<PAGE>
As filed with the Securities and Exchange Commission on November 13, 1997
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________.
Commission File Number: 33-41102
SILICON VALLEY BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2856336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3003 Tasman Drive
Santa Clara, California 95054-1191
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 654-7282
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
At October 31, 1997, 9,917,704 shares of the registrant's common stock
(no par value) were outstanding.
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This report contains a total of 29 pages.
1
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TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED INCOME STATEMENTS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 28
ITEM 2. CHANGES IN SECURITIES 28
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 28
ITEM 5. OTHER INFORMATION 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 28
SIGNATURES 29
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Dollars in thousands) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 142,031 $ 122,836
Federal funds sold and securities purchased under
agreement to resell 386,290 310,341
Investment securities, at fair value 837,372 625,022
Loans, net of unearned income 1,037,268 863,492
Allowance for loan losses (38,600) (32,700)
- ---------------------------------------------------------------------------------------------------------
Net loans 998,668 830,792
Premises and equipment 3,601 4,155
Other real estate owned 800 1,948
Accrued interest receivable and other assets 37,077 29,450
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Total assets $2,405,839 $1,924,544
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Liabilities and Shareholders' Equity:
Liabilities:
Noninterest-bearing demand deposits $ 691,486 $ 599,257
NOW deposits 12,693 8,443
Money market deposits 1,406,922 1,081,391
Time deposits 117,109 85,213
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Total deposits 2,228,210 1,774,304
Other liabilities 15,348 14,840
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Total liabilities 2,243,558 1,789,144
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Shareholders' Equity:
Preferred stock, no par value:
20,000,000 shares authorized; none outstanding
Common stock, no par value:
30,000,000 shares authorized; 9,880,647 and
9,329,993 shares outstanding at September 30, 1997
and December 31, 1996, respectively 79,283 65,968
Retained earnings 87,555 67,321
Net unrealized gain on available-for-sale investments 1,969 2,456
Unearned compensation (6,526) (345)
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Total shareholders' equity 162,281 135,400
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Total liabilities and shareholders' equity $2,405,839 $1,924,544
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</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
-------------------------- -------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 28,349 $ 23,236 $ 77,874 $ 65,536
Investment securities 10,897 7,040 29,020 16,455
Federal funds sold and securities purchased under
agreement to resell 4,925 3,019 11,891 9,527
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Total interest income 44,171 33,295 118,785 91,518
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Interest expense:
Deposits 15,117 10,353 38,791 27,438
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Total interest expense 15,117 10,353 38,791 27,438
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Net interest income 29,054 22,942 79,994 64,080
Provision for loan losses 1,716 2,962 7,682 6,550
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Net interest income after provision for loan losses 27,338 19,980 72,312 57,530
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Noninterest income:
Disposition of client warrants 708 618 4,953 2,880
Letter of credit and foreign exchange income 1,159 759 3,249 2,493
Deposit service charges 588 359 1,360 1,200
Investment gains 33 - 78 1
Other 318 277 973 825
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Total noninterest income 2,806 2,013 10,613 7,399
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Noninterest expense:
Compensation and benefits 10,625 7,914 29,100 23,259
Professional services 1,958 1,329 5,088 3,538
Business development and travel 1,077 683 3,063 1,961
Furniture and equipment 1,178 859 2,602 2,452
Net occupancy expense 840 706 2,493 2,329
Postage and supplies 420 359 1,122 1,108
Advertising and promotion 354 437 1,082 1,067
Telephone 370 355 1,004 956
Cost of other real estate owned 30 19 56 345
Other 766 546 2,429 1,939
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Total noninterest expense 17,618 13,207 48,039 38,954
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Income before income tax expense 12,526 8,786 34,886 25,975
Income tax expense 5,261 3,514 14,652 10,390
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Net income $ 7,265 $ 5,272 $ 20,234 $ 15,585
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Net income per common and
common equivalent share $ 0.71 $ 0.54 $ 1.99 $ 1.61
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</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
--------------------------------
September 30, September 30,
1997 1996
(Dollars in thousands) (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,234 $ 15,585
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 7,682 6,550
Provision for other real estate owned - 551
Depreciation and amortization 974 880
Net gain on sales of investment securities (78) (1)
Net gain on sales of other real estate owned (45) (407)
Increase in accrued interest receivable (5,260) (3,671)
(Increase) decrease in prepaid expenses (180) 2,594
Increase in unearned income 1,757 1,182
Increase (decrease) in accrued liabilities 896 (1,866)
Other, net (2,643) (3,398)
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Net cash provided by operating activities 23,337 17,999
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Cash flows from investing activities:
Proceeds from maturities and paydowns of investment
securities 923,336 716,999
Proceeds from sales of investment securities 105,476 9,699
Purchases of investment securities (1,236,675) (893,856)
Net increase in loans (181,605) (111,751)
Proceeds from recoveries of charged off loans 3,121 1,946
Net proceeds from sales of other real estate owned 1,193 2,092
Purchases of premises and equipment (426) (310)
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Net cash applied to investing activities (385,580) (275,181)
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Cash flows from financing activities:
Net increase in deposits 453,906 278,772
Proceeds from issuance of common stock, net of
issuance costs 3,481 1,957
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Net cash provided by financing activities 457,387 280,729
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Net increase in cash and cash equivalents 95,144 23,547
Cash and cash equivalents at January 1,433,177 342,325
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Cash and cash equivalents at September 30, $ 528,321 $ 365,872
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Supplemental Disclosures:
Interest Paid $ 38,514 $ 27,405
Income taxes paid $ 14,585 $ 11,932
Non-cash investing activities:
Transfer of loans to other foreclosed assets $ 1,169 $ -
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</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Silicon Valley Bancshares (the
"Company") and its subsidiaries conform with generally accepted accounting
principles and prevailing practices within the banking industry. Certain
reclassifications have been made to the Company's 1996 consolidated financial
statements to conform to the 1997 presentations. Such reclassifications had
no effect on the results of operations or shareholders' equity. The following
is a summary of the significant accounting and reporting policies used in
preparing the interim consolidated financial statements.
NATURE OF OPERATIONS
The Company is a bank holding company whose principal subsidiary is Silicon
Valley Bank (the "Bank"), a California-chartered bank with headquarters in
Santa Clara, California. The Bank maintains regional banking offices in
Northern and Southern California, and additionally has loan offices in
Arizona, Colorado, Georgia, Maryland, Massachusetts, Oregon, Texas, and
Washington. The Bank serves emerging growth and middle-market companies in
specific targeted niches, focusing on the technology and life sciences
industries, while also identifying and capitalizing on opportunities to serve
companies in other industries whose financial services needs are underserved.
Substantially all of the assets, liabilities and earnings of the Company
relate to its investment in the Bank.
CONSOLIDATION
The interim consolidated financial statements include the accounts of the
Company and those of its wholly owned subsidiaries, the Bank and SVB Leasing
Company (inactive). The revenues, expenses, assets, and liabilities of the
subsidiaries are included in the respective line items in the interim
consolidated financial statements after elimination of intercompany accounts
and transactions.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Management, the interim consolidated financial statements
contain all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the Company's consolidated financial position at
September 30, 1997, the results of its operations for the three and nine
month periods ended September 30, 1997 and September 30, 1996 and the results
of its cash flows for the nine month periods ended September 30, 1997 and
September 30, 1996. The December 31, 1996 consolidated financial statements
were derived from audited financial statements, and certain information and
footnote disclosures normally presented in annual financial statements
prepared in accordance with generally accepted accounting principles have
been omitted.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K. The results of operations for the
three and nine month periods ended September 30, 1997 may not necessarily be
indicative of the Company's operating results for the full year.
6
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SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires Management to make estimates and judgments that
affect the reported amounts of assets and liabilities as of the balance sheet
date and the results of operations for the period. Actual results could differ
from those estimates. A material estimate that is particularly susceptible to
possible change in the near term relates to the determination of the allowance
for loan losses. An estimate of possible changes or range of possible changes
cannot be made.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents as reported in the consolidated statements of cash
flows includes cash on hand, cash balances due from banks, federal funds sold,
and securities purchased under agreement to resell. The cash equivalents are
readily convertible to known amounts of cash and are so near their maturity
that they present insignificant risk of changes in value.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Federal funds sold and securities purchased under agreement to resell as
reported in the consolidated balance sheets includes interest-bearing deposits
in other financial institutions of $290,000 and $341,000 at September 30, 1997
and December 31, 1996, respectively.
NONACCRUAL LOANS
Loans are placed on nonaccrual status when they become 90 days past due as to
principal or interest payments (unless the principal and interest are well
secured and in the process of collection), when the Company has determined,
based upon currently known information, that the timely collection of principal
or interest is doubtful, or when the loans otherwise become impaired under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan."
When a loan is placed on nonaccrual status, the accrued interest is reversed
against interest income and the loan is accounted for on the cash or cost
recovery method thereafter until qualifying for return to accrual status.
Generally, a loan will be returned to accrual status when all delinquent
principal and interest become current in accordance with the terms of the
loan agreement and full collection of the principal appears probable.
7
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SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is calculated using
weighted-average shares, including the dilutive effect of stock options
outstanding during the period. Weighted-average shares outstanding were
10,288,505 and 10,143,837 for the three and nine month periods ended September
30, 1997 and 9,735,778 and 9,660,785 for the three and nine month periods ended
September 30, 1996. Fully diluted earnings per common and common equivalent
share were approximately equal to primary earnings per common and common
equivalent share for the three and nine month periods ended September 30, 1997
and September 30, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings per Share." SFAS No. 128 establishes standards for computing
and reporting earnings per share (EPS) and applies to entities with publicly
held common stock or financial instruments that are potentially convertible
into publicly held common stock. This statement supersedes Accounting
Principles Board (APB) Opinion No. 15, "Earnings per Share." The presentation
of primary EPS, as required by APB Opinion No. 15, is replaced with a
presentation of basic EPS, which is defined in SFAS No. 128. In addition, dual
presentation of basic EPS and diluted EPS, as defined in SFAS No. 128, is
required on the face of the income statement for all entities that have complex
capital structures. Disclosure of a reconciliation between basic EPS and
diluted EPS is also required.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
financial instruments or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly to
the fully diluted EPS computation required by APB Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. However, an entity is permitted to disclose pro forma EPS amounts
computed using this statement in the notes to interim financial statements in
periods prior to required adoption.
8
<PAGE>
SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The pro forma EPS amounts, computed pursuant to the provisions of SFAS No. 128,
for the three and nine month periods ended September 30, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
------------------------- -------------------------
(Dollars and shares in thousands, Net Per Share Net Per Share
except per share amounts) Income Shares Amount Income Shares Amount
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997:
BASIC EPS:
Income available to common
shareholders $7,265 9,740 $0.75 $20,234 9,606 $2.11
EFFECT OF DILUTIVE SECURITIES:
Stock options outstanding - 549 - - 538 -
- -----------------------------------------------------------------------------------------
DILUTED EPS:
Income available to common
shareholders plus assumed
conversions $7,265 10,289 $0.71 $20,234 10,144 $1.99
- -----------------------------------------------------------------------------------------
1996:
BASIC EPS:
Income available to common
shareholders $5,272 9,259 $0.57 15,585 9,182 $1.70
EFFECT OF DILUTIVE SECURITIES:
Stock options outstanding - 477 - - 479 -
- -----------------------------------------------------------------------------------------
DILUTED EPS:
Income available to common
shareholders plus assumed
conversions $5,272 9,736 $0.54 $15,585 9,661 $1.61
- -----------------------------------------------------------------------------------------
</TABLE>
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure and applies to all entities.
This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management does not believe that the adoption
of this statement will have a material impact on the Company's consolidated
financial position or results of operations.
9
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SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for all entities for reporting comprehensive
income and its components in financial statements. This statement requires that
all items which are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income is equal to net income plus the change in "other comprehensive income."
The only component of other comprehensive income currently applicable to the
Company, as defined by SFAS No. 130, is the net unrealized gain or loss on
available-for-sale investments. SFAS No. 130 requires that an entity: (a)
classify items of other comprehensive income by their nature in a financial
statement, and (b) report the accumulated balance of other comprehensive income
separately from common stock and retained earnings in the equity section of the
statement of financial position. This statement is effective for financial
statements issued for fiscal years beginning after December 15, 1997.
Management does not believe that the adoption of this statement will have a
material impact on the Company's consolidated financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
publicly held entities to follow in reporting information about operating
segments in annual financial statements and requires that those entities report
selected information about operating segments in interim financial statements.
This statement also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement is
effective for financial statements issued for periods beginning after December
15, 1997. Management does not believe that the adoption of this statement will
have a material impact on the Company's consolidated financial position or
results of operations.
In January 1997, the Securities and Exchange Commission (SEC) approved
amendments (Release No. 33-7386) to Regulations S-X and S-K regarding the
disclosure requirements for derivative financial instruments, other financial
instruments and derivative commodity instruments (collectively, "market risk
sensitive instruments"). The amendments require enhanced disclosure of
accounting policies for derivative financial instruments and derivative
commodity instruments in the notes to the financial statements. In addition,
the amendments expand existing disclosure requirements to include quantitative
and qualitative information regarding the market risk inherent in market risk
sensitive instruments. The required quantitative and qualitative information
should be disclosed outside of the financial statements and related notes
thereto.
The accounting policies disclosure requirements are effective for all SEC
registrants in filings that include financial statements issued for periods
ending after June 15, 1997. As the Company's 1996 Annual Report on Form 10-K
fully complied with the new disclosure requirements, no additional accounting
policy disclosures are required during interim filings in 1997. The
quantitative and qualitative information disclosure requirements regarding
market risks are effective for all bank and thrift registrant filings which
include annual financial statements issued for periods ending after June 15,
1997. Management does not believe that the adoption of the amendments will have
a material impact on the Company's consolidated financial position or results
of operations.
10
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SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
2. LOANS
The detailed composition of loans is presented in the following table:
September 30, December 31,
1997 1996
(Dollars in thousands) (Unaudited)
- -------------------------------------------------------------
Commercial $ 919,275 $755,699
Real estate term 49,643 44,475
Real estate construction 33,152 27,540
Consumer and other 35,198 35,778
- -------------------------------------------------------------
Total loans (1) $1,037,268 $863,492
- -------------------------------------------------------------
(1) Net of unearned income of $7,415 and $5,658 at September 30, 1997 and
December 31, 1996, respectively.
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the three and nine month
periods ended September 30, 1997 and 1996 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
------------------ -----------------
(Dollars in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------
Beginning balance $37,300 $29,000 $32,700 $29,700
Provision for loan losses 1,716 2,962 7,682 6,550
Loans charged off (1,700) (2,502) (4,903) (8,196)
Recoveries 1,284 540 3,121 1,946
- -----------------------------------------------------------------------------
Balance at September 30, $38,600 $30,000 $38,600 $30,000
- -----------------------------------------------------------------------------
The aggregate recorded investment in loans for which impairment has been
determined in accordance with SFAS No. 114 totaled $23.3 million and $19.9
million at September 30, 1997 and September 30, 1996, respectively. Allocations
of the allowance for loan losses related to impaired loans totaled $11.5
million at September 30, 1997 and $6.5 million at September 30, 1996. Average
impaired loans for the third quarter of 1997 and 1996 totaled $19.5 million and
$18.7 million, respectively.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's interim
consolidated financial statements as presented in Item 1 of this report. In
addition to historical information, this discussion and analysis includes
certain forward-looking statements regarding events and trends which may
affect the Company's future results. Such statements are subject to risks and
uncertainties that could cause the Company's actual results to differ
materially. These risks and uncertainties include, but are not limited to,
those described in the Company's 1996 Annual Report on Form 10-K.
Certain reclassifications have been made to the Company's 1996 consolidated
financial statements to conform to the 1997 presentations. Such
reclassifications had no effect on the results of operations or shareholders'
equity.
EARNINGS SUMMARY
The Company reported net income of $7.3 million, or $0.71 per share, for the
third quarter of 1997, compared with net income of $5.3 million, or $0.54 per
share, for the third quarter of 1996. Net income totaled $20.2 million, or
$1.99 per share, for the nine months ended September 30, 1997, versus $15.6
million, or $1.61 per share, for the respective 1996 period. The annualized
return on average assets (ROA) was 1.3% for both the third quarter of 1997
and 1996. The annualized return on average equity (ROE) for the third quarter
of 1997 was 18.4%, compared to 17.2% in the 1996 third quarter. For the first
nine months of 1997, ROA was 1.3% and ROE was 18.4% versus 1.4% and 17.9%,
respectively, for the comparable prior year period.
The increase in net income during the three and nine month periods ended
September 30, 1997, as compared with the prior year respective periods,
resulted primarily from growth in both net interest income and noninterest
income, partially offset by an increase in noninterest expense. The major
components of net income and changes in these components are summarized in
the following table for the three and nine month periods ended September 30,
1997 and 1996, and are discussed in more detail below.
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
------------------ -----------------
(Dollars in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------
Net interest income $29,054 $22,942 $79,994 $64,080
Provision for loan losses 1,716 2,962 7,682 6,550
Noninterest income 2,806 2,013 10,613 7,399
Noninterest expense 17,618 13,207 48,039 38,954
- -----------------------------------------------------------------------------
Income before income taxes 12,526 8,786 34,886 25,975
Income tax expense 5,261 3,514 14,652 10,390
- -----------------------------------------------------------------------------
Net income $ 7,265 $ 5,272 $20,234 $15,585
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
12
<PAGE>
NET INTEREST INCOME AND MARGIN
Net interest income represents the difference between interest earned,
primarily on loans and investments, and interest paid on funding sources,
primarily deposits, and is the principal source of revenue for the Company. Net
interest margin is the amount of net interest income, on a fully
taxable-equivalent basis, expressed as a percentage of average interest-earning
assets. The average yield earned on interest-earning assets is the amount of
taxable-equivalent interest income expressed as a percentage of average
interest-earning assets. The average rate paid on funding sources expresses
interest expense as a percentage of average interest-earning assets.
The following tables set forth average assets, liabilities and shareholders'
equity, interest income and interest expense, average yields and rates, and the
composition of the Company's net interest margin for the three and nine month
periods ended September 30, 1997 and 1996, respectively.
13
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE BALANCES, RATES AND YIELDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended September 30,
--------------------------------------------------------------
1997 1996
(Unaudited) (Unaudited)
----------------------------- ---------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and
securities purchased under
agreement to resell (1) $ 350,786 $ 4,925 5.6% $ 226,543 $3,019 5.3%
Investment securities:
Taxable 680,886 10,399 6.1 470,391 6,912 5.8
Non-taxable (2) 45,767 766 6.6 8,683 196 9.0
Loans:
Commercial 885,577 25,265 11.3 684,832 20,203 11.7
Real estate construction and term 80,269 2,169 10.7 90,841 2,062 9.0
Consumer and other 35,905 915 10.1 40,574 971 9.5
- -------------------------------------- --------------------------- ----------------------------
Total loans 1,001,751 28,349 11.2 816,247 23,236 11.3
- -------------------------------------- --------------------------- ----------------------------
Total interest-earning assets 2,079,190 44,439 8.5 1,521,864 33,363 8.7
- -------------------------------------- --------------------------- ----------------------------
Cash and due from banks 147,834 127,463
Allowance for loan losses (38,455) (30,004)
Other real estate owned 921 2,925
Other assets 37,507 28,515
- -------------------------------------- ---------- -----------
Total assets $2,226,997 $1,650,763
- -------------------------------------- ---------- -----------
- -------------------------------------- ---------- -----------
Funding sources:
Interest-bearing liabilities:
NOW deposits $ 17,900 94 2.1 $ 9,211 47 2.0
Regular money market deposits 356,449 2,441 2.7 329,883 2,261 2.7
Bonus money market deposits 967,974 11,338 4.6 652,427 7,293 4.4
Time deposits 113,082 1,244 4.4 73,129 752 4.1
- -------------------------------------- --------------------------- ----------------------------
Total interest-bearing liabilities 1,455,405 15,117 4.1 1,064,650 10,353 3.9
Portion of noninterest-bearing
funding sources 623,785 457,214
- -------------------------------------- --------------------------- ----------------------------
Total funding sources 2,079,190 15,117 2.9 1,521,864 10,353 2.7
- -------------------------------------- --------------------------- ----------------------------
Noninterest-bearing funding sources:
Demand deposits 602,078 452,322
Other liabilities 13,033 11,957
Shareholders' equity 156,481 121,834
Portion used to fund
interest-earning assets (623,785) (457,214)
- -------------------------------------- ---------- -----------
Total liabilities and shareholders'
equity $2,226,997 $1,650,763
- -------------------------------------- ---------- -----------
---------- -----------
Net interest income and margin $29,322 5.6% $23,010 6.0%
- -------------------------------------- ------- ---- ------- ----
------- ---- ------- ----
Memorandum: Total deposits $2,057,483 $1,516,972
- -------------------------------------- ---------- -----------
---------- -----------
</TABLE>
(1) Includes average interest-bearing deposits in other financial
institutions of $298 and $402 for the three months ended September 30,
1997 and 1996, respectively.
(2) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis using the federal statutory rate of 35% in
1997 and 1996. The tax equivalent adjustments were $268 and $68 for the
three months ended September 30, 1997 and 1996, respectively.
14
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE BALANCES, RATES AND YIELDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------------------------
1997 1996
(Unaudited) (Unaudited)
----------------------------- ---------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and
securities purchased under
agreement to resell (1) $ 288,685 $ 11,891 5.5% $ 238,334 $ 9,527 5.3%
Investment securities:
Taxable 625,800 28,146 6.0 377,788 16,125 5.7
Non-taxable (2) 25,049 1,344 7.2 7,045 507 9.6
Loans:
Commercial 833,120 69,475 11.1 647,670 56,201 11.6
Real estate construction and term 75,319 5,775 10.3 79,534 6,421 10.8
Consumer and other 37,556 2,624 9.3 42,250 2,914 9.2
- -------------------------------------- --------------------------- ----------------------------
Total loans 945,995 77,874 11.0 769,454 65,536 11.4
- -------------------------------------- --------------------------- ----------------------------
Total interest-earning assets 1,885,529 119,255 8.5 1,392,621 91,695 8.8
- -------------------------------------- --------------------------- ----------------------------
Cash and due from banks 155,725 127,426
Allowance for loan losses (36,901) (30,266)
Other real estate owned 1,334 3,948
Other assets 35,642 28,171
- -------------------------------------- ---------- -----------
Total assets $2,041,329 $1,521,900
- -------------------------------------- ---------- -----------
- -------------------------------------- ---------- -----------
Funding sources:
Interest-bearing liabilities:
NOW deposits $ 15,175 222 2.0 $ 10,373 173 2.2
Regular money market deposits 344,075 6,960 2.7 312,766 6,353 2.7
Bonus money market deposits 834,645 28,381 4.5 562,000 18,875 4.5
Time deposits 103,132 3,228 4.2 68,461 2,037 4.0
- -------------------------------------- --------------------------- ----------------------------
Total interest-bearing liabilities 1,297,027 38,791 4.0 953,600 27,438 3.8
Portion of noninterest-bearing
funding sources 588,502 439,021
- -------------------------------------- --------------------------- ----------------------------
Total funding sources 1,885,529 38,791 2.8 1,392,621 27,438 2.6
- -------------------------------------- --------------------------- ----------------------------
Noninterest-bearing funding sources:
Demand deposits 583,732 440,851
Other liabilities 13,448 11,508
Shareholders' equity 147,122 115,941
Portion used to fund
interest-earning assets (588,502) (439,021)
- -------------------------------------- ---------- -----------
Total liabilities and shareholders'
equity $2,041,329 $1,521,900
- -------------------------------------- ---------- -----------
---------- -----------
Net interest income and margin $80,464 5.7% $64,257 6.2%
- -------------------------------------- ------- ---- ------- ----
------- ---- ------- ----
Memorandum: Total deposits $1,880,759 $1,394,451
- -------------------------------------- ---------- -----------
---------- -----------
</TABLE>
(1) Includes average interest-bearing deposits in other financial
institutions of $315 and $341 for the nine months ended September 30,
1997 and 1996, respectively.
(2) Interest income on non-taxable investments is presented on a
fully taxable-equivalent basis using the federal statutory rate of 35%
in 1997 and 1996. The tax equivalent adjustments were $470 and $177
for the nine months ended September 30, 1997 and 1996, respectively.
15
<PAGE>
Net interest income is affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities, referred to as
"volume change." Net interest income is also affected by changes in yields
earned on interest-earning assets and rates paid on interest-bearing
liabilities, referred to as "rate change." The following table sets forth
changes in interest income and interest expense for each major category of
interest-earning assets and interest-bearing liabilities. The table also
reflects the amount of change attributable to both volume and rate changes for
the periods indicated. Changes relating to investments in non-taxable municipal
securities are presented on a fully taxable-equivalent basis using the federal
statutory rate of 35% in 1997 and 1996.
<TABLE>
<CAPTION>
1997 Compared to 1996
----------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
--------------------- ---------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
--------------------- ---------------------
(Dollars in thousands) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold and securities
purchased under agreement to resell $ 1,753 $ 153 $ 1,906 $ 2,065 $ 299 $ 2,364
Investment securities 3,823 234 4,057 12,038 820 12,858
Loans 5,313 (200) 5,113 14,473 (2,135) 12,338
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in interest income 10,889 187 11,076 28,576 (1,016) 27,560
- ---------------------------------------------------------------------------------------------------
Interest expense:
NOW deposits 46 1 47 70 (21) 49
Regular money market deposits 188 (8) 180 627 (20) 607
Bonus money market deposits 3,716 329 4,045 9,254 252 9,506
Time deposits 442 50 492 1,083 108 1,191
- ---------------------------------------------------------------------------------------------------
Increase in interest expense 4,392 372 4,764 11,034 319 11,353
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in net interest income $ 6,497 $(185) $ 6,312 $17,542 $(1,335) $16,207
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net interest income, on a fully taxable-equivalent basis, totaled $29.3 million
for the third quarter of 1997, an increase of $6.3 million, or 27.4%, from the
$23.0 million total for the third quarter of 1996. The increase in net interest
income was the result of a $11.1 million, or 33.2%, increase in interest
income, offset by a $4.8 million, or 46.0%, increase in interest expense over
the comparable prior year period.
The $11.1 million increase in interest income for the third quarter of 1997, as
compared to the third quarter of 1996, was the result of a $10.9 million
favorable volume variance combined with a $0.2 million favorable rate variance.
The favorable volume variance resulted from a $557.3 million, or 36.6%,
increase in average interest-earning assets over the comparable prior year
period. The increase in average interest-earning assets resulted from strong
growth in the Company's deposits, which increased $540.5 million, or 35.6%,
from the prior year comparable period. The increase in average interest-earning
assets consisted of loans, which were up $185.5 million, plus a combination of
highly liquid, lower-yielding federal funds sold, securities purchased under
agreement to resell and investment securities, which collectively increased
$371.8 million accounting for 66.7% of the total increase in average
interest-earning assets.
The growth in average loans for the 1997 third quarter, which were up 22.7%
compared to the third quarter of 1996, was widely distributed throughout the
loan portfolio. This diversified growth was evidenced by increased average loan
balances in many of the Company's market niches, products and loan offices.
16
<PAGE>
Average investment securities for the third quarter of 1997 increased $247.6
million, or 51.7%, over the respective prior year period, as excess funds
generated as a result of the aforementioned deposit growth having exceeded the
growth in loans were invested in U.S. agency securities, U.S. Treasury
securities, mortgage-backed securities, and municipal securities. The nature of
this growth in the investment portfolio reflected a continuation of
Management's recent actions to increase the portfolio of longer-term investment
securities in an effort to obtain available higher yields, as well as to
further diversify the Company's portfolio of short-term investments in response
to a significant increase in liquidity. Average federal funds sold and
securities purchased under agreement to resell increased a combined $124.2
million, or 54.8%, in the third quarter of 1997 as compared to the 1996 third
quarter. This increase was also a result of the aforementioned strong growth in
deposits.
Interest income for the third quarter of 1997 increased $0.2 million from the
comparable prior year period due to a favorable rate variance associated with
federal funds sold, securities purchased under agreement to resell and
investment securities, partially offset by an unfavorable rate variance related
to loans. The overall decrease in the yield on average interest-earning assets
of 20 basis points for the third quarter of 1997, as compared to the 1996 third
quarter, was due to a shift in the composition of average interest-earning
assets towards a higher percentage of highly liquid, lower-yielding federal
funds sold, securities purchased under agreement to resell and investment
securities. This shift in the composition of average interest-earning assets
resulted from the aforementioned deposit growth having exceeded the growth in
loans.
Total interest expense in the 1997 third quarter increased $4.8 million from
the third quarter of 1996. This increase was due to an unfavorable volume
variance of $4.4 million and an unfavorable rate variance of $0.4 million. The
unfavorable volume variance resulted from a $390.8 million, or 36.7%, increase
in average interest-bearing liabilities in the third quarter of 1997 as
compared with the third quarter of 1996. This increase was largely concentrated
in the Company's bonus money market deposit product, which increased $315.5
million, or 48.4%, and was explained by high levels of client liquidity
attributable to a strong inflow of investment capital into the venture capital
community and into the public equity markets during 1996 and 1997. The $0.4
million unfavorable rate variance was largely attributable to an increase in
the average rate paid on the Company's bonus money market deposit product, as
well as to a shift in the composition of average interest-bearing liabilities
towards a higher percentage of deposits in the bonus money market deposit
product.
Net interest income, on a fully taxable-equivalent basis, totaled $80.5 million
for the first nine months of 1997, an increase of $16.2 million, or 25.2%, from
the $64.3 million total for the first nine months of 1996. The increase in net
interest income was the result of a $27.6 million, or 30.1%, increase in
interest income, offset by a $11.4 million, or 41.4%, increase in interest
expense over the comparable prior year period.
The $27.6 million increase in interest income for the first nine months of
1997, as compared to the first nine months of 1996, was explained by a $28.6
million favorable volume variance, offset by a $1.0 million unfavorable rate
variance. The favorable volume variance was attributable to growth in average
interest-earning assets, which increased $492.9 million, or 35.4%, from the
prior year comparable period. The increase in average interest-earning assets
resulted from strong growth in the Company's deposits, which were up $486.3
million, or 34.9%, from the comparable prior year period, and consisted of an
increase in each component of the Company's interest-earning assets. The growth
in average loans for the first nine months of 1997, which were up $176.5
million, or
17
<PAGE>
22.9%, compared to the prior year respective period, was widely distributed
among the Company's market niches, products and loan offices. Average
investment securities for the first nine months of 1997 increased $266.0
million, or 69.1%, over the respective prior year period. The growth in
average investment securities reflected a continuation of Management's recent
actions to increase the portfolio of longer-term investment securities in an
effort to obtain available higher yields, as well as to further diversify the
Company's portfolio of short-term investments in response to a significant
increase in liquidity. Average federal funds sold and securities purchased
under agreement to resell for the first nine months of 1997 increased a
combined $50.4 million, or 21.1%, over the comparable 1996 period due to the
aforementioned strong growth in the Company's deposits.
The unfavorable rate variance of $1.0 million from the prior year comparable
period resulted from an unfavorable rate variance related to loans, partially
offset by favorable rate variances associated with federal funds sold,
securities purchased under agreement to resell and investment securities. The
overall decrease in the yield on average interest-earning assets of 30 basis
points for the first nine months of 1997, as compared to the first nine months
of 1996, was due to a decrease in the yield on average loans, resulting
primarily from increased competition, combined with a shift in the composition
of average interest-earning assets towards a higher percentage of highly
liquid, lower-yielding federal funds sold, securities purchased under agreement
to resell and investment securities. This shift in the composition of average
interest-earning assets resulted from the aforementioned deposit growth having
exceeded the growth in loans.
Total interest expense for the first nine months of 1997 increased $11.4
million from the first nine months of 1996. This increase was due to an
unfavorable volume variance of $11.0 million and an unfavorable rate variance
of $0.3 million. The unfavorable volume variance resulted from a $343.4
million, or 36.0%, increase in average interest-bearing liabilities for the
first nine months of 1997 over the comparable prior year period. The growth in
average interest-bearing liabilities was largely concentrated in the Company's
bonus money market deposit product, which increased $272.6 million, or 48.5%,
and was explained by high levels of client liquidity attributable to a strong
inflow of investment capital into the venture capital community and into the
public equity markets during 1996 and 1997. The $0.3 million unfavorable rate
variance was largely attributable to a shift in the composition of average
interest-bearing liabilities towards a higher percentage of deposits in the
bonus money market deposit product.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on Management's evaluation of the
adequacy of the existing allowance for loan losses in relation to total
loans, and on Management's periodic assessment of the inherent and identified
risk dynamics of the loan portfolio resulting from reviews of selected
individual loans and loan commitments.
The Company's provision for loan losses totaled $1.7 million for the third
quarter of 1997, a $1.2 million, or 42.1%, decrease compared to the $3.0
million provision for the third quarter of 1996. The provision for loan
losses increased $1.1 million, or 17.3%, to a total of $7.7 million for the
first nine months of 1997, versus $6.6 million for the comparable 1996
period. See "Financial Condition - Credit Quality and the Allowance for Loan
Losses" for additional related discussion.
18
<PAGE>
NONINTEREST INCOME
The following table summarizes the components of noninterest income for the
three and nine month periods ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
------------------ -----------------
(Dollars in thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Disposition of client warrants $ 708 $ 618 $ 4,953 $2,880
Letter of credit and foreign exchange income 1,159 759 3,249 2,493
Deposit service charges 588 359 1,360 1,200
Investment gains 33 - 78 1
Other 318 277 973 825
- --------------------------------------------------------------------------------------
Total noninterest income $2,806 $2,013 $10,613 $7,399
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
Noninterest income increased $0.8 million, or 39.4%, to a total of $2.8 million
in the third quarter of 1997 versus $2.0 million in the prior year third
quarter. The increase in noninterest income was largely due to both a $0.4
million increase in letter of credit fees, foreign exchange fees and other
trade finance income and a $0.2 million increase in deposit service charges.
Noninterest income totaled $10.6 million for the first nine months of 1997, an
increase of $3.2 million, or 43.4%, from the $7.4 million total in the
comparable prior year period. This increase was largely explained by a $2.1
million increase in income from the disposition of client warrants and a $0.8
million increase in letter of credit fees, foreign exchange fees and other
trade finance income.
Income from the disposition of client warrants totaled $0.7 million in the
third quarter of 1997 and $5.0 million for the first nine months of 1997 versus
$0.6 million and $2.9 million for the respective 1996 periods. The Company has
historically obtained rights to acquire stock (in the form of warrants) in
certain clients as part of negotiated credit facilities. The receipt of
warrants does not change the loan covenants or other collateral control
techniques employed by the Company to mitigate the risk of a loan becoming
nonperforming. Interest rates, loan fees and collateral requirements on loans
with warrants are similar to lending arrangements where warrants are not
obtained. The timing and amount of income from the disposition of client
warrants typically depends upon factors beyond the control of the Company,
including the general condition of the public equity markets, and therefore
cannot be predicted with any degree of accuracy and is likely to vary
materially from period to period. During the first nine months of 1997, as well
as throughout 1996, a significant portion of the income realized by the Company
from the disposition of client warrants was offset by expenses related to the
Company's efforts to build an infrastructure sufficient to support present and
prospective business activities, as well as evaluate and pursue new business
opportunities, and was also offset by the need to increase the provision for
loan losses during those periods. As opportunities present themselves in
future periods, the Company may continue to reinvest some or all of the income
realized from the disposition of client warrants in furthering the execution of
its business strategies.
Letter of credit fees, foreign exchange fees and other trade finance income
increased to a total of $1.2 million during the 1997 third quarter, and totaled
$3.2 million for the first nine months of 1997, compared to $0.8 million for
the 1996 third quarter and $2.5 million for the first nine months of 1996. The
growth in this category of noninterest income reflects a concerted effort by
Management to expand the penetration of trade finance-related products and
services among the
19
<PAGE>
Company's client base, a large percentage of which provide
products and services in international markets.
Deposit service charges totaled $0.6 million and $1.4 million for the three and
nine month periods ended September 30, 1997, respectively, and $0.4 million and
$1.2 million for the three and nine month periods ended September 30, 1996,
respectively. Clients compensate the Company for depository services either
through earnings credits computed on their demand deposit balances, or via
explicit payments recognized by the Company as deposit service charges income.
The Company realized a nominal gain on sales of investment securities for the
three month period ended September 30, 1997 and realized a $0.1 million gain
through such sales during the first nine months of 1997. The Company reported
no gains or losses on sales of investment securities in the third quarter of
1996 and realized a nominal gain on sales of investment securities during the
first nine months of 1996. All investment securities sold were classified as
available-for-sale, and all sales were conducted as a normal component of the
Company's asset/liability and liquidity management activities.
Other noninterest income, which largely consists of service-based fee income,
totaled $0.3 million and $1.0 million for the three and nine month periods
ended September 30, 1997, compared to $0.3 million and $0.8 million for the
respective prior year periods. The increase during 1997 was primarily due to
increased fees associated with cash management services provided to the
Company's client base.
20
<PAGE>
NONINTEREST EXPENSE
Noninterest expense in the third quarter of 1997 totaled $17.6 million, a
$4.4 million, or 33.4%, increase from the $13.2 million incurred in the
comparable 1996 period. Noninterest expense totaled $48.0 million for the
first nine months of 1997, an increase of $9.1 million, or 23.3%, over the
$39.0 million total for the comparable 1996 period. Management closely
monitors the level of noninterest expense using a variety of financial
ratios, including the efficiency ratio. The efficiency ratio is calculated by
dividing the amount of noninterest expense, excluding costs associated with
other real estate owned, by adjusted revenues, defined as the total of net
interest income and noninterest income, excluding income from the disposition
of client warrants and gains or losses related to sales of investment
securities. This ratio reflects the level of operating expense required to
generate $1 of operating revenue. The Company's efficiency ratio for the 1997
third quarter was 56.5% versus 54.2% for the third quarter of 1996. The
Company's efficiency ratio was 56.1% for the first nine months of 1997, down
slightly from 56.3% for the comparable 1996 period. The following tables
present the detail of noninterest expense and the incremental contribution of
each line item to the Company's efficiency ratio.
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
---------------------------------------
Percent of Percent of
Adjusted Adjusted
(DOLLARS IN THOUSANDS) Amount Revenues Amount Revenues
- -----------------------------------------------------------------------
Compensation and benefits $10,625 34.1% $ 7,914 32.5%
Professional services 1,958 6.3 1,329 5.5
Business development and travel 1,077 3.5 683 2.8
Furniture and equipment 1,178 3.8 859 3.5
Net occupancy expense 840 2.7 706 2.9
Postage and supplies 420 1.3 359 1.5
Advertising and promotion 354 1.1 437 1.8
Telephone 370 1.2 355 1.5
Other 766 2.5 546 2.2
- --------------------------------------------------------------------
Total, excluding cost of other
real estate owned 17,588 56.5% 13,188 54.2%
Cost of other real estate owned 30 19
- --------------------------------------------------------------------
Total noninterest expense $17,618 $13,207
- --------------------------------------------------------------------
21
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
---------------------------------------
Percent of Percent of
Adjusted Adjusted
(DOLLARS IN THOUSANDS) Amount Revenues Amount Revenues
- -----------------------------------------------------------------------
Compensation and benefits $29,100 34.0% $23,259 33.9%
Professional services 5,088 5.9 3,538 5.2
Business development and travel 3,063 3.6 1,961 2.9
Furniture and equipment 2,602 3.0 2,452 3.6
Net occupancy expense 2,493 2.9 2,329 3.4
Postage and supplies 1,122 1.3 1,108 1.6
Advertising and promotion 1,082 1.3 1,067 1.6
Telephone 1,004 1.2 956 1.4
Other 2,429 2.8 1,939 2.8
- --------------------------------------------------------------------
Total, excluding cost of other
real estate owned 47,983 56.1% 38,609 56.3%
Cost of other real estate owned 56 345
- --------------------------------------------------------------------
Total noninterest expense $48,039 $38,954
- --------------------------------------------------------------------
Compensation and benefits expenses totaled $10.6 million in the third quarter
of 1997, a $2.7 million, or 34.3%, increase over the $7.9 million incurred in
the third quarter of 1996. For the first nine months of 1997, compensation
and benefits expenses totaled $29.1 million, an increase of $5.8 million, or
25.1%, over the $23.3 million total for the comparable 1996 period. The 1997
increase in compensation and benefits expenses was largely the result of an
increase in the number of average full-time equivalent (FTE) staff employed
by the Company. Average FTE were 428 and 407 for the three and nine month
periods ended September 30, 1997, compared to 369 and 358 for the respective
prior year periods. The increase in FTE was primarily due to a combination of
the Company's efforts: to develop and support new markets through geographic
expansion, to develop and expand products and niches, and to build an
infrastructure sufficient to support present and prospective business
activities. Further growth in the Company's FTE is likely to occur during
future years as a result of the continued expansion of the Company's business
activities.
During the third quarter of 1997, the Company granted a total of 103,000 shares
of its common stock to numerous employees, subject to certain vesting
requirements and resale restrictions (restricted stock). For these restricted
stock grants, unearned compensation equivalent to the $5.8 million market value
of the common stock on the date of grant was charged to shareholders' equity
and will subsequently be amortized into compensation and benefits expense over
the four-year vesting period.
Professional services expenses, which consist of costs associated with legal
consultation, accounting and auditing, consulting, and the Company's board of
directors, totaled $2.0 million in the third quarter of 1997, a $0.6 million,
or 47.3%, increase from the $1.3 million incurred in the third quarter of 1996.
Professional services expenses totaled $5.1 million for the first nine months
of 1997, an increase of $1.6 million, or 43.8%, versus the $3.5 million total
for the comparable 1996 period. The increase in professional services expenses
in 1997 primarily relates to both an increase in consulting fees associated
with several business initiatives and an increase in legal fees related to
credit workouts.
22
<PAGE>
Business development and travel expenses totaled $1.1 million and $3.1 million
for the three and nine month periods ended September 30, 1997, an increase of
$0.4 million, or 57.7%, and $1.1 million, or 56.2%, compared to the $0.7
million and 2.0 million totals for the comparable 1996 periods. The increase in
business development and travel expenses in 1997 was largely attributable to a
combination of the Company's expansion during recent quarters into new
geographic markets and increased business development efforts in all aspects of
the Company's business activities.
Net occupancy, furniture and equipment expenses totaled $2.0 million for the
third quarter of 1997 versus $1.6 million for the third quarter of 1996 and
$5.1 million versus $4.8 million for the first nine months of 1997 and 1996,
respectively. The increase in net occupancy, furniture and equipment expenses
in 1997 was primarily the result of investments in computer equipment and
software associated with technology upgrades and the Company's aforementioned
growth in personnel. In July 1997, the Bank finalized an amendment to the
original lease associated with the Company's headquarters facility located at
3003 Tasman Drive in Santa Clara, California. The amendment provides for the
leasing of additional premises, approximating 56,000 square feet, adjacent to
the existing headquarters facility. Construction of the interior of the
building is projected to begin shortly after the later of December 1, 1997 or
the date that the current tenant vacates the premises. Assuming a build-out
period of four to six months beginning January 1, 1998, the Bank could begin
occupying the additional premises between May 1998 and July 1998, with
additional future minimum rental payments of approximately $0.8 million for
1998, $1.1 million per year for 1999 through 2001, $1.2 million per year for
2002 through 2003, $1.3 million in the year 2004, and $0.6 million in the year
2005. The Company expects to incur other occupancy, furniture and equipment
expenses in future periods associated with the construction, furnishing and
maintenance of the additional premises, in addition to future minimum rental
payments detailed above.
Other noninterest expenses totaled $0.8 million in the third quarter of 1997, a
$0.2 million, or 40.3%, increase over the $0.5 million incurred in the third
quarter of 1996. For the first nine months of 1997, other noninterest expenses
increased $0.5 million, or 25.3%, to a total of $2.4 million compared to $1.9
million for the first nine months of 1996. These increases were largely due to
both the timing of reimbursements related to client services and an increase in
costs associated with certain vendor provided services.
The Company incurred minimal costs during the third quarters of 1997 and 1996
associated with other real estate owned (OREO). For the first nine months of
1997, OREO costs incurred decreased $0.3 million from the first nine months of
1996. The decrease in OREO costs in 1997 was primarily due to the write-down in
the first quarter of 1996 of one property owned by the Company, partially
offset by a gain realized in the second quarter of 1996 on the sale of one
property. The Company's net costs associated with OREO include: maintenance
expenses, property taxes, marketing costs, net operating expense or income
associated with income-producing properties, property write-downs, and gains or
losses on the sales of such properties.
INCOME TAXES
The Company's effective tax rate was 42.0% in both the three and nine month
periods ended September 30, 1997, compared to 40.0% in the comparable prior
year periods. The increase in the Company's effective income tax rate was
attributable to adjustments in the Company's estimate of its tax liabilities.
23
<PAGE>
FINANCIAL CONDITION
The Company's total assets were $2.4 billion at September 30, 1997 compared
to $1.9 billion at December 31, 1996.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Federal funds sold and securities purchased under agreement to resell totaled
$386.3 million at September 30, 1997, an increase of $75.9 million, or 24.5%,
compared to the $310.3 million total at December 31, 1996. The increase was
attributable to the Company investing excess funds, resulting from the
aforementioned strong growth in deposits during the first nine months of
1997, in these types of short-term, liquid investments.
INVESTMENT SECURITIES
Investment securities totaled $837.4 million at September 30, 1997. This
represented a $212.4 million, or 34.0%, increase over the December 31, 1996
balance of $625.0 million. The increase in investment securities was related
to strong growth in the Company's deposits during the first nine months of
1997, and primarily consisted of U.S. Treasury securities, U.S. agency
securities, mortgage-backed securities, and municipal securities, partially
offset by a decrease in commercial paper. This growth reflected a
continuation of Management's recent actions to increase the portfolio of
longer-term investment securities in an effort to obtain available higher
yields, as well as to further diversify the Company's portfolio of short-term
investments in response to a significant increase in liquidity.
LOANS
Total loans, net of unearned income, at September 30, 1997 were in excess of
$1.0 billion, a $173.8 million, or 20.1%, increase compared to the roughly
$0.9 billion total at December 31, 1996. The increase in loans from the 1996
year-end total was widely distributed throughout the loan portfolio. This
diversified growth was evidenced by increased quarter-end loan balances in
many of the Company's market niches, products and loan offices.
CREDIT QUALITY AND THE ALLOWANCE FOR LOAN LOSSES
Credit risk is defined as the possibility of sustaining a loss because other
parties to the financial instrument fail to perform in accordance with the
terms of the contract. While the Bank follows underwriting and credit
monitoring procedures which it believes are appropriate in growing and
managing the loan portfolio, in the event of nonperformance by these other
parties, the Bank's potential exposure to credit losses could significantly
affect the Company's consolidated financial position, earnings and growth.
Lending money involves an inherent risk of nonpayment. Through the
administration of loan policies and monitoring of the portfolio, Management
seeks to reduce such risks. The allowance for loan losses is an estimate to
provide a financial buffer for losses, both identified and unidentified, in
the loan portfolio.
Management regularly reviews and monitors the loan portfolio to determine the
risk profile of each credit, and to identify credits whose risk profiles have
changed. This review includes, but is not limited to, such factors as payment
status, the financial condition of the borrower, borrower
24
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compliance with loan covenants, underlying collateral values, potential loan
concentrations, and general economic conditions. Potential problem credits
are identified and, based upon known information, action plans are developed.
The allowance for loan losses totaled $38.6 million at September 30, 1997, an
increase of $5.9 million, or 18.0%, compared to the $32.7 million balance at
December 31, 1996. This increase was due to $7.7 million in additional
provisions to the allowance for loan losses, offset by net charge-offs of
$1.8 million for the first nine months of 1997. Gross charge-offs for the
first nine months of 1997 were $4.9 million and included charge-offs totaling
$2.6 million related to two credits.
In general, Management believes the allowance for loan losses is adequate as
of September 30, 1997. However, future changes in circumstances, economic
conditions or other factors could cause Management to increase or decrease
the allowance for loan losses as deemed necessary.
Nonperforming assets consist of loans that are past due 90 days or more but
still accruing interest, loans on nonaccrual status and OREO. The table below
sets forth certain relationships between nonperforming loans, nonperforming
assets and the allowance for loan losses:
September 30, December 31,
1997 1996
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------------------
Nonperforming assets:
Loans past due 90 days or more $ 530 $ 8,556
Nonaccrual loans 23,293 14,581
- ---------------------------------------------------------------------
Total nonperforming loans 23,823 23,137
OREO and other foreclosed assets 1,969 1,948
- ---------------------------------------------------------------------
Total nonperforming assets $25,792 $25,085
- ---------------------------------------------------------------------
Nonperforming loans as a percentage of
total loans 2.3% 2.7%
OREO and other foreclosed assets as a
percentage of total assets 0.1% 0.1%
Nonperforming assets as a percentage
of total assets 1.1% 1.3%
Allowance for loan losses: $38,600 $32,700
As a percentage of total loans 3.7% 3.8%
As a percentage of nonaccrual loans 165.7% 224.3%
As a percentage of nonperforming loans 162.0% 141.3%
Nonperforming loans totaled $23.8 million, or 2.3% of total loans, at
September 30, 1997, compared to $23.1 million, or 2.7% of total loans, at
December 31, 1996. Total nonperforming loans as of September 30, 1997
increased $8.6 million, or 56.2%, from the June 30, 1997 total of $15.3
million. This increase from the prior quarter-end was primarily due to two
credits, totaling approximately $12.4 million, being placed on nonaccrual
status during the third quarter of 1997, partially offset by paydowns and
payoffs on other nonaccrual loans.
In addition to the loans disclosed in the foregoing analysis, Management has
identified six loans with principal amounts aggregating approximately $15.2
million, that, on the basis of information known by Management as of
September 30, 1997, were judged to have a higher than normal risk
25
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of becoming nonperforming. The Company is not aware of any other loans at
September 30, 1997 where known information about possible problems of the
borrower casts serious doubts about the ability of the borrower to comply
with the loan repayment terms.
OREO and other foreclosed assets totaled $2.0 million and $1.9 million at
September 30, 1997 and December 31, 1996, respectively. The OREO and other
foreclosed assets balance at September 30, 1997 consisted of two OREO
properties and one other foreclosed asset. The OREO properties each consist
of multiple undeveloped lots and were acquired prior to June 1993. The OREO
balance decreased $1.1 million during the first nine months of 1997 to a
total of $0.8 million at September 30, 1997, resulting from sales of lots
related to one of the aforementioned properties. The other foreclosed asset,
which totaled $1.2 million at September 30, 1997, consisted of a favorable
leasehold right under a master lease that the Bank acquired upon foreclosure
of a loan during the third quarter of 1997.
DEPOSITS
Total deposits were $2.2 billion at September 30, 1997, an increase of $453.9
million, or 25.6%, from the prior year-end total of $1.8 billion. Although
each category of the Company's deposit portfolio experienced growth during
the first nine months of 1997, the largest portion of this increase was in
the Company's bonus money market deposit product, which increased $304.4
million, or 40.3%, to $1.1 billion at September 30, 1997. The increase in the
Company's bonus money market deposit product was explained by high levels of
client liquidity attributable to a strong inflow of investment capital into
the venture capital community and into the public equity markets during 1996
and 1997.
LIQUIDITY
The objective of liquidity management is to ensure that funds are available
in a timely manner to meet loan demand and depositors' needs, and to service
other liabilities as they come due, without causing an undue amount of cost
or risk, and without causing a disruption to normal operating conditions.
The Company regularly assesses the amount and likelihood of projected funding
requirements through a review of factors such as historical deposit
volatility and funding patterns, present and forecasted market and economic
conditions, individual client funding needs, and existing and planned Company
business activities. The asset/liability committee of the Bank provides
oversight to the liquidity management process and recommends policy
guidelines, subject to Board of Directors approval, and courses of action to
address the Company's actual and projected liquidity needs.
The ability to attract a stable, low-cost base of deposits is the Company's
primary source of liquidity. Other sources of liquidity available to the
Company include short-term borrowings, which consist of federal funds
purchased, security repurchase agreements and other short-term borrowing
arrangements. The Company's liquidity requirements can also be met through
the use of its portfolio of liquid assets. Liquid assets, as defined, include
cash and cash equivalents in excess of the minimum levels necessary to carry
out normal business operations, federal funds sold, securities purchased
under resale agreements, investment securities maturing within six months,
investment securities eligible and available for pledging purposes with a
maturity in excess of six months, and anticipated near term cash flows from
investments.
26
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Company policy guidelines provide that liquid assets as a percentage of total
deposits should not fall below 20.0%. At September 30, 1997, the Company's
liquid assets as a percentage of total deposits were 51.4%, compared to 47.3%
at December 31, 1996. The increase in this ratio since year-end 1996 was
largely due to increased balances in short-term, liquid investment securities
as a result of the aforementioned strong growth in deposits during the first
nine months of 1997.
CAPITAL RESOURCES
Management seeks to maintain adequate capital to support anticipated asset
growth and credit risks, and to ensure that the Company is in compliance with
all regulatory capital guidelines. The primary source of new capital for the
Company has been the retention of earnings. Aside from current earnings, an
additional source of new capital for the Company has been the issuance of
common stock under the Company's employee benefit plans, including the
Company's stock option plans, employee stock ownership plan and employee
stock purchase plan.
Shareholders' equity totaled $162.3 million at September 30, 1997, an
increase of $26.9 million from the $135.4 million balance at December 31,
1996. This increase resulted from net income of $20.2 million combined with
capital generated through the Company's employee benefit plans of $7.1
million, offset by a decrease in the after-tax net unrealized gain on
available-for-sale investments of $0.5 million from the prior year end.
The Company is subject to capital adequacy guidelines issued by the Federal
Reserve Board. Under these capital guidelines, the minimum total risk-based
capital and Tier 1 risk-based capital ratio requirements are 10.0% and 6.0%,
respectively, of risk-weighted assets and certain off-balance sheet items for
a "well capitalized" depository institution.
The Federal Reserve Board has also established minimum capital leverage ratio
guidelines for state member banks. The ratio is determined using Tier 1
capital divided by quarterly average total assets. The guidelines require a
minimum of 5.0% for a well capitalized depository institution.
The Company's risk-based capital ratios were in excess of regulatory
guidelines for a well capitalized depository institution as of September 30,
1997 and December 31, 1996. Capital ratios for the Company are set forth
below:
- ---------------------------------------------------------------------------
September 30, December 31,
1997 1996
(UNAUDITED)
- ---------------------------------------------------------------------------
Total risk-based capital ratio 12.2% 11.5%
Tier 1 risk-based capital ratio 10.9% 10.2%
Tier 1 leverage ratio 7.2% 7.7%
- ---------------------------------------------------------------------------
The improvement in the Company's total risk-based capital ratio and Tier 1
risk-based capital ratio from December 31, 1996 to September 30, 1997 was
attributable to an increase in Tier 1 capital, partially offset by an
increase in the lower risk-weighted asset categories primarily due to
increased balances in short-term, liquid investment securities resulting from
deposit growth exceeding loan growth during the first nine months of 1997.
The increase in Tier 1 capital was largely due to the aforementioned net
income and capital generated through the Company's employee benefit plans
during the first nine months of 1997. The decrease in the Company's Tier
27
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1 leverage ratio from December 31, 1996 to September 30, 1997 primarily
resulted from an increase in average total assets due to the aforementioned
strong growth in deposits during the first nine months of 1997.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There were no legal proceedings requiring disclosure pursuant to this item
pending at September 30, 1997, or at the date of this report.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.2 Bylaws of the Company, amendment and restatement effective as
of August 21, 1997
10.35 Silicon Valley Bancshares 1988
Employee Stock Purchase Plan Effective June 22, 1988, revised
October 17, 1997
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1997.
28
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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.
SILICON VALLEY BANCSHARES
Date: November 13, 1997 /s/ Christopher T. Lutes
------------------------------------
Christopher T. Lutes
Senior Vice President and Controller
(Principal Accounting Officer)
29
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EXHIBIT 3.2
BYLAWS
OF
SILICON VALLEY BANCSHARES
AMENDMENT AND RESTATEMENT EFFECTIVE AS OF
AUGUST 21, 1997
ARTICLE I
Offices
Section 1.1. PRINCIPAL EXECUTIVE OFFICE. The principal
executive office of this corporation (the "Corporation") is hereby fixed and
located at 3003 Tasman Drive, Santa Clara, California. The Board of
Directors (the "Board") is hereby granted full power and authority to change
the principal executive office from one location to another. Any such change
shall be noted in the Bylaws by the Secretary, opposite this Section, or this
Section may be amended to state the new location.
Section 1.2. OTHER OFFICES. Other branch offices or places of
business may at any time be established by the Board at any place or places
deemed appropriate.
ARTICLE II
Meetings of Shareholders
Section 2.1. PLACE OF MEETINGS. All annual or other meetings of
shareholders shall be held at the principal executive office of the
Corporation, or at any other place which may be designated either by the
Board or by the written consent of all persons entitled to vote thereat given
either before or after the meeting and filed with the Secretary of the
Corporation.
Section 2.2. ANNUAL MEETINGS.
(a) TIME. The Annual Meeting of shareholders shall be held each
year on a date and at a time designated by the Board. The date so designated
shall be within fifteen months after the last Annual Meeting.
(b) BUSINESS TO BE TRANSACTED. At each Annual Meeting, directors
shall be elected, reports of the affairs of the Corporation shall be
considered and any other business may be transacted which is within the
powers of the shareholders.
(c) NOTICE. Written notice of each Annual Meeting shall be given to
each shareholder entitled to vote, either personally or by first class mail
or other means of written communication, charges prepaid, addressed to such
shareholder at such shareholder's address appearing on the books of the
Corporation, or given by the shareholder to the Corporation for the purpose
of notice, or if no such address appears or is given, at the place where the
principal executive office of the Corporation is located or by publication at
least once in a newspaper of general circulation in the county in which
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the principal executive office is located. If any notice or report addressed
to the shareholder at the address of such shareholder appearing on the books
of the Corporation is returned to the Corporation by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver the notice or report to the shareholder at such address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available for the shareholder upon written
demand of the shareholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of the
notice or report to all other shareholders. If a shareholder gives no
address, notice shall be deemed to have been given to the shareholder if sent
by mail or other means of written communication addressed to the place where
the principal executive office of the Corporation is located, or if published
at least once in some newspaper of general circulation in the county in which
the principal executive office is located.
All notices shall be given to each shareholder entitled thereto not
less than ten (10) days nor more than sixty (60) days before each Annual
Meeting. Any such notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by other means of
written communication. An affidavit of mailing of any such notice in
accordance with the foregoing provisions, executed by the Secretary,
Assistant Secretary or any transfer agent of the Corporation shall be prima
facie evidence of the giving of the notice. Such notices shall specify:
(i) the place, the date and the hour of each meeting;
(ii) those matters which the Board, at the time of the mailing
of the notice, intends to present for action by the shareholders;
(iii) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by the Board for election;
(iv) the general nature of a proposal, if any, to take action
with respect to approval of: (a) a contract or other transaction with an
interested director, (b) a reorganization of the Corporation as defined in
Section 181 of the California General Corporation Law, (c) a voluntary
dissolution of the Corporation, or (d) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, if any;
and
(v) such other matters, if any, as may be required by law.
Section 2.3. SPECIAL MEETINGS. Special meetings of the
shareholders, for the purpose of taking any action permitted by the
shareholders under the California General Corporation Law, may be called at
any time by the Chair of the Board or the President, or by the Board, or by
one or more shareholders holding not less than ten percent (10%) of the votes
entitled to be cast at the meeting. Upon request in writing that a special
meeting of shareholders be called for any purpose, directed to the Chair of
the Board, President, Vice President or Secretary by any person (other than
the Board) entitled to call a special meeting of shareholders, the officer
forthwith shall cause notice to be given to shareholders entitled to vote
that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request. Except in special cases where other
express provision is made by statute, notice of special meetings shall be
given in the same manner as for annual meetings of shareholders. In addition
to the matters required by items
2
<PAGE>
(i), and if applicable, (ii) and (iii) of the preceding Section, notice of
any special meeting shall specify the general nature of the business to be
transacted, and no other business may be transacted at such meeting.
Section 2.4. QUORUM. The presence in person or by proxy of the
persons entitled to vote a majority of the voting shares at any meeting shall
constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
Section 2.5. ADJOURNED MEETINGS AND NOTICE THEREOF. Any
shareholders' meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by the vote of a majority of the shares,
the holders of which are either present in person or represented by proxy
thereat, but in the absence of a quorum no other business may be transacted
at such meeting, except as provided in Section 2.4 above.
When any shareholders' meeting, either annual or special, is
adjourned for forty-five (45) days or more, or if after adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given as in the case of an original meeting. Except as
provided above, it shall not be necessary to give any notice of the time and
place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement of the time and place thereof at the meeting at
which such adjournment is taken.
Section 2.6. VOTING. Unless a record date for voting purposes be
fixed as provided in Section 5.1 of these Bylaws, then, subject to the
provisions of Sections 702 through 704 of the California Corporations Code
(relating to voting of shares held by a fiduciary, in the name of a
corporation or in joint ownership), only persons in whose names shares
entitled to vote stand on the stock records of the Corporation at the close
of business on the business day next preceding the day on which notice of the
meeting is given or if such notice is waived, at the close of business on the
business day next preceding the day on which the meeting of shareholders is
held, shall be entitled to vote at such meeting, and such day shall be the
record date for such meeting. Such vote may be oral or by ballot; provided,
however, that all elections for directors must be by ballot upon demand made
by a shareholder at any election and before the voting begins. If a quorum
is present, except with respect to election of directors, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on any matter (which shares voting affirmatively also constitute at
least a majority of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the California General Corporation Law. Subject to the
requirements of the next sentence, every shareholder entitled to vote at any
election for directors shall have the right to cumulate such shareholder's
votes and give one candidate a number of votes equal to the number of
directors to be elected, multiplied by the number of votes to which such
shareholder's shares are entitled, or to distribute his or her votes on the
same principal among as many candidates as the shareholder shall think fit.
No shareholder shall be entitled to cumulate votes unless the name of the
candidate or candidates for whom the votes would be cast has been placed in
nomination prior to the voting and at least one shareholder has given notice
at the meeting, prior to the voting, of the shareholder's intention to
cumulate his or her votes. The candidates receiving the highest number of
affirmative votes of shares entitled to be voted for them, up to the number
of directors to
3
<PAGE>
be elected, shall be elected. Votes against the directors and votes withheld
shall have no legal effect.
Section 2.7. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS.
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though
had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy signs a waiver of notice or a consent to the holding of the meeting, or
an approval of the minutes thereof. The waiver of notice or consent need not
specify either the business to be transacted or the purpose of any annual or
special meeting of shareholders, except that if action is taken or proposed
to be taken for approval of any of those matters specified in Section
2.2(c)(iv) of these Bylaws, the waiver of notice or consent shall state the
general nature of the proposal. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice of the meeting if that objection is expressly made at the meeting.
Section 2.8. ACTION WITHOUT MEETING.
(a) ELECTION OF DIRECTORS. Directors may be elected without a
meeting by a consent in writing, setting forth the action so taken, signed by
all of the persons who would be entitled to vote for the election of
directors, provided that, without notice, except as hereinafter set forth, a
director may be elected at any time to fill a vacancy (other than one created
by removal) not filled by the directors, by the written consent of persons
holding a majority of the outstanding shares entitled to vote for the
election of directors.
(b) OTHER ACTION. Any other action which, under any provision of
the California General Corporation Law, may be taken at a meeting of the
shareholders, may be taken without a meeting, and without prior notice except
as hereinafter set forth, if a consent in writing, setting forth the action
so taken, is signed by the holders of outstanding shares having not less than
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Unless the consents of all shareholders entitled to vote have
been solicited in writing:
(i) Notice of any proposed shareholder approval of (a) a
contract or other transaction with an interested director, (b)
indemnification of an agent of the Corporation as authorized by Section 3.17
of these Bylaws, (c) a reorganization of the Corporation as defined in
Section 181 of the California General Corporation Law, or (d) a distribution
in dissolution other than in accordance with the rights of outstanding
preferred shares, if any, without a meeting by less than unanimous written
consent, shall be given at least ten (10) days before the consummation of the
action authorized by such approval; and
4
<PAGE>
(ii) Prompt notice shall be given at the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who have
not consented in writing. Such notices shall be given as provided in Section
2.2(c) of these Bylaws.
Unless, as provided in Section 5.1 of these Bylaws, the Board has
fixed a record date for the determination of shareholders entitled to notice
of and to give such written consent, the record date for such determination
shall be the day on which the first written consent is given. All such
written consents shall be filed with the Secretary of the Corporation.
Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares, or a personal representative of
the shareholder, or their respective proxyholders, may revoke the consent by
a writing received by the Corporation prior to the time that written consents
by the number of shares required to authorize the proposed action have been
filed with the Secretary of the Corporation, but may not do so thereafter.
Such revocation is effective upon its receipt by the Secretary of the
Corporation.
Section 2.9. PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy. A proxy may be in the form of a written
authorization signed or an electronic transmission authorized by a
shareholder or the shareholder's agent. A proxy may be transmitted by an
oral telephonic transmission if it is submitted with information from which
it may be determined that the proxy was authorized by the shareholder or the
shareholder's agent. Any proxy duly executed is not revoked and continues in
full force and effect until (i) an instrument revoking it or a duly executed
proxy bearing a later date is filed with the Secretary of the Corporation
prior to the vote pursuant thereto, (ii) the person executing the proxy
attends the meeting and votes in person, or (iii) written notice of the death
or incapacity of the maker of such proxy is received by the Corporation
before the vote pursuant thereto is counted; provided, that no such proxy
shall be valid after the expiration of eleven (11) months from the date of
its execution, unless the person executing it specifies therein the length of
time for which said proxy is to continue in force.
Section 2.10. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders the Board may appoint inspectors of election to act at the
meeting and any adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or refuse to act,
the Chair of any meeting of shareholders may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election
(or persons to replace those who so fail or refuse) at the meeting. The
number of inspectors shall be either one or three. If appointed at a meeting
on the request of one or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one or three
inspectors are to be appointed.
The duties of the inspectors shall be as prescribed in Section 707 of
the California General Corporation Law and shall include: (i) determining
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; (ii) receiving votes, ballots or consents;
(iii) hearing and determining all challenges and questions in any way arising
in connection with the right to vote; (iv) counting and tabulating all votes
or consents; (v) determining when the polls shall close; (vi) determining the
result; and (vii) such other acts as may be proper to conduct the election or
vote with fairness to all
5
<PAGE>
shareholders. In the determination of the validity and effect of proxies,
the dates contained on the forms of proxy shall presumptively determine the
order of execution on the proxies, regardless of postmark dates on the
envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is
practical. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
Section 2.11. NOMINATION OF DIRECTORS. Nominations for election of
members of the Board may be made by the Board or by any shareholder of any
outstanding class of capital stock of the Corporation entitled to vote for
the election of directors. Notice of intention to make any nominations
(other than for persons named in the notice of the meeting at which such
nomination is to be made) shall be made in writing and shall be delivered or
mailed to the Secretary of the Corporation by the later of: the close of
business twenty-one (21) days prior to any meeting of shareholders called for
election of directors, or ten (10) days after the date of mailing notice of
the meeting to shareholders. Such notification shall contain the following
information to the extent known to the notifying shareholder: (i) the name
and address of each proposed nominee; (ii) the principal occupation of each
proposed nominee; (iii) the number of shares of capital stock of the
Corporation owned by each proposed nominee; (iv) the name and residence
address of the notifying shareholder; (v) the number of shares of capital
stock of the Corporation owned by the notifying shareholder; and (vi) with
the written consent of the proposed nominee, a copy of which shall be
furnished with the notification, whether the proposed nominee has ever been
convicted of or pleaded nolo contendere to any criminal offense involving
dishonesty or breach of trust, filed a petition in bankruptcy or been
adjudged bankrupt. The notice shall be signed by the nominating shareholder
and by the nominee. Nominations not made in accordance herewith shall be
disregarded by the Chair of the meeting, and upon the Chair's instructions,
the inspectors of election shall disregard all votes cast for each such
nominee. The restrictions set forth in this paragraph shall not apply to
nomination of a person to replace a proposed nominee who has died or
otherwise become incapacitated to serve as a director between the last day
for giving notice hereunder and the date of election of directors if the
procedure called for in this paragraph was followed with respect to the
nomination of the proposed nominee.
A copy of the preceding paragraph shall be set forth in the notice to
shareholders of any meeting at which directors are to be elected.
ARTICLE III
Directors
Section 3.1. POWERS. Subject to limitations of the California
General Corporation Law as to action to be authorized or approved by the
shareholders, and subject to the duties of directors as prescribed by the
Bylaws, and subject to the rules and regulations as may be promulgated from
time to time by applicable regulatory authorities, all corporate powers shall
be exercised by or under the authority of, and the business and affairs of
the Corporation shall be controlled by, the Board.
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Section 3.2 - Number and Qualification of Directors. The authorized
number of directors of the Corporation shall not be less than eight (8) nor
more than fifteen (15) until changed by a bylaw amending this Section 3.2
duly adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote, provided that a proposal to reduce the
authorized minimum number of directors below five cannot be adopted. The
exact number of directors shall be fixed from time to time, within the limits
specified in this Section 3.2: (i) by a resolution duly adopted by the
Board; (ii) by a Bylaw or amendment thereof duly adopted by the vote of a
majority of the outstanding shares entitled to vote; or (iii) by approval of
the shareholders (as defined in Section 153 of the California General
Corporation Law). No amendment may change the stated maximum number of
authorized directors to a number greater than two times the stated minimum
number of directors minus one.
Subject to the foregoing provisions for changing the number of
directors, the number of directors of this Corporation has been fixed at nine
(9).
Section 3.3. ELECTION AND TERM OF OFFICE. The directors shall be
elected at each annual meeting of shareholders, but if any such annual
meeting is not held or the directors are not elected thereat, the directors
may be elected at any special meeting of shareholders held for that purpose
or by written consent in accordance with Section 2.8 of these Bylaws. All
directors shall hold office until their respective successors are elected,
subject to the California General Corporation Law and the provisions of these
Bylaws with respect to vacancies on the Board.
Section 3.4 [Reserved].
Section 3.5. REMOVAL OF DIRECTORS. The entire Board or any
individual director may be removed from office by a vote of shareholders
holding a majority of the outstanding shares entitled to vote at an election
of directors. Any individual who no longer serves on the Board shall cease
automatically to be a member of any Board committee, effective as of the date
such individual ceases to be a member of the Board. The Board shall consider
the removal of:
(a) Any member whom the Board determines has materially breached his or
her obligations as a Bancshares director, absent a waiver or
exception of the breach having been granted by the Board;
(b) Any member who fails to attend a minimum of seventy-five percent
(75%) of all general and special meetings of the Board and the Board
committees, such determination to be made on an annual basis at the
end of each fiscal year of the Bank, at which time the full Board of
Directors must vote as to whether or not to retain the Director who
has not met the attendance requirement;
(c) Any member who has attained the age of seventy (70) years. A member
shall not stand for election or re-election to the Board if such
individual will have attained the age of 70 years on or before the
date of the Shareholders' meeting where the individual would have
been standing for election (or re-election).
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(d) Any member who has been convicted of a felony or who has engaged in
any fraudulent activity, as determined by a court of competent
jurisdiction;
(e) Any member who has grossly abused his or her authority as on officer,
committee member and/or Board member of Bancshares, as determined by
the Board; or
(f) Any member for whom the court has appointed a legal guardian or
conservator.
However, unless the entire Board is removed, no individual director may be
removed when the votes cast against removal, or not consenting in writing to
such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes were cast
(or, if such action is taken by written consent, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected.
Section 3.6. VACANCIES. A vacancy in the Board shall be deemed to
exist (i) in case of the death, resignation or removal of any director, (ii)
if a director has been declared of unsound mind by order of court or
convicted of a felony, (iii) if the authorized number of directors be
increased, or (iv) if the shareholders fail, at any annual or special meeting
of shareholders at which any director or directors are elected, to elect the
full authorized number of directors to be voted for at that meeting.
Vacancies in the Board, except for a vacancy created by the removal
of a director, may be filled by a majority of the remaining directors, though
less than a quorum or by a sole remaining director, and each director so
elected shall hold office until his or her successor is elected at an annual
or a special meting of the shareholders. A vacancy in the Board created by
the removal of a director may only be filled by the vote of a majority of the
shares entitled to vote represented at a duly held meeting at which a quorum
is present, or by the written consent of the holders of all of the
outstanding shares.
The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors. Any such election
by written consent (except to fill a vacancy created by removal) shall
require the consent of holders of a majority of the outstanding shares
entitled to vote.
Any director may resign effective upon giving written notice to the
Chair of the Board, the President, the Secretary or the Board of the
Corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the Board accepts the resignation of a director
tendered to take effect at a future time, the Board or the shareholders shall
have the power to elect a successor to take office when the resignation is to
become effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his or her term of
office.
Section 3.7. FREQUENCY AND PLACE OF MEETING. The Board shall hold
a meeting at least once each calendar quarter. Regular meetings of the Board
shall be held at any place and time which has been designated from time to
time by resolution of the Board or by written consent of all members of the
Board. In the absence of such
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designation, regular meetings shall be held at the principal executive office
of the Corporation. Special meetings of the Board may be held either at a
place so designated or at the principal executive office.
Section 3.8. ORGANIZATIONAL MEETING. Immediately following each
annual meeting of shareholders, the Board shall hold a regular meeting at the
place of the annual meeting or at such other place as shall be fixed by the
Board, for the purpose of organization, election of officers and the
transaction of other business. Call and notice of such meetings are hereby
dispensed with.
Section 3.9. OTHER REGULAR MEETINGS. Other regular meetings of the
Board shall be held at any place and time which has been designated from time
to time by resolution of the Board or by written consent of all members of
the Board. Notice of all such regular meetings of the Board is hereby
dispensed with.
Section 3.10. SPECIAL MEETINGS. Special meetings of the Board for
any purpose or purposes may be called at any time by the Chair of the Board,
the President or by any two directors.
Special meetings shall be held upon four days' notice by mail or
other form of written communication, or 24 hours notice received personally,
by telephone or by facsimile or comparable means of communication. Written
notice of the time and place of special meetings shall be addressed to the
director at the director's address as it is shown upon the records of the
Corporation or, if it is not so shown on such records or is not readily
ascertainable, at the place at which the meetings of the directors are
regularly held.
Any notice shall state the date, place and hour of the meeting and
may state the general nature of the business to be transacted and that other
business may be transacted at the meeting.
Section 3.11. ACTION WITHOUT MEETING. Any action by the Board may
be taken without a meeting if all members of the Board shall individually or
collectively consent in writing to the action. The written consent or
consents shall be filed with the minutes of the proceedings of the Board and
shall have the same force and effect as a unanimous vote of the directors.
Section 3.12. ACTION AT A MEETING, QUORUM AND REQUIRED VOTE.
Presence of a majority of the authorized number of directors at a meeting of
the Board constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the Board may participate in a meeting
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
(Participation in a meeting as permitted in the preceding sentence
constitutes presence in person at the meeting.) Every act or decision done
or made by a majority of the directors present at a meeting duly held at
which a quorum is present shall be regarded as the act of the Board, unless a
greater number, or the same number after disqualifying one or more directors
from voting, is required by law or by these Bylaws. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of a director or directors, provided that any action taken is
approved by at least a majority of the required quorum for the meeting.
Section 3.13. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS.
The transactions of any meeting of the Board, however called and noticed or
wherever held,
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shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present and if, either before or after the meeting,
each of the directors not present or who, though present, has prior to the
meeting or at its commencement, protested the lack of proper notice: (i)
signs a written waiver of notice or a consent to holding such meeting or an
approval of the minutes thereof; or (ii) waives notice and withdraws his or
her objection. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 3.14. ADJOURNMENT. A majority of the directors present at
any directors' meeting, either regular or special, may adjourn to another
time and place.
Section 3.15. NOTICE OF ADJOURNMENT. If the meeting is adjourned
for more than 24 hours, notice of any adjournment to another time or place
shall be given prior to the time of the adjourned meeting to the directors
who were not present at the time of adjournment. Otherwise notice of the
time and place of holding an adjourned meeting need not be given to absent
directors if the time and place be fixed at the meeting adjourned.
Section 3.16. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and
such reimbursement for expenses, as may be fixed or determined by resolution
of the Board.
Section 3.17. INDEMNIFICATION OF AGENTS OF THE CORPORATION; PURCHASE
OF LIABILITY INSURANCE.
(a) For the purposes of this Section: "agent" means any person who
is or was a director, officer, employee or other agent of this Corporation,
or is or was serving at the request of this Corporation as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or was a director,
officer, employee or agent of a foreign or domestic Corporation which was a
predecessor corporation of this Corporation or of another enterprise at the
request of such predecessor Corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under subdivision (d) or subdivision (e)(4) of this Section.
(b) This Corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any proceeding (other than an
action by or in the right of this Corporation) by reason of the fact that
such person is or was an agent of this Corporation, against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with the proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in the best interests of
this Corporation and, in the case of a criminal proceeding, had no reasonable
cause to believe the conduct of the person was unlawful. The termination of
any proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which the person
reasonably believed to be in the best interests of this Corporation or that
the person had reasonable cause to believe that the person's conduct was
unlawful.
(c) This Corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action by or
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in the right of this Corporation to procure a judgment in its favor by reason
of the fact that the person is or was an agent of this Corporation, against
expenses actually and reasonably incurred by the person in connection with
the defense or settlement of the action if the person acted in good faith, in
a manner the person believed to be in the best interests of this Corporation
and its shareholders. No indemnification shall be made under this
subdivision (c):
(1) In respect to any claim, issue or matter as to which the
person shall have been adjudged to be liable to this Corporation and its
shareholders, in the performance of the person's duty to this Corporation,
unless and only to the extent that the court in which the proceeding is or
was pending shall determine upon application that, in view of all the
circumstances of this case, the person is fairly and reasonably entitled to
indemnity for the expenses which the court shall determine.
(2) Of amounts paid in settling or otherwise disposing of a
pending action, without court approval.
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
(d) To the extent that an agent of this Corporation has been
successful on the merits in defense of any proceedings referred to in
subdivision (b) or (c) or in defense of any claim, issue or matter therein,
the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith.
(e) Except as provided in subdivision (d), any indemnification under
this Section shall be made by this Corporation only if authorized in the
specific case, upon a determination that indemnification of that agent is
proper in the circumstances because the agent has met the applicable standard
of conduct set forth in subdivision (b) or (c), by any of the following:
(1) A majority vote of a quorum consisting of directors who are
not parties to such proceeding.
(2) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion.
(3) Approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon.
(4) The court in which the proceeding is or was pending upon
application made by the Corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not the
application by the agent, attorney or other person is opposed by the
Corporation.
(f) Expenses incurred in defending any proceeding may be advanced by
this Corporation prior to the final disposition of the proceeding upon
receipt of a written undertaking by or on behalf of the agent to repay such
amount if it shall be determined ultimately that the agent is not entitled to
be indemnified as authorized in this Section.
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(g) Nothing in this Section shall affect any right to
indemnification to which persons other than the directors and officers may be
entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this Section,
except as provided in subdivision (d) or subdivision (e)(4) of this Section,
in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the
Bylaws, a resolution of the shareholders or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding
in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification.
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) Upon a determination by the Board, this Corporation may purchase
and maintain insurance on behalf of any agent of the Corporation against any
liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such whether or not this Corporation
would have the power to indemnify the agent against such liability under the
provisions of this Section.
(j) This Section does not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
that person's capacity as such, even though the person may also be an agent,
as defined in subdivision (a) of this Section, of the Corporation. The
Corporation shall have power to indemnify such a trustee, investment manager
or other fiduciary to the extent permitted by subdivision (f) of Section 207
of the California General Corporation Law.
Section 3.18. COMMITTEES. The Board may, by resolution or committee
charter adopted by a majority of the authorized number of directors,
designate one or more committees, each committee consisting of two or more
directors, to serve at the pleasure of the Board. These committees may
include, without limitation, an Executive Committee, an Audit Committee and
any such other committees as the Board may deem appropriate. Any such
committee, to the extent provided in the resolution of the Board or committee
charter, may exercise those powers and responsibilities so designated, except
that no committee shall be authorized to take action with respect to:
(i) The approval of any action for which shareholder approval
or approval of the outstanding shares is required.
(ii) The filling of vacancies on the Board or in any committee.
(iii) The amendment or repeal of Bylaws or the adoption of new
Bylaws.
(iv) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable.
(v) The appointment of other committees of the Board or the
members thereof.
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(vi) A distribution, except at a rate, in a periodic amount or
within a price range determined by the Board.
ARTICLE IV
Officers
Section 4.1. OFFICERS. The Officers of the Corporation shall be
a Chief Executive Officer, President, Secretary, Chief Financial Officer and,
at the discretion of the Board, such other officers as may be deemed
necessary ("Officers"). Any two or more Officer positions, except those of
the President and Secretary, may be held by the same person. In appropriate
circumstances, an Officer of the Corporation may be excluded by resolution of
the Board or by a provision of the Bylaws from participation, other than in
the capacity of a director if applicable, in major policymaking functions of
the Corporation.
Section 4.2. ELECTION. Except as otherwise provided in these
Bylaws, the Officers of the Corporation shall be chosen by the Board, and
each Officer shall be employed at will, unless employed for a determinate
period of time pursuant to a written employment agreement approved by the
Board, and shall have such authority and perform such duties as are provided
in the Bylaws or as the Board may, from time to time, determine.
Section 4.3. SUBORDINATE OFFICERS. The Corporation may have such
subordinate officers as the business of the Corporation may require
("Subordinate Officers"), including one or more Vice Presidents, a Cashier,
one or more Assistant Cashiers, Operations Officers and Managers. Subordinate
Officers may be chosen by the Board, the Chief Executive Officer or the
President, and such Officers and Subordinate Officers upon whom authority is
conferred by the Board, the Chief Executive Officer or the President
("Authorized Officers"). Subordinate Officers shall be employed at will,
unless employed for a determinate period of time pursuant to a written
employment agreement approved by the Board, and shall have such authority and
perform such duties as are provided in the Bylaws or as the Board, Chief
Executive Officers, President or Authorized Officers may, from time to time,
determine.
Section 4.4. REMOVAL AND RESIGNATION. Any Officer may be removed,
either with or without cause, by the Board, subject, in each case, to the
rights, if any, of an Officer under any contract or employment. Any
Subordinate Officer may be removed, with or without cause, by the Board,
Chief Executive Officer, President or Authorized Officer, subject to such
rights, if any, of a Subordinate Officer under a written employment
agreement.
Any Officer or Subordinate Officer may resign at any time by giving
written notice to the Board or to the President, or to the Secretary of the
Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4.5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in the Bylaws for regular appointments to such office.
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Section 4.6. CHAIR OF THE BOARD; VICE-CHAIR. The Executive
Committee of the Board shall nominate the Chair of the Board, subject to
approval by the Board. The Chair of the Board shall also serve as Chair of
the Executive Committee and shall serve in such capacities subject to annual
re-election to the Board. There shall be no limit as to the number of terms
served. The Chair shall be an officer of the Board and shall, if present,
preside at all meetings of the Board. The Chair may exercise and perform
such other powers and duties as may be from time to time be assigned by the
Board or prescribed by the Bylaws. The Chair shall not, however, be deemed
an Officer of the Corporation.
The Executive Committee of the Board shall nominate a Vice-Chair of
the Board, subject to approval by the Board. Any Vice-Chair so approved may
serve subject to annual re-election to the Board. There shall be no limit as
to the number of terms served. The Vice-Chair shall have such powers and
perform such duties as may be from time to time be assigned by the Board or
the Chair of the Board and shall preside at any meeting of the Board at which
the Chair is absent or otherwise unable to serve. The Vice-Chair shall not
be deemed an Officer of the Corporation.
Section 4.7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall, subject to the control of the Board, have general supervision,
direction and control of the business and officers of the Corporation. The
Chief Executive Officer shall exercise and perform such other powers and
duties as may be from time to time assigned by the Board or prescribed by the
Bylaws.
Section 4.8. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the Board to the Chair of the Board, the President
shall preside at all meetings of the shareholders and at all meetings of the
Board when the Chair of the Board and the Vice-Chair of the Board are absent
or otherwise unable to serve. The President shall have the general powers
and duties of management usually vested in the office of the President of a
bank and shall have such other powers and duties as may be prescribed by law,
the Board or the Bylaws.
Section 4.9. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
or, if not ranked, the Vice President designated by the Board, shall perform
all the duties of the President, and when so acting shall have all the powers
of, and be subject to all the restrictions upon the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board or the
Bylaws. No Vice President shall preside over meetings of the shareholders or
at meetings of the Board in the absence or disability of the President and
Chair of the Board unless the Vice President so serving is also a Director.
Section 4.10. SECRETARY. The Secretary shall record or cause to be
recorded, and shall keep or cause to be kept, at the principal executive
office and such other place or places as the Board may order, a book of
minutes of actions taken at all meetings of directors and shareholders, with
the time and place of holding, whether regular or special, and, if special,
how authorized, the notice thereof given, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof. In the event of any
meeting in Executive Session or otherwise if the Secretary is not present, an
Acting Secretary shall be designated by the Chair of the meeting for the
purpose of recording the minutes of actions taken at the meeting or Executive
Session thereof.
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The Secretary shall keep, or cause to be kept, a copy of the Bylaws
of the Corporation at the principal executive office or business office in
accordance with Section 213 of the California General Corporation Law.
The Secretary shall keep, or cause to be kept, at the principal
executive office, or at the office of the Corporation's transfer agent, a
share register, or a duplicate share register, showing the names of the
shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, or the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board required by the Bylaws or by
law to be given and shall have such other powers and perform such other
duties as may be prescribed by the Board or by the Bylaws.
Section 4.11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
of the Corporation shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the Corporation, and shall send or cause to be sent to the
shareholders of the Corporation such financial statements and reports as are
required to be sent to them by law or these Bylaws.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board. The Chief Financial Officer
shall disburse, or cause to be disbursed, the funds of the Corporation as may
be ordered by the Board, shall render to the President and directors,
whenever they request it, an account of all transactions as Chief Financial
Officer and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board or the Bylaws.
ARTICLE V
Miscellaneous
Section 5.1. RECORD DATE. The Board may fix a time in the future
as a record date for the determination of the shareholders entitled to notice
of and to vote at any meetings of shareholders or entitled to give consent to
corporate action in writing without a meeting, to receive any report, to
receive any dividend or distribution, or any allotment of rights or to
exercise rights in respect to any change, conversion or exchange of shares.
The record date so fixed shall be not more than sixty (60) days or less than
ten (10) days prior to the date of any meeting or other event for the purpose
of which it is fixed. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at any such
meeting, to give consent without a meeting, to receive any report, to receive
a dividend, distribution or allotment of rights or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of
the Corporation after the record date.
Section 5.2. INSPECTION OF CORPORATE RECORDS. Except as restricted
or limited by applicable law, including Sections 1600 through 1605 of the
California General Corporation Law, the accounting books and records, the
record of shareholders and minutes of proceedings of the shareholders and the
Board and committees of the Board of
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this Corporation and any subsidiary of this Corporation shall be open to
inspection upon the written demand on the Corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interest as
shareholder or as the holder of such voting trust certificate. Such
inspection by a shareholder or holder of a voting trust certificate may be
made in person or by agent or attorney, and the right of inspection includes
the right to copy and make extracts.
Section 5.3. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, shall
be signed or endorsed by such person or persons and in such manner as, from
time to time, shall be determined by resolution of the Board.
Section 5.4. ANNUAL AND OTHER REPORTS. The Board of the
Corporation shall cause an annual report to be sent to the shareholders not
later than 120 days after the close of the fiscal or calendar year.
Notwithstanding the foregoing sentence, however, the requirement for such
annual report is dispensed with so long as this Corporation has less than 100
shareholders of record. If required to be sent to shareholders, the annual
report shall contain a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such
fiscal year, accompanied by any report thereon of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
Corporation that such statements were prepared without audit from the books
and records of the Corporation.
Section 5.5. CONTRACTS, ETC., HOW EXECUTED. The Board, except as
in the Bylaws otherwise provided, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
Section 5.6. CERTIFICATE OF SHARES. Every holder of shares in the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the Chair or Vice Chair of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant treasurer
or the Secretary or any assistant secretary, certifying the number of shares
and the class or series of shares owned by the shareholder. Any of the
signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and cancelled at the same time.
The Board may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions, including reasonable indemnification
of the Corporation, as the Board shall determine.
Section 5.7. INSPECTION OF BYLAWS. The Corporation shall keep in
its principal executive office the original or a copy of the Bylaws as
amended or otherwise altered to date, certified by the Secretary, which shall
be open to inspection by the shareholders at all reasonable times during
office hours.
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Section 5.8. CONSTRUCTION AND DEFINITIONS. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the California General Corporation Law shall govern
the construction of these Bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the
singular, number includes the plural and the plural number includes the
singular, and the term "person" includes a Corporation as well as a natural
person.
ARTICLE VI
Amendments
Section 6.1. POWER OF SHAREHOLDERS. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the affirmative vote of a majority
of the outstanding shares entitled to vote, or by written assent of
shareholders entitled to vote such shares, except as otherwise provided by
law.
Section 6.2. POWER OF DIRECTORS. Subject to the right of
shareholders as provided in Section 6.1 to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board provided, however,
that the Board may adopt a bylaw or amendment thereof changing the authorized
number of directors only for the purpose of fixing the exact number of
directors within the limits specified in Section 3.2 of these Bylaws.
17
<PAGE>
TABLE OF CONTENTS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page
ARTICLE I Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Principal Executive Office . . . . . . . . . . . . . . . . . 1
Section 1.1. Other Offices. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Meetings of Shareholders. . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Section 2.1 Annual Meetings . . . . . . . . . . . . . . . . . 1
Section 2.3.Special Meetings. . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5 Adjourned Meetings and Notice Thereof . . . . . . . . . . . . 3
Section 2.6 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 Validation of Defectively Called or Noticed Meetings. . . . . 4
Section 2.8 Action Without Meeting. . . . . . . . . . . . . . . . . . . . 4
Section 2.9 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10 Inspectors of Election . . . . . . . . . . . . . . . . . . . 6
Section 2.11 Nomination of Directors. . . . . . . . . . . . . . . . . . . 6
ARTICLE III Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2. Number and Qualification of Directors. . . . . . . . . . . . 7
Section 3.3. Election and Term of Office. . . . . . . . . . . . . . . . . 8
18
<PAGE>
Section 3.4 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.5. Removal of Directors . . . . . . . . . . . . . . . . . . . . 8
Section 3.6. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.7. Frequency and Place of Meeting . . . . . . . . . . . . . . . 9
Section 3.8. Organizational Meeting . . . . . . . . . . . . . . . . . . . 9
Section 3.9. Other Regular Meetings . . . . . . . . . . . . . . . . . . . 9
Section 3.10. Special Meetings. . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11. Action Without Meeting. . . . . . . . . . . . . . . . . . . 10
Section 3.12. Action at a Meeting, Quorum and Required Vote . . . . . . . 10
Section 3.13. Validation of Defectively Called or Noticed Meetings. . . . 10
Section 3.14. Adjournment . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.15. Notice of Adjournment . . . . . . . . . . . . . . . . . . . 10
Section 3.16. Fees and Compensation . . . . . . . . . . . . . . . . . . . 11
Section 3.17. Indemnification of Agents of the Corporation; Purchase of
Liability Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.18. Committees. . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.3. Subordinate Officers . . . . . . . . . . . . . . . . . . . . 14
Section 4.4. Removal and Resignation. . . . . . . . . . . . . . . . . . . 14
Section 4.5. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . 15
19
<PAGE>
Section 4.6. Chair of the Board; Vice-Chair . . . . . . . . . . . . . . . 15
Section 4.7. Chief Executive Officer. . . . . . . . . . . . . . . . . . . 15
Section 4.8. President. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.9.Vice President. . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.10. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.11. Chief Financial Officer . . . . . . . . . . . . . . . . . . 16
ARTICLE V Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1. Record Date. . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.2. Inspection of Corporate Records. . . . . . . . . . . . . . . 17
Section 5.3. Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . . 17
Section 5.4. Annual and Other Reports . . . . . . . . . . . . . . . . . . 17
Section 5.5. Contracts, Etc., How Executed. . . . . . . . . . . . . . . . 18
Section 5.6. Certificate of Shares. . . . . . . . . . . . . . . . . . . . 18
Section 5.7.Inspection of Bylaws. . . . . . . . . . . . . . . . . . . . . 18
Section 5.8. Construction and Definitions . . . . . . . . . . . . . . . . 18
ARTICLE VI Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.1. Power of Shareholders. . . . . . . . . . . . . . . . . . . . 19
Section 6.2. Power of Directors . . . . . . . . . . . . . . . . . . . . . 19
20
<PAGE>
21
<PAGE>
Exhibit 10.35
SILICON VALLEY BANCSHARES
1988 EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE JUNE 22, 1988
(REVISED OCTOBER 17, 1997)
<PAGE>
SILICON VALLEY BANCSHARES
1988 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the 1988 Employee Stock
Purchase Plan of Silicon Valley Bancshares.
1. PURPOSES.
The purpose of the Plan is to provide Employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company through payroll deductions. It is the intention of the Company to have
the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1986, as amended. The provisions of the Plan shall
permit and limit participation in a manner consistent with the requirements of
that section of the Code.
2. DEFINITIONS.
a. "BOARD" shall mean the Board of Directors of the Company.
b. "CODE" shall mean the Internal Revenue Code of 1986, as amended.
c. "COMPANY STOCK" shall mean the Common Stock, no par value, of the
Company.
d. "COMPANY" shall mean Silicon Valley Bancshares, a California
corporation.
e. "COMPENSATION" shall mean an Employee's regular salary or wages and
shall include bonuses, commissions, overtime pay, incentive pay, profit
sharing, other remuneration paid directly to the Employee, amounts elected to
be deferred by the Employee that would otherwise have been paid under any
arrangement established by the Company intended to comply with Section 401(k),
Section 402(e)(3), Section 125, Section 402(h), or Section 403(b) of the Code,
and any deferrals under a non-qualified deferred compensation plan or
arrangement established by the Company, but shall exclude the following items
of compensation: the cost of employee benefits paid for by the Company or a
Designated Subsidiary, education or tuition reimbursements, imputed income
arising under any group insurance or benefit program, traveling expenses,
business and moving expense reimbursements, income received in connection with
stock options, contributions made by the Company or a Designated Subsidiary
under any employee benefit plan, and similar items of compensation, as
determined by the Plan Administrator.
f. "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any
interruption of termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company,
2.
<PAGE>
provided that 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.
g. "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
h. "EMPLOYEE" shall mean any person, including an officer, who is employed
for at least twenty (20) hours per week and more than five (5) months in a
calendar year by the Company or one of its Designated Subsidiaries.
i. "EXERCISE DATE" shall mean the last day of each offering period of the
Plan.
j. "OFFERING DATE" shall mean the first day of each offering period of the
Plan.
k. "PLAN" shall mean this 1988 Employee Stock Purchase Plan, as amended
from time to time.
l. "PLAN ADMINISTRATOR" shall mean the Board or a committee of the Board
responsible for the administration of the Plan.
m. "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which
not less than fifty percent (50%) of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
3. ELIGIBILITY.
a. Any person who is an Employee as of the Offering Date of a given
offering period (see Section 4) shall be eligible to participate in such
offering period under the Plan, subject to the requirements of Section 5(a) and
the limitations imposed by Section 423(b) of the Code.
b. No Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company, or (ii)
which permits such Employee's right to purchase stock under this Plan and all
other employee stock purchase plans (described in Section 423 of the Code) of
the Company to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of fair market value of such stock (determined at the time such
option is granted) for each calendar year in which such option is outstanding
at any time.
3.
<PAGE>
4. OFFERING PERIODS.
The Plan shall be implemented by one offering during each six (6)-month
period (or such longer or shorter period) of the Plan, commencing on or about
July 1, 1988 and continuing thereafter until terminated in accordance with
Sections 19 or 23 hereof. The Board of Directors of the Company shall have the
power to change the duration of offering periods with respect to future
offerings without shareholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first offering period
to be affected.
5. PARTICIPATION.
a. An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions on the form provided by
the Company and filing it with the Plan Administrator prior to the applicable
Offering Date, unless a later time for filing the subscription agreement is set
by the Plan Administrator for all eligible Employees with respect to a given
offering period.
b. Payroll deductions for participants shall commence the first payroll
following the Offering Date and shall end on the Exercise Date of the offering
period or payroll which commences on or before the Exercise Date to which such
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10.
c. Unless a participant withdraws from the Plan as provided in Section 10
or submits a new subscription agreement changing the payroll deduction amount
(such change being allowed only at each new Offering Date), the participant's
existing subscription agreement will be considered in effect as of and
throughout each new Offering Date.
6. PAYROLL DEDUCTIONS.
a. At the time a participant files a subscription agreement, such
participant shall elect to have payroll deductions (not exceeding ten percent
(10%) of participant's Compensation (see Section 2(e)) deducted from his or her
pay during the offering period (see Section 5(b)) and applied toward the
purchase of Common Stock on the Exercise Date.
b. All payroll deductions made by a participant shall be credited to his
account under the Plan. A participant may not make any additional voluntary
payments into such account.
c. A participant may discontinue his participation in the Plan as provided
in Section 10; otherwise, no changes in the payroll deduction amount may be
made during the offering period.
7. GRANT OF OPTION.
a. On each Offering Date, each eligible Employee participating in the Plan
shall be granted an option to purchase (at the per share option price) up to a
number of shares of Common Stock determined by dividing such Employee's payroll
deductions to be accumulated during such
4.
<PAGE>
offering period (not to exceed an amount equal to ten percent (10%) of his
Compensation during the applicable offering period) by the option price per
share (see Section 7(b), subject to the limitations set forth in Sections 3(b)
and 12 hereof.
b. The option price per share of the shares offered in a given offering
period shall be the lower of:
(i) eighty-five percent (85%) of the fair market value of a share of
Common Stock of the Company on the Offering Date, such fair market
value being determined based on the closing price on the last trading
date immediately preceding the Offering Date; or,
(ii) eighty-five percent (85%) of the fair market value of a share of
Common Stock of the Company on the Purchase Date, such fair market
value being determined based on the closing price on the Purchase Date
or, if the Purchase Date falls on a weekend or holiday, on the last
trading date immediately preceding the Purchase Date.
The closing price on a given date shall be the last price of the Common Stock
for such date, as quoted on the Nasdaq National Market and as reported in the
Wall Street Journal (or any other source the Plan Administrator deems reliable.
8. EXERCISE OF OPTION.
Unless a participant withdraws from the Plan as provided in Section 10, his
option for the purchase of shares will be exercised automatically on the
Exercise Date of the offering period, and the maximum number of full shares
subject to option will be purchased for him at the option price per share with
the accumulated payroll deductions in his account. The shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Exercise Date. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is less than the amount required to purchase a full share of stock on the
Offering Date shall be held in such participant's account for the purchase of
shares under the next offering period under the Plan, unless such participant
withdraws from the Plan or is no longer eligible to participate in the Plan
(see Section 10(c)), in which case such amount shall be distributed to the
participant after the Offering Date, without interest. The amount, if any, of
payroll deductions remaining in any participant's account after the purchase of
shares which is equal to or greater than the amount required to purchase a full
share of stock on the final Offering Date of the Plan shall be distributed in
full to the participant, without interest.
5.
<PAGE>
9. DELIVERY.
As promptly as practicable after the Exercise Date of each offering period,
the Plan Administrator shall arrange the delivery to each participant a
certificate representing the shares purchased upon exercise of his option or,
at the participant's election, to have the certificate transferred directly to
participant's brokerage account at such brokerage firm or firms previously
designated by the Plan Administrator in its sole discretion.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
a. A participant may withdraw all (but not less than all) the payroll
deductions credited to his account under the Plan at any time prior to the
Exercise Date of the offering period by giving fifteen (15) days written notice
to the Plan Administrator. All of the participant's payroll deductions
credited to his account will be paid to him promptly after the receipt of his
notice of withdrawal and his option for the current period will be
automatically terminated, and no further payroll deductions for the purchase of
shares will be made during the offering period.
b. Upon termination of the participant's Continuous Status as an Employee
prior to the Exercise Date of the offering period for any reason, including
retirement of death, the payroll deductions credited to his account will be
returned to him or, in the case of his death, to the person or persons entitled
thereto under Section 14, and his option will be automatically terminated.
c. In the event an Employee fails to remain in Continuous Status as an
Employee of the Company for at least twenty (20) hours per week during the
offering period in which the Employee is a participant, he will be deemed to
have elected to withdraw from the Plan and the payroll deductions credited to
his account will be returned to him and his option terminated.
d. A participant's withdrawal from an offering period will not have any
effect upon his eligibility to participate in a succeeding offering period or
in any similar plan which may thereafter be adopted by the Company.
11. INTEREST.
No interest shall accrue on the payroll deductions of a participant in the
Plan.
6.
<PAGE>
12. STOCK.
a. The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 100,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in Section
18. If the total number of shares which would otherwise be subject to options
granted pursuant to Section 7(a) hereof on the Offering Date of an offering
period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
b. The participant will have no interest or voting right in shares covered
by his option until such option has been exercised.
c. Shares to be delivered to a participant under the Plan will be
registered (i) in the name of the participant or in the name of the participant
and his or her spouse, or (ii) if directly transferred to participant's
brokerage account, either pursuant to clause (i) above or in "street name."
13. ADMINISTRATION.
The Plan shall be administered by the Plan Administrator. The
administration, interpretation or application of the Plan by the Plan
Administrator shall be final, conclusive and binding upon all participants.
Members of the Board who are eligible Employees are permitted to participate in
the Plan, provided that:
a. Members of the Board who are eligible to participate in the Plan may
not vote on any matter affecting the administration of the Plan or the grant of
any option pursuant to the Plan.
b. If a Committee is established to administer the Plan, no member of the
Board who is eligible to participate in the Plan may be a member of the
Committee.
14. DESIGNATION OF BENEFICIARY.
a. A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of the
offering period but prior to delivery of such shares. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to the Exercise Date of the offering period.
Designation of beneficiary(ies) by the participant may be made on the
subscription agreement.
7.
<PAGE>
b. Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of a participant's death, and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such shares to the
executor or administrator of participant's estate. In the event the Company is
unaware that an executor or administrator has been appointed, the Company, at
its discretion, may deliver such shares to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
15. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution or as provided in
Section 14 hereof) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Section 10.
16. USE OF FUNDS.
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
17. REPORTS.
Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Employees promptly
following the Exercise Date, which statements will set forth the amounts of
payroll deductions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any, to be held in participant's
account in accordance with Section 8.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each option under the Plan which
has not yet been exercised and the number of shares of Common Stock which have
been authorized for issuance under the Plan but have not yet been placed under
option (collectively, the "Reserves"), as well as the price per share of Common
Stock covered by each option under the Plan which has not yet been exercised,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected
8.
<PAGE>
without receipt of consideration." Such adjustment shall be made by the Plan
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue 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 price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right
to exercise the option as to all of the optioned stock, including shares as to
which the option would not otherwise be exercisable. If the Board makes an
option fully exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Board shall notify the participant that the
option shall be fully exercisable for a period of thirty (30) days from the
date of such notice and the option will terminate upon the expiration of such
period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalization, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. Except as provided
in Section 18, no such termination can affect options previously granted, nor
may an amendment make any change in any option theretofore granted which
adversely affects the rights of any participant, nor may an amendment be made
without prior approval of the shareholders of the Company (obtained in the
manner described in Section 21) if such amendment would:
a. Increase the number of shares that may be issued under the Plan;
b. Permit payroll deductions at a rate in excess of ten percent (10%) of
the participant's Compensation;
c. Change the designation of the Employees (or class of Employees)
eligible for participation in the Plan; or
d. Materially increase the benefits which may accrue to participants under
the Plan.
20. NOTICES.
9.
<PAGE>
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have duly given when received
in the form specified by the Company at the location of the Plan Administrator.
21. SHAREHOLDER APPROVAL.
Continuance of the Plan and any amendments to the Plan described in Section
19 shall be subject to approval by the shareholders of the Company within
twelve (12) months before or after the date the Plan or such amendments thereto
are adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it may be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon, which approval shall be:
a. (1) solicited substantially in accordance with Section 14(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations promulgated thereunder, or (2) solicited after the Company has
furnished in writing to the holders entitled to vote substantially the same
information concerning the Plan as that which would be required by the rules
and regulations in effect under Section 14(a) of the Exchange Act at the time
such information is furnished; and
b. obtained at or prior to the first annual meeting of shareholders held
subsequent to the first registration of Common Stock under Section 12 of the
Exchange Act.
In the case of approval by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company, or by written
consent of a smaller percentage of shareholders but only if the Board
determines that the written consent of such a smaller percentage of
shareholders will comply with all applicable laws and will not adversely affect
the qualifications of the Plan under Section 423 of the Code.
22. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of all, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel of the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
10.
<PAGE>
23. TERM OF PLAN.
The Plan shall become effective upon the earlier to occur of its adoption
by the Board or its approval by the shareholders of the Company as described in
Section 21. It shall continue in effect for the term of twenty (20) years
unless sooner terminated under Section 19.
11.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS, RELATED NOTES AND
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINED IN THE REPORT ON FORM 10-Q FILED
BY SILICON VALLEY BANCSHARES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUAILFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 142,031
<INT-BEARING-DEPOSITS> 290
<FED-FUNDS-SOLD> 386,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 837,372
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<ALLOWANCE> 38,600
<TOTAL-ASSETS> 2,405,839
<DEPOSITS> 2,228,210
<SHORT-TERM> 0
<LIABILITIES-OTHER> 15,348
<LONG-TERM> 0
0
0
<COMMON> 72,757
<OTHER-SE> 89,524
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<INTEREST-LOAN> 77,874
<INTEREST-INVEST> 29,020
<INTEREST-OTHER> 11,891
<INTEREST-TOTAL> 118,785
<INTEREST-DEPOSIT> 38,791
<INTEREST-EXPENSE> 38,791
<INTEREST-INCOME-NET> 79,994
<LOAN-LOSSES> 7,682
<SECURITIES-GAINS> 78
<EXPENSE-OTHER> 48,039
<INCOME-PRETAX> 34,886
<INCOME-PRE-EXTRAORDINARY> 20,234
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,234
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.99
<YIELD-ACTUAL> 5.7
<LOANS-NON> 23,293
<LOANS-PAST> 530
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 15,167
<ALLOWANCE-OPEN> 32,700
<CHARGE-OFFS> 4,903
<RECOVERIES> 3,121
<ALLOWANCE-CLOSE> 38,600
<ALLOWANCE-DOMESTIC> 38,600
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,118
</TABLE>
