ANALYSIS
One measure of the Bank's interest rate sensitivity is through the use of a
sensitivity gap analysis. The interest rate sensitivity gap is defined as the
difference between the amount of interest-earning assets maturing or repricing
within a specific time period and the amount of interest-bearing liabilities
maturing or repricing within that same time period. A gap is positive when the
amount of interest-earning assets maturing or repricing exceeds the amount of
interest-bearing liabilities maturing or repricing within that same period and
is negative when the amount of interest-bearing liabilities maturing or
repricing exceeds the amount of interest-earning assets maturing or repricing
within the same period. Accordingly, during a period of rising interest rates,
an institution with a negative gap position would not be in as favorable a
position, compared to an institution with a positive gap, to invest in higher
yielding assets. A negative gap may result in the yield on an institution's
interest-earning assets increasing at a slower rate than the increase in an
institution's cost of interest-bearing liabilities than if it had a positive
gap. During a period of falling interest rates, an institution with a negative
gap would experience a repricing of its interest-earning assets at a slower rate
than its interest-bearing liabilities which, consequently, may result in its net
interest income growing at a faster rate than an institution with a positive gap
position.
28
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
INTEREST RATE SENSITIVITY AT DECEMBER 31, 1999 (in thousands)
Maturity or Repricing in (2)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DUE IN BETWEEN NON-
90 DAYS 91 DAYS - AFTER INTEREST
OR LESS ONE YEAR ONE YEAR BEARING TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Securities $ 26,877 $ 670 $ 3,952 $ -- $ 31,499
Equity Securities 839 -- -- -- 839
Federal Funds Sold 2,400 -- -- -- 2,400
Interest Bearing Time Deposits 400 3,586 1,297 -- 5,283
Loans 57,257 20,098 75,104 692 153,151
Valuation Reserve(1) -- -- -- (1,726) (1,726)
Non-interest Earning Assets -- -- -- 14,661 14,661
- --------------------------------------------------------------------------------------------------------------
Total Assets $ 87,773 $ 24,354 $ 80,353 $ 13,627 $ 206,107
==============================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Money Market Accounts $ 25,446 $ -- $ -- $ -- $ 25,446
NOW Accounts 27,025 -- -- -- 27,025
Savings Accounts 16,618 -- -- -- 16,618
CDs over $100,000 8,063 4,023 1,400 -- 13,486
Other Time Deposits 22,896 42,332 9,739 -- 74,967
Obligation Under Capital Lease -- -- 432 -- 432
- --------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 100,048 46,355 11,571 -- 157,974
- --------------------------------------------------------------------------------------------------------------
Non-interest Bearing Liabilities -- -- -- 32,020 32,020
Other Liabilities -- -- -- 749 749
Stockholders' Equity -- -- -- 15,364 15,364
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 100,048 $ 46,355 $ 11,571 $ 48,133 $ 206,107
- --------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap $ (12,275) $(22,001) $ 68,782 $ (34,506)
- --------------------------------------------------------------------------------------------------------------
Cumulative Gap $ (12,275) $ (34,376) $ 34,506
- --------------------------------------------------------------------------------------------------------------
Cumulative Gap to Total Assets (5.96)% (16.63)% 16.74%
==============================================================================================================
</TABLE>
<PAGE>
(1) Valuation Reserves include allowance for loan losses and deferred loan fees.
(2) The following are the assumptions that were used to prepare the Gap
analysis:
(A) Securities "available for sale" are placed in the first maturity bucket
since they can be sold at any time.
(B) Callable securities are spread based on their actual maturity date as
opposed to their call date.
(C) Loans are spread based on the earlier of their actual maturity date or
the date of their first potential rate adjustment.
(D) Money Market Accounts, NOW Accounts, and Savings Accounts are subject
to immediate withdrawal.
(E) Time deposits are spread based on their actual maturity date.
29
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The ALCO attempts to maintain the Company's cumulative gap ratios at +/-15% for
90 days or less, +/-20% for four to six months and +/-25% for between six months
and one year.
While gap analysis is a general indicator of the potential effect that changing
interest rates may have on net interest income, the gap itself does not present
a complete picture of interest rate sensitivity. First, changes in the general
level of interest rates do not affect all categories of assets and liabilities
equally or simultaneously. Second, assumptions must be made to construct a gap
analysis. Money Market deposits, for example, which have no contractual
maturity, are assigned a repricing interval of 90 days. Management can influence
the actual repricing of the deposits independent of the gap assumption. Third,
certain securities are callable and therefore repriceable prior to their
maturity dates depending on the level of interest rates. The cash flows of
certain loans and mortgage backed securities and the repricing of those cash
flows will vary under different interest rates. Fourth, the gap analysis
represents a one-day position and cannot incorporate a changing mix of assets
and liabilities over time as interest rates change. Volatility in interest rates
can also result in disintermediation, which is the flow of funds away from
financial institutions into direct investments, such as U. S. Government and
corporate securities and other investment vehicles, including mutual funds,
which, because of the absence of federal insurance premiums and reserve
requirements, generally pay higher rates of return than financial institutions.
Equity securities have also been a source of disintermediation from deposits
over the past few years.
An additional analysis of the Bank's interest rate risk is a forecast of changes
in the Bank's market value of portfolio equity (MVPE) under alternative interest
rate environments. The MVPE is defined as the net present value of the Bank's
existing assets, liabilities and off balance sheet instruments. The calculated
estimated of change in MVPE for the Bank at December 31, 1999 is as follows:
CHANGE IN INTERESTS (in thousands)
MVPE Percent
Amount Change
------ ------
+200 Basis Points $19,207 (4.06)%
Base Amount 20,019 -
-200 Basis Points 19,902 (.59)%
The policy of the Company requires that a parallel shock of +/- 200 basis points
may not change the MVPE by more than 1% of total assets. For 1999 this amount
would be $2,061,000.
<PAGE>
RETURN ON ASSETS AND RETURN ON EQUITY
The following table depicts returns on average assets and returns on average
equity for the periods indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended December 31,
------------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Return on Average Assets 0.69% 0.75%
Return on Average Equity 9.19% 8.82%
Average Equity to
Average Assets 7.48% 8.44%
- --------------------------------------------------------------------------------
</TABLE>
CAPITAL RESOURCES
Under the FDIC Improvement Act of 1991, banks are required to maintain a minimum
ratio of total capital to risk based assets of 8% of which at least 4% must be
in the form of Tier I capital (primarily shareholders' equity). The following
are the Company's capital ratios at the end of the periods indicated.
Years Ended December 31,
------------------------
1999 1998
---- ----
Total Capital to
Risk Weighted Assets 10.17% 11.14%
Tier 1 Capital to
Risk Weighted Assets 9.21% 10.24%
Leverage Ratio 7.56% 8.54%
It is the Company's intention to retain its earnings in order to provide
adequate capital to continue to support its growth. The Company has never paid a
cash dividend. A 5% stock dividend was paid in 1999.
30
<PAGE>
SVB FINANCIAL SERVICES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
SUMMARY OF QUARTERLY RESULTS
The following summarizes the results of operations during 1999 on a quarterly
basis:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
For the Quarters Ended
(in thousands) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $3,293 $3,447 $3,768 $3,904
Interest Expense 1,478 1,472 1,559 1,584
- -----------------------------------------------------------------------------------------------
Net Interest Income 1,815 1,975 2,209 2,320
Provision for Loan Losses 80 100 150 110
- -----------------------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 1,735 1,875 2,059 2,210
- -----------------------------------------------------------------------------------------------
Gains on the Sale of Loans 33 51 100 69
Gains/(Losses) on the Sale of Securites 1 (6) (3) --
Other Income 131 131 133 147
Other Expense 1,484 1,602 1,614 1,796
- -----------------------------------------------------------------------------------------------
Income Before Income Taxes 416 449 675 630
Income Taxes 148 168 259 240
- -----------------------------------------------------------------------------------------------
Net Income $ 268 $ 281 $ 416 $ 390
==============================================================================================
</TABLE>
31
<PAGE>
NOTES
32
<PAGE>
SVB Financial Services, Inc. and Somerset Valley Bank
BOARD OF DIRECTORS
John K. Kitchen
Chairman of the Board
G. Robert Santye
Vice Chairman of the Board
Bernard Bernstein
Robert P. Corcoran
Raymond L. Hughes
S. Tucker S. Johnson
Willem Kooyker
Frank Orlando
Gilbert E. Pittenger
Frederick D. Quick
Anthony J. Santye, Jr.
Donald Sciaretta
Herman C. Simonse
Donald R. Tourville
SOMERSET VALLEY BANK FOUNDERS ADVISORY COUNCIL:
Richard Bradley
Maureen T. Kruse
Matthew Madlinger
John Majcher
Thomas C. Miller, Esq.
Harold T. Moscatiello
Edward Rego
Janak Sakaria, MD
Helga Schwartz, MD
Michael A. Sena
Albert DiFiore
Sandra L. Runyon
Frank Tourville
Donald Sweeney, MD
SOMERSET VALLEY BANK
HILLSBOROUGH ADVISORY COUNCIL:
Michael Avolio
George Christiansen, Jr.
Elaine DeMilia
Walter J. Dietz, III
Vincent P. Lipani
Peter McGavisk
Daniel G. Marulli, DDS
John Mondoro
Dan Pullen, DDS
Harry Smith
Kevin Sweeney
Frank N. Yurasko, Esq.
<PAGE>
Somerset Valley Bank Banking Staff
BANKING STAFF OFFICERS:
Robert P. Corcoran
President and C.E.O.
Keith B. McCarthy
Chief Operating Officer
Arthur E. Brattlof
Executive Vice President
Senior Loan Officer
Robert F. Cramer
Senior Vice President
Consumer Loans
Michael A. Novak
Senior Vice President
Commercial Loans
James T. Condo
Vice President
Commercial Loans
Jeffrey D. Mattison
Vice President
Commercial Loans
Kathy Ruggiero
Vice President
Branch Administration
Roger W. Russell
Vice President
Loan Administration
Karen L. Zaliwski
Vice President
Operations
Jeannette Capra
Assistant Vice President
Operations
Christopher Fenimore
Assistant Vice President
Consumer Loans
Michele Gara
Assistant Vice President and
Manager
Margaret O'Keeffe
Assistant Vice President
Retail Sales and Marketing
<PAGE>
John P. Oliver
Assistant Vice President
Commercial Loans
Mary E. Rowe
Assistant Vice President
Accounting and Finance
Mary Ann Soriano
Assistant Vice President
Operations
Sandra Stephens
Assistant Vice President
Residential Mortgages
Susan Christman
Assistant Treasurer and Manager
Jennifer Latsko
Assistant Treasurer and Manager
Suzanne B. Lennard
Assistant Treasurer and Manager
Christopher Seaman
Assistant Treasurer
Operations
Diana S. Valko
Assistant Treasurer
Accounting and Finance
Vimala Vimalavong
Assistant Treasurer and Manager
Kenneth S.B. Wade II
Assistant Treasurer
Loan Administration
Rose Watson
Assistant Treasurer and Manager
Jeanne G. Hagen
Human Resources Director
Nicole Hunt
Assistant Secretary and Assistant Manager
Bedzaida Rodriguez
Assistant Secretary and Assistant Manager
Bryan Zunski
Assistant Secretary and Assistant Manager
<PAGE>
GENERAL COUNSEL:
Thomas C. Miller, Esq.
Miller, Robertson and Rodgers, P.C.
21 North Bridge Street
Somerville, NJ 08876
INDEPENDENT PUBLIC
ACCOUNTANTS:
Grant Thornton LLP
2001 Market Street
Philadelphia, PA 19103
TRANSFER AGENT:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Somerset Valley Bank
Main Office
103 West End Avenue
Somerville, NJ 08876
Telephone: (908) 704-1188
Fax: (908) 685-2180
Hillsborough Office
649 Route 206
Hillsborough Centre
Belle Mead, NJ 08502
Telephone: (908) 281-4009
Fax: (908) 281-3042
Bridgewater Office
481 North Bridge Street
Bridgewater, NJ 08807
Telephone: (908) 725-0033
Fax: (908) 725-0110
Gaston Avenue Office
91 North Gaston Avenue
Somerville, NJ 08876
Telephone: (908) 575-7300
Fax: (908) 575-9395
Arbor Glen Office
100 Monroe Street
Bridgewater, NJ 08807
Telephone: (908) 595-9700
Fax: (908) 526-3418
<PAGE>
MANVILLE Office
40 North Main Street
Manville, NJ 08835
Telephone: (908) 541-0404
Fax: (908) 541-0434
ABERDEEN Office
1147 State Highway 34
Aberdeen, NJ 07747
Telephone: (732) 583-7300
Fax: (732) 583-7800
BERNARDS TOWNSHIP Office
578 Allen Road
Basking Ridge, NJ 07920
Telephone: (908) 781-5800
Fax: (908) 781-5959
COMING SOON IN 2000
In late 2000, a new branch will be opening in Edison, New Jersey on Oak Tree
Road
WEBSITE
www.somersetvalleybank.com
FORM 10-KSB:
The annual report filed with the Securities and Exchange Commission on Form
10-KSB is available without charge upon written request to:
Mr. Keith McCarthy
Somerset Valley Bank
103 West End Avenue
Somerville, NJ 08876
Member of the Federal Home Loan Bank
STOCK LISTING:
The Company's stock is traded on the NASDAQ National Market under the trading
symbol SVBF
MARKET MAKERS:
Advest, Inc.
P.O. Box 733, 49 Route 202
Far Hills, NJ 07931 (908) 719-0900
McConnell, Budd & Downes, Inc.
365 South Street
Morristown, NJ 07960 (973) 538-1680
Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, NY 10048 (212) 466-7743
33
<PAGE>
SVB FINANCIAL SERVICES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, APRIL 27, 2000
5:30 P.M.
Notice is hereby given that the Annual Meeting of Shareholders of SVB
Financial Services, Inc. will be held at the Raritan Valley Country Club, Route
28, Somerville, New Jersey 08876, on Thursday, April 27, 2000 at 5:30 P.M., for
the following purposes:
1. Election of five (5) Directors for the terms as set forth in
the accompanying Proxy Statement.
2. Approval of SVB Financial Services, Inc. 2000 Incentive Stock
Option Plan
3. Approval of SVB Financial Services, Inc. 2000 Directors Stock
Option Plan
4. Transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only those shareholders of record of SVB Financial Services, Inc. at
the close of business on March 15, 2000, shall be entitled to notice of, and to
vote at, the meeting. Each share of stock is entitled to one vote.
By order of the Board of Directors
Keith B. McCarthy
Acting Secretary
Somerville, New Jersey
March 30, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
WE ASK THAT YOU RETURN YOUR COMPLETED PROXY AS SOON AS POSSIBLE USING THE
ENVELOPE PROVIDED AND IN ANY CASE NO LATER THAN 3:00 P.M. ON APRIL 26, 2000.
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE
OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
SVB FINANCIAL SERVICES, INC.
103 West End Avenue
P.O. Box 931
Somerville, New Jersey 08876
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS - APRIL 27, 2000
This Proxy Statement is furnished to shareholders of SVB Financial
Services, Inc. (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company for the Annual Meeting of Shareholders to
be held at 5:30 P.M. on Thursday, April 27, 2000 and all adjournments thereof.
This Proxy Statement and accompanying materials are being mailed to shareholders
on or about March 30, 2000.
The close of business March 15, 2000, has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
meeting. As of the record date there were issued and outstanding 2,958,526
shares of Common Stock, with a par value of $2.09 per share (the "Common
Stock").
The Company owns 100% of Somerset Valley Bank (the "Bank"). At this
time, the Company's investment in the Bank accounts for virtually all of its
assets and source of income. Accordingly, to avoid misleading or incomplete
information, portions of the following material discuss the Bank.
Holders of a majority of the outstanding shares of Common Stock present
in person or by proxy will constitute a quorum for the purpose of transacting
business at the annual meeting. ALL SHAREHOLDERS ARE URGED TO VOTE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY TO THE TRANSFER AGENT IN THE ENCLOSED
RETURN ENVELOPE.
When properly executed, a proxy will be voted in the manner directed by
the shareholder. However, if no contrary specification is made, it will be voted
FOR all of the Directors and the proposals listed in this Proxy Statement.
A proxy may be revoked at any time before it is exercised by written
notice to the Secretary of the Company, 103 West End Avenue, Somerville, New
Jersey 08876, bearing a date later than the proxy. The presence at the meeting
of any shareholder who submitted a proxy shall not revoke such proxy unless such
shareholder shall file written notice of revocation with the Secretary of the
Company prior to the voting of the proxy. All properly executed proxies which
are received by the Secretary and are not revoked will be voted. Where no
instructions are indicated, properly executed proxies will be voted "FOR" all of
the Directors and the Proposals.
THIS SOLICITATION IS MADE BY THE MANAGEMENT OF THE COMPANY and the cost
thereof shall be borne by the Company. Proxies may be solicited by mail, in
person or by telephone or facsimile by directors, officers or employees of the
Company and its subsidiary, Somerset Valley Bank. Such persons will receive no
additional compensation for their solicitation activities and will be reimbursed
only for their actual expenses in connection therewith. The Company will, upon
request, reimburse custodians, nominees, and fiduciaries for reasonable expenses
in forwarding materials to the proper shareholders. Mr. Willem Kooyker, a
Director of the Company, has informed the Company that he is opposed to Proposal
3 "Approval of the SVB Financial Services, Inc. 2000 Directors Stock Option
Plan." It is his position that the current compensation of the Board is adequate
and an increase at this time is inappropriate.
Voting Rights
Each share of Common Stock is entitled to one vote (non cumulative) on
all matters presented for
- 1 -
<PAGE>
shareholder vote. Abstentions and broker non-votes are counted for the purposes
of determining the presence or absence of a quorum for the transaction of
business. Abstentions are counted separately and are not considered as either a
vote "FOR" or "AGAINST" in tabulations of votes cast on proposals by the
shareholders. Broker non-votes are not counted at all for purposes of
determining whether a proposal has been approved.
Under New Jersey law and the Company's By-Laws a majority of the votes
cast at a meeting at which a quorum to transact business is present shall decide
the election of Directors. A majority of the votes cast is also needed to
approve Proposal 2 and Proposal 3.
Directors/Principal Shareholders/Executive Officers
In accordance with the By-Laws of the Company, its Board of Directors
shall, from time to time, fix the exact number of directors, up to 25. The
number is presently fixed at 14. All named below as Directors are presently
members of the Board and have served since the Company's inception in 1996. They
have also been members of the Board of the Bank since 1990 with the exception of
Mr. Bernstein, who has been a member since 1991.
The Company's Certificate of Incorporation provides that the Board of
Directors be classified and divided into three classes, as nearly equal in
number as possible. The five (5) Directors listed below have been nominated to
serve until the 2003 Annual Meeting or until their successor is elected and
qualified, or until their earlier resignation or removal.
The following table presents the name, title, address, age and
principal occupation of each nominee for Director followed by the remaining
Directors and the Executive Officers, the number of shares and the percentage of
the outstanding shares of Common Stock of the Company beneficially owned,
directly or indirectly, by each of them as of March 15, 2000. Each Director with
the exception of Mr. Corcoran owns 8,190 options to purchase 8,190 shares at a
price of $6.19 per share. These are included in the number of shares listed in
the table. These options expire June 26, 2002.
If Proposal 3 is approved each Director will be granted an option to
purchase 4,500 shares of Common Stock at fair market value on the date of the
grant. Mr. Kooyker, who objects to Proposal 3, will not be granted these options
at this time.
<PAGE>
<TABLE>
<CAPTION>
Shares
DIRECTORS Beneficially % of Total
Name, Title, and Address Age Principal Occupation Owned Outstanding
- ------------------------ --- -------------------- ----- -----------
Directors Nominated to Serve Until the 2003 Annual Meeting:
<S> <C> <C> <C>
John K. Kitchen 56 President of Title Central 61,320 1.94
Chairman of the Board & Director Agency, a title insurance
P.O. Box 421 firm
Somerville, NJ 08876
Anthony J. Santye, Jr. 49 Managing Partner of 53,751(1) 1.70
Director A. J. Santye and Co., an
36 East Main Street accounting and consulting
Somerville, NJ 08876 firm
G. Robert Santye 46 Director of Real Estate and 37,220(1) 1.18
Vice Chairman & Director Business Valuation Services
36 East Main Street for A. J. Santye and Co.
Somerville, NJ 08876
Herman C. Simonse 68 President of HCS Consultants, Inc. 45,150 1.43
Director
93 Douglass Avenue
Bernardsville, NJ 07924
Donald R. Tourville 63 Chairman and CEO of Zeus 160,740 5.09
Director Scientific, Inc., a manufacturer
P.O. Box 38 of diagnostic test kits
Raritan, NJ 08869
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
Shares
DIRECTORS Beneficially % of Total
Name, Title, and Address Age Principal Occupation Owned Outstanding
- ------------------------ --- -------------------- ----- -----------
Directors Whose Terms Expire in 2001. (9)
<S> <C> <C> <C>
Bernard Bernstein 62 President & CEO, 118,040 3.74
Director Mid-State Lumber Corp.,
200 Industrial Parkway a wholesale lumber
Branchburg, NJ 08876 distributor
Robert P. Corcoran 59 President & CEO 42,210(2) 1.34
President, CEO & Director Somerset Valley Bank
12 Harvest Court SVB Financial Services, Inc.
Flemington, NJ 08822
Raymond L. Hughes 68 President of N.J. Risk 54,369(3) 1.72
Director Managers & Consultants
20 West End Avenue
Somerville, NJ 08876
S. Tucker S. Johnson 34 Farmer 63,231 2.00
Director
P.O. Box 675
Oldwick, NJ 08858
Directors Whose Terms Expire in 2002.
Willem Kooyker 57 Chairman & CEO of Blenheim 279,547(4) 8.85
Director Investments, Inc., an international
2 Worlds Fair Drive fund management firm
Somerset, NJ 08875
Frank Orlando 66 Retired 135,269(5) 4.28
Director
786 Princeton Avenue
Brick, NJ 08724
Gilbert E. Pittenger 75 Retired 18,479 .59
Director
RD #1, Box 91
New Ringgold, PA 17960
Frederick D. Quick 68 President of Hesco 194,670(6) 6.16
Director Electric Supply Co., Inc.,
924 River Road a lighting and electrical
Neshanic Station, NJ 08853 supply firm
Donald Sciaretta 44 President of Claremont 80,920 2.56
Director Construction Group, Inc.
P.O. Box 808
Far Hills, NJ 07931
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Executive Officers
Keith B. McCarthy 42 Chief Operating 45,780(7) 1.45
Executive Vice President & Officer of the Bank
Treasurer Executive Vice President &
501 Red School Lane Treasurer of the Company
Phillipsburg, NJ 08865
Arthur E. Brattlof 56 Executive Vice President & 26,747(8) .85
9 Steeple Chase Court Chief Lending Officer
Bedminster, NJ 07921 of the Bank
--------- -----
Total Directors and Executive Officers as a Group 1,417,443 44.88
</TABLE>
The denominator in determining the % of Total Outstanding Shares was 3,157,943,
which includes outstanding stock options for 199,417 shares and 2,958,526 shares
issued and outstanding.
Principal Shareholder
In addition to those named in the above list, the following is a holder
of more than 5% of the outstanding shares of the Common Stock.
Shares
Beneficially % of Total
Name and Address Owned Outstanding
----------------------- --------------- ------------
Mark S. Gold, MD 180,150 5.70
2002 San Marco Blvd.
Jacksonville, FL 32207
- 3 -
<PAGE>
1) Includes 20,059 shares held by the A. J. Santye Co., PA Profit Sharing
Plan over which he and his brother, G. Robert Santye, Vice Chairman of
the Company, are trustees.
2) Included in this total are options to purchase 10,080 shares at $3.97
which expire April 30, 2001 and 10,500 shares at $6.19 which expire
November 20, 2002.
3) Includes 5,040 shares held by Hughes-Plumer Pension Fund and 28,224
shares held by Hughes-Plumer and Associates Profit Sharing Plan.
4) Includes 100,800 shares held in trusts for his three children and
10,558 shares held in an annuity in which his wife is a trustee.
5) Includes 68,040 shares held by Eight Mountain Trail, Inc. Employees
Profit Sharing Plan and 4,000 shares held in trusts for his
grandchildren.
6) Includes 31,500 shares held by Quick Family Investments LP.
7) Includes options to purchase 10,080 shares at $3.97 which expire April
30, 2001 and 10,500 shares at $6.19 which expire November 20, 2002.
8) Includes options to purchase 13,104 shares at $3.97 which expire April
30, 2001 and 10,500 shares at $6.19 which expire November 20, 2002.
9) This does not include Mark Gold, M.D., who served as Director until
December 27, 1999 and resigned to pursue other interests.
Section 16(a) Beneficial Ownership Reporting Compliance
The following Directors failed to file on a timely basis Form 4 as
required by Section 16(a) of the Securities Exchange Act of 1934 for the year
ended December 31, 1999.
Number of
Director's Name Late Reports
------------------------ -------------
S. Tucker S. Johnson 7
Bernard Bernstein 2
Gilbert Pittenger 1
Donald Sciaretta 2
Director Committees
All members of the Board of Directors of the Company also serve on the
Board of Directors of the Bank. There are six committees of the Board of
Directors of the Company and the Bank.
The Executive Committee is a committee of the Company and composed of
Messrs. Bernstein, Corcoran, Kitchen, Kooyker, Pittenger, Quick, G. R. Santye
and Tourville. The Committee reviews and approves the Bank's budget and
establishes the Bank's long range and strategic plans.
<PAGE>
The Audit Committee is a committee of the Company and composed of
Messrs. Hughes, Johnson, Quick, A. J. Santye, Jr. and Simonse. The Committee
formulates the Bank's audit policy, chooses the Company's accounting firm and
reviews audits conducted by the Company's internal and external auditors. The
members of the Audit Committee are independent as defined by Rule 4200 (a) (15)
of the National Association of Securities Dealers listing
- 4 -
<PAGE>
standards.
The Audit Committee has reviewed and discussed the financial statements
with management. The Audit Committee has discussed with the independent auditors
the matters required to be discussed by SAS 61.
The Audit Committee has received written disclosures and the letter
from the independent accountants required by Standards Board Standard No. 1 and
has discussed with the independent accountants the independent accountants'
independence. Based on the reviews and discussions above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-KSB for 1999 for filing with
the Securities and Exchange Commission.
The Loan Committee is a committee of the Bank and composed of Messrs.
Bernstein, Corcoran, Hughes, Kitchen, A. J. Santye, Jr., Sciaretta, Simonse and
Tourville. The Committee reviews and approves loans within certain predetermined
parameters, monitors the quality of the portfolio and insures that credit/rate
risks and the mix of loans are consistent with the Bank's loan and
asset/liability management policies.
The Real Estate Committee is a committee of the Bank and composed of
Messrs. Hughes, G. R. Santye, Sciaretta and Simonse, reviews appraisals for real
estate mortgages and construction loans and advises the Loan Committee and the
Board with respect to real estate lending.
The Investment Committee is a committee of the Bank and composed of
Messrs. Bernstein, Johnson, Kooyker, Orlando and Pittenger and periodically
reviews the Bank's investment portfolio for adherence to policy and approves its
investment strategy.
The Compensation Committee is a committee of the Bank and composed of
Messrs. Bernstein, Johnson, Kitchen, Kooyker, Orlando, Quick and A. J. Santye,
Jr. The Committee approves compensation and bonuses for the Bank's officers.
Messrs. Corcoran and Kitchen are ex-officio members of all the
committees, except the Audit Committee. Mr. McCarthy, is a non-director,
non-voting member of the Executive and Investment Committees. Mr. Brattlof is a
non-director voting member of the Loan Committee.
During 1999, the Board of Directors held 12 meetings, the Executive
Committee 3 meetings, the Loan Committee 14 meetings, the Audit Committee 3
meetings, the Investment Committee 4 meetings, the Compensation Committee 5
meetings, and the Real Estate Committee 14 meetings. In addition, there is
significant communication between the Board of Directors and the Company which
occurs apart from the regularly scheduled Board and Committee meetings and as a
result, the Bank does not regard attendance at meetings to be the primary
criterion to evaluate the contribution made by a Director. During 1999, all
Directors attended at least 75% of the total Board and Committee meetings with
the exception of Messrs. Hughes and Johnson. Attendance percentages for the Loan
Committee and Real Estate Committee are not included in these percentages.
Because of the frequency of Loan Committee and Real Estate Committee meetings,
only three Director Loan Committee members are required to conduct committee
meetings as set forth in the Bank's policy.
- 5 -
<PAGE>
Executive Compensation
The following table summarizes all compensation earned in the past
three complete fiscal years for services performed in all capacities for the
Company and the Bank with respect to the Executive Officers. The compensation
noted in the table has been paid by the Bank. No compensation has been paid by
the Company:
<TABLE>
<CAPTION>
Annual
Compensation All Other
Name and Position Year Salary Bonus Compensation
- ------------------ ---- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Robert P. Corcoran 1999 $156,000 $ 24,570(1) $ 17,556(3)
President & CEO of 1998 150,000 28,735 16,692(3)
the Company and the Bank 1997 136,500 25,088 16,410(3)
Keith B. McCarthy 1999 113,000 13,348(1) 6,493(4)
Treasurer of the Company 1998 108,650 15,609 23,233(5)
Chief Operating Officer of 1997 102,500 14,216 4,703(4)
the Bank
Arthur E. Brattlof 1999 104,000 12,285(1) 4,735(2)
Executive Vice President 1998 100,000 14,367 4,624(2)
of the Bank 1997 88,500 12,204 3,467(2)
</TABLE>
1) The Bonus for 1999 is based 75% on a comparison of the Company's
results for 1999 in comparison with certain predetermined financial
goals, this portion is the amount stated in the table. The remaining
25% is based on a comparison of the Bank's results with a group of 9
similar banks as chosen by the Compensation Committee of the Board.
Since the results of the peer group are not available at this time,
this amount has neither been determined nor paid.
2) Represents matching amounts contributed by the Bank to the 401(k) Plan.
3) Includes matching contributions to the 401(k) Plan of $6,240 in 1999,
$6,799 in 1998 and $5,308 in 1997, Director fees of $5,400 in 1999,
$4,950 in 1998 and $4,950 in 1997 and term life insurance premiums paid
by the Company of $5,916 in 1999, $4,943 in 1998 and $6,152 in 1997.
4) Includes matching contributions to the 401(k) Plan of $5,144 in 1999
and $4,028 in 1997 and life insurance premiums paid by the Company of
$1,349 in 1999 and $675 in 1997.
5) Includes matching contributions to the 401(k) Plan of $5,072, life
insurance premiums paid by the Company of $1,349 and a gain of $16,812
on the exercise of 7,200 options and their subsequent sale.
The Bank also maintains various medical, life and disability benefit
plans covering all its full-time employees. The Bank also provides automobiles
to the three executive officers mentioned in the previous table and one other
officer of the Bank. Such officers have some personal use of those vehicles such
as commuting to and from the Bank.
<PAGE>
Bonus Plan
During 1999, the Compensation Committee of the Board of Directors
approved a bonus plan for the three executive officers listed in the previous
table. Under the terms of the plan, cash bonuses will be paid to the executive
officers based upon a formula that includes the Company achieving certain
predetermined financial goals, the officers achieving certain predetermined
personal objectives and the performance of the Bank in comparison to the results
of a group of 9 similar banks as chosen by the Committee.
Bonuses were paid to other employees of the Company, who were employed
by the Company for the entire year based on the achievement of certain
predetermined financial goals.
- 6 -
<PAGE>
1997 Restated Incentive Stock Option Plan
On April 24, 1997, the shareholders approved the 1997 Restated
Incentive Stock Option Plan, which provides for officers and employees of the
Company to purchase up to 173,048 shares of Common Stock, as adjusted for splits
and a stock dividend. As of March 15, 2000 all options under this Plan have been
distributed. The purpose of the Plan is to (i) replace and expand certain
existing stock options of the Bank (ii) assist the Company and the Bank in
attracting and retaining qualified persons as their employees and (iii) to help
insure that employees of the Company and the Bank have shared economic interests
with the shareholders of the Company.
No options were granted under the Plan in 1999.
The following table depicts information with respect to stock options
for the three executive officers listed in the previous table:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1999 OPTION/SAR VALUES (1)
- ----------------------------------------------------------------------------------------------------------
NUMBER OF
UNEXERCISED VALUE OF
NUMBER OF SECURITIES UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED OPTIONS/SARs AT OPTION/SARs AT
ON VALUE DECEMBER 31, 1999 DECEMBER 31, 1999
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert P. Corcoran 10,080 $50,020 20,580 $80,220
Keith B. McCarthy 17,640 $83,328 20,580 $80,220
Arthur E. Brattlof - - 23,604 $95,436
</TABLE>
(1) All data is adjusted for the 5% stock dividend.
Certain Agreements
The Company has entered into employment agreements with Messrs.
Corcoran, McCarthy and Brattlof. The agreements provide for severance payments
in the event the officers are terminated without cause or resign with good
reason. Such benefits are equivalent to two times the base salary for Mr.
Corcoran payable over 24 months and one times the base salary for Messrs.
McCarthy and Brattlof payable over 12 months. In the event of a change of
control all three officers would receive a severance payment equal to two times
base salary payable over 24 months plus an annual payment for two years
equivalent to the average bonus paid during the last three years of employment.
Benefit Plans
The Bank maintains a 401(k) Plan covering substantially all employees.
Under the terms of the Plan, the Bank will match 67% of an employee's
contribution, up to 6% of the employee's salary. Employees become fully vested
in the Bank's contribution after five years of service. The Bank contributed
$66,000 to the Plan in 1999.
<PAGE>
During 1999, the Bank established a Supplemental Retirement Plan. The
Plan covers the three officers listed in the table above. Mr. Corcoran is
covered under a defined benefit plan, which provides a benefit of $75,000 per
year upon his retirement at age 65 for a period of ten years. Mr. Brattlof and
Mr. McCarthy are covered under a defined contribution plan, the object of which
is to provide for an income of $50,000 per year each upon their retirement at
age 65 for a period of ten years. The Bank expensed $25,000 for these plans in
1999.
- 7 -
<PAGE>
Director Compensation
During 1999, Directors of the Bank received compensation for service on
the Board of Directors of $450 per Board of Directors meeting attended and $100
for each committee meeting. Mr. John K. Kitchen as Chairman of the Board
received compensation of $30,000 in addition to his other per meeting fees.
No compensation was paid for Board of Directors meetings of the
Company. Directors are paid $100 for each committee meeting attended.
1997 Directors Stock Option Plan
On April 24, 1997, the shareholders of the Company approved the 1997
Directors Stock Option Plan. The Plan is intended to promote the Company's
interest by establishing a mechanism to reward Directors based on future
increases in the value of the Company's stock. This will help retain the
services of persons who are now Directors and provide incentives for them to
exert maximum efforts for the success of the Company and its affiliates.
On June 26, 1997, each non employee member of the Company's Board of
Directors was granted an option to purchase 8,190 shares, as adjusted for the
stock splits and stock dividend, of the Common Stock of the Company at $6.19 per
share, which was the fair market value of the Common Stock as of that date.
As there were 14 Directors eligible to participate under the 1997
Directors Stock Option Plan, all of the shares available under the Plan are
subject to option. Therefore, no shares were granted during 1999.
Transactions with Related Persons
It is currently the policy of the Company and Bank not to extend credit
or make loans to any of its Directors or their affiliates.
A partnership made up of, among others, all but one of the Bank's
Directors owns and leases the premises to the Bank at 103 West End Avenue and
117 West End Avenue. The lease for 103 West End Avenue, which is the principal
banking facility, was reviewed by both the FDIC and the Department of Banking
prior to the Bank's opening in 1991 to determine that the terms of the lease are
comparable to those the Bank would have received in an arms length transaction
with an unaffiliated third party. Neither the FDIC nor the Department of Banking
objected to the terms of the lease. The office space at 117 West End Avenue is
also leased at such comparable terms.
PROPOSAL TO APPROVE THE 2000 INCENTIVE STOCK OPTION PLAN
The purpose of the 2000 Incentive Stock Option Plan is to provide a
means by which selected employees of the Company and its affiliates (which
includes Somerset Valley Bank and subsidiaries) may be given an opportunity to
purchase stock of the Company. The Company, by means of the Plan, seeks to
retain the services of persons who are now employees of the Company or of its
affiliates, to secure and retain the services of new employees of the Company
and of its affiliates, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its affiliates.
The following is a summary of the proposed features of the 2000
Incentive Stock Option Plan, which is qualified in its entirety by reference to
the 2000 Incentive Stock Option Plan which is annexed hereto as Exhibit A. As
indicated in the text of the 2000 Incentive Stock Option Plan, any provision of
the 2000 Stock Option Plan which is determined to be inconsistent with the
applicable laws and regulations will be deemed void.
- 8 -
<PAGE>
Administration
The 2000 Incentive Stock Option Plan may be administered by a Committee
appointed by the Board of Directors composed of not fewer than two (2) members
of the Board to serve in its place with respect to the Plan. All members of such
committee shall be Disinterested Persons, to the extent required or desirable
under regulations of the United States Securities and Exchange Commission (SEC).
Disinterested persons are persons not eligible for awards under the Plan. Under
the terms of the 2000 Incentive Stock Option Plan, the Committee has the
authority to (i) determine the employees who shall receive the grant of
incentive stock options, the time or times at which, options shall be granted,
the number of shares of stock subject to each option and the vesting schedule of
such options (ii) determine the fair market value of the Common Stock of the
Company or of its affiliates, (iii) determine the exercise price per share (but
not less than 100% of fair market value) at which options may be exercised, (iv)
determine the terms and provisions of each option granted and the forms of each
option agreement, and subject to the consent of the optionee, to modify and
amend any outstanding option agreement, (v) accelerate or defer (with the
consent of the optionee) the date of any outstanding option, to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an option previously granted by the Committee, (vi) amend the 2000
Stock Option Plan if required by the Internal Revenue Code of 1986, as amended
or by Rule 16(b)-3 of the Exchange Act (vii) construe or interpret the 2000
Stock Option Plan, (viii) authorize the sale of shares of Common Stock in
connection with exercise of the options, (ix) to effect, with the consent of the
optionee, the cancellation of any outstanding options and to grant in
substitution thereof new options relating to the same or different numbers of
shares, (x) make all other determinations deemed necessary or advisable for the
administration of the plan.
Shares Reserved
Subject to adjustments for certain changes in the number of shares of
Common Stock, a total of 150,000 shares of the Company's Common Stock shall be
available for issuance under the 2000 Stock Option Plan. Stock subject to the
plan may be unissued shares or reacquired shares, bought on the market or
otherwise. Incentive stock options may be granted to eligible persons in such
number and at such times as the Committee may determine. However, to the extent
that the aggregate fair market value (determined at the time of the grant) of
stock with respect to which incentive stock options are exercisable for the
first time by any optionee during any calendar year under all plans of the
Company and its affiliates exceed One Hundred Thousand ($100,000) Dollars, the
options or portions thereof that exceed such limit shall be treated as options
not qualified for incentive stock option treatment.
Eligibility
Options under the 2000 Incentive Stock Option Plan may be granted only
to employees of the Company or of its affiliates. A Director shall only be
eligible for the benefits of the plan if he or she is also an employee,
provided, however, a Director shall in no event be eligible for the benefits of
the plan unless at the time discretion is exercised in the selection of the
Director as a person to whom options may be granted, or in the selection of the
Director as a person to whom options may be granted, or in the determination of
the number of optioned shares which may be covered by options granted to the
Director: (i) the Committee consists only of non-employee Directors; or (ii) the
plan otherwise complies with the requirements of Section 16 (b) and the related
SEC roles. This provision does not apply prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act.
<PAGE>
No person shall be eligible for the grant of an incentive stock option,
if, at the time of the grant, such person owns or is deemed to own pursuant to
Section 424 (d) of the Internal Revenue Code of 1986, as amended, stock
possessing more than ten (10%) of the total combined voting power of all classes
of stock of the Company or of any of its affiliates, unless the exercise price
of the option is at least one hundred and ten percent (110%) of the fair market
value (as defined in the 2000 Incentive Stock Option Plan) of such stock at the
date of the grant and the incentive stock option is not exercisable after the
expiration of five (5) years from the date of the grant.
- 9 -
<PAGE>
Terms of Options
The exercise price shall not be less than one hundred percent (100%) of
the fair market value (as defined in the 2000 Incentive Stock Option Plan) of
the stock subject to the option on the date the option is granted (except as
noted under Eligibility with respect to owners of ten (10%) percent of the total
combined voting stock of the Company or of any of its affiliates.) No option
shall be exercisable after the expiration of five (5) years from the date it was
granted and the term of the option shall be stated in the Option Agreement.
Generally, an option shall be deemed exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option Agreement by the person entitled to exercise the option and full payment
has been received by the Company. The purchase price of the stock acquired
pursuant to the option shall be paid, at the time the option is exercised, to
the extent permitted by the statutes and regulations at the time that the option
is exercised, either in cash or check.
In the event that an optionee's continuous status as an employee (as
defined in the 2000 Incentive Stock Option Plan) terminates (other than by death
or disability), the optionee may exercise his or her option but only prior to
(i) the expiration of three (3) months after the date of such termination and
(ii) expiration of the term of the option as set forth in the Option Agreement,
and only to the extent that the optionee was entitled to exercise it as of the
date of such termination.
In the event that an optionee's continuous status as an employee
terminates as a result of the optionee's disability, the optionee or his or her
personal representative may exercise his or her option, but only within twelve
(12) months from the date of such termination, and only to the extent that such
optionee was entitled to exercise it on the date of such termination (but in no
event later than the expiration of the term of the option as set forth in the
Option Agreement).
In the event of the death of the optionee, the option may be exercised,
at any time within twelve (12) months of the death of the optionee (or such
longer or shorter time as may be specified in the Option Agreement) but in no
event later than the expiration date of the option as set forth in the Option
Agreement.
Nontransferability
An incentive stock option shall not be transferrable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the optionee only by such person.
Amendment
The Committee at any time may amend the Plan, provided however, that if
required or desirable under SEC Rule 16b-3 no amendment shall be made more than
once every six (6) months, other than to comport with the changes in the Code,
ERISA, or other rules and regulation promulgated thereunder. It is contemplated
that the Committee may amend the Plan in any respect the Committee deems
necessary or advisable to bring the Plan and the Options granted thereunder into
compliance with the Code and Rule 16b-3.
<PAGE>
The Company will obtain shareholder approval of any Plan amendment to
the extent necessary or desirable to comply with Rule 16b-3 or with the Code or
any successor rule or statute or other rule or regulation, including the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted. The rights and obligations under the options granted before
the amendment of the Plan shall not be altered or impaired by the amendment of
the Plan unless consented to in writing by the optionee.
- 10 -
<PAGE>
Termination
The Committee may suspend or terminate the Plan at any time, however,
the rights and obligations under any obligation granted while the Plan is in
effect shall not be altered or impaired by the suspension or termination of the
Plan except with the consent of the optionee. Unless sooner terminated, the Plan
shall terminate within ten (10) years of the date the Plan was adopted by the
Board of Directors or approved by the shareholders whichever date is earlier.
Adjustments upon Changes in Capitalization or Merger
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock subject to the Plan and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no option has yet been granted or have been returned to the Plan upon
cancellation or expiration, as well as the price per share of Common Stock shall
be proportionally adjusted for any increase or decrease in the number of issued
shares of the Common Stock, resulting from a stock split, stock dividend,
combination or reclassification of shares of Common Stock effected without
consideration by the Company. Such adjustment shall be made by the Committee,
whose determination shall be final, binding and conclusive.
In the event of dissolution or liquidation of the Company, each
outstanding option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in its sole discretion, declare that any option shall terminate as of a date
fixed by the Committee and give each optionee the right to exercise his or her
option as to all or any part of the optioned shares, including the shares as to
which the option would not otherwise be exercisable.
In the event of a proposed sale of substantially all of the assets of
the Company, or the merger, restructure, reorganization or consolidation of the
Company with or into another entity or entities in which the shareholders of the
Company receive cash or securities of another issuer, or any combination
thereof, in exchange for their shares of Common Stock, each outstanding option
shall be assumed or an equivalent option shall be substituted by such successor
entity or an affiliate of such successor entity, unless the Committee
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the optionee shall have the right to exercise
the option as to all optioned shares, including shares as to which the option
would not otherwise be vested. Notwithstanding anything to the contrary in the
Plan, the Committee may grant options which provide for acceleration of the
vesting of shares subject to an option upon Change of Control as defined in the
Plan.
Certain Federal Income Tax Consequences
The following summary generally describes the principal Federal (and
not state and local) income tax consequences of options granted under the 2000
Incentive Stock Option Plan. It is general in nature and is not intended to
cover all tax consequences that may apply to a particular participant in the
2000 Incentive Stock Option Plan to the Company. The provisions of the Code and
regulations thereunder relating to these matters are complicated and their
impact in any one case may depend upon the particular circumstances. This
discussion is based on the Code as currently in effect.
If an incentive stock option is awarded to a participant in accordance
with the terms of the 2000 Incentive Stock Option Plan, no income will be
recognized by such participant at the time of the grant.
<PAGE>
Generally, on exercise of an incentive stock option, the participant
will not recognize any income and the Company will not be entitled to a
deduction for tax purposes. However, the difference between the purchase price
and the fair market value of the shares of Common Stock received on the date of
exercise will be treated as a positive adjustment in determining alternative
minimum taxable income, which may subject the participant to the alternative
minimum tax. Upon the disposition of shares acquired upon exercise of an
incentive stock option under the 2000 Incentive Stock Option Plan, the
participant will ordinarily recognize long-term or short term capital gain or
loss
- 11 -
<PAGE>
(depending on the applicable holding period). Generally, however, if the
participant disposes of shares of Common Stock acquired upon exercise of an
incentive stock option within two years after the date of grant or within one
year after the date of exercise (a "disqualifying disposition"), the optionee
will recognize ordinary income, and the Company will be entitled to a deduction
for tax purposes, the amount of the excess of the fair market value of the
shares on the date of exercise over the purchase price (or the gain on sale, if
less). Any excess of the amount realized by the optionee on the disqualifying
disposition over the fair market value of the shares on the date of exercise of
the incentive stock option will ordinarily constitute capital gain. In the case
of an optionee subject to the restrictions of Section 16(b) of the Exchange Act,
the relevant date in measuring the optionee's ordinary income and the Company's
tax deduction in connection with any such disqualifying disposition. May be
affected by compliance with the requirements of Section 16 (b).
Shareholder Approval Required
Approval of the 2000 Incentive Stock Option Plan by the shareholders is
required in order for incentive stock options to qualify as "performance-based"
compensation under Section 162(m) of the Code, for incentive stock options to
meet the requirements of Section 422 of the Code. Approval is also a listing
requirement of the NASDAQ National Market.
New Plan Benefits Table
The Company has not included a benefits table because the number of
incentive stock options that will be awarded to employees in the future pursuant
to the 2000 Incentive Stock Option Plan cannot be determined at this time. In
addition, because no incentive stock option will have an exercise price of less
than the fair market value of the Common Stock at the date of shareholder
approval, these incentive stock options have no value at the present time.
The Board of Directors believes that the adoption of the 2000 Incentive
Stock Option Plan is in the best interests of the shareholders. Among other
things, the 2000 Incentive Stock Option Plan will tend to encourage the
retention of equity ownership in the Company by employees, which will tend to
align the interest of such employees with the interests of shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE 2000 INCENTIVE STOCK OPTION PLAN.
PROPOSAL TO APPROVE THE 2000 DIRECTORS STOCK OPTION PLAN
The 2000 Directors Stock Option Plan was adopted, subject to
shareholder approval, by the Board of Directors on January 27, 2000. The 2000
Directors Stock Option Plan is intended to promote the Company's interests by
establishing a mechanism to reward Directors based upon future increases in the
value of the Company's stock. This will help retain the services of persons who
are now Directors and provide incentives for them to exert maximum efforts for
the success of the Company and its affiliates.
The following is a summary of the proposed features of the 2000
Directors Stock Option Plan, which is qualified in its entirety by reference to
the 2000 Directors Stock Option Plan which is annexed hereto as Exhibit B. As
indicated in the text of the 2000 Directors Stock Option Plan, any provision of
the 2000 Directors Stock Option Plan which is determined to be inconsistent with
the applicable laws and regulations will be deemed void.
<PAGE>
Administration
The 2000 Directors Stock Option Plan may be administered by a Committee
appointed by the Board of Directors composed of not fewer than two (2) members
of the Board to serve in its place with respect to the Plan.
- 12 -
<PAGE>
No member of the Committee may be an employee or officer of the Company or any
affiliate. Under the terms of the 2000 Directors Stock Option Plan, the
Committee has the authority to (i) determine the fair market value of the Common
Stock of the Company or of its affiliates, (ii) determine the terms and
provisions of each option granted and the forms of each option agreement, and
subject to the consent of the optionee, to modify and amend any outstanding
option agreement, (iii) accelerate or defer (with the consent of the optionee)
the date of any outstanding option, (iv) authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
option, (v) construe or interpret the 2000 Directors Stock Option Plan, (vi)
authorize the sale of shares of Common Stock in connection with exercise of the
options, (vii) to effect, with the consent of the optionee, the cancellation of
any outstanding options and to grant in substitution thereof new options
relating to the same or different numbers of shares, (viii) make all other
determinations deemed necessary or advisable for the administration of the plan.
Shares Reserved
Subject to adjustments for certain changes in the number of shares of
Common Stock. A total of 60,000 shares of the Company's Common Stock shall be
available for issuance under the 2000 Directors Stock Option Plan. Stock subject
to the Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
Eligibility and Grant of Options
Upon approval of the 2000 Directors Stock Option Plan each non-employee
member of the Company's Board of Directors as of December 31, 1999, with the
exception of Mr. Kooyker, who has declined to participate in the Plan at this
time, will be granted an option to purchase 4,615 shares of the Common Stock at
100% of the fair market value as of the date of shareholder approval. As of
March 15, 2000, the fair market value of the Common Stock is $8.875 per share. A
Director is not eligible to participate if he/she is also an officer or
employee. The only person who is both a Director and an Officer is Mr. Robert
Corcoran. Accordingly, as a group all Directors, with the exception of Mr.
Kooyker, who are not officers or employees will receive options to purchase
55,380 shares available under the 2000 Directors Stock Option Plan upon approval
by the shareholders.
Terms of Options
The exercise price shall not be less than one hundred percent (100%) of
the fair market value (as defined in the 2000 Directors Stock Option Plan) of
the stock subject to the option on the date the option is granted. No Option
shall be exercisable after the expiration of five (5) years from the date it was
granted and the term of the option shall be stated in the Option Agreement.
Generally, an option shall be deemed exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option Agreement by the person entitled to exercise the option and full payment
has been received by the Company. The purchase price of the stock acquired
pursuant to the option shall be paid, at the time the option is exercised, to
the extent permitted by the statutes and regulations at the time that the option
is exercised, either in cash or check.
<PAGE>
In the event that an optionee's continuous status as a Director (as
defined in the 2000 Directors Stock Option Plan) terminates (other than by death
or disability), the optionee may exercise his or her option but only prior to
(i) the expiration of three (3) months after the date of such termination and
(ii) expiration of the term of the option as set forth in the Option Agreement,
and only to the extent that the optionee was entitled to exercise it as of the
date of such termination.
- 13 -
<PAGE>
In the event that an optionee's continuous status as a Director
terminates as a result of the optionee's disability, the optionee or his or her
personal representative may exercise his or her option, but only within twelve
(12) months from the date of such termination, and only to the extent that such
optionee was entitled to exercise it on the date of such termination (but in no
event later than the expiration of the term of the option as set forth in the
Option Agreement).
In the event of the death of the optionee, the option may be exercised,
at any time within twelve (12) months of the death of the optionee (or such
longer or shorter time as may be specified in the Option Agreement) but in no
event later than the expiration date of the option as set forth in the Option
Agreement.
Transferability
A Director's stock option shall not be transferrable except: (i) by
will or by laws of descent and distribution or pursuant to a qualified domestic
relations order, as defined by the Code or Title I of the Employee Retirement
Income Act, as amended ("ERISA"), or the rules thereunder (a "QDRO") and shall
be exercisable during the lifetime of the optionee only by such person or any
transferee pursuant to a QDRO; or (ii) without payment of consideration, to
immediate family members (i.e. spouses, children and grandchildren) of the
optionee or to a trust for the benefit of such family members, or partnership
whose only partners are such family members.
Adjustments upon Changes in Capitalization or Merger
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock subject to the Plan and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no option has yet been granted or have been returned to the Plan upon
cancellation or expiration, as well as the price per share of Common Stock shall
be proportionally adjusted for any increase or decrease in the number of issued
shares of the Common Stock, resulting from a stock split, stock dividend,
combination or reclassification of shares of Common Stock effected without
consideration by the Company. Such adjustment shall be made by the Committee,
whose determination shall be final, binding and conclusive.
In the event of dissolution or liquidation of the Company, each
outstanding option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in its sole discretion, declare that any option shall terminate as of a date
fixed by the Committee and give each optionee the right to exercise his or her
option as to all or any part of the optioned shares, including the shares as to
which the option would not otherwise be exercisable.
In the event of a proposed sale of substantially all of the assets of
the Company, or the merger, restructure, reorganization or consolidation of the
Company with or into another entity or entities in which the shareholders of the
Company receive cash or securities of another issuer, or any combination
thereof, in exchange for their shares of Common Stock, each outstanding option
shall be assumed or an equivalent option shall be substituted by such successor
entity or an affiliate of such successor entity, unless the Committee
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the optionee shall have the right to exercise
the option as to all optioned shares, including shares as to which the option
would not otherwise be vested. Notwithstanding anything to the contrary in the
Plan, the Committee may grant options which provide for acceleration of the
vesting of shares subject to an option upon Change of Control as defined in the
Plan.
<PAGE>
Certain Federal Income Tax Consequences
The following summary generally describes the principal federal (and
not state and local) income tax consequences of options granted under the 2000
Directors Stock Option Plan. It is general in nature and is not intended to
cover all tax consequences that may apply to a particular participant in the
2000 Directors Stock Option Plan or to the Company. The provisions of the Code
and the regulations thereunder relating to these matters are complicated and
their impact in any one case may depend upon the particular circumstances. This
discussion is based
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<PAGE>
on the Code as currently in effect.
If a grant is awarded to a participant in accordance with the terms of
the 2000 Directors Stock Option Plan, no income will be recognized by such
participant at the time the grant is awarded.
Generally, on exercise of a nonqualified stock option, the amount by
which the fair market value of the Common Stock on the date of exercise exceeds
the purchase price of such shares will be taxable to the participant as ordinary
income, and will be deductible for tax purposes by the Company, in the year in
which the participant recognizes the ordinary income. The disposition of shares
acquired upon exercise of a nonqualified stock option ordinarily will result in
long term or short term capital gain or loss (depending on the applicable
holding period) in an amount equal to the difference between (i) the amount
realized on such disposition and (ii) the sum of (x) the purchase price and (y)
the amount of ordinary income recognized in connection with the exercise of the
nonqualified stock option.
Section 16(b) of the Exchange Act generally requires officers,
directors and ten percent shareholders of the Company to disgorge profits from
buying and selling the Common Stock within a six month period. Generally, unless
the participants in the 2000 Directors Stock Option Plan elect otherwise, the
relevant date for measuring the amount of ordinary income to be recognized upon
the exercise of a nonqualified stock option will generally be the date of
exercise.
If a nonqualified stock option is exercised through the use of Common
Stock previously owned by the participant, such exercise generally will not be
considered a taxable disposition of the previously owned shares and, thus, no
gain or loss will be recognized with respect to the shares used to exercise the
option.
The Company may be required to withhold tax on the amount of income
recognized by an optionee upon exercise of a nonqualified stock option.
Shareholder Approval
While shareholder approval of the 2000 Directors Stock Option Plan is
no longer required by Section 16(b) of Exchange Act or by New Jersey law, such
approval is required by the explicit terms of the Plan and by the listing
requirements. Should shareholder approval not be obtained the Plan will not take
effect.
MR. WILLEM KOOYKER HAS INFORMED THE COMPANY THAT HE IS OPPOSED TO THE
2000 DIRECTORS STOCK OPTION PLAN. IT IS HIS POSITION THAT THE CURRENT
COMPENSATION OF THE BOARD IS ADEQUATE AND AN INCREASE AT THIS TIME IS
INAPPROPRIATE. THE REMAINING DIRECTORS RECOMMEND A VOTE FOR APPROVAL OF THE 2000
DIRECTORS OPTION PLAN.
New Plan Benefit Table
The Company has not included a benefits table because the options will
have exercise prices equal to the fair market value of the Common Stock as of
the date of shareholder approval, these options have no value at the present
time.
Independent Public Accountants
The Board of Directors has selected Grant Thornton LLP to be the
independent public accountants for the Company for the fiscal year ending
December 31, 2000. A member of that firm will be present at the Annual Meeting
and available to respond to appropriate questions from the shareholders, and
make a statement if desired to do so.
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Financial and Other Information Incorporated by Reference
A copy of the Company's 1999 Annual Report is being sent to each
shareholder along with this Proxy Statement and is incorporated herein by
reference. This information should be read by shareholders in conjunction with
this Proxy Statement.
Proposals by Security Holders
Proposals by shareholders intended to be presented at the 2001 Annual
Meeting of Shareholders (which the Company currently intends to hold in April of
2001) must be received by the Secretary of the Company by November 28, 2000 for
inclusion in its Proxy Statement and form of proxy relating to that meeting. If
the date of the next annual meeting is changed by more than 30 calendar days
from such anticipated time frame, the Company shall, in a timely manner, inform
its shareholders of the change and the date by which proposals of shareholders
must be received. All such proposals should be directed to the attention of the
Secretary, SVB Financial Services, Inc., 103 West End Avenue, Somerville, New
Jersey 08876.
Other Matters Which May Properly Come Before the Meeting
The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting other than that stated in the
Notice. Should any other matter properly come before the meeting and any
adjournment thereof, it is intended that proxies in the enclosed form will be
voted in respect thereof in accordance with the judgment of the person or
persons voting the proxies.
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<PAGE>
EXHIBIT A
SVB FINANCIAL SERVICES, INC.
2000 INCENTIVE STOCK OPTION PLAN
1. PURPOSES.
(a) Opportunity to Purchase Stock. The purpose of the Plan is
to provide a means by which selected Employees of the Company and its Affiliates
may be given an opportunity to purchase stock of the Company. The Company, by
means of the Plan, seeks to retain the services of persons who are now Employees
of the Company and its Affiliates, to secure and retain the services of new
Employees of the Company and its Affiliates, and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
(b) Incentive Stock Options. The Company intends that the
Options issued under the Plan shall be Incentive Stock Options.
(c) The 2000 Incentive Stock Option Plan is a new incentive
stock option plan in addition to the Company's existing 1997 Restated Incentive
Stock Option Plan.
1. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary
corporation of the Company, as those terms are defined in Sections 424(e) and
(f) respectively of the Code, whether such corporations are now or are hereafter
existing.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" means the occurrence, at any time
after December 31, 1996, of (i) a merger or consolidation of the Company with or
into another Person or the merger of another Person into the Company or the
transfer ownership of any voting stock of the Company to any Person or "group"
(as such term is defined in Section 13 (d)(3) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act")), of Persons as a consequence of which
those Persons who held the voting stock of the Company immediately prior to such
merger, consolidation or transfer do not hold either directly or indirectly a
majority of the voting stock of the Company (or, if applicable, the surviving
company of such merger or consolidation) after the consummation of such merger,
consolidation or transfer; (ii) the sale of all or substantially all of the
assets of the Company to any Person or "group" of Persons (other than to an
entity which owns a majority or more of the Common Stock of the Company, a
subsidiary of the Company, or an entity whose equity interests are owned
directly or indirectly by the Company or by an entity which owns directly or
indirectly a majority or more of the Common Stock of the Company); or (iii) any
event or series of events (which event or series of events must include a proxy
fight or proxy solicitation with respect to the election of directors of the
Company made in opposition to the nominees recommended by the Continuing
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Directors) during any period of 12 consecutive months all or any portion of
which is after as a result of which a majority of the Board of Directors of the
Company consists of individuals other than Continuing Directors.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the Board of Directors of the Company
unless a separate Committee has been appointed by the Board in accordance with
Section 3(c) of the Plan.
(f) "Common Stock" means the common stock of SVB Financial
Services, Inc., a New Jersey corporation.
(g) "Company" means SVB Financial Services, Inc., a New Jersey
corporation.
(h) "Continuing Directors of the Company" means with respect
to any period of 12 consecutive months (i) any members of the Board of Directors
of the Company on the first day of such period, (ii) any member of the Board of
Directors of the Company elected after the first day of such period at any
annual meeting of the shareholders who were nominated by the Board of Directors
or a committee thereof, if a majority of the members of the Board of Directors
or such Committee were Continuing Directors at the time of such nomination, and
(iii) any members of the Board of Directors of the Company elected to succeed
Continuing Directors of the Board of Directors or a committee thereof, if a
majority of the members of the Board of Directors or such committee were
Continuing Directors at the time of such election.
(i) "Continuous Status as an Employee" means the employment or
relationship as an employee is not interrupted or terminated with the Company or
any Affiliate. Continuous Status as an Employee shall not be considered
interrupted in the case of : (1) any sick leave, military leave, or any leave of
absence approved by the Committee; provided, however, that for purposes of the
Incentive Stock Options, any such leave is for a period of not more than ninety
(90) days or reemployment upon the expiration of such leave is guaranteed by
contract or statute; or (2) transfers between locations of the Company or
between the Company and its Affiliates or between the Company or its Affiliates
on the one hand and their successors, on the other hand.
(j) "Director" means a member of the Board.
(k) "Disability" means permanent and total disability as
defined in Section 22 (e) (3) of the Code.
(l) "Non-Employee Director" means a Director who is considered
to be a "non-employee director" in accordance with Section (b) (3) (i) of Rule
16b-3, and any other applicable rules, regulations and interpretations of the
Securities and Exchange Commission.
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(m) "Employee" means any person, including officers and
Directors, employed by the Company or any Affiliate. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(n) "Exchange Act" means the Securities and Exchange Act of
1934, as amended.
(o) "Fair Market Value" means, as of the any date, the value
of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation (NASDAQ) System, the Fair Market Value of a share of Common Stock
shall be the Closing sales price for such stock on the date of determination
(or, if no such price is reported on such date, such price as reported on the
nearest preceding day) as quoted on such system or exchange (or exchange with
the greatest volume of trading in the Common Stock), as reported in The Wall
Street Journal or such other source as the Committee deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of Common Stock shall be the mean of the closing bid and
the asked prices for the Common Stock on the date of determination (or, if such
prices are not reported for such date, such prices as reported on the nearest
preceding date), as reported in the Wall Street Journal or such other source as
the Committee deems reliable;
(iii) If the Fair Market Value is not determined pursuant to
(i) or (ii) above, then the Fair Market Value shall be determined in good faith
by the Committee.
(p) "Incentive Stock Option" means an Option qualifying as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "Nonstatutory Stock Option" means an Option not qualifying
as an Incentive Stock Option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
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(r) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the
Plan.
(t) "Option Agreement" means a written agreement between the
Company and the Optionee evidencing the conditions of an individual Option
grant. The Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "Optioned Shares" means with respect to any Option the
Shares of the Common Stock subject to the Option.
(v) "Optionee" means an Employee or Consultant who holds an
outstanding Option.
(w) "Person" means an individual or an entity.
(x) "Plan" the SVB Financial Services, Inc. 2000 Incentive
Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3.
(z) "Shares" shall mean a share of Common Stock, as adjusted
in accordance with Section 10.
2. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the
Committee.
(b) Powers. The Committee shall have the power, subject to,
and within the limitations of, the express provisions of the Plan to:
(i) grant Options;
(ii) determine, in accordance with Section 6 of
the Plan, the Fair Market Value per Share of
the Common Stock;
(iii) determine, in accordance with Section 6, the
exercise price per Share at which Options may
be exercised;
(iv) determine the Employees to whom, and the time
or times at which, Options shall be granted,
the number of shares of Optioned Stock
subject to each Option and the vesting
schedule of such Options;
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(v) determine the terms and provisions of each
Option granted (which need not be identical)
and the forms of Option Agreements and, with
the consent of the Optionee, and subject to
Section 11, to modify or amend any
outstanding Option;
(vi) accelerate or defer (with the consent of the
Optionee) the date of any outstanding Option;
(vii) authorize any person to execute on behalf of
the Company any instrument required to
effectuate the grant of an Option previously
granted by the Committee;
(viii) amend the Plan as provided in Section 11;
(ix) construe and interpret the Plan and Options
granted under it, and to establish, amend and
revoke rules and regulations for the
administration of the Plan, subject to
Section 11; including correcting any defect,
omission or inconsistency in the Plan or in
any Option Agreement, in any manner and to
the extent it shall deem necessary or
expedient to make the Plan Fully effective;
(x) authorize the sale of shares of the Company's
Common Stock in connection with the exercise
of the Options;
(xi) effect, at any time and from time to time,
with the consent of the affected Optionee,
the cancellation of any or all outstanding
Options and grant in substitution thereof new
Options relating to the same or different
numbers of Shares, but having an exercise
price per share consistent with Section 6(b)
at the date of the new Option grant; and
(xii) make all other determination deemed necessary
or advisable for the administration of the
Plan.
(c) Committee. The Board may appoint a committee composed of
not fewer than two (2) members of the Board to serve in its place with respect
to the Plan. All of the members of such Committee shall be Disinterested
Persons, if required under Section 3 (d). From time to time, the Board may
increase the size of the Committee and appoint such additional members, remove
members (with or without cause) and substitute new members of the committee,
fill vacancies, (however caused) and remove members of the committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules governing plans intended to qualify as a discretionary plan under Rule
16b-3.
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(d) Exchange Act Registration. Any requirement that an
administrator of the Plan be a Disinterested Person shall not apply (i) prior to
the date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act or (ii) if the Board or the Committee expressly
declares that such requirement shall not apply. Any Disinterested Person shall
otherwise comply with the requirements of Rule 16b-3.
3. SHARES SUBJECT TO PLAN.
(a) Number of Shares. Subject to the provisions of Section 10
relating to adjustments upon changes in stock, the stock that may be sold
pursuant to Options is 150,000 shares of the Company's Common Stock. If any
Option shall for any reason expire or otherwise terminate without having been
exercised in full, the Optioned Shares not purchased under such Option shall
revert to and again become available for issuance under the Plan unless the Plan
shall have terminated; provided, however, that Shares that have actually been
issued under the Plan shall not be returned to the Plan and shall not become
available for future issuance under the Plan.
(b) Stock Subject to Plan. The stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY.
(a) Employees. Incentive Stock Options may be granted to
Employees only.
(b) 10% Holders. No person shall be eligible for the grant of
an Incentive Stock Option, if, at the time of the grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates unless the exercise price of the Option is
at least one hundred ten percent (110%) of the Fair Market Value of such stock
at the date of the grant and the Incentive Stock Option is not exercisable after
the expiration of five (5) years from the date of the grant.
(c) Directors. A Director shall only be eligible for the
benefits of this Plan if he or she is also an Employee, provided, however, a
Director shall in no event be eligible for the benefits of the Plan unless at
the time discretion is exercised in the selection of the Director as a person to
whom Options may be granted, or in the selection of the Director as a person to
whom Options may be granted, or in the determination of the number of Optioned
Shares which may be covered by Options granted to the Director: (i) the
Committee consists only of Non-Employee Directors; or, (ii) the Plan otherwise
complies with the requirements of Section 16b-3.
(d) Other Limits on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined at the time of the grant) of
stock with respect to which Incentive
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Stock Options are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds One
Hundred Thousand ($100,000) Dollars, the Options or portions thereof that exceed
such limit (according to the order in which they were granted) shall be treated
as Nonstatutory Stock Options.
5. OPTION PROVISIONS.
Each Option Agreement shall be in such form and contain such
terms and conditions as the Committee shall deem appropriate. In the event that
any provision of the Option Agreement and the Plan conflict, the provisions of
the Plan shall control. The provisions of separate Options need not be
identical, but each Option Agreement shall include (through incorporation of
provisions hereof by reference in the Option Agreement or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration
of five (5) years from the date it was granted and the term of each Option shall
be stated in the Option Agreement.
(b) Price. Subject to Section 5, the exercise price shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Stock Option shall not be less than the par value of the Optioned Shares on
the date the Option was exercised.
(c) Consideration. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations at the time the Option is exercised, either in cash or
check.
(d) Exercise. Subject to 9(f), an Option shall be deemed
exercised when written notice of such exercise has been given to the Company in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company by cash or check. Each
Optionee who exercises an Option shall, upon notification of the amount due (if
any) and prior to or concurrent with delivery of the certificate representing
the Shares, pay to the Company by cash or check, amounts necessary to satisfy
applicable federal, state or local tax withholding requirements.
(e) Non-Transferability. An Incentive Stock Option shall not
be transferrable except by will or by laws of descent and distribution and shall
be exercisable during the lifetime of the Optionee only by such person.
(f) Vesting. The total number of shares of stock subject to an
Option may, but need not, be allocated in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of the installment periods, the option may become exercisable
("Vest") with respect to some of all of the Shares allotted to that period and
may
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<PAGE>
be exercised with respect to some or all of the Shares allotted to such period
and/or any prior period as to which the Option became vested but has not been
fully exercised. During the remainder of the term of the Option, (if its term
extends beyond the end of the installment period), the Option may be exercised
from time to time with respect to any Shares then remaining subject to the
Option. The provisions of the this subsection are subject to any Option
provisions governing minimum number of Shares as to which an Option may be
exercised. Options may not be exercised in fractional shares.
(g) Securities Compliance. The Company may require any
Optionee, or any person to whom an Option is transferred under Section 6 (f), as
a condition of exercising such Option, (i) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone, or together with the purchaser representative, the merits and risks of
exercising the Option; (ii) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with the present intention of selling or
otherwise distributing the stock; and (iii) to deliver such other documentation
as may be necessary to comply with federal and state securities laws. These
requirements and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the Shares upon the exercise of the Option
has been registered under a then effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and all applicable
state securities laws, or (ii) as to any such requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the applicable securities laws. The Company may, upon advice
of Counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary and appropriate in order to comply with
applicable securities laws, including but not limited to, legends restricting
the transfer of the stock, and may enter stop-transfer orders against the
transfer of the Shares of Common Stock issued upon the exercise of an Option.
The Company has no obligation to undertake registration of Options or the Shares
of Common Stock issued upon the exercise of an Option.
(h) Termination of Employment. In the event an Optionee's
Continuous Status an Employee terminates (other than by the Optionee's death or
disability), the Optionee may exercise his or her Option but only prior to the
(i) expiration of three (3) months after the date of such termination and (ii)
expiration of the term of the Option as set forth in the Option Agreement, and
only to the extent that the Optionee was entitled to exercise it at the date of
such termination. If, at the date of such termination, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If after termination, the Optionee does not fully
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate and the Shares covered by the unexercised portion of
the such Plan shall revert to and again become available under the Plan.
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(i) Disability of Optionee. In the event that an Optionee's
Continuous Status as an Employee terminates as a result of the Optionee's
Disability, the Optionee or his or her personal representative may exercise his
or her Option, but only within twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
the term of the Option as set forth in the Option Agreement). If, at the date of
such termination, the Optionee is not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert to and again be available under the Plan. If, after such termination, the
Optionee does not fully exercise his or her Option within the time period
specified herein, the Option shall terminate and the Shares covered by the
unexercised portion of the Option shall revert to and again become available
under the Plan.
(j) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised , at any time within twelve (12) months
following the date of death (or such longer or shorter time as may be specified
in the Option Agreement) but in no event later than the expiration date of the
Option as set forth in the Option agreement, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Optionee was entitled to exercise the Option as
of the date of his or her death. If at the time of death, the Optionee was not
entitled to exercise his or her entire Option, then the Shares covered by the
unexercisable portion of the Option shall revert to and again become available
under the Plan. If, after death, the Optionee's estate or a person who acquired
the right to exercise the Option, does not fully exercise the Option within the
time period specified herein, then the Shares covered by the unexercised portion
of the Option shall revert to and again become available under the Plan.
6. COVENANTS OF THE COMPANY.
(a) Reserves. During the term of the Options, the Company
shall keep available at all times and shall reserve the number of shares
required to satisfy such Options upon exercise.
(b) Regulatory Approvals. The Company shall seek and obtain
from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Options; provided, however, that this undertaking shall not require the Company
to register under the Securities Act either the Plan or any Option or any Shares
issued or issuable pursuant to such Options. If, after reasonable efforts, the
Company is unable to obtain from such regulatory commission or agency the
authority that counsel for the Company deems necessary for the lawful issuance
and sale of the Shares under the Plan, the Company shall be relieved from any
liability for failure to issue or sell Shares upon exercise of such Options
unless and until authority is obtained.
7. USE OF PROCEEDS FROM STOCK.
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Proceeds from the sale of the stock pursuant to Options shall
constitute general funds of the Company.
8. MISCELLANEOUS.
(a) Acceleration of Vesting. The committee shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will Vest pursuant to Section 6
(g), notwithstanding the provisions in the Option Agreement stating the time at
which it may first be exercised or the time during which it will Vest.
(b) No Rights as Shareholder. Neither an Optionee nor any
person to whom an Option is transferred under Section 6(f) shall be deemed to be
the holder of or to have any of the rights of a holder with respect to, any
Shares subject to such Option including, but not limited to, rights to vote or
to receive dividends unless and until such person has satisfied all requirements
for the exercise of the Option according to its terms, the certificates
evidencing such Shares have been issued and such person has become the record
owner of such Shares.
(c) No Right To Continue as Employee. Nothing in the Plan or
any instrument executed or Option granted pursuant thereto shall confer upon any
Employee, or Optionee any right to continue in the employ of the Company, or any
Affiliate or shall affect the right of the Company or any Affiliate to terminate
the employment or the relationship of any Employee or Optionee with or without
cause.
(d) Date of Grant. Once shareholder approval of the Plan has
been obtained, the date of grant of an Option shall, for all purposes, be the
date on which the Committee makes the determination granting such Option. Notice
of the determination shall be given to each Optionee within a reasonable time
after the date of such grant. The Code may cause the grant date to be recognized
as the date of the grant even though shareholder approval has not been obtained.
(e) Rule 16b-3. With respect to persons subject to Section 16
of the Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 and with respect to such persons all
transactions shall be subject to such conditions regardless of whether they are
expressly set forth in the Plan or the Option Agreement. To the extent any
provision of the Plan or action by the Committee fails to comply, it shall not
apply to such persons or their transactions and shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.
(f) Conditions Upon Exercise of Options. Notwithstanding any
other provisions, Shares shall not be issued and Options shall not be exercised
unless he exercise of such Option and the Issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
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thereunder, and the requirements of any stock exchange (including NASDAQ) upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(g) Grants Exceeding Allotted Shares. If the Optioned Shares
exceed, as of the date of the grant, the number of shares that may be issued
under the Plan without additional shareholder approval, such Option shall be
void with respect to such excess Shares, unless shareholder approval of an
amendment to the Plan sufficiently increasing the number of Shares subject to
the Plan is timely obtained in accordance with Section 11 of the Plan.
(h) Notice. Any written notice to the Company required by any
of the provisions of the Plan shall be addressed to the Secretary of the Company
and shall be effective when it is received. Any written notice to Optionee
required by the Plan shall be addressed to the Optionee at the address on file
for the Optionee with the Company and shall become effective 3 days after it is
mailed by certified mail, postage prepaid to such address or at the time of
delivery if delivered sooner by messenger or overnight delivery service.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the maximum number of Shares of Common Stock
subject to the Plan, the number of shares of Common Stock covered by each
outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Option has yet been
granted or have been returned to the plan upon cancellation or expiration of an
option, as well as the price per share of Common Stock shall be proportionally
adjusted for any increase or decrease in the number of issued shares of the
Common Stock, resulting from a stock split, stock dividend, combination or
reclassification of shares of Common Stock effected without consideration by the
Company; provided, however that the conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or exercise price of Optioned Shares.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Committee and give each Optionee the right to exercise his
or her Option as to all or any part of the Optioned Shares, including Shares as
to which the Option would not otherwise be exercisable.
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(c) Merger or Asset Sale. Subject to Section 10 (b), in the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger, restructure, reorganization or consolidation of the
Company with or into another entity or entities in which the shareholders of the
Company receive cash or securities of another issuer, or any combination
thereof, in exchange for their shares of Common Stock, each outstanding Option
shall be assumed or an equivalent option shall be substituted by such successor
entity or an Affiliate of such successor entity, unless the Committee
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all Optioned Shares, including Shares as to which the Option
would not otherwise be vested. If the Committee makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger,
restructure, reorganization, consolidation or sale of assets, the Committee
shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the notice, and the Option will terminate upon
the expiration of such period. For the purposes of this Section, the Option
shall be considered to be assumed if following the merger, restructure,
reorganization, consolidation or sale of assets, the Option confers the right to
purchase, for each Optioned Share immediately prior to the merger, restructure,
reorganization, consolidation or sale of assets, the consideration (whether in
stock, cash, or other securities or property) received in the merger or sale of
asset by holders of Common Stock for each share of Common Stock for each share
of Common Stock held on the effective date of the consummation of the
transaction (and if holders were offered a choice of consideration, the type of
consideration, the type of Common Stock); provided, however, that if such
consideration received in the solely common equity of the successor entity or
its Affiliates, the Committee may, with the consent of the successor entity the
Optionee, provide for the consideration to be received upon the exercise of the
Option, for each Optioned Share, to be solely Common Stock of the successor
entity or its Affiliates equal Common Stock in the merger, restructure,
reorganization, consolidation or sale of assets.
(d) Change of Control. Notwithstanding anything to the
contrary, the Committee may grant options which provide for the acceleration of
the vesting of shares subject to an Option upon a Change of Control. Such
provisions shall be set forth in the Option Agreement.
10. AMENDMENT OF THE PLAN.
(a) Amendments by the Committee. The Committee at any time,
from time to time, may amend the Plan, provided, however, that if required by
Rule 16b-3, no amendment shall be made more than once every six months, other
than to comport with the changes in the Code, ERISA or the rules and regulations
promulgated thereunder.
(b) Compliance with the Code and Rule 16b-3. It is expressly
contemplated that the Committee may amend the Plan in any respect the Committee
deems necessary or advisable to bring the Plan and the Options granted hereunder
into compliance with the Code and Rule 16b-3.
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(c) Shareholder Approval. Notwithstanding anything to the
contrary, the Company shall obtain shareholder approval of any Plan amendment to
the extent necessary or desirable to comply with Rule 16b-3 or with the Code (or
any successor rule or statute or other applicable law, rule or regulation,
including the requirements or any exchange or quotation system on which the
Common Stock is listed or quoted). Such shareholder approval, if required shall
be obtained in such manner and to such degree as is required by the applicable
law, rule or regulation.
(d) Rights and Obligations Granted Prior to Amendments. Rights
and obligations under any Option granted before amendment of the Plan shall not
be altered or impaired by any amendment of the Plan unless (i) the Company
requests the consent of the Optionee or his or her successor and (ii) such
person consents in writing.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) Termination Date. The Committee may suspend or terminate
the Plan at any time. Unless sooner terminated, the Plan shall terminate within
ten (10) years of the date the Plan is adopted by, the Board of Directors or
approved by shareholders of the Company which ever date is earlier. No Options
may be granted under the Plan while it is suspended or after it is terminated.
(b) Alteration of Existing Rights. Rights and obligations
under any Option granted while the Plan is in effect shall not be altered or
impaired by the suspension or termination of the Plan except with the consent of
the Optionee or his or her successor.
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company. Continuance of the Plan shall
be subject to the approval of the shareholders within 12 months from the date of
the Plan or the Board.
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EXHIBIT B
SVB FINANCIAL SERVICES, INC.
2000 DIRECTORS STOCK OPTION PLAN
2. PURPOSES.
(a) Opportunity to Purchase Stock. The purpose of the Plan is
to provide a means by which Directors of the Company and its Affiliates may be
given an opportunity to purchase stock of the Company. The Company, by means of
the Plan, seeks to retain the services of persons who are now Non-Employee
Directors of the Company and its Affiliates, and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
(b) Nonstatutory Stock Options. The Company intends that the
Options issued under the Plan shall be Nonstatutory Stock Options.
13. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary
corporation of the Company, as those terms are defined in Sections 424(e) and
(f) respectively of the Code, whether such corporations are now or are hereafter
existing.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Board of Directors of the Company
unless a separate Committee has been appointed by the Board in accordance with
Section 3(c) of the Plan.
(e) "Common Stock" means the common stock of SVB Financial
Services, Inc., a New Jersey corporation.
(f) "Company" means SVB Financial Services, Inc., a
corporation of the State of New Jersey.
(g) "Continuous Status as a Director" means the relationship
as member of the Board of Directors is not interrupted or terminated with the
Company or any Affiliate. Continuous Status as a Director shall not be
considered interrupted in the case of : (1) any sick leave, military leave, or
any leave of absence approved by the Committee.
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(h) "Director" means a member of the Board and includes
Directors who are officers and Employees of the Company or its Affiliates and
Directors that are neither Employees or Officers of the Company or any of its
Affiliates.
(i) "Disability" means permanent and total disability as
defined in Section 22 (e) (3) of the Code.
(j) "Non-Employee Director" means a Director who is considered
to be a "non-employee director" in accordance with Section (b) (3) (i) of Rule
16b-3, and any other applicable rules, regulations and interpretations of the
Securities and Exchange Commission.
(k) "Employee" means any person, including officers and
Directors, employed by the Company or any Affiliate. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities and Exchange Act of
1934, as amended.
(m) "Fair Market Value" means, as of the any date, the value
of the Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national
market system, including without limitation
the National Market System of the National
Association of Securities Dealers, Inc.
Automated Quotation (NASDAQ) System, the
Fair Market Value of a Share of Common Stock
shall be the Closing sales price for such
stock on the date of determination (or, if
no such price is reported on such date, such
price as reported on the nearest preceding
day) as quoted on such system or exchange
(or exchange with the greatest volume of
trading in the Common Stock), as reported in
The Wall Street Journal or such other source
as the Committee deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market
System thereof) or is regularly quoted by a
recognized securities dealer but selling
prices are not reported, the Fair Market
Value of a Share of Common Stock shall be
the mean of the closing bid and the asked
prices for the Common Stock on the date of
determination (or, if such prices are not
reported for such date, such prices as
reported on the nearest preceding date), as
reported in the Wall Street Journal or such
other source as the Committee deems
reliable;
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(iii) If the Fair Market Value is not determined
pursuant to (i) or (ii) above, then the Fair
Market Value shall be determined in good
faith by the Committee.
(n) "Non-Statutory Stock Option" means an Option not
qualifying as an Incentive Stock Option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p)"Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written agreement between the
Company and the Optionee evidencing the conditions of an individual Option
grant. The Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "Optioned Shares" means with respect to any Option the
Shares of the Common Stock subject to the Option.
(s) "Optionee" means a Director who holds an outstanding
Option.
(t) "Person" means an individual or an entity.
(u) "Plan" the SVB Financial Services, Inc. 2000 Directors
Stock Option Plan.
(v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3.
(w) "Shares" shall mean a Share of Common Stock, as adjusted
in accordance with Section 10.
14. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the
Committee.
(b) Powers. The Committee shall have the power, subject to,
and within the limitations of, the express provisions of the Plan to:
(i) determine, in accordance with Section 6 of
the Plan, the Fair Market Value per Share of
the Common Stock;
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(ii) determine the terms, provisions, and the
forms of Option Agreements and, with the
consent of the Optionee, and subject to
Section 11, to modify or amend any
outstanding Option;
(iii) accelerate or defer (with the consent of the
Optionee) the date of any outstanding
Option;
(iv) authorize any person to execute on behalf of
the Company any instrument required to
effectuate the grant of an Option;
(v) construe and interpret the Plan and Options
granted under it, and to establish, amend
and revoke rules and regulations for the
administration of the Plan, subject to
Section 11; including correcting any defect,
omission or inconsistency in the Plan or in
any Option Agreement, in any manner and to
the extent it shall deem necessary or
expedient to make the Plan Fully effective;
(vi) effect, at any time and from time to time,
with the consent of the affected Optionee,
the cancellation of any or all outstanding
Options and grant in substitution thereof
new Options relating to the same numbers of
Shares, but having an exercise price per
Share consistent with Section 6(b) at the
date of the new Option grant; and
(vii) make all other determination deemed
necessary or advisable for the
administration of the Plan.
(c) Committee. The Board may appoint a committee composed of
not fewer than two (2) members of the Board to serve in its place with respect
to the Plan. All of the members of such Committee shall be Non- Employee
Directors, if required under Section 3(d). From time to time, the Board may
increase the size of the Committee and appoint such additional members, remove
members (with or without cause) and substitute new members of the committee,
fill vacancies, (however caused) and remove members of the committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules governing plans intended to qualify as a discretionary plan under Rule
16b-3.
(d) Exchange Act Registration. Any requirement that an
administrator of the Plan be a Non-Employee Director shall not apply if the
Board or the Committee expressly declares that such requirement shall not apply.
Any Non-Employee Director shall otherwise comply with the requirements of Rule
16b-3.
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15 GRANT OF OPTIONS AND SHARES SUBJECT TO PLAN.
(a) Upon the Effective Date of the Plan as set forth in
Section 13 hereof, each Non-Employee Director as of December 31, 1999 shall be
granted an Option to purchase 4,500 Shares of the Common Stock at Fair Market
Value on said Effective Date.
(b) Number of Shares. Subject to the provisions of Section 10
relating to adjustments upon changes in stock, the stock that may be sold
pursuant to Options is 60,000 Shares of the Company's Common Stock. If any
Option shall for any reason expire or otherwise terminate without having been
exercised in full, the Optioned Shares not purchased under such Option shall not
become available for future issuance under the Plan.
(c) Stock Subject to Plan. The stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
16 ELIGIBILITY.
(a) Directors Eligible. Nonstatutory Stock Options shall be
granted to each of the Non-Employee Directors upon the Effective Date of the
Plan as set forth in Section 13 hereof immediately following adoption of the
Plan by the Board and approval thereof by the stockholders as provided in
Section 13 hereafter.
(b) Directors. A Director shall be eligible for the benefits
of the Plan only if he/she is a Non-Employee Director.
17 OPTION PROVISIONS.
Each Option Agreement shall be in such form and contain such
terms and conditions as the Committee shall deem appropriate. In the event that
any provision of the Option Agreement and the Plan conflict, the provisions of
the Plan shall control. The provisions of separate Options need not be
identical, but each Option Agreement shall include (through incorporation of
provisions hereof by reference in the Option Agreement or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration
of five (5) years from the date it was granted and the term of each Option shall
be stated in the Option Agreement.
(b) Price. The exercise price shall be not less than one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. The exercise price of each Stock
Option shall not be less than the par value of the Optioned Shares on the date
the Option was exercised.
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(c) Consideration. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations at the time the Option is exercised, either in cash or
check.
(d) Exercise. Subject to 9(f), an Option shall be deemed
exercised when written notice of such exercise has been given to the Company in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company by cash or check. Each
Optionee who exercises an Option shall, upon notification of the amount due (if
any) and prior to or concurrent with delivery of the certificate representing
the Shares, pay to the Company by cash or check, amounts necessary to satisfy
applicable federal, state or local tax withholding requirements.
(e) Non-Transferability. A Directors Stock Option shall not be
transferrable except: (i) by will or by laws of descent and distribution or
pursuant to a qualified domestic relations order, as defined by the Code or
Title I of the Employee Retirement Income Act, as amended ("ERISA), or the rules
thereunder (a "QDRO") and shall be exercisable during the lifetime of the
Optionee only by such person or any transferee pursuant to a QDRO; or (ii)
without payment of consideration, to immediate family members (i.e. spouses,
children and grandchildren) of the Optionee or to a trust for the benefit of
such family members, or partnership whose only partners are such family members.
(f) Securities Compliance. The Company may require any
Optionee, or any person to whom an Option is transferred under Section 6 (f), as
a condition of exercising such Option, (i) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone, or together with the purchaser representative, the merits and risks of
exercising the Option; (ii) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with the present intention of selling or
otherwise distributing the stock; and (iii) to deliver such other documentation
as may be necessary to comply with federal and state securities laws. These
requirements and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the Shares upon the exercise of the Option
has been registered under a then effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and all applicable
state securities laws, or (ii) as to any such requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the applicable securities laws. The Company may, upon advice
of Counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary and appropriate in order to comply with
applicable securities laws, including but not limited to, legends restricting
the transfer of the stock, and may enter stop-transfer orders against the
transfer of the Shares of Common Stock issued upon the exercise of an Option.
The Company has no
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obligation to undertake registration of Options or the Shares of Common Stock
issued upon the exercise of an Option.
(g) Termination of Service. In the event an Optionee's
Continuous Status a Director terminates (other than by the Optionee's death or
disability), the Optionee may exercise his or her Option but only prior to the
(i) expiration of three (3) months after the date of such termination and (ii)
expiration of the term of the Option as set forth in the Option Agreement, and
only to the extent that the Optionee was entitled to exercise it at the date of
such termination. If after termination, the Optionee does not fully exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(h) Disability of Optionee. In the event that an Optionee's
Continuous Status as a Director terminates as a result of the Optionee's
Disability, the Optionee or his or her personal representative may exercise his
or her Option, but only within twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
the term of the Option as set forth in the Option Agreement). If, after such
termination, the Optionee does not fully exercise his or her Option within the
time period specified herein, then the Option shall terminate.
(i) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised , at any time within twelve (12) months
following the date of death (or such longer or shorter time as may be specified
in the Option Agreement) but in no event later than the expiration date of the
Option as set forth in the Option agreement, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Optionee was entitled to exercise the Option as
of the date of his or her death. If, after death, the Optionee's estate or a
person who acquired the right to exercise the Option, does not fully exercise
the Option within the time period specified herein, then the Option shall
terminate.
18 COVENANTS OF THE COMPANY.
(a) Reserves. During the term of the Options, the Company
shall keep available at all times and shall reserve the number of Shares
required to satisfy such Options upon exercise.
(b) Regulatory Approvals. The Company shall seek and obtain
from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Options; provided, however, that this undertaking shall not require the Company
to register under the Securities Act either the Plan or any Option or any Shares
issued or issuable pursuant to such Options. If, after reasonable efforts, the
Company is unable to obtain from such regulatory commission or agency the
authority that counsel for the Company deems necessary for the lawful issuance
and sale of the Shares under the Plan, the Company shall be relieved from any
liability for failure to issue or sell Shares upon exercise of such Options
unless and until authority is obtained.
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19 USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of the stock pursuant to Options shall
constitute general funds of the Company.
20 MISCELLANEOUS.
(a) No Rights as Shareholder. Neither an Optionee nor any
person to whom an Option is transferred under Section 6(f) shall be deemed to be
the holder of or to have any of the rights of a holder with respect to, any
Shares subject to such Option including, but not limited to, rights to vote or
to receive dividends unless and until such person has satisfied all requirements
for the exercise of the Option according to its terms, the certificates
evidencing such Shares have been issued and such person has become the record
owner of such Shares.
(b) No Right To Continue as Director. Nothing in the Plan or
any instrument executed or Option granted pursuant thereto shall confer upon any
Director or Optionee any right to continue in the employ of the Company, or any
Affiliate, or to continue to serve as a member of the Board of Directors of the
Company or any Affiliate or shall affect the right of the Company or any
Affiliate to terminate the employment or the relationship of any Director,
Employee, Officer or Optionee with or without cause.
(c) Date of Grant. Once Shareholder approval of the Plan has
been obtained, the date of grant of an Option shall, for all purposes, be the
date on which the Shareholder approval of the Plan was obtained. Notice shall be
given to each Optionee within a reasonable time after the date of such grant.
(d) Rule 16b-3. With respect to persons subject to Section 16
of the Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 and with respect to such persons all
transactions shall be subject to such conditions regardless of whether they are
expressly set forth in the Plan or the Option Agreement. To the extent any
provision of the Plan or action by the Committee fails to comply, it shall not
apply to such persons or their transactions and shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.
(e) Conditions Upon Exercise of Options. Notwithstanding any
other provisions, Shares shall not be issued and Options shall not be exercised
unless the exercise of such Option and the Issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange (including NASDAQ) upon
which the Shares may then be listed,
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and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(f) Notice. Any written notice to the Company required by any
of the provisions of the Plan shall be addressed to the Secretary of the Company
and shall be effective when it is received. Any written notice to Optionee
required by the Plan shall be addressed to the Optionee at the address on file
for the Optionee with the Company and shall become effective 3 days after it is
mailed by certified mail, postage prepaid to such address or at the time of
delivery if delivered sooner by messenger or overnight delivery service.
21 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Changes in Capitalization. Subject to any required action
by the Shareholders of the Company, the maximum number of Shares of Common Stock
subject to the Plan, the number of Shares of Common Stock covered by each
outstanding Option and the number of Shares of Common Stock that have been
authorized for issuance under the Plan but have been returned to the plan upon
cancellation or expiration of an option, as well as the price per Share of
Common Stock shall be proportionally adjusted for any increase or decrease in
the number of issued Shares of the Common Stock, resulting from a stock split,
stock dividend, combination or reclassification of Shares of Common Stock
effected without consideration by the Company; provided, however that the
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of Shares of stock of any class, or securities convertible into Shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or exercise price of Optioned Shares.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Committee and give each Optionee the right to exercise his
or her Option as to all or any part of the Optioned Shares, including Shares as
to which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. Subject to Section 10 (b), in the
event of a proposed sale of all or substantially all of the assets of the
Company, or the merger, restructure, reorganization or consolidation of the
Company with or into another entity or entities in which the Shareholders of the
Company receive cash or securities of another issuer, or any combination
thereof, in exchange for their Shares of Common Stock, each outstanding Option
shall be assumed or an equivalent option shall be substituted by such successor
entity or an Affiliate of such successor entity, unless the Committee
determines, in the exercise of its sole discretion and in lieu of such
assumption or
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substitution, that the Optionee shall have the right to exercise the Option as
to all Optioned Shares, including Shares as to which the Option would not
otherwise be vested. If the Committee makes an Option fully exercisable in lieu
of assumption or substitution in the event of a merger, restructure,
reorganization, consolidation or sale of assets, the Committee shall notify the
Optionee that the Option shall be fully exercisable for a period of thirty (30)
days from the notice, and the Option will terminate upon the expiration of such
period. For the purposes of this Section, the Option shall be considered to be
assumed if following the merger, restructure, reorganization, consolidation or
sale of assets, the Option confers the right to purchase, for each Optioned
Share immediately prior to the merger, restructure, reorganization,
consolidation or sale of assets, the consideration (whether in stock, cash, or
other securities or property) received in the merger or sale of asset by holders
of Common Stock for each Share of Common Stock for each Share of Common Stock
held on the effective date of the consummation of the transaction (and if
holders were offered a choice of consideration, the type of consideration, the
type of Common Stock); provided, however, that if such consideration received in
the solely common equity of the successor entity or its Affiliates, the
Committee may, with the consent of the successor entity the Optionee, provide
for the consideration to be received upon the exercise of the Option, for each
Optioned Share, to be solely Common Stock of the successor entity or its
Affiliates equal Common Stock in the merger, restructure, reorganization,
consolidation or sale of assets.
22 AMENDMENT OF THE PLAN.
(a) Amendments by the Committee. The Committee at any time,
from time to time, may amend the Plan, provided, however, that if required by
Rule 16b-3, no amendment shall be made more than once every six months, other
than to comport with the changes in the Code, ERISA or the rules and regulations
promulgated thereunder.
(b) Compliance with the Code and Rule 16b-3. It is expressly
contemplated that the Committee may amend the Plan in any respect the Committee
deems necessary or advisable to bring the Plan and the Options granted hereunder
into compliance with the Code and Rule 16b-3.
(c) Shareholder Approval. Notwithstanding anything to the
contrary, the Company shall obtain Shareholder approval of any Plan amendment to
the extent necessary or desirable to comply with Rule 16b-3 or with the Code (or
any successor rule or statute or other applicable law, rule or regulation,
including the requirements o any exchange or quotation system on which the
Common Stock may be listed or quoted). Such Shareholder approval, if required,
shall be obtained in such manner and to such degree as is required by the
applicable law, rule or regulation.
(d) Rights and Obligations Granted Prior to Amendments. Rights
and obligations under any Option granted before amendment of the Plan shall not
be altered or impaired by any amendment of the Plan unless (i) the Company
requests the consent of the Optionee or his or her successor and (ii) such
person consents in writing.
10
<PAGE>
23 TERMINATION OR SUSPENSION OF THE PLAN.
(a) Termination Date. The Committee may suspend or terminate
the Plan at any time. Unless sooner terminated, the Plan shall terminate within
ten (10) years of the date the Plan is adopted by, the Board of Directors or
approved by Shareholders of the Company which ever date is earlier. No Options
may be granted under the Plan while it is suspended or after it is terminated.
(b) Alteration of Existing Rights. Rights and obligations
under any Option granted while the Plan is in effect shall not be altered or
impaired by the suspension or termination of the Plan except with the consent of
the Optionee or his or her successor.
24 EFFECTIVE DATE OF PLAN AND GRANT OF OPTIONS.
The Plan and the Options granted hereunder shall become
effective as of the date of approval of the Plan by the affirmative votes of the
holders of a majority of the Common Stock present, or represented, and entitled
to vote at the 2000 Annual meeting of the Shareholders duly held in accordance
with the applicable laws of the State of New Jersey.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated January 18, 2000, accompanying the
consolidated financial statements included in the 1999 Annual Report of SVB
Financial Services, Inc. on Form 10-KSB for the year ended December 31, 1999. We
hereby consent to the incorporation by reference of said reports in the
Registration Statement of SVB Financial Services, Inc. on Forms S-8 (File No.
333-66131, effective October 26, 1998 and File No. 333-66165, effective October
27, 1998).
/s/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 24, 2000
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