<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 2000
REGISTRATION NO.: 333-39728
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SILICON VALLEY BANCSHARES
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 91-1962278
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
JOHN C. DEAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SILICON VALLEY BANCSHARES
3003 TASMAN DRIVE 3003 TASMAN DRIVE
SANTA CLARA, CALIFORNIA 95054 SANTA CLARA, CALIFORNIA 95054
TELEPHONE: (408) 654-7400 TELEPHONE: (408) 654-7400
(Address including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of registrant's principal executive number, including area code, of agent for service)
office)
</TABLE>
------------------------------
COPIES TO:
<TABLE>
<S> <C>
TODD H. BAKER, ESQ. MICHAEL J. SCHIAVONE, ESQ.
GIBSON, DUNN & CRUTCHER LLP SHEARMAN & STERLING
ONE MONTGOMERY STREET, 26TH FLOOR 599 LEXINGTON AVENUE
SAN FRANCISCO, CA 94104 NEW YORK, NY 10022-6069
TELEPHONE: (415) 393-8200 TELEPHONE: (212) 848-4000
FACSIMILE: (415) 986-5309 FACSIMILE: (212) 848-7179
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 1, 2000
PROSPECTUS
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
2,000,000 SHARES
[LOGO]
COMMON STOCK
-------------
Silicon Valley Bancshares is selling all of the shares.
The shares are quoted on the Nasdaq National Market under the symbol "SIVB."
On July 28, 2000, the last sale price of the shares as reported on the Nasdaq
National Market was $44.19 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price............................... $ $
Underwriting discount............................... $ $
Proceeds, before expenses, to Silicon Valley
Bancshares........................................ $ $
</TABLE>
The underwriters may also purchase up to an additional 300,000 shares from
Silicon Valley Bancshares at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
------------------
MERRILL LYNCH & CO.
DAIN RAUSCHER WESSELS
DONALDSON, LUFKIN & JENRETTE
-----------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 13
Price Range of Common Stock and Dividend Policy............. 14
Capitalization.............................................. 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Management.................................................. 44
Underwriting................................................ 47
Legal Matters............................................... 49
Experts..................................................... 49
Where You Can Find More Information About Us................ 49
Incorporation of Information We File with the SEC........... 50
</TABLE>
-------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus, as well as
information we previously filed with the SEC and incorporated by reference, is
accurate only as of the date on the front cover of this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS
AND RELATED NOTES AND OTHER FINANCIAL DATA INCLUDED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION. INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS." IN ADDITION,
SOME STATEMENTS INCLUDE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. SEE "FORWARD-LOOKING STATEMENTS." UNLESS WE INDICATE OTHERWISE,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS DO
NOT EXERCISE THEIR OVER-ALLOTMENT OPTION.
OTHER THAN ON THE COVER PAGE, WHEN WE REFER TO "SILICON VALLEY BANCSHARES,"
OR "WE" OR SIMILAR WORDS, WE INTEND TO INCLUDE SILICON VALLEY BANCSHARES AND OUR
SUBSIDIARIES COLLECTIVELY, INCLUDING SILICON VALLEY BANK. WHEN WE REFER TO
"SILICON," WE ARE REFERRING ONLY TO SILICON VALLEY BANCSHARES.
IN MARCH 2000, OUR BOARD OF DIRECTORS APPROVED A TWO-FOR-ONE STOCK SPLIT, IN
THE FORM OF A STOCK DIVIDEND ON OUR COMMON STOCK. THE SETTLEMENT DATE FOR THIS
STOCK DIVIDEND WAS MAY 15, 2000. UNLESS OTHERWISE INDICATED, ALL INFORMATION
RELATING TO OUR COMMON STOCK, INCLUDING COMMON STOCK AND PER SHARE AMOUNTS,
INCLUDED IN THIS PROSPECTUS REFLECT THIS STOCK SPLIT.
SILICON VALLEY BANCSHARES
We provide innovative banking products and services to emerging growth and
middle-market companies, focusing primarily on companies in the technology and
life sciences industries that are backed by venture capital investors. A key
component of our business strategy is to develop relationships with our clients
at a very early stage, and to offer them banking products and services that meet
their needs throughout their life cycle. We have cultivated strong relationships
with venture capital firms, many of whom are our clients, which provide us with
access to many potential banking clients.
Our unique business strategy and focus has resulted in significant growth.
Our banking operations have expanded from a single location in Santa Clara,
California to a national network of 23 offices located in Arizona, California,
Colorado, Georgia, Illinois, Massachusetts, Minnesota, North Carolina, Oregon,
Pennsylvania, Texas, Virginia and Washington.
Since December 31, 1995, our total assets and total deposits have increased
at compound annual growth rates of 35.2% and 34.3%, respectively. As of
March 31, 2000, we had $5.1 billion in total assets, $4.5 billion in total
deposits and $400.7 million in stockholders' equity. In addition, off-balance
sheet client funds have increased from $1.2 billion as of March 31, 1999 to
$9.5 billion as of March 31, 2000.
TECHNOLOGY AND LIFE SCIENCES NICHE
Our technology and life sciences niche serves primarily venture
capital-backed companies within a variety of technology and life sciences
industries and markets throughout the United States. Because these companies'
primary source of funding is equity from venture capitalists, they generally
keep large cash balances in their deposit accounts with us and often do not
borrow large amounts under their credit facilities. Lending to this niche
typically involves working capital lines of credit, equipment financing, asset
acquisition loans, and bridge financing. Our technology and life sciences niche
includes the following practices:
- Our COMMUNICATIONS AND ON-LINE SERVICES practice serves companies in the
networking, telecommunications and on-line services industries. The
networking industry includes companies supplying the equipment and
services that facilitate distributed enterprise networks such as local and
wide area networks. The telecommunications industry encompasses the
suppliers of equipment and services to companies and consumers for the
transmission of voice, data and
1
<PAGE>
video. Companies included in the on-line services industry supply access,
content, services, and support to individuals and businesses participating
on the internet, or in other on-line activities.
- Our COMPUTERS AND PERIPHERALS practice focuses on companies that are
engaged in the support and manufacturing of computers, electronic
components and related peripheral products. The specific markets these
companies serve include personal computers, specialty computer systems,
add-in boards, printers, storage devices, networking equipment, and
contract manufacturing.
- Our SEMICONDUCTORS practice serves companies involved in the design,
manufacturing and marketing of integrated circuits. This includes
companies involved in the manufacturing of semiconductor production
equipment and semiconductors, testing and related services, electronic
parts wholesaling, computer-aided design and computer-aided manufacturing.
- Our SOFTWARE practice primarily serves companies that design integrated
computer systems, provide computer programming services and develop and
market commercial and industrial applications as well as prepackaged
software.
- Our LIFE SCIENCES practice serves companies in the biotechnology, medical
devices and health care services industries. The biotechnology industry
includes companies involved in research and development of therapeutics
and diagnostics for the medical and pharmaceuticals industries. The
medical devices industry encompasses companies involved in the design,
manufacturing and distribution of surgical instruments and medical
equipment. Companies included in the health care services industry deal
with patients, either in a primary care or secondary care role.
In addition to the industry-related practices discussed above, we provide
commercial lending and other financial products and services to other clients
associated with the technology and life sciences industries. Through our PACIFIC
RIM practice, we serve U.S.-based technology and life sciences companies that
receive equity funding from Asian or Asian-based venture capital sources.
Through our VENTURE CAPITAL practice, we provide venture capital firms with
financing and other specialized products and services. Lastly, through our
EMERGING TECHNOLOGIES practice, we target non-venture-backed technology
companies in northern California, with a primary focus on the software industry.
SPECIAL INDUSTRY NICHES
We have always served a variety of commercial enterprises unrelated to our
technology and life sciences niche. We serve these clients through several
special industry niche practices. We continue to follow this strategy by
identifying industries whose financial services needs we believe are
underserved. The following is a brief summary of our special industry niche
practices.
- Our REAL ESTATE practice makes real estate construction and term loans
whose primary source of repayment is cash flow or sales proceeds from real
property collateral. We focus on construction loans for residential and
commercial projects, and construction and mini-permanent loans on retail,
industrial and office projects in northern California.
- Our PREMIUM WINERIES practice focuses on wineries that produce select or
exclusive vintages of up to 150,000 cases annually. Our lending in this
niche consists of both short-term inventory loans and term loans related
to vineyard acquisition and development, equipment financing and
cooperage.
- Our MEDIA PRACTICE focuses on acquisition, recapitalization and plant
upgrade financings of less than $10 million for radio, television, outdoor
advertising and cable television operators.
In addition to serving the special industry niches listed above, we serve a
broad array of industries in northern California through our DIVERSIFIED
INDUSTRIES practice. This practice allows us to continue to evaluate potential
niches by initially identifying and serving a few clients in related industries
or markets.
2
<PAGE>
SPECIALIZED PRODUCTS AND SERVICES
We offer a variety of specialized lending products and other financial
products and services to clients at various stages of development. These
services allow us to begin serving companies in their start-up phases, and then
gradually expand the services we provide as the companies grow.
From the time companies receive their initial funding, we seek to serve
their cash management needs. Initially, we provide investment services to assist
our clients in managing their short-term investments. On behalf of clients, we
purchase investment securities that include U.S. Treasury securities, U.S.
agency securities, commercial paper, Eurodollar deposits, and bankers'
acceptances. We also offer our clients access to private label mutual fund
products as an alternative to our deposit products.
In addition, our Internet site, eSource-TM-, provides our early stage
clients with an on-line resource, providing access to various services that
technology and life sciences entrepreneurs require. In eSource-TM- we have
formed a broad national and global network of service providers in a variety of
areas important to our clients, including financial and administrative services,
office set-up services, human resources, staffing services, risk management
services and industry specific research.
As our clients conduct research and development and prepare for production,
we offer equipment leasing services as well as vendor financing for many types
of technology purchases, including software, hardware, maintenance and
professional services. We structure these arrangements to suit the risk profile
of the client in its particular stage of growth.
Once our clients enter production, many experience rapid growth and
consequently require banking products which augment their cash flow. We offer
factoring services, which involves purchasing clients' accounts receivable at a
discount, making operating funds immediately available to the clients, and then
managing the collection of these receivables.
As our clients mature, we may offer more advanced cash management products,
providing services to help our customers manage cash collections and
disbursements efficiently and cost effectively. These services include wholesale
lockbox services, electronic information reporting and controlled disbursement
services. In addition, we also provide real estate loans, typically to finance
commercial real estate to be owned and operated by our clients.
We also assist our many clients who do business internationally by providing
foreign exchange, import and export letters of credit, documentary collections,
and a number of other trade finance products and services. We have been granted
delegated authority by the Export-Import Bank of the U.S. and the California
Export Finance Office. This enables us to provide our clients with working
capital loans guaranteed by the Export-Import Bank and California Export Finance
Office to finance foreign receivables and inventory intended for export, as well
as to provide purchase order financing.
If our clients experience periods when their profit performance has been
interrupted or where they need greater financial flexibility, we may assist them
by providing asset-based credit facilities that involve frequent monitoring of
the underlying collateral, which generally consists of accounts receivable,
inventory and equipment.
For clients in the more advanced stages of growth, we pursue opportunities
in mezzanine lending and will provide private equity and debt placement
services, high yield debt services and mergers and acquisitions advice. We also
assist our clients through investment bank referrals for public offerings,
equity research, sales and trading services, asset securitizations, and fixed
income services.
For clients in all stages of their growth cycle, we focus on serving the
personal banking needs of senior executives and owners of our client companies.
In addition, we serve the personal banking needs of partners and senior
executives of venture capital firms and other professionals whose businesses are
related to our niche practices.
3
<PAGE>
EQUITY SECURITIES
We have historically obtained rights to acquire stock, in the form of
warrants, in certain clients as part of negotiated credit facilities. We also
have made investments in venture capital funds as well as direct equity
investments in companies from time to time. As of June 30, 2000, we held 1,082
warrants in 848 companies, and had made investments in 175 venture capital funds
and direct equity investments in 40 companies.
RECENT DEVELOPMENTS
We reported net income of $33.7 million, or $0.70 per diluted share, for the
second quarter of 2000, compared with net income of $9.0 million, or $0.21 per
diluted share, for the second quarter of 1999, an increase of $24.8 million, or
$0.49 per diluted share. The annualized return on average assets was 2.7% in the
second quarter of 2000 versus 0.9% in the second quarter of 1999. The annualized
return on average equity for the second quarter of 2000 was 33.1%, compared to
16.0% for the second quarter of 1999. Our efficiency ratio was 47.2% in the
second quarter of 2000, down from 52.9% in the second quarter of 1999.
Total assets were $5.4 billion at June 30, 2000, an increase of
$1.3 billion, or 32.1%, compared to $4.1 billion at June 30, 1999. Total
deposits increased $1.1 billion, or 27.8%, to $4.8 billion at June 30, 2000,
from $3.8 billion at June 30, 1999. Loans, net of unearned income, were $1.6
billion at June 30, 2000, relatively unchanged from the balance at June 30,
1999. Nonperforming loans totaled $26.9 million, or 1.7% of total loans, at
June 30, 2000, compared to $47.4 million, of 3.0% of total loans, at June 30,
1999.
The allowance for loan losses totaled $73.8 million, or 4.6% of total loans
and 274.6% of nonperforming loans, at June 30, 2000, compared to $71.8 million,
or 4.4% of total loans and 252.3% of nonperforming loans, at December 31, 1999.
We incurred $10.2 million in net charge-offs during the second quarter of 2000.
Gross charge-offs for the second quarter of 2000 totaled $11.3 million.
For further information, please refer to our Current Report on Form 8-K
dated July 24, 2000, which is incorporated by reference in this prospectus.
GENERAL
Silicon is a bank holding company incorporated in Delaware. Our principal
subsidiary, Silicon Valley Bank, is a California state-charted bank and a member
of the Federal Reserve System and its deposits are insured by the Federal
Deposit Insurance Corporation. Our principal offices are located at 3003 Tasman
Drive, Santa Clara, California 95054 and our telephone number is
(408) 654-7400. Our World Wide Web site is WWW.SIVB.COM. The information on our
website is not incorporated by reference in this prospectus and is not part of
this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY SILICON........... 2,000,000 shares
SHARES OUTSTANDING AFTER
THE OFFERING............................ 48,136,175 shares
USE OF PROCEEDS........................... We estimate that our net proceeds from this offering
without exercise of the over-allotment option will be
approximately $82.9 million. Silicon intends to retain
approximately $25.0 million of the net proceeds of this
offering and contribute the remaining $57.9 million to
our subsidiary, Silicon Valley Bank. Silicon intends to
use the proceeds it retains for investments in venture
capital funds and direct equity investments in companies
and for potential strategic investments or strategic
initiatives. Silicon Valley Bank intends to use the
remaining proceeds for general corporate purposes.
RISK FACTORS.............................. See "Risk Factors" beginning on page 8 and other
information included or incorporated by reference in
this prospectus for a discussion of factors you should
consider carefully before deciding to invest in the
common stock.
NASDAQ NATIONAL MARKET SYMBOL............. SIVB
</TABLE>
The number of shares outstanding after the offering excludes 4,465,672
shares issuable upon the exercise of options at an average exercise price of
$12.55 per share and 947,866 shares reserved for issuance under our stock
options plans. This number assumes that the underwriters' over-allotment option
is not exercised. If the over-allotment option is exercised in full, we will
issue and sell an additional 300,000 shares.
5
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following summary presents our selected consolidated financial data as
of, and for the years ended, December 31, 1999, 1998, 1997, 1996 and 1995. That
financial data has been derived from our audited consolidated financial
statements. The following summary also presents our selected consolidated
financial data as of, and for the three months ended, March 31, 2000 and 1999.
That financial data has been derived from our unaudited consolidated quarterly
financial statements which, in our opinion, include all adjustments (consisting
of only normal, recurring adjustments) considered necessary for a fair
presentation. The summary selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes
which have been incorporated by reference in this prospectus. The summary
selected consolidated financial data for the three months ended March 31, 2000
is not necessarily indicative of our operating results for the entire year.
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS ENDED
MARCH 31, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (DOLLARS AND NUMBERS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT SUMMARY:
Net interest income....... $ 71,500 $ 41,402 $ 205,439 $ 146,615 $ 110,824 $ 87,275 $ 73,952
Provision for loan
losses.................. 12,572 7,968 52,407 37,159 10,067 10,426 8,737
Noninterest income........ 81,134 5,252 58,855 23,162 13,265 11,609 12,565
Noninterest expense....... 47,519 25,537 125,659 83,645 66,301 52,682 47,925
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before taxes....... 92,543 13,149 86,228 48,973 47,721 35,776 29,855
Income tax expense........ 37,888 5,313 34,030 20,117 20,043 14,310 11,702
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................ $ 54,655 $ 7,836 $ 52,198 $ 28,856 $ 27,678 $ 21,466 $ 18,153
========== ========== ========== ========== ========== ========== ==========
COMMON SHARE SUMMARY:
Diluted earnings per
share................... $ 1.15 $ 0.19 $ 1.23 $ 0.69 $ 0.68 $ 0.55 $ 0.50
Book value per share...... 8.71 5.37 8.23 5.21 4.37 3.63 2.93
Weighted average diluted
shares outstanding...... 47,528 41,616 42,518 41,846 40,676 38,764 36,576
PERIOD-END BALANCE SHEET
SUMMARY:
Assets.................... $5,064,525 $3,938,569 $4,596,398 $3,545,452 $2,625,123 $1,924,544 $1,407,587
Loans, net of unearned
income.................. 1,631,442 1,614,335 1,623,005 1,611,921 1,174,645 863,492 738,405
Investment securities, at
fair value.............. 1,910,499 1,504,739 1,747,408 1,397,502 1,013,904 625,022 321,309
Noninterest-bearing
deposits................ 2,405,490 999,509 1,928,100 921,790 788,442 599,257 451,318
Total deposits............ 4,515,851 3,654,287 4,109,405 3,269,753 2,432,407 1,774,304 1,290,060
Stockholders' equity...... 400,684 223,273 368,850 215,865 174,481 135,400 104,974
OTHER DATA:
Off-balance sheet client
funds................... $9,498,906 $1,160,393 $5,666,278 $1,096,300 N/A N/A N/A
CAPITAL RATIOS:
Total risk-based capital
ratio................... 16.2% 12.2% 15.5% 11.5% 11.5% 11.5% 11.9%
Tier 1 risk-based capital
ratio................... 14.9% 11.0% 14.3% 10.3% 10.2% 10.2% 10.6%
Tier 1 leverage ratio..... 9.0% 7.2% 8.8% 7.6% 7.1% 7.7% 8.0%
Stockholders' equity to
assets.................. 7.9% 5.7% 8.0% 6.1% 6.6% 7.0% 7.5%
</TABLE>
6
<PAGE>
The following summary presents our selected consolidated asset quality data
and selected financial ratios as of, and for the years ended, December 31, 1999,
1998, 1997, 1996 and 1995. That data has been derived from our audited
consolidated financial statements. The following summary also presents our
selected consolidated asset quality data and selected financial ratios as of,
and for the three months ended, March 31, 2000 and 1999. That data has been
derived from our unaudited consolidated quarterly financial statements which, in
our opinion, include all adjustments (consisting of only normal, recurring
adjustments) considered necessary for a fair presentation. The summary selected
consolidated asset quality data and selected financial ratios should be read in
conjunction with our consolidated financial statements and the related notes
which have been incorporated by reference in this prospectus. The summary
selected consolidated financial asset quality data and selected financial ratios
for the three months ended March 31, 2000 are not necessarily indicative of our
operating results for the entire year.
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS
ENDED MARCH 31, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED ASSET QUALITY DATA:
Loans past due 90 days or more and
still accruing interest............. $ -- $ 740 $ 911 $ 441 $ 1,016 $ 8,556 $ 906
Nonaccrual loans...................... 28,789 50,993 27,552 19,444 24,476 14,581 27,867
------- ------- ------- ------- ------- ------- -------
Total nonperforming loans............. 28,789 51,733 28,463 19,885 25,492 23,137 28,773
Other real estate owned and other
foreclosed assets................... -- 1,370 -- 1,800 1,858 1,948 4,955
------- ------- ------- ------- ------- ------- -------
Total nonperforming assets............ $28,789 $53,103 $28,463 $21,685 $27,350 $25,085 $33,728
======= ======= ======= ======= ======= ======= =======
Allowance for loan losses............. $72,900 $47,600 $71,800 $46,000 $37,700 $32,700 $29,700
======= ======= ======= ======= ======= ======= =======
SELECTED FINANCIAL RATIOS:
Return on average assets(1)........... 4.6% 0.9% 1.3% 1.0% 1.3% 1.4% 1.6%
Return on average stockholders'
equity(1)........................... 55.7% 14.5% 21.9% 14.5% 18.2% 17.9% 19.8%
Efficiency ratio(2)................... 45.2% 54.6% 53.5% 53.6% 55.7% 55.9% 60.6%
Net interest margin(1)................ 6.6% 5.0% 5.5% 5.2% 5.6% 6.1% 7.1%
Allowance for loan losses as a
percentage of:
total loans......................... 4.4% 2.9% 4.4% 2.8% 3.2% 3.8% 4.0%
total nonperforming loans........... 253.2% 92.0% 252.3% 231.3% 147.9% 141.3% 103.2%
Nonperforming loans to total loans.... 1.8% 3.2% 1.7% 1.2% 2.2% 2.7% 3.9%
Nonperforming assets to total
assets.............................. 0.6% 1.4% 0.6% 0.6% 1.0% 1.3% 2.4%
Net charge-offs (recoveries) to
average loans(1).................... 2.9% 1.6% 1.7% 2.2% 0.5% 1.0% (0.1)%
</TABLE>
------------------------
(1) Annualized for the three months ended March 31, 2000 and 1999.
(2) Noninterest expense (excluding retention and warrant incentive plans and
other real estate owned, or OREO, costs) divided by the sum of net interest
income plus noninterest income (excluding warrant income and securities
gains/losses).
7
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU DECIDE
TO BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN THIS
PROSPECTUS, AS WELL AS THE INFORMATION IN DOCUMENTS THAT WE INCORPORATE BY
REFERENCE IN THIS PROSPECTUS.
IF A SIGNIFICANT NUMBER OF CLIENTS FAIL TO PERFORM UNDER THEIR LOANS, OUR
BUSINESS, PROFITABILITY AND FINANCIAL CONDITION WOULD BE ADVERSELY AFFECTED.
As a lender, the largest risk we face is the possibility that a significant
number of our client borrowers will fail to pay their loans when due. If
borrower defaults cause losses in excess of our allowance for loan losses, it
could have an adverse affect on our business, profitability and financial
condition. We have established an evaluation process designed to determine the
adequacy of the allowance for loan losses. While this evaluation process uses
historical and other objective information, the classification of loans and the
establishment of loan losses is dependent to a great extent on our experience
and judgment. We cannot assure you that our loan loss reserves will be
sufficient to absorb future loan losses or prevent a material adverse effect on
our business, profitability or financial condition.
BECAUSE OF THE CREDIT PROFILE OF OUR LOAN PORTFOLIO, OUR LEVELS OF NONPERFORMING
ASSETS AND CHARGE-OFFS CAN BE VOLATILE, AND WE MAY NEED TO MAKE MATERIAL
PROVISIONS FOR LOAN LOSSES IN ANY PERIOD, WHICH COULD CAUSE REDUCED NET INCOME
OR NET LOSSES IN THAT PERIOD.
Our loan portfolio has a credit profile different from that of most other
banking companies. Many of our loans are made to companies in the early stages
of development with negative cash flow and no established record of profitable
operations. In some cases, repayment of the loan is dependent upon receipt of
additional equity financing from venture capitalists or others. Collateral for
many of the loans often includes intellectual property, which is difficult to
value and may not be readily salable in the case of a default. Because of the
intense competition and rapid technological change which characterize the
companies in our technology and life sciences niche, a borrower's financial
position can deteriorate rapidly. We also make loans which are larger relative
to the revenues of the borrower than those made by traditional small business
lenders, so the impact of any single borrower default may be more significant to
us.
Because of these characteristics, our level of nonperforming loans and loan
charge-offs can be volatile and can vary materially from period to period. For
example, our nonperforming loans totaled:
- $28.8 million, or 1.8% of total loans, at March 31, 2000
- $28.5 million, or 1.7% of total loans, at December 31, 1999
- $35.5 million, or 2.1% of total loans, at September 30, 1999
- $47.4 million, or 3.0% of total loans, at June 30, 1999
- $51.7 million, or 3.2% of total loans, at March 31, 1999
- $19.9 million, or 1.2% of total loans, at December 31, 1998
Our nonperforming loans at March 31, 2000 included two large commercial
credits that totaled $13.8 million. The first credit, totaling $7.1 million, was
in our health care services niche and was disclosed as having a higher than
normal risk of becoming a nonperforming loan in our 1999 Annual Report on
Form 10-K, which is incorporated by reference in this prospectus. The second
credit, a $6.7 million financial services (non-technology) niche loan, has been
classified as nonperforming since March 31, 1999 and was partially charged off
in the fourth quarter of 1999.
Changes in our level of nonperforming loans may require us to make material
provisions for loan losses in any period, which could reduce our net income or
cause net losses in that period.
8
<PAGE>
In the first three months of 2000, we incurred $16.3 million in gross
charge-offs and had $4.8 million in gross recoveries. The charge-offs included
two commercial credits totaling $12.0 million in our health care services niche.
Of the total first quarter gross charge-offs, $7.5 million were classified as
nonperforming loans at the end of 1999.
Our ratio of net charge-offs to average total loans varies considerably from
period to period. For example, our net charge-offs as a percentage of our
average total loans were 2.9% in the first three months of 2000, as compared to
1.6% in the equivalent 1999 period.
IF THE AMOUNT OF CAPITAL AVAILABLE TO START-UP AND EMERGING GROWTH COMPANIES
DECREASES, IT COULD ADVERSELY AFFECT OUR BUSINESS, PROFITABILITY AND GROWTH
PROSPECTS.
Our strategy has focused on providing banking products and services to
start-up and emerging growth companies receiving financial support from
sophisticated investors, including venture capital, "angel" and corporate
investors. In some cases, our lending credit decision is based on our analysis
of the likelihood that our venture capital or "angel"-backed client will receive
a second or third round of equity infusion from investors. If the amount of
capital available to start-up and emerging growth companies decreases, it is
likely that the number of our new clients and the financial support investors
provide to our existing borrowers would decrease which could have an adverse
effect on our business, profitability and growth prospects. Among the factors
that could affect the amount of capital available to start-up and emerging
growth companies is the receptivity of the capital markets to initial public
offerings or mergers and acquisitions of companies within our technology and
life sciences niche, the availability and return on alternative investments and
general economic conditions in the technology and life sciences industries.
Recently, the stock prices of many technology companies have declined, and the
capital markets have been less receptive to initial public offerings. These
reduced capital markets valuations could reduce the amount of capital available
to start-up and emerging growth companies, including companies within our
technology and life sciences niche.
WE ARE SUBJECT TO EXTENSIVE REGULATION THAT COULD LIMIT OR RESTRICT OUR
ACTIVITIES AND IMPOSE FINANCIAL REQUIREMENTS OR LIMITATIONS ON THE CONDUCT OF
OUR BUSINESS.
Silicon and Silicon Valley Bank are extensively regulated under both federal
and state law. This regulation is intended primarily for the protection of
depositors and the deposit insurance fund and not for the benefit of
stockholders or security holders. Federal laws and regulations limit the
activities in which Silicon may engage as a bank holding company. In addition,
both Silicon and Silicon Valley Bank are required to maintain certain minimum
levels of capital. Federal and state banking regulators possess broad powers to
take supervisory action as they deem appropriate with respect to Silicon and
Silicon Valley Bank. Supervisory actions can result in higher capital
requirements, higher insurance premiums and limitations on the activities of
Silicon or Silicon Valley Bank which could have a material adverse effect on our
business and profitability.
ANY EXISTING UNREALIZED WARRANT, VENTURE CAPITAL FUND AND DIRECT EQUITY
INVESTMENT PORTFOLIO GAINS MAY NEVER BE REALIZED.
We have historically obtained rights to acquire stock, in the form of
warrants, in certain clients as part of negotiated credit facilities. We also
have made investments in venture capital funds as well as direct equity
investments in companies from time to time. Many of the companies in our
portfolio are non-public. We may not be able to realize gains from warrants in
future periods, or our realized gains may be materially less than the current
level of unrealized gains disclosed in this prospectus, due to fluctuations in
the market prices of the underlying common stock of these companies. In
addition, our investments in venture capital funds and direct equity investments
could lose value or become worthless which would reduce our net income or could
cause a net loss in any period. The timing and amount of income, if any, from
the disposition of client warrants and venture capital fund and direct equity
investments typically depend upon factors beyond our control, including the
general condition of the
9
<PAGE>
public equity markets, levels of mergers and acquisitions activity, and legal
and contractual restrictions on our ability to sell the underlying securities.
Therefore, we cannot predict future gains with any degree of accuracy and any
gains are likely to vary materially from period to period. In addition, a
significant portion of the income we realize from the disposition of client
warrants and venture capital fund and direct equity investments may be offset by
expenses related to our efforts to build an infrastructure sufficient to support
our present and future business activities, as well as by expenses incurred in
evaluating and pursuing new business opportunities, or by increases to our
provision for loan losses.
PUBLIC OFFERINGS AND MERGERS AND ACQUISITIONS INVOLVING OUR CLIENTS CAN CAUSE
LOANS TO BE PAID OFF EARLY, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND
PROFITABILITY. WE HAVE EXPERIENCED NO LOAN GROWTH IN 1999 AND THE FIRST THREE
MONTHS OF 2000, PRIMARILY AS A RESULT OF THIS PHENOMENON.
While an active market for public equity offerings and mergers and
acquisitions generally has positive implications for our business, one negative
consequence is that our clients may pay off or reduce their loans with us if
they complete a public equity offering or are acquired or merge with another
company. Any significant reduction in our outstanding loans could have a
material adverse effect on our business and profitability. Our total loans, net
of unearned income, were $1.6 billion at March 31, 2000, December 31, 1999 and
December 31, 1998. While we continue to generate new loans in most of our
technology and life sciences and special industry niche practices, as well as in
specialized lending products, many of our clients, primarily in the technology
and life sciences niche practice, have received significant cash inflows from
the capital markets and venture capital community. Consequently, we have
experienced higher than normal loan paydowns and payoffs, which have caused our
total loans to remain relatively unchanged during recent periods.
OUR CURRENT LEVEL OF INTEREST RATE SPREAD MAY DECLINE IN THE FUTURE. ANY
MATERIAL REDUCTION IN OUR INTEREST RATE SPREAD COULD HAVE A MATERIAL IMPACT ON
OUR BUSINESS AND PROFITABILITY.
A major portion of our net income comes from our interest rate spread, which
is the difference between the interest rates paid by us on interest-bearing
liabilities, such as deposits and other borrowings, and the interest rates we
receive on interest-earning assets, such as loans extended to our clients and
securities held in our investment portfolio. Interest rates are highly sensitive
to many factors that are beyond our control, such as inflation, recession,
global economic disruptions, and unemployment. During 1999 and early 2000, we
reduced the interest rates which we pay on deposits, despite a generally
increasing trend in domestic interest rates, and our rates are now lower than
those of some of our competitors. We reduced our rates as part of our balance
sheet management efforts. In the future, we may be required to increase our
deposit rates to attract deposits. We cannot assure you that our current level
of interest rate spread will not decline in the future. Any material decline
would have a material adverse effect on our business and profitability.
ADVERSE CHANGES IN DOMESTIC OR GLOBAL ECONOMIC CONDITIONS, ESPECIALLY IN THE
TECHNOLOGY SECTOR, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, GROWTH
AND PROFITABILITY.
If conditions worsen in the domestic or global economy, especially in the
technology sector, our business, growth and profitability are likely to be
materially adversely affected. Our technology clients would be harmed by any
global economic slowdown, as their businesses are often dependent upon
international suppliers and international sales. They would also be harmed if
the U.S. economy were to decline, as many of their sales generally are made
domestically. They may be particularly sensitive to any disruption in the growth
of the technology sector of the U.S. economy. To the extent that our clients'
underlying business is harmed, they are more likely to default on their loans.
IF WE FAIL TO RETAIN OUR KEY EMPLOYEES, OUR GROWTH AND PROFITABILITY COULD BE
ADVERSELY AFFECTED.
We rely on experienced client relationship managers and on officers and
employees with strong relationships with the venture capital community to
generate new business. If a significant number of
10
<PAGE>
these employees were to leave us, our growth and profitability could be
adversely affected. We believe that our employees frequently have opportunities
for employment with competing financial institutions and with our clients.
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO MAINTAIN OUR HISTORICAL LEVELS OF
PROFITABILITY IN THE FACE OF SUSTAINED COMPETITIVE PRESSURES.
We cannot assure you that we will be able to maintain our historical levels
of profitability in the face of sustained competitive pressures. Other banks and
specialty and diversified financial services companies, many of which are larger
and better capitalized than we are, offer lending, leasing and other financial
products to our customer base. In some cases, our competitors focus their
marketing on our niche practice areas and seek to increase their lending and
other financial relationships with technology companies, early stage growth
companies or special industries such as wineries or real estate. In other cases,
our competitors may offer a financial product which provides an alternative to
one of the products we offer to all our customers. When new competitors seek to
enter one of our markets, or when existing market participants seek to increase
their market share, they sometimes undercut the pricing and/or credit terms
prevalent in that market. Our pricing and credit terms could deteriorate if we
do not act to meet these competitive challenges.
THE PRICE OF OUR COMMON STOCK MAY DECREASE RAPIDLY AND PREVENT YOU FROM SELLING
SHARES YOU BUY IN THIS OFFERING AT A PROFIT.
The market price of our common stock could decrease rapidly and
significantly at any time. This could prevent you from selling shares you buy in
this offering at a profit. The market price of our common stock has fluctuated
in recent years. Since January 1, 1998, the market price of our common stock has
ranged from a low of $5.15 per share to a high of $51.00 per share. Fluctuations
may occur, among other reasons, in response to:
- our operating results;
- the perceived value of our warrants, venture capital investments and
direct equity investments;
- trends in our nonperforming assets or the nonperforming assets of other
banks;
- announcements by our competitors;
- economic changes;
- general market conditions; and
- legislative and regulatory changes.
The trading price of our common stock may continue to be subject to wide
fluctuations in response to the factors set forth above and other factors, many
of which are beyond our control. The stock market in recent years has
experienced extreme price and trading volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies. You should consider the likelihood of these market fluctuations
before investing in our common stock.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. We intend such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
assumptions, including those set forth under "Risk Factors."
Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We undertake no obligation to publicly
update or review any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, prospective investors are cautioned not to place undue reliance
on our forward-looking statements.
12
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately
$82.9 million from our sale of 2,000,000 shares of common stock in this
offering, at an assumed public offering price of $44.19 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us. If the underwriters' over-allotment option is
exercised in full, we estimate that our net proceeds will be approximately
$95.4 million.
Silicon intends to retain approximately $25.0 million of the net proceeds of
the offering and contribute the remaining $57.9 million to Silicon Valley Bank.
Silicon intends to use the proceeds it retains for investments in venture
capital funds and direct equity investments in companies and for potential
strategic investments or strategic initiatives. Silicon Valley Bank intends to
use the remaining proceeds for general corporate purposes.
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded over the counter on the Nasdaq National Market
under the symbol "SIVB."
The following table shows high and low sales prices for our common stock for
each quarterly period since January 1, 1998 as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
FISCAL 1998 LOW HIGH
----------- -------- --------
<S> <C> <C>
First Quarter............................................... $12.37 $16.12
Second Quarter.............................................. 15.12 18.25
Third Quarter............................................... 6.12 19.50
Fourth Quarter.............................................. 5.15 13.65
<CAPTION>
FISCAL 1999 LOW HIGH
----------- -------- --------
<S> <C> <C>
First Quarter............................................... $ 7.50 $10.50
Second Quarter.............................................. 8.19 12.67
Third Quarter............................................... 10.37 14.25
Fourth Quarter.............................................. 11.12 27.61
<CAPTION>
FISCAL 2000 LOW HIGH
----------- -------- --------
<S> <C> <C>
First Quarter............................................... $23.81 $45.31
Second Quarter.............................................. 16.75 44.75
Third Quarter (through July 28, 2000)....................... 39.50 51.00
</TABLE>
On July 28, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $44.19 per share. As of July 11, 2000, there were 465
stockholders of record of our common stock.
We have not paid cash dividends on our common stock since 1992 and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Our ability to pay dividends is limited by generally applicable
corporate and banking laws and regulations.
14
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization at
March 31, 2000:
- on an actual basis; and
- as adjusted to reflect our estimated net proceeds from the issuance and
sale of the shares at an assumed offering price of $44.19 per share less
the estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
Our consolidated capitalization, actual and as adjusted, includes
$40 million face amount of mandatorily redeemable trust preferred securities of
SVB Capital I, a subsidiary trust, issued in 1998. SVB Capital I holds the 8.25%
Junior Subordinated Deferrable Interest Debentures due June 15, 2028 of Silicon
as its sole asset. See Note 9 of the notes to our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 1999, which has been incorporated by reference in this prospectus.
The number of outstanding shares of common stock listed in the following
table excludes 3,158,178 shares issuable upon the exercise of options
outstanding on March 31, 2000 with a weighted average exercise price of $7.31
per share and 177,166 shares reserved for issuance under our 1997 equity
incentive plan. On April 20, 2000, our stockholders approved an amendment to our
1997 equity incentive plan to reserve an additional 2,200,000 shares of common
stock for issuance under this plan.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Company obligated mandatorily redeemable trust preferred
securities of subsidiary trust holding solely junior
subordinated debentures................................... $ 38,550 $ 38,550
Stockholders' equity:
Preferred stock, par value $.001 per share:
20,000,000 shares authorized, none issued............... -- --
Common stock, par value $.001 per share:
60,000,000 shares authorized, 46,008,180 outstanding
actual, 48,008,180 outstanding, as adjusted............. 46 48
Additional paid-in capital................................ 171,034 253,930
Retained earnings......................................... 230,685 230,685
Unearned compensation..................................... (4,136) (4,136)
Accumulated other comprehensive income:
Net unrealized gain on available-for-sale investments... 3,055 3,055
-------- --------
Total stockholders' equity.............................. 400,684 483,582
-------- --------
Total capitalization........................................ $439,234 $522,132
======== ========
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS--COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED
MARCH 31, 2000 AND 1999
EARNINGS SUMMARY
We reported net income of $54.7 million, or $1.15 per diluted share, for the
first quarter of 2000, compared with net income of $7.8 million, or $0.19 per
diluted share, for the first quarter of 1999, an increase of $46.9 million, or
$0.96 per diluted share. The annualized return on average assets was 4.6% in the
first quarter of 2000 versus 0.9% in the first quarter of 1999. The annualized
return on average equity for the first quarter of 2000 was 55.7%, compared to
14.5% in the 1999 first quarter.
The large increase in net income during the three month period ended
March 31, 2000, as compared with the same period in the prior year, was
primarily attributable to significant increases in net interest income and
noninterest income, partially offset by an increase in both the provision for
loan losses and noninterest expense. The major components of net income and
changes in these components are summarized in the following table for the three
months ended March 31, 2000 and 1999, and are discussed in more detail below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 TO
2000
2000 1999 INCREASE
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income.............................. $71,500 $41,402 $30,098
Provision for loan losses........................ 12,572 7,968 4,604
Noninterest income............................... 81,134 5,252 75,882
Noninterest expense.............................. 47,519 25,537 21,982
------- ------- -------
Income before income taxes....................... 92,543 13,149 79,394
Income tax expense............................... 37,888 5,313 32,575
------- ------- -------
Net income....................................... $54,655 $ 7,836 $46,819
======= ======= =======
</TABLE>
NET INTEREST INCOME AND MARGIN
Net interest income is defined as the difference between interest earned,
primarily on loans and investments, and interest paid on funding sources,
primarily deposits. Net interest income is our principal source of recurring
revenue. Net interest margin is defined as 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 fully taxable-equivalent interest income expressed as a percentage
of average interest-earning assets. The average rate paid on funding sources is
defined as interest expense as a percentage of average interest-earning assets.
16
<PAGE>
The following tables set forth average assets, liabilities and stockholders'
equity, interest income and interest expense, average yields and rates, and the
composition of our net interest margin for the three months ended March 31, 2000
and 1999.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
2000 1999
---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
---------- -------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and securities purchased under
agreement to resell(1)............................. $1,101,198 $16,027 5.9% $ 509,434 $ 5,978 4.8%
Investment securities:
Taxable............................................ 1,588,349 23,112 5.9 1,253,046 17,581 5.7
Non-taxable(2)..................................... 143,040 2,221 6.2 123,377 1,944 6.4
Loans:
Commercial......................................... 1,397,920 39,331 11.3 1,393,750 32,925 9.6
Real estate construction and term.................. 135,975 3,480 10.3 138,101 3,568 10.5
Consumer and other................................. 65,069 1,482 9.2 45,667 1,039 9.2
---------- ------- ---- ---------- ------- ----
Total loans.......................................... 1,598,964 44,293 11.1 1,577,518 37,532 9.6
---------- ------- ---- ---------- ------- ----
Total interest-earning assets........................ 4,431,551 85,653 7.8 3,463,375 63,035 7.4
---------- ------- ---- ---------- ------- ----
Cash and due from banks.............................. 283,142 153,377
Allowance for loan losses............................ (71,312) (49,406)
Other real estate owned.............................. -- 605
Accrued interest receivable and other assets......... 186,009 62,609
---------- ----------
Total assets......................................... $4,829,390 $3,630,560
========== ==========
Funding sources:
Interest-bearing liabilities:
NOW deposits....................................... $ 52,596 260 2.0 $ 22,346 76 1.4
Regular money market deposits...................... 419,387 1,904 1.8 338,296 2,250 2.7
Bonus money market deposits........................ 1,498,010 7,579 2.0 1,926,388 17,077 3.6
Time deposits...................................... 357,647 3,633 4.1 146,246 1,549 4.3
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities................... 2,327,640 13,376 2.3 2,433,276 20,952 3.5
Portion of noninterest-bearing funding sources....... 2,103,911 1,030,099
---------- ------- ---- ---------- ------- ----
Total funding sources................................ 4,431,551 13,376 1.2 3,463,375 20,952 2.4
---------- ------- ---- ---------- ------- ----
Noninterest-bearing funding sources:
Demand deposits...................................... 1,981,318 915,443
Other liabilities.................................... 86,945 24,404
Trust preferred securities(3)........................ 38,539 38,488
Stockholders' equity................................. 394,948 218,949
Portion used to fund interest-earning assets......... (2,103,911) (1,030,099)
---------- ----------
Total liabilities and stockholders' equity........... $4,829,390 $3,630,560
========== ==========
Net interest income and margin....................... $72,277 6.6% $42,083 5.0%
======= ==== ======= ====
Total deposits....................................... $4,308,958 $3,348,719
========== ==========
</TABLE>
------------------------------
(1) Includes average interest-bearing deposits in other financial institutions
of $364 and $195 for the three months ended March 31, 2000 and 1999,
respectively.
(2) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis using the federal statutory rate of 35% in 2000 and
1999. The tax equivalent adjustments were $777 and $680 for the three months
ended March 31, 2000 and 1999, respectively.
(3) The 8.25% annual distribution to SVB Capital I is recorded as a component of
noninterest expense.
17
<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 2000
and 1999.
<TABLE>
<CAPTION>
2000 COMPARED TO 1999
------------------------------
THREE MONTHS ENDED MARCH 31,
------------------------------
INCREASE (DECREASE)
DUE TO CHANGE IN
------------------------------
VOLUME RATE TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Federal funds sold and securities purchased
under agreement to resell.................... $ 8,388 $ 1,661 $10,049
Investment securities.......................... 5,511 297 5,808
Loans.......................................... 546 6,215 6,761
------- ------- -------
Increase in interest income...................... 14,445 8,173 22,618
------- ------- -------
Interest expense:
NOW deposits................................... 138 46 184
Regular money market deposits.................. 995 (1,341) (346)
Bonus money market deposits.................... (3,218) (6,280) (9,498)
Time deposits.................................. 2,157 (73) 2,084
------- ------- -------
Increase (decrease) in interest expense.......... 72 (7,648) (7,576)
------- ------- -------
Increase in net interest income.................. $14,373 $15,821 $30,194
======= ======= =======
</TABLE>
Net interest income, on a fully taxable-equivalent basis, totaled
$72.3 million for the first quarter of 2000, an increase of $30.2 million, or
71.7%, from the $42.1 million total for the first quarter of 1999. The increase
in net interest income was the result of a $22.6 million, or 35.9%, increase in
interest income, combined with a $7.6 million, or 36.2%, decrease in interest
expense over the comparable prior year period.
The $22.6 million increase in interest income for the first quarter of 2000,
as compared to the first quarter of 1999, was the result of a $14.4 million
favorable volume variance and a $8.2 million favorable rate variance. The
favorable volume variance resulted from a $968.2 million, or 28.0%, increase in
average interest-earning assets over the comparable prior year period. The
increase in average interest-earning assets resulted from strong growth in our
average deposits, which increased $960.2 million, or 28.7%, compared to the
first quarter of 1999. The increase in average interest-earning assets was
primarily centered in highly liquid federal funds sold, securities purchased
under agreement to resell and investment securities, which collectively
increased $946.7 million.
Average investment securities for the first quarter of 2000 increased
$355.0 million, or 25.8%, as compared to the 1999 first quarter, resulting in a
$5.5 million favorable volume variance. The aforementioned strong growth in
average deposits exceeded the growth in average loans over the past year, and
generated excess funds that were largely invested in U.S. agency securities,
collateralized mortgage obligations and municipal securities. The growth in the
investment portfolio reflected our actions to continue to increase as well as
further diversify our portfolio of short-term investments in response to the
continuing increase in liquidity.
18
<PAGE>
Average federal funds sold and securities purchased under agreement to
resell in the first quarter of 2000 increased a combined $591.8 million, or
116.2%, over the prior year first quarter, resulting in a $8.4 million favorable
volume variance. This increase was also a result of the aforementioned strong
growth in average deposits during the past year and our actions to continue to
diversify our portfolio of short-term investments.
Favorable rate variances associated with each component of interest-earning
assets in the first quarter of 2000 resulted in an increase in interest income
of $8.2 million as compared to the same period in the prior year. Short-term
market interest rates have increased on an overall basis during the past year.
As a result of this increase, we have earned higher yields during the first
quarter of 2000 on federal funds sold, securities purchased under agreement to
resell and our investment securities, a significant portion of which were
short-term in nature, resulting in a $2.0 million favorable rate variance as
compared to the first quarter of 1999. The average yield on loans in the first
quarter of 2000 also increased 150 basis points from the respective prior year
first quarter, accounting for the remaining $6.2 million of the total favorable
rate variance. This increase was primarily attributable to a 94 basis points
increase in our weighted average prime rate in the first quarter of 2000 as
compared to the similar prior year period. Approximately 78.2% of our loans
continue to be prime rate-based as of March 31, 2000.
The yield on average interest-earning assets increased 40 basis points in
the first quarter of 2000 from the comparable prior year period. This increase
primarily resulted from a rise in the average yield on loans, largely due to an
increase in our prime rate as well as an increase in short-term market rates,
which resulted in increased yields on federal funds sold and securities
purchased under agreement to resell.
Total interest expense in the first quarter of 2000 decreased $7.6 million
from the first quarter of 1999. This decrease was due to a favorable rate
variance of $7.6 million, partially offset by an unfavorable volume variance of
$0.1 million. The favorable rate variance largely resulted from a reduction in
the average rate paid on our bonus money market deposit product, from 3.6% in
the first quarter of 1999 to 2.0% in the first quarter of 2000. The reduction in
average rate paid on interest-bearing liabilities during the first quarter of
2000 as compared to the same period of the prior year was primarily attributable
to our lowering the rate paid on our bonus money market deposit product by 188
basis points. We took this action in order to lower total assets and thereby
increase our Tier 1 leverage capital ratio. See "--Capital Resources" for
further discussion.
We experienced a $0.1 million unfavorable volume variance on
interest-bearing liabilities despite a $105.6 million, or 4.3%, decrease in
total interest-bearing liabilities. This unfavorable variance was primarily due
to a shift in the composition of the deposit balance towards higher rate paying
deposit products, such as time deposits. The overall decrease in
interest-bearing liabilities resulted from our effort to manage balance sheet
growth by emphasizing higher yielding third party off-balance sheet investment
products to our clients.
The average cost of funds paid on interest-bearing liabilities for the first
quarter of 2000 of 1.2% was down from the 2.4% paid in the first quarter of
1999. This decrease in the average cost of funds was largely due to a decrease
of 160 basis points in the average rate paid on our bonus money market deposit
product.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on our evaluation of the adequacy of
the existing allowance for loan losses in relation to total loans, and on our
periodic assessment of the inherent and identified risk dynamics of the loan
portfolio resulting from reviews of selected individual loans and loan
commitments.
Our provision for loan losses totaled $12.6 million for the first quarter of
2000, a $4.6 million, or 57.8%, increase compared to the $8.0 million provision
for the first quarter of 1999. See "--Credit Quality and the Allowance for Loan
Losses" for further discussion.
19
<PAGE>
NONINTEREST INCOME
The following table summarizes the components of noninterest income for the
three month periods ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
(DOLLARS IN
THOUSANDS)
-------------------
<S> <C> <C>
Disposition of client warrants............................. $39,354 $ 821
Investment gains........................................... 29,888 131
Client investment fees..................................... 5,619 232
Letter of credit and foreign exchange income............... 3,631 2,669
Deposit service charges.................................... 714 667
Other...................................................... 1,928 732
------- ------
Total noninterest income................................... $81,134 $5,252
======= ======
</TABLE>
Noninterest income increased $75.9 million, to a total of $81.1 million in
the first quarter of 2000 versus $5.3 million in the first quarter of 1999. The
increase in noninterest income was largely due to a $38.5 million increase in
income from the disposition of client warrants, combined with a $29.8 million
increase in investment gains and a $5.4 million increase in client investment
fees.
Income from the disposition of client warrants totaled $39.4 million and
$0.8 million during the first quarter of 2000 and 1999, respectively. We have
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 we
employ to mitigate the risk of a loan becoming nonperforming, and collateral
requirements on loans with warrants are similar to lending arrangements where we
do not obtain warrants. The timing and amount of income from the disposition of
client warrants typically depend upon factors beyond our control, including the
general condition of the public equity markets as well as the mergers and
acquisitions environment. We therefore cannot predict the timing and amount of
this income with any degree of accuracy and it is likely to vary materially from
period to period. During the first three months of 2000, as well as throughout
1999, a portion of the income we realized from the disposition of client
warrants was offset by expenses related to our efforts to build an
infrastructure sufficient to support present and prospective business
activities, and by increases to the provision for loan losses during those
periods.
We realized $29.9 million in gains on sale of investment securities during
the first quarter of 2000 related to venture capital fund and direct equity
investments. This represented an increase of $29.8 million compared to the same
period of the prior year.
Client investment fees totaled $5.6 million in the first quarter of 2000
compared to $0.2 million in the 1999 first quarter. Prior to June 1999, we only
earned client investment fees on off-balance sheet funds that were invested by
clients in investment securities such as U.S. Treasury securities, U.S. agency
securities and commercial paper. Beginning in June 1999, we began offering
off-balance sheet private label mutual fund products to clients. We earn fees
ranging from 35 to 50 basis points on the average balance in these products. At
March 31, 2000, $9.5 billion in client funds were invested by clients
off-balance sheet, including $6.4 billion in the mutual fund products. The
significant growth in the amount of off-balance sheet client funds was explained
by high levels of client liquidity attributable to a strong inflow of investment
capital into the venture capital community during the past year, by growth in
the number of clients we served and by increased marketing of off-balance sheet
private label mutual fund products.
20
<PAGE>
Letter of credit fees, foreign exchange fees and other trade finance income
totaled $3.6 million in the first quarter of 2000, an increase of $1.0 million,
or 36.0%, from the $2.7 million reported in the first quarter of 1999. The
growth in this category of noninterest income reflects a concerted effort by our
management to expand the penetration of trade finance-related products and
services among our growing client base, a large percentage of which provide
products and services in international markets.
Deposit service charges totaled $0.7 million for the three months ended
March 31, 2000, relatively unchanged from the first quarter of 1999. Clients
compensate us for depository services either through earnings credits computed
on their demand deposit balances, or via explicit payments recognized as deposit
service charges income.
Other noninterest income largely consists of service-based fee income, and
increased $1.2 million, or 163.4%, to $1.9 million in the first quarter of 2000
from $0.7 million in the first quarter of 1999. The increase was primarily due
to corporate finance fees of $0.6 million and a higher volume of cash management
and loan documentation services related to our growing client base.
NONINTEREST EXPENSE
Noninterest expense in the first quarter of 2000 totaled $47.5 million, a
$22.0 million, or 86.1%, increase from the $25.5 million incurred in the
comparable 1999 period. We closely monitor our 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 retention and warrant incentive plans and other
real estate owned, by adjusted revenues. Adjusted revenues are 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. Our efficiency ratio for the first
quarter of 2000 was 45.2% versus 54.6% for the first quarter of 1999. The
following table presents the detail of noninterest expense and the incremental
contribution of each line item to our efficiency ratio:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
2000 1999
--------------------- ---------------------
PERCENT OF PERCENT OF
ADJUSTED ADJUSTED
AMOUNT REVENUES AMOUNT REVENUES
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Compensation and benefits.............................. $24,371 29.2% $14,881 32.6%
Professional services.................................. 2,446 2.9 2,343 5.1
Business development and travel........................ 2,443 2.9 1,331 2.9
Furniture and equipment................................ 2,014 2.4 1,388 3.0
Net occupancy expense.................................. 1,904 2.3 1,469 3.2
Trust preferred securities distributions............... 825 1.0 825 1.8
Postage and supplies................................... 788 1.0 665 1.5
Advertising and promotion.............................. 499 0.6 600 1.3
Telephone.............................................. 496 0.6 399 0.9
Other.................................................. 1,883 2.3 1,043 2.3
------- ---- ------- ----
Total excluding cost of other real estate owned and
retention and warrant incentive plans................ 37,669 45.2% 24,944 54.6%
==== ====
Retention and warrant incentive plans.................. 9,850 320
Cost of other real estate owned........................ -- 273
------- -------
Total noninterest expense.............................. $47,519 $25,537
======= =======
</TABLE>
21
<PAGE>
Compensation and benefits expenses totaled $24.4 million in the first
quarter of 2000, a $9.5 million, or 63.8%, increase over the $14.9 million
incurred in the first quarter of 1999. The increase in compensation and benefits
expenses was largely the result of an increase in the number of average
full-time equivalent personnel we employ combined with an increase in
performance-based compensation associated with our incentive bonuses and
employee stock ownership plan. Average full-time equivalent personnel were 713
for the three month period ended March 31, 2000, versus 602 for the prior year
period. The increase in full-time equivalent personnel was primarily due to a
combination of our efforts to develop and support new markets through geographic
expansion, to develop and expand products, services and niches, and to build an
infrastructure sufficient to support present and prospective business
activities. Further growth in our full-time equivalent personnel is likely to
occur during future years as a result of the continued expansion of our business
activities.
Retention and warrant incentive plans expense totaled $9.9 million in the
first quarter of 2000, a $9.5 million increase over the $0.3 million incurred in
the first quarter of 1999. Under the provisions of the retention and warrant
incentive plans, employees are compensated with a fixed percentage of gains
realized on warrant and certain venture capital fund and direct equity
investments. The increase in retention and warrant plans expense in the first
quarter of 2000 was directly related to the increase in warrant, venture capital
fund and direct equity investment gains over the comparable 1999 period.
Professional services expenses, which consist of costs associated with
corporate legal services, litigation settlements, accounting and auditing
services, consulting, and our board of directors, totaled $2.4 million for the
three months ended March 31, 2000, relatively unchanged from the comparable 1999
period.
Business development and travel expenses totaled $2.4 million in the first
quarter of 2000, a $1.1 million, or 83.5%, increase from the $1.3 million
incurred in the first quarter of 1999. The increase in business development and
travel expenses was largely attributable to overall growth in our business,
including both an increase in the number of full-time equivalent personnel and
expansion into new geographic markets.
Occupancy, furniture and equipment expenses totaled $3.9 million for the
three months ended March 31, 2000, an increase of $1.1 million, or 37.1%, from
the $2.9 million for the three months ended March 31, 1999. The increase in
occupancy, furniture and equipment expenses in the first three months of 2000 as
compared to the comparable period of the prior year was primarily the result of
our continued geographic expansion to develop and support new markets.
Trust preferred securities distributions totaled $0.8 million for the three
months ended March 31, 2000 and 1999. These distributions resulted from the
issuance of $40.0 million in cumulative trust preferred securities during the
second quarter of 1998. The trust preferred securities pay a fixed rate
quarterly distribution of 8.25% and have a maximum maturity of 30 years.
Other noninterest expense totaled $1.9 million for the three months ended
March 31, 2000, an increase of $0.8 million, or 80.5%, compared to $1.0 million
for the comparable 1999 period. This increase was primarily attributable to an
increase in data processing costs.
INCOME TAXES
Our effective tax rate was 40.9% for the first quarter of 2000, relatively
unchanged from 40.4% in the comparable three month period in 1999.
22
<PAGE>
RESULTS OF OPERATIONS--COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997
EARNINGS SUMMARY
We reported net income in 1999 of $52.2 million, compared with net income of
$28.9 million in 1998 and $27.7 million in 1997. Diluted earnings per share
totaled $1.23 in 1999, compared to $0.69 and $0.68 in 1998 and 1997,
respectively. Return on average equity in 1999 was 21.9%, compared with 14.5% in
1998 and 18.2% in 1997. Return on average assets in 1999 was 1.3%, compared with
1.0% in 1998 and 1.3% in 1997.
The increase in net income for 1999, as compared to 1998, was primarily
attributable to growth in both net interest income and noninterest income,
partially offset by increases in the provision for loan losses and in
noninterest expense. The slight increase in net income for 1998, as compared
with 1997, was primarily attributable to growth in both net interest income and
noninterest income, and was almost entirely offset by a significant increase in
the provision for loan losses and an increase in noninterest expense. The major
components of net income and changes in these components are summarized in the
following table for the years ended December 31, 1999, 1998 and 1997, and are
discussed in more detail on the following pages.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 TO 1997 TO
1999 1998
1999 1998 INCREASE 1997 INCREASE
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net interest income......................... $205,439 $146,615 $58,824 $110,824 $35,791
Provision for loan losses................... 52,407 37,159 15,248 10,067 27,092
Noninterest income.......................... 58,855 23,162 35,693 13,265 9,897
Noninterest expense......................... 125,659 83,645 42,014 66,301 17,344
-------- -------- ------- -------- -------
Income before income taxes.................. 86,228 48,973 37,255 47,721 1,252
Income tax expense.......................... 34,030 20,117 13,913 20,043 74
-------- -------- ------- -------- -------
Net income.................................. $ 52,198 $ 28,856 $23,342 $ 27,678 $ 1,178
======== ======== ======= ======== =======
</TABLE>
23
<PAGE>
NET INTEREST INCOME AND MARGIN
The following table sets forth average assets, liabilities and stockholders'
equity, interest income and interest expense, average yields and rates, and the
composition of our net interest margin for the years ended December 31, 1999,
1998 and 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
---------- -------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and
securities purchased under
agreement to resell(1)........ $ 618,338 $ 31,204 5.0% $ 396,488 $ 21,305 5.4%
Investment securities:
Taxable....................... 1,441,081 82,193 5.7 1,044,918 61,515 5.9
Non-taxable(2)................ 135,549 8,460 6.2 78,234 5,034 6.4
Loans:(3),(4),(5)
Commercial.................... 1,393,134 143,744 10.3 1,157,949 122,708 10.6
Real estate construction and
term........................ 138,943 13,988 10.1 115,743 12,364 10.7
Consumer and other............ 59,557 5,241 8.8 45,134 4,064 9.0
---------- -------- ---- ---------- -------- ----
Total loans..................... 1,591,634 162,973 10.2 1,318,826 139,136 10.6
---------- -------- ---- ---------- -------- ----
Total interest-earning assets... 3,786,602 284,830 7.5 2,838,466 226,990 8.0
---------- -------- ---- ---------- -------- ----
Cash and due from banks......... 186,841 137,096
Allowance for loan losses....... (59,383) (40,055)
Other real estate owned......... 181 681
Other assets.................... 78,169 54,360
---------- ----------
Total assets.................... $3,992,410 $2,990,548
========== ==========
Funding sources:
Interest-bearing liabilities:
NOW deposits.................. $ 32,664 620 1.9 $ 18,702 348 1.9
Regular money market
deposits.................... 357,006 8,770 2.5 338,585 9,189 2.7
Bonus money market deposits... 1,907,517 58,510 3.1 1,487,240 63,155 4.3
Time deposits................. 207,108 8,530 4.1 131,530 5,917 4.5
Other borrowings.............. -- -- -- 66 4 6.0
---------- -------- ---- ---------- -------- ----
Total interest-bearing
liabilities................... 2,504,295 76,430 3.1 1,976,123 78,613 4.0
Portion of noninterest-bearing
funding sources............... 1,282,307 862,343
---------- -------- ---- ---------- -------- ----
Total funding sources........... 3,786,602 76,430 2.0 2,838,466 78,613 2.8
---------- -------- ---- ---------- -------- ----
Noninterest-bearing funding
sources:
Demand deposits................. 1,177,303 769,984
Other liabilities............... 34,220 22,146
Trust preferred securities(6)... 38,507 23,620
Stockholders' equity............ 238,085 198,675
Portion used to fund interest-
earning assets................ (1,282,307) (862,343)
---------- ----------
Total liabilities and
stockholders' equity.......... $3,992,410 $2,990,548
========== ==========
Net interest income and
margin........................ $208,400 5.5% $148,377 5.2%
======== ==== ======== ====
Total deposits.................. $3,681,598 $2,746,041
========== ==========
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997
----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Federal funds sold and
securities purchased under
agreement to resell(1)........ $ 312,398 $ 17,264 5.5%
Investment securities:
Taxable....................... 671,390 40,360 6.0
Non-taxable(2)................ 33,801 2,320 6.9
Loans:(3),(4),(5)
Commercial.................... 858,459 95,304 11.1
Real estate construction and
term........................ 78,311 8,063 10.3
Consumer and other............ 36,867 3,473 9.4
---------- -------- ----
Total loans..................... 973,637 106,840 11.0
---------- -------- ----
Total interest-earning assets... 1,991,226 166,784 8.4
---------- -------- ----
Cash and due from banks......... 148,044
Allowance for loan losses....... (37,568)
Other real estate owned......... 1,192
Other assets.................... 37,736
----------
Total assets.................... $2,140,630
==========
Funding sources:
Interest-bearing liabilities:
NOW deposits.................. $ 15,814 308 1.9
Regular money market
deposits.................... 345,828 9,368 2.7
Bonus money market deposits... 895,259 40,885 4.6
Time deposits................. 107,742 4,587 4.3
Other borrowings.............. 5 -- 5.0
---------- -------- ----
Total interest-bearing
liabilities................... 1,364,648 55,148 4.0
Portion of noninterest-bearing
funding sources............... 626,578
---------- -------- ----
Total funding sources........... 1,991,226 55,148 2.8
---------- -------- ----
Noninterest-bearing funding
sources:
Demand deposits................. 608,475
Other liabilities............... 15,389
Trust preferred securities(6)... --
Stockholders' equity............ 152,118
Portion used to fund interest-
earning assets................ (626,578)
----------
Total liabilities and
stockholders' equity.......... $2,140,630
==========
Net interest income and
margin........................ $111,636 5.6%
======== ====
Total deposits.................. $1,973,118
==========
</TABLE>
------------------------------
(1) Includes average interest-bearing deposits in other financial institutions
of $255, $240 and $306 in 1999, 1998 and 1997, respectively.
24
<PAGE>
(2) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis using the federal statutory rate of 35% in 1999,
1998 and 1997. These adjustments were $2,961, $1,762 and $812 for the years
ended December 31, 1999, 1998 and 1997, respectively.
(3) Average loans include average nonaccrual loans of $37,827, $26,158 and
$19,681 in 1999, 1998 and 1997, respectively.
(4) Average loans are net of average unearned income of $9,328, $8,299 and
$6,922 in 1999, 1998 and 1997, respectively.
(5) Loan interest income includes loan fees of $15,738, $12,935 and $10,567 in
1999, 1998 and 1997, respectively.
(6) The 8.25% annual distribution to SVB Capital I is recorded as a component of
noninterest expense.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
------------------------------ ------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
------------------------------ ------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income
Federal funds sold and securities purchased
under agreement to resell................ $11,195 $ (1,296) $ 9,899 $ 4,518 $ (477) $ 4,041
Investment securities...................... 26,074 (1,970) 24,104 24,765 (896) 23,869
Loans...................................... 27,933 (4,096) 23,837 36,418 (4,122) 32,296
------- -------- ------- ------- ------- -------
Increase (decrease) in interest income....... 65,202 (7,362) 57,840 65,701 (5,495) 60,206
------- -------- ------- ------- ------- -------
Interest expense:
NOW deposits............................... 265 7 272 54 (14) 40
Regular money market deposits.............. 453 (872) (419) (197) 18 (179)
Bonus money market deposits................ 12,891 (17,536) (4,645) 25,138 (2,868) 22,270
Time deposits.............................. 3,113 (500) 2,613 1,070 260 1,330
Other borrowing............................ (4) -- (4) 4 -- 4
------- -------- ------- ------- ------- -------
Increase (decrease) in interest expense...... 16,718 (18,901) (2,183) 26,069 (2,604) 23,465
------- -------- ------- ------- ------- -------
Increase (decrease) in net interest income... $48,484 $ 11,539 $60,023 $39,632 $(2,891) $36,741
======= ======== ======= ======= ======= =======
</TABLE>
Net interest income, on a fully taxable-equivalent basis, totaled
$208.4 million in 1999, an increase of $60.0 million, or 40.5%, from the
$148.4 million total in 1998. The increase in net interest income was
attributable to a $57.8 million, or 25.5%, increase in interest income, combined
with a $2.2 million, or 2.8%, decrease in interest expense over the comparable
prior year period. Net interest income in 1998, on a fully taxable-equivalent
basis, totaled $148.4 million, an increase of $36.7 million, or 32.9%, compared
to the $111.6 million total in 1997. This increase in net interest income was
the result of a $60.2 million, or 36.1%, increase in interest income, offset by
a $23.5 million, or 42.5%, increase in interest expense over the comparable
prior year period.
The $57.8 million increase in interest income for 1999, as compared to 1998,
was the result of a $65.2 million favorable volume variance, slightly offset by
a $7.4 million unfavorable rate variance. The $65.2 million favorable volume
variance resulted from a $948.1 million, or 33.4%, increase in average
interest-earning assets over the comparable prior year period. The increase in
average interest-earning assets resulted from strong growth in our average
deposits, which increased $935.6 million, or 34.1%, from 1998 to 1999. The
increase in average interest-earning assets consisted of loans, which increased
$272.8 million, plus a combination of highly liquid, lower-yielding federal
funds sold, securities purchased under agreement to resell and investment
securities, which collectively increased $675.3 million, accounting for 71.2% of
the total increase in average interest-earning assets.
25
<PAGE>
Average loans increased $272.8 million, or 20.7%, in 1999 as compared to
1998, resulting in a $27.9 million favorable volume variance. This growth was
widely distributed throughout the loan portfolio, as reflected by increased
average loan balances in most of our technology and life sciences and special
industry niche practices, in specialized lending products, and throughout our
loan offices located across the nation.
Average investment securities for 1999 increased $453.5 million, or 40.4%,
as compared to 1998, resulting in a $26.1 million favorable volume variance. The
aforementioned strong growth in average deposits exceeded the growth in average
loans during 1999, and generated excess funds that were largely invested in U.S.
agency securities, mortgage-backed securities, collateralized mortgage
obligations, and commercial paper. The growth in the investment portfolio
reflected our actions to continue to increase as well as further diversify our
portfolio of short-term investments in response to the continuing increase in
liquidity.
Average federal funds sold and securities purchased under agreement to
resell in 1999 increased a combined $221.9 million, or 56.0%, over the prior
year, resulting in an $11.2 million favorable volume variance. This increase was
largely due to the aforementioned strong growth in average deposits during 1999
and our actions to continue to further diversify our portfolio of short-term
investments.
Unfavorable rate variances associated with each component of
interest-earning assets combined to decrease interest income by $7.4 million in
1999, as compared to the prior year. Short-term market interest rates declined
on an overall basis during 1999. As a result of this decline, we earned lower
yields during 1999 on federal funds sold, securities purchased under agreement
to resell and our investment securities, a significant portion of which were
short-term in nature, resulting in a $3.3 million unfavorable rate variance as
compared to the prior year. The average yield on loans in 1999 also decreased 40
basis points from the respective prior year, accounting for the remaining
$4.1 million of the total unfavorable rate variance. This decrease was primarily
attributable to a 36 basis points decline in our weighted average prime rate in
1999 as compared to the similar prior year period. Approximately 77.5% of our
loans were prime rate-based at the end of 1999.
The yield on average interest-earning assets decreased 50 basis points in
1999 from the comparable prior year period. This decrease resulted from a slight
decline in the average yield on loans, largely due to a decline in our average
prime rate, as well as to a continuing shift in the composition of 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 strong growth in deposits continuing to
outpace the growth in loans.
The $60.2 million increase in interest income for 1998, as compared to 1997,
was the result of a $65.7 million favorable volume variance, slightly offset by
a $5.5 million unfavorable rate variance. The $65.7 million favorable volume
variance resulted from a $847.2 million, or 42.5%, increase in average
interest-earning assets over the comparable prior year period. The increase in
average interest-earning assets resulted from strong growth in our average
deposits, which increased $772.9 million, or 39.2%, from 1997 to 1998. The
increase in average interest-earning assets consisted of loans, which increased
$345.2 million, plus a combination of highly liquid, lower-yielding federal
funds sold, securities purchased under agreement to resell and investment
securities, which collectively increased $502.0 million, accounting for 59.3% of
the total increase in average interest-earning assets.
Average loans increased $345.2 million, or 35.5%, in 1998 as compared to
1997, resulting in a $36.4 million favorable volume variance. This growth was
widely distributed throughout the loan portfolio, as reflected by increased loan
balances in all of our technology and life sciences and special industry niche
practices, in specialized lending products, and throughout our loan offices
located across the nation.
26
<PAGE>
In December 1998, we announced that we had discontinued new loan
originations associated with our religious financial resources division. We had
approximately $175.0 million in outstanding loans to religious organizations,
predominantly for construction of buildings for worship and education, as of
December 31, 1998. Competitive changes within the religious organizations market
affected our ability to generate our anticipated loan yield and provide returns
that exceed our required return on capital. The credit quality of the portfolio
was not a factor in our decision to discontinue new religious financial
resources loan origination. Since inception, we have not incurred any losses
associated with the religious financial resources portfolio. The discontinuation
of new religious financial resources loan origination could have an effect on
our future loan growth.
Average investment securities for 1998 increased $418.0 million, or 59.3%,
as compared to 1997, resulting in a $24.8 million favorable volume variance. The
aforementioned strong growth in average deposits exceeded the growth in average
loans during 1998, and generated excess funds that were largely invested in U.S.
agency securities, collateralized mortgage obligations and municipal securities.
The growth in the investment portfolio reflected management's actions to
increase as well as to further diversify our portfolio of short-term investments
in response to a significant increase in liquidity.
Average federal funds sold and securities purchased under agreement to
resell in 1998 increased a combined $84.1 million, or 26.9%, over the prior
year, resulting in a $4.5 million favorable volume variance. This increase was
largely due to the aforementioned strong growth in average deposits during 1998
coupled with management's actions to further diversify our portfolio of
short-term investments.
Unfavorable rate variances associated with each component of
interest-earning assets in 1998 resulted in a decrease in interest income of
$5.5 million as compared to the prior year. Short-term market interest rates
declined during the second half of 1998. As a result of this decline, we earned
lower yields in 1998 on federal funds sold, securities purchased under agreement
to resell and our investment securities, a significant portion of which were
short-term in nature, resulting in a $1.4 million unfavorable rate variance as
compared to the prior year. The average yield on loans in 1998 decreased 40
basis points from 1997, accounting for the remaining $4.1 million of the total
unfavorable rate variance. This decrease was primarily attributable to both
increased competition and a decline in the average prime rate we charged during
the second half of 1998, as a substantial portion of our loans are prime
rate-based.
The total yield on average interest-earning assets decreased 40 basis points
in 1998 from the comparable prior year period. This decrease resulted from a
decline in the average yield on loans, largely due to both increased competition
and a decline in our prime rate, as well as to a continuing shift in the
composition of 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 strong growth in
deposits continuing to outpace the growth in our average loans during 1998.
Interest expense in 1999 decreased $2.2 million from 1998. This decrease was
due to a favorable rate variance of $18.9 million, largely offset by an
unfavorable volume variance of $16.7 million. The favorable rate variance
largely resulted from a reduction in the average rate paid on our bonus money
market deposit product, from 4.3% in 1998 to 3.1% in 1999. The reduction during
1999 in the average rate paid on our bonus money market deposit product was
primarily attributable to a decline in short-term market interest rates during
the second half of 1998 and to our lowering the rates paid on bonus money market
deposits by an additional 163 basis points during 1999.
The unfavorable volume variance of $16.7 million resulted from a
$528.2 million, or 26.7%, increase in average interest-bearing liabilities in
1999 as compared to 1998. This increase was largely concentrated in our bonus
money market deposit product, which increased $420.3 million, or 28.3%, and was
explained by high levels of client liquidity attributable to a strong inflow of
investment capital
27
<PAGE>
into the venture capital community during the past year, and by growth in the
number of clients we serve.
The average cost of funds paid on average interest-bearing liabilities
decreased 90 basis points from 1998 to 1999. This decrease in the average cost
of funds was largely due to a decrease of 120 basis points in the average rate
paid on our bonus money market deposit product.
Interest expense in 1998 increased $23.5 million from 1997. This increase
was due to an unfavorable volume variance of $26.1 million, partially offset by
a favorable rate variance of $2.6 million. The unfavorable volume variance
resulted from a $611.5 million, or 44.8%, increase in average interest-bearing
liabilities in 1998 as compared to 1997. This increase was largely concentrated
in our bonus money market deposit product, which increased $592.0 million, or
66.1%, and was explained by high levels of client liquidity attributable to a
strong inflow of investment capital into the venture capital community during
1998, and by growth in the number of clients we served.
Changes in the average rates paid on interest-bearing liabilities had a
$2.6 million favorable impact on interest expense in 1998 as compared to 1997.
This decrease in interest expense largely resulted from a reduction in the
average rate paid on our bonus money market deposit product from 4.6% in 1997 to
4.3% in 1998. The reduction during 1998 in the average rate paid on our bonus
money market deposit product was largely attributable to a decline in short-term
market interest rates during the second half of 1998.
The average cost of funds paid in 1998 of 2.8% was flat with the prior year.
Although the average rate paid on our bonus money market deposit product
decreased during 1998 as compared to 1997, this was offset by a continuing shift
in the composition of average interest-bearing liabilities towards a higher
percentage of deposits in that product.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on our evaluation of the adequacy of
the existing allowance for loan losses in relation to total loans, and on our
periodic assessment of the inherent and identified risk dynamics of the loan
portfolio resulting from reviews of selected individual loans and loan
commitments.
Our provision for loan losses totaled $52.4 million in 1999 compared to
$37.2 million and $10.1 million in 1998 and 1997, respectively. The increase in
our provision for loan losses in 1999 was in response to an increasing trend in
net charge-offs. We incurred net charge-offs of $26.6 million in 1999 and
$28.9 million in 1998, compared to $5.1 million in 1997. See "--Credit Quality
and the Allowance for Loan Losses" for further discussion.
NONINTEREST INCOME
The following table summarizes the components of noninterest income for the
past three years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Disposition of client warrants.............................. $33,003 $ 6,657 $ 5,480
Letter of credit and foreign exchange income................ 14,027 7,397 4,512
Client investment fees...................................... 4,529 473 299
Deposit service charges..................................... 2,764 1,730 1,772
Investment gains............................................ 1,056 5,240 90
Other....................................................... 3,476 1,665 1,112
------- ------- -------
Total noninterest income.................................... $58,855 $23,162 $13,265
======= ======= =======
</TABLE>
28
<PAGE>
Noninterest income increased $35.7 million, or 154.1%, in 1999 as compared
to 1998. This increase was largely due to a $26.3 million increase in income
from the disposition of client warrants, coupled with a $6.6 million increase in
letter of credit fees, foreign exchange fees and other trade finance income and
a $4.1 million increase in client investment fees. This increase was partially
offset by a decrease of $4.2 million in investment gains. Noninterest income
increased $9.9 million, or 74.6%, in 1998 as compared to 1997. This increase was
largely due to a $5.2 million increase in investment gains, coupled with a
$2.9 million increase in letter of credit fees, foreign exchange fees and other
trade finance income and a $1.2 million increase in income from the disposition
of client warrants.
Income from the disposition of client warrants totaled $33.0 million,
$6.7 million and $5.5 million in 1999, 1998 and 1997, respectively. During the
years ended December 31, 1999, 1998 and 1997, a significant portion of the
income from the disposition of client warrants was offset by expenses related to
our efforts to build an infrastructure sufficient to support present and
prospective business activities, and was also offset by increases to the
provision for loan losses in those same years.
Letter of credit fees, foreign exchange fees and other trade finance income
totaled $14.0 million in 1999, an increase of $6.6 million, or 89.6%, from the
$7.4 million total in 1998, and an increase of $9.5 million, or 210.9%, from the
$4.5 million total in 1997. The growth in this category of noninterest income
reflects a concerted effort by our management to expand the penetration of trade
finance-related products and services among our growing client base, a large
percentage of which provide products and services in international markets.
Client investment fees totaled $4.5 million in 1999 compared to
$0.5 million and $0.3 million in 1998 and 1997, respectively. At December 31,
1999, $5.7 billion in client funds were invested off-balance sheet, including
$3.7 billion in the mutual fund products. The significant growth in the amount
of off-balance sheet client funds was explained by high levels of client
liquidity attributable to a strong inflow of investment capital into the venture
capital community during the past year, by growth in the number of clients we
serve, and by increased marketing of off-balance sheet private label mutual fund
products.
Income related to deposit service charges totaled $2.8 million,
$1.7 million and $1.8 million in 1999, 1998 and 1997, respectively. Clients
compensate us for depository services either through earnings credits computed
on their demand deposit balances, or via explicit payments recognized as deposit
service charges income. The increase in deposit service charges income in 1999
was due to both a reduction in earnings credits resulting from a decrease in
short-term market rates during 1998 and growth in our client base.
We realized $1.1 million in gains on sales of investment securities during
1999, compared to $5.2 million in gains on sales of investment securities during
1998, and a nominal gain on sales of investment securities during 1997. The 1999
gains primarily related to distributions received from venture capital fund
investments. The 1998 gains primarily related to sales of U.S. Treasury
securities, U.S. agency securities, mortgage-backed securities, and
collateralized mortgage obligations, with an aggregate book value of
$433.3 million. All investment securities sold were classified as
available-for-sale, and all sales were conducted as a normal component of our
asset/liability and liquidity management activities.
Other noninterest income is largely composed of service-based fee income,
and totaled $3.5 million in 1999, compared to $1.7 million in 1998 and
$1.1 million in 1997, respectively. The increase in 1999, as compared to 1998
and 1997, was primarily due to a higher volume of cash management and loan
documentation services related to our growing client base.
NONINTEREST EXPENSE
Noninterest expense in 1999 totaled $125.7 million, a $42.0 million, or
50.2%, increase from 1998. Total noninterest expense was $83.6 million in 1998,
up $17.3 million, or 26.2%, from 1997. Our
29
<PAGE>
efficiency ratio was 53.5% for 1999, compared to 53.6% and 55.7% in 1998 and
1997, respectively. The following table presents the detail of noninterest
expense and the incremental contribution of each expense line item to our
efficiency ratio:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
ADJUSTED ADJUSTED ADJUSTED
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Compensation and benefits................. $ 73,794 32.0% $44,022 27.9% $39,869 33.6%
Professional services..................... 11,766 5.1 9,876 6.3 6,710 5.7
Net occupancy expense..................... 6,689 2.9 5,195 3.3 3,410 2.9
Business development and travel........... 6,644 2.9 6,025 3.8 4,514 3.8
Furniture and equipment................... 6,178 2.7 6,667 4.2 3,620 3.1
Trust preferred securities
distributions........................... 3,300 1.4 2,012 1.3 -- --
Postage and supplies...................... 2,582 1.1 2,225 1.4 1,600 1.3
Advertising and promotion................. 2,285 1.0 2,215 1.4 1,448 1.2
Telephone................................. 1,846 0.8 2,157 1.4 1,444 1.2
Other..................................... 8,205 3.6 4,255 2.7 3,395 2.9
-------- ---- ------- ---- ------- ----
Total, excluding cost of other real
estate owned and retention and warrant
incentive plans......................... 123,289 53.5% 84,649 53.6% 66,010 55.7%
==== ==== ====
Retention and warrant incentive plans..... 2,102 210 215
Cost of other real estate owned........... 268 (1,214) 76
-------- ------- -------
Total noninterest expense............... $125,659 $83,645 $66,301
======== ======= =======
</TABLE>
Compensation and benefits expenses totaled $73.8 million in 1999, a
$29.8 million, or 67.6%, increase over the $44.0 million incurred in 1998. This
increase was largely the result of an increase in the number of average
full-time equivalent personnel we employ, from 521 in 1998 to 645 in 1999,
combined with an increase in performance-based compensation associated with our
incentive bonuses and employee stock ownership plan. Compensation and benefits
expenses in 1998 increased $4.2 million, or 10.4%, from the $39.9 million total
in 1997. The increase in compensation and benefits expenses in 1998 was
primarily the result of an increase in the number of average full-time
equivalent personnel we employ, partially offset by a decrease in
performance-based compensation due to lower than expected net income. Average
full-time equivalent personnel were 521 in 1998 compared with 417 in 1997. The
increase in full-time equivalent personnel from 1997 through 1999 was primarily
due to a combination of our efforts to develop and support new markets through
geographic expansion, to develop and expand products, services and niches, and
to build an infrastructure sufficient to support present and prospective
business activities. Further growth in our full-time equivalent personnel is
likely to occur during future years as a result of the continued expansion of
our business activities.
Retention and warrant plans expense totaled $2.1 million in 1999, compared
to $0.2 million for each of 1998 and 1997. Under the provisions of the retention
and warrant incentive plans, employees are compensated with a fixed percentage
of gains realized on warrant and certain venture capital fund and direct equity
investments. The increase in retention and warrant incentive plans expense in
1999 was directly related to the increase in warrant gains as compared to 1998
and 1997.
Professional services expenses, which consist of costs associated with
corporate legal services, litigation settlements, accounting and auditing
services, consulting, and our board of directors, totaled $11.8 million in 1999,
a $1.9 million, or 19.1%, increase from the $9.9 million total in 1998. We
incurred $6.7 million in professional services expenses in 1997. The increase in
professional services
30
<PAGE>
expenses in 1999, as compared to 1998, primarily related to an increase in
consulting fees associated with several business initiatives. Further, the
increase in professional services expenses during the past three years reflects
the extensive efforts we have undertaken to continue to build and support our
infrastructure, as well as evaluate and pursue new business opportunities. It
also reflects our efforts in outsourcing several corporate functions, such as
internal audit, facilities management and credit review, where we believe we can
achieve a combination of cost savings and increased quality of service. The
increase in professional services expenses in 1998, as compared to 1997,
primarily related to an increase in both consulting fees associated with several
business initiatives, including the Year 2000 remediation project, and legal
fees primarily related to loan consultations and the workout of various
commercial credits.
Occupancy, furniture and equipment expenses totaled $12.9 million in 1999,
$11.9 million in 1998 and $7.0 million in 1997. The increase in occupancy,
furniture and equipment expenses in 1999, as compared to 1998, was primarily the
result of our continued geographic expansion to develop and support new markets.
The increase in occupancy, furniture and equipment expenses in 1998, as compared
to 1997, was largely attributable to our incurrence of certain non-recurring
costs in connection with the expansion of our existing headquarters facility
during the second quarter of 1998 and an increase in recurring expenses
associated with that additional office space. Occupancy, furniture and equipment
expenses were also impacted by costs related to furniture, computer equipment
and other related costs associated with our opening new loan offices in Los
Angeles, California and Chicago, Illinois in early 1998. We intend to continue
our geographic expansion into other emerging technology marketplaces across the
U.S. during future years as opportunities to serve new markets arise.
Business development and travel expenses totaled $6.6 million in 1999, an
increase of $0.6 million, or 10.3%, compared to the $6.0 million total in 1998.
We incurred $4.5 million in business development and travel expenses in 1997.
The increase in business development and travel expenses during each of the last
two years was largely attributable to overall growth in our business, including
both an increase in the number of full-time equivalent personnel and expansion
into new geographic markets.
Trust preferred securities distributions totaled $3.3 million in 1999, an
increase of $1.3 million, or 64.0%, compared to $2.0 million for 1998. These
distributions resulted from the issuance of $40.0 million in cumulative trust
preferred securities during the second quarter of 1998. The trust preferred
securities pay a fixed rate quarterly distribution of 8.25% and have a maximum
maturity of 30 years.
Postage and supplies expenses totaled $2.6 million, $2.2 million and
$1.6 million in 1999, 1998 and 1997, respectively. Total telephone expenses were
$1.9 million in 1999, $2.2 million in 1998 and $1.4 million in 1997. The
increase in postage and supplies during each of the past two years was largely
the result of overall growth in our business, including both an increase in the
number of full-time equivalent personnel and expansion into new geographic
markets. The decrease in telephone expenses in 1999, as compared to 1998,
relates primarily to our efforts to negotiate lower telecommunication rates.
Advertising and promotion expenses totaled $2.3 million in 1999,
$2.2 million in 1998 and $1.4 million in 1997. The increase in advertising and
promotion expenses during each of the last two years, reflects our concerted
effort to increase our marketing efforts nationwide.
Other noninterest expenses totaled $8.2 million, $4.3 million and
$3.4 million in 1999, 1998 and 1997, respectively. The increase in other
noninterest expenses in 1999 of $4.0 million, as compared to 1998, was primarily
due to $2.1 million in charitable contributions made to the Silicon Valley Bank
Foundation and increased data processing costs. The $0.9 million increase in
other noninterest expenses from 1997 to 1998 was largely due to an increase in
data processing costs related to both growth in our business and several new
business initiatives commenced in 1998.
31
<PAGE>
In 1999 and 1997, we incurred minimal net costs associated with OREO.
Additionally, during 1998, we realized a net gain of $1.3 million in connection
with the sale of an OREO property that consisted of multiple undeveloped lots.
Our 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
Our effective income tax rate was 39.5% in 1999, compared to 41.1% in 1998
and 42.0% in 1997. The decrease in our effective income tax rate was
attributable to an increase in the amount of tax-exempt interest income we
received, as well as to a change in our multi-state income tax rate.
FINANCIAL CONDITION
Our total assets were $5.1 billion at March 31, 2000, an increase of
$468.1 million, or 10.2%, compared to $4.6 billion at December 31, 1999. Our
total assets were $4.6 billion at December 31, 1999, an increase of
$1.1 billion, or 29.6%, compared to $3.5 billion at December 31, 1998.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Federal funds sold and securities purchased under agreement to resell
totaled a combined $1.1 billion at March 31, 2000, an increase of
$172.5 million, or 19.2%, compared to the $898.0 million outstanding at
December 31, 1999. This increase was attributable to our investing excess funds,
resulting from continued strong deposit growth during the first quarter of 2000,
in these types of short-term liquid investments. Federal funds sold and
securities purchased under agreement to resell totaled a combined
$898.0 million at December 31, 1999, an increase of $498.8 million, or 125.0%,
compared to the $399.2 million outstanding at December 31, 1998. This increase
was attributable to our desire to maintain a high level of liquidity at year end
in anticipation of the century date change.
INVESTMENT SECURITIES
The following table details the composition of investment securities, all of
which were classified as available-for-sale and reported at fair value, at
March 31, 2000 and December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------- ------------------------------------
2000 1999 1998 1997
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities...................... $ 29,694 $ 29,798 $ 41,049 $ 217,685
U.S. agencies and corporations:
Discount notes and bonds.................... 970,137 855,570 498,016 462,405
Mortgage-backed securities.................. 155,204 161,822 125,059 144,437
Collateralized mortgage obligations......... 235,437 221,952 155,149 41,051
Obligations of states and political
subdivisions................................ 292,341 196,396 515,770 60,436
Commercial paper and other debt securities.... 9,000 117,084 48,464 66,836
Money market mutual funds..................... 132,821 27,103 -- --
Bankers' acceptances.......................... -- -- -- 16,140
Warrant securities............................ 54,250 68,358 670 897
Venture capital fund investments.............. 12,597 52,561 5,359 2,368
Other private equity investments.............. 4,428 4,428 569 168
Federal Reserve Bank stock and tax credit
funds....................................... 14,590 12,336 7,397 1,481
---------- ---------- ---------- ----------
Total......................................... $1,910,499 $1,747,408 $1,397,502 $1,013,904
========== ========== ========== ==========
</TABLE>
32
<PAGE>
Investment securities totaled $1.9 billion at March 31, 2000, an increase of
$163.1 million, or 9.3%, from the December 31, 1999 balance of $1.7 billion.
This increase resulted from excess funds that were generated by strong growth in
our deposits outpacing the growth in loans during the first three months of
2000, and primarily consisted of U.S. agency securities, collateralized mortgage
obligations and municipal securities. Investment securities totaled
$1.7 billion at December 31, 1999, an increase of $349.9 million, or 25.0%, over
the December 31, 1998 balance of $1.4 billion. This increase resulted from
excess funds that were generated by strong growth in our deposits outpacing the
growth in loans during 1999, and primarily consisted of U.S. agency securities,
mortgage-backed securities, collateralized mortgage obligations, and commercial
paper. The decrease in U.S. Treasury securities and obligations of states and
political subdivisions was primarily due to maturities. The overall growth in
the investment portfolio reflected our actions to increase as well as to further
diversify our investment portfolio in response to a continued significant
increase in liquidity.
The increase in market interest rates during the first three months of 2000
resulted in a pre-tax unrealized loss on our available-for-sale fixed income
securities investment portfolio of $48.8 million as of March 31, 2000. This
unrealized loss was offset by a pre-tax unrealized gain of $54.1 million
associated with our warrant securities. Because of the level of liquidity we
maintain, we do not anticipate having to sell fixed income investment securities
and incurring material losses on sales in future periods for liquidity purposes.
Investment securities totaled $1.4 billion at December 31, 1998. This
represented a $383.6 million, or 37.8%, increase over the December 31, 1997
balance of $1.0 billion. This increase resulted from excess funds that were
generated by strong growth in our deposits outpacing the growth in loans during
1998, and primarily consisted of U.S. agency securities, collateralized mortgage
obligations and municipal securities. The significant increase in municipal
securities was composed of both taxable and non-taxable municipal obligations,
and was largely attributable to our obtaining slightly higher yields on these
investments as compared to U.S. agency discount notes and bonds and other
short-term securities. The decreases in U.S. Treasury securities,
mortgage-backed securities and commercial paper was primarily due to sales and
maturities. The overall growth in the investment portfolio reflected
management's actions to increase as well as to further diversify our portfolio
of short-term investments in response to a continued significant increase in
liquidity.
At March 31, 2000, we held no investment securities that were issued by a
single party, excluding securities issued by the U.S. Government or by U.S.
Government agencies and corporations, and that exceeded 10.0% of our
stockholders' equity.
Based on May 31, 2000 market valuations, we had potential pre-tax warrant
gains totaling $23.3 million related to 46 companies. We are restricted from
exercising many of these warrants until the second, third and fourth quarters of
2000. As of May 31, 2000, we held 1,035 warrants in 830 companies, and had made
investments in 172 venture capital funds and direct equity investments in 37
companies. We obtained 368 warrants in 1999 compared to 258 in 1998 and 157 in
1997. Many of these companies are non-public. Thus, for those companies for
which a readily determinable market value cannot be obtained, we value these
equity instruments at cost less any identified impairment. Additionally, we are
typically precluded from using any type of derivative instrument to secure the
current unrealized gains associated with many of these equity instruments.
Hence, the amount of income we realize from these equity instruments in future
periods may vary materially from the current unrealized amount due to
fluctuations in the market prices of the underlying common stock of these
companies. Furthermore, we may reinvest some or all of the income realized from
the disposition of these equity instruments in pursuing our business strategies.
For further discussion, see "Risk Factors--Any existing unrealized warrant,
venture capital fund and direct equity investment portfolio gains may never be
realized."
33
<PAGE>
LOANS
The composition of our loan portfolio, net of unearned income, as of
March 31, 2000 and each of the past five years is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF ----------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
-------------- ---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial...................... $1,434,272 $1,414,728 $1,429,980 $1,051,218 $755,699 $622,488
Real estate construction........ 72,170 76,209 74,023 53,583 27,540 17,194
Real estate term................ 55,916 67,738 60,841 33,395 44,475 56,845
Consumer and other.............. 69,084 64,330 47,077 36,449 35,778 41,878
---------- ---------- ---------- ---------- -------- --------
Total loans..................... $1,631,442 $1,623,005 $1,611,921 $1,174,645 $863,492 $738,405
========== ========== ========== ========== ======== ========
</TABLE>
Total loans, net of unearned income, at March 31, 2000, were $1.6 billion,
the balance at December 31, 1999 and December 31, 1998. While we continue to
generate new loans in most of our technology and life sciences and special
industry niche practices, as well as in specialized lending products, many of
our clients, primarily in the technology and life sciences niche, have received
significant cash inflows from the capital markets and venture capital community.
Consequently, we have experienced higher than normal loan paydowns and payoffs,
which has caused total loans to remain relatively unchanged between March 31,
2000 and December 31, 1998.
The following table sets forth the remaining contractual maturity
distribution of our loans, reported on a gross basis, at March 31, 2000 for
fixed and variable rate loans:
<TABLE>
<CAPTION>
MARCH 31, 2000
------------------------------------------------------
AFTER ONE YEAR
ONE YEAR OR AND THROUGH AFTER FIVE
LESS FIVE YEARS YEARS TOTAL
----------- -------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate loans:
Commercial................................... $ 21,222 $223,711 $90,149 $ 335,082
Real estate construction..................... 390 3,501 -- 3,891
Real estate term............................. -- 12,294 2,000 14,294
Consumer and other........................... 257 3,820 32 4,109
-------- -------- ------- ----------
Total fixed rate loans....................... $ 21,869 $243,326 $92,181 $ 357,376
======== ======== ======= ==========
Variable rate loans:
Commercial................................... $695,740 $353,314 $65,905 $1,114,959
Real estate construction..................... 52,165 2,560 14,012 68,737
Real estate term............................. 7,721 24,858 3,112 35,691
Consumer and other........................... 45,072 6,874 13,083 65,029
-------- -------- ------- ----------
Total variable rate loans.................... $800,698 $387,606 $96,112 $1,284,416
======== ======== ======= ==========
</TABLE>
Upon maturity, loans satisfying our credit quality standards may be eligible
for renewal. Such renewals are subject to the normal underwriting and credit
administration practices associated with new loans. We do not grant loans with
unconditional extension terms.
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 we follow underwriting and credit monitoring procedures
which we believe are appropriate in growing and managing the loan portfolio, in
the event of nonperformance by these other parties, our potential exposure to
credit losses could significantly affect our consolidated financial position and
earnings.
34
<PAGE>
Lending money involves an inherent risk of nonpayment. Through the
administration of loan policies and monitoring of the loan portfolio, our
management seeks to reduce this risk. The allowance for loan losses is an
estimate to provide a financial buffer for losses, both identified and
unidentified, in the loan portfolio.
We regularly review and monitor 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 compliance with loan
covenants, underlying collateral values, potential loan concentrations, and
general economic conditions. We identify potential problem credits and, based
upon known information, we develop action plans.
We have established an evaluation process designed to determine the adequacy
of the allowance for loan losses. This process attempts to assess the risk of
losses inherent in the loan portfolio by segregating the allowance for loan
losses into three components: "specific," "loss migration," and "general." The
specific component is established by allocating a portion of the allowance for
loan losses to individual classified credits on the basis of specific
circumstances and assessments. The loss migration component is calculated as a
function of the historical loss migration experience of the internal loan credit
risk rating categories. The general component, composed of allocated and
unallocated portions that supplements the first two components, includes: our
management's judgment of the effect of current and forecasted economic
conditions on the borrowers' abilities to repay, an evaluation of the allowance
for loan losses in relation to the size of the overall loan portfolio, an
evaluation of the composition of, and growth trends within, the loan portfolio,
consideration of the relationship of the allowance for loan losses to
nonperforming loans, net charge-off trends, and other factors. While this
evaluation process uses historical and other objective information, the
classification of loans and the establishment of the allowance for loan losses,
relies, to a great extent, on the judgment and experience of our management.
An analysis of the allowance for loan losses for the three months ended
March 31, 2000 and for the past five years is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period......... $71,800 $46,000 $46,000 $ 37,700 $32,700 $29,700 $20,000
Charge-offs:
Commercial........................... (16,253) (8,053) (34,312) (31,123) (9,236) (9,056) (4,248)
Real estate.......................... -- -- -- -- -- (634) (653)
Consumer and other................... -- (24) (196) -- -- (38) (57)
------- ------- ------- -------- ------- ------- -------
Total charge-offs...................... (16,253) (8,077) (34,508) (31,123) (9,236) (9,728) (4,958)
------- ------- ------- -------- ------- ------- -------
Recoveries:
Commercial........................... 4,772 1,505 7,849 1,897 3,170 2,050 3,106
Real estate.......................... -- 204 34 366 986 217 2,815
Consumer and other................... 9 -- 18 1 13 35 --
------- ------- ------- -------- ------- ------- -------
Total recoveries....................... 4,781 1,709 7,901 2,264 4,169 2,302 5,921
------- ------- ------- -------- ------- ------- -------
Net (charge-offs) recoveries........... (11,472) (6,368) (26,607) (28,859) (5,067) (7,426) 963
Provision for loan losses.............. 12,572 7,968 52,407 37,159 10,067 10,426 8,737
------- ------- ------- -------- ------- ------- -------
Balance at end of period............... $72,900 $47,600 $71,800 $ 46,000 $37,700 $32,700 $29,700
======= ======= ======= ======== ======= ======= =======
Net charge-offs (recoveries) to average
total loans(1)....................... 2.9% 1.6% 1.7% 2.2% 0.5% 1.0% (0.1)%
======= ======= ======= ======== ======= ======= =======
</TABLE>
--------------------------
(1) Annualized for the three-months ended March 31, 2000 and 1999.
35
<PAGE>
Average impaired loans for 1999 and 1998 totaled $37.8 million and
$26.2 million, respectively. If these loans had not been impaired, we would have
realized $1.4 million and $2.5 million in interest income for the years ended
December 31, 1999 and 1998, respectively. We realized no interest income on such
impaired loans during 1999 or 1998.
The following table displays the allocation of the allowance for loan losses
among specific classes of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL OF TOTAL OF TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial............. $49,985 95.5% $28,417 95.8% $30,394 89.5% $18,716 87.5% $16,176 84.3%
Real estate term....... 795 1.5 438 1.4 426 2.8 873 5.2 707 7.7
Real estate
construction......... 792 1.5 374 1.3 274 4.6 140 3.2 87 2.4
Consumer and other..... 757 1.5 434 1.5 386 3.1 615 4.1 339 5.6
Unallocated............ 19,471 N/A 16,337 N/A 6,220 N/A 12,356 N/A 12,391 N/A
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total.................. $71,800 100.0% $46,000 100.0% $37,700 100.0% $32,700 100.0% $29,700 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The allowance for loan losses totaled $72.9 million at March 31, 2000, an
increase of $1.1 million, or 1.5%, compared to the $71.8 million balance at
December 31, 1999. This increase was due to $12.6 million in additional
provisions to the allowance for loan losses, partially offset by $11.5 million
of net charge-offs for the three months ended March 31, 2000.
We incurred $16.3 million in gross charge-offs during the three months ended
March 31, 2000. The charge-offs included two commercial credits totaling
$12.0 million in our health care services niche. Of the total first quarter
gross charge-offs, $7.5 million were classified as nonperforming loans at the
end of 1999.
We believe our allowance for loan losses is adequate as of March 31, 2000.
However, future changes in circumstances, economic conditions or other factors
could cause us to increase or decrease the allowance for loan losses as deemed
necessary. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review our allowance for loan losses.
Such agencies may require us to make adjustments to the allowance for loan
losses based on their judgment of information available to them at the time of
their examination. For a discussion of factors that influence our loan losses
and loan charge-offs, see "Risk Factors--Because of the credit profile of our
loan portfolio, our levels of nonperforming assets and charge-offs can be
volatile, and we may need to make material provisions for loan losses in any
period, which could cause reduced net income or net losses in that period."
The allowance for loan losses totaled $71.8 million at December 31, 1999, an
increase of $25.8 million, or 56.1%, compared to $46.0 million at December 31,
1998. This increase was due to $52.4 million in additional provisions to the
allowance for loan losses, offset by net charge-offs of $26.6 million during
1999. The 1999 net charge-off amount was composed of $34.5 million in gross
charge-offs and $7.9 million in gross recoveries. The 1999 gross charge-offs
included a $7.4 million commercial credit in our financial services
(non-technology) niche and a $5.7 million commercial credit in our computers and
peripherals niche. Of the total 1999 gross charge-offs, $6.0 million were
classified as nonperforming loans at the end of 1998.
The unallocated component of the allowance for loan losses as of
December 31, 1999 increased $3.1 million, or 19.2%, from the prior year end.
This increase reflects our decision to further bolster the allowance for loan
losses and maintain strong coverage ratios based on the economic uncertainty
36
<PAGE>
surrounding many of our markets in 1999 and the higher than normal gross
charge-offs experienced throughout 1999.
The 1998 gross charge-off total included $17.4 million and $7.2 million in
charge-offs that were incurred during the third and fourth quarters of 1998,
respectively. Gross charge-offs for the third quarter of 1998, the largest of
which was $7.0 million, were primarily related to five commercial credits and
were not concentrated in any particular niche or industry. Of the total 1998
third quarter gross charge-offs, $8.1 million were classified as nonperforming
loans at the end of 1997.
We incurred $7.2 million in gross charge-offs during the fourth quarter of
1998, primarily centered in our QuickStart and bridge portfolios. Gross
charge-offs in the fourth quarter of 1998 included three bridge loans and four
QuickStart loans totaling $2.5 million and $1.9 million, respectively. Our
QuickStart product was based in large part on an analysis that indicates that
almost all venture capital-backed clients that receive a first round of equity
infusion from a venture capitalist will receive a second round. The analysis
indicated that the second round typically occurred 18 months after the first
round. Hence, proceeds from the second round could be used to pay off the
18 month term loan offered under the QuickStart product. However, the second
round has been occurring much sooner than expected and the additional cash
infusion has occasionally been depleted before 18 months. The likelihood of a
third round occurring is not as great as a second round and thus this resulted
in higher than anticipated charge-offs related to this product during the fourth
quarter of 1998.
Gross charge-offs for 1997 were $9.2 million, and included charge-offs
totaling $6.5 million related to two commercial credits, one in our technology
and life sciences niche and the other in one of our special industry niches.
Gross recoveries of $4.2 million in 1997 included $1.1 million related to a
commercial credit in one of our special industry niches that was partially
charged off in 1996. Gross charge-offs for 1996 were $9.7 million, and primarily
resulted from five credits, none of which were related to our technology and
life sciences niche. Gross recoveries of $2.3 million in 1996 included
$0.9 million related to one commercial credit that was partially charged off in
1994. Net loan recoveries in 1995 of $1.0 million included $2.7 million in
recoveries from a real estate client relationship that had been charged off in
1992 and $1.1 million in recoveries related to a commercial credit that was
partially charged off in 1994.
Nonperforming assets consist of loans that are past due 90 days or more
which are still accruing interest, loans on nonaccrual status and OREO and other
foreclosed assets. The table below sets forth certain data and ratios between
nonperforming loans, nonperforming assets and the allowance for loan losses.
During 1999, 1998 and 1997, our nonaccrual loans represented all impaired loans.
We measure all loans placed on nonaccrual status for impairment based on the
fair value of the underlying collateral on the net present value of the expected
cash flows in accordance with SFAS No 114, "Accounting by Creditors for
Impairment of a Loan."
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonperforming assets:
Loans past due 90 days or more and
still accruing interest............ $ -- $ 740 $ 911 $ 441 $ 1,016 $ 8,556 $ 906
Nonaccrual loans..................... 28,789 50,993 27,552 19,444 24,476 14,581 27,867
------- ------- ------- ------- ------- ------- -------
Total nonperforming loans............ 28,789 51,733 28,463 19,885 25,492 23,137 28,773
OREO and other foreclosed assets..... -- 1,370 -- 1,800 1,858 1,948 4,955
------- ------- ------- ------- ------- ------- -------
Total nonperforming assets............. $28,789 $53,103 $28,463 $21,685 $27,350 $25,085 $33,728
======= ======= ======= ======= ======= ======= =======
Nonperforming loans as a percentage of
total loans.......................... 1.8% 3.2% 1.7% 1.2% 2.2% 2.7% 3.9%
Nonperforming assets as a percentage of
total assets......................... 0.6% 1.4% 0.6% 0.6% 1.0% 1.3% 2.4%
Allowance for loan losses:............. $72,900 $47,600 $71,800 $46,000 $37,700 $32,700 $29,700
As a percentage of total loans....... 4.4% 2.9% 4.4% 2.8% 3.2% 3.8% 4.0%
As a percentage of nonaccrual
loans.............................. 253.2% 93.4% 260.6% 236.6% 154.0% 224.3% 106.6%
As a percentage of nonperforming
loans.............................. 253.2% 92.0% 252.3% 231.3% 147.9% 141.3% 103.2%
</TABLE>
37
<PAGE>
Nonperforming loans totaled $28.8 million, or 1.8% of total loans, at
March 31, 2000, an increase of $0.3 million, or 1.1%, compared to
$28.5 million, or 1.7% of total loans, at December 31, 1999. Nonperforming loans
at March 31, 2000 included two commercial credits totaling $13.8 million. The
first credit, totaling $7.1 million, was in our health care services niche and
was disclosed as having a higher than normal risk of becoming a nonperforming in
our 1999 Annual Report on Form 10-K, which is incorporated by reference in this
prospectus. The second credit, totaling $6.7 million, was in our financial
services (non-technology) niche. This credit has been classified as
nonperforming since March 31, 1999. Our management believes these credits are
adequately secured with collateral and reserves, and that any future charge-offs
associated with these loans will not have a material impact on our future net
income.
In addition to the loans disclosed in the foregoing analysis, we have
identified two loans totaling $13.0 million, that, on the basis of information
known to us, are judged to have a higher than normal risk of becoming
nonperforming. We are not aware of any other loans 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.
Nonperforming loans totaled $28.5 million at December 31, 1999, an increase
of $8.6 million, or 43.1%, from the $19.9 million total at December 31, 1998. Of
the total nonperforming loans at year-end 1998, $6.0 million were charged off,
$0.2 million were placed on performing status and $13.2 million were repaid
during 1999. Additionally, $28.0 million in loans were placed on nonperforming
status during 1999 and still classified as nonperforming loans at the end of
1999. Nonperforming loans at the end of the 1999 fourth quarter included one
commercial credit totaling $7.4 million in our financial services
(non-technology) niche, which has been partially charged off, as described
above. This credit has been classified as nonperforming since March 31, 1999.
Nonperforming loans totaled $19.9 million at December 31, 1998, a decrease
of $5.6 million, or 22.0%, from the $25.5 million total at December 31, 1997. Of
the total nonperforming loans at year-end 1997, $10.0 million were charged off,
$7.4 million were placed on performing status and $4.8 million were repaid
during 1998. An additional $16.6 million in loans were placed on nonperforming
status during 1998 and still were classified as nonperforming loans at the end
of 1998.
Nonperforming loans at December 31, 1997 totaled $25.5 million, an increase
of $2.4 million, or 10.2%, from the $23.1 million total at December 31, 1996, as
a $9.9 million net increase in nonaccrual loans during 1997 was largely offset
by the payoff during the first quarter of 1997 of one credit in excess of
$8.0 million that was more than 90 days past due and still accruing interest, as
of December 31, 1996. The increase in nonaccrual loans at December 31, 1997,
from the prior year end, was primarily due to two commercial credits totaling
approximately $14.1 million which were placed on nonaccrual status during the
last half of 1997, one of which was returned to performing status in the first
quarter of 1998 and the other was partially charged off in 1998, with the
remaining balance still nonperforming. Nonperforming loans at December 31, 1996
included the aforementioned credit in excess of $8.0 million that was more than
90 days past due and still accruing interest, as of December 31, 1996. The
Export- Import Bank of the U.S. provided Silicon Valley Bank with a guarantee of
this credit facility, and Silicon Valley Bank received the guarantee payment
related to this credit from the Export-Import Bank in the first quarter of 1997.
We held no OREO or other foreclosed asset at March 31, 2000 and
December 31, 1999. OREO or other foreclosed assets totaled a combined
$1.8 million at December 31, 1998. The OREO and other foreclosed assets balance
at December 31, 1998 consisted of one OREO property and one other asset which
was acquired through foreclosure, both of which were sold during 1999.
38
<PAGE>
DEPOSITS
Our deposits are largely obtained from companies within the technology and
life sciences niche, and, to a lesser extent, from businesses within our special
industry niches and from individuals served by our executive banking division.
We do not obtain deposits from conventional retail sources and do not accept
brokered deposits.
The following table presents the composition of our deposits as of
March 31, 2000 and the five years ended December 31, 1999:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, --------------------------------------------------------------
2000 1999 1998 1997 1996 1995
--------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand...... $2,405,490 $1,928,100 $ 921,790 $ 788,442 $ 599,257 $ 451,318
NOW............................. 81,941 43,643 19,978 21,348 8,443 10,956
Regular money market............ 467,711 363,920 350,110 351,921 326,661 288,619
Bonus money market.............. 1,129,949 1,481,457 1,835,249 1,146,075 754,730 473,717
Time............................ 430,760 292,285 142,626 124,621 85,213 65,450
---------- ---------- ---------- ---------- ---------- ----------
Total deposits.................. $4,515,851 $4,109,405 $3,269,753 $2,432,407 $1,774,304 $1,290,060
========== ========== ========== ========== ========== ==========
</TABLE>
Total deposits were $4.5 billion at March 31, 2000, an increase of
$406.4 million, or 9.9%, from the prior year-end total of $4.1 billion. A
significant portion of the increase in deposits during the first three months of
2000 was concentrated in our noninterest-bearing demand deposits, which
increased $477.4 million, or 24.8%, to a total of $2.4 billion at March 31,
2000. This increase was explained by high levels of client liquidity
attributable to a strong inflow of investment capital into the venture capital
community and the equity markets, and by growth during the first three months of
2000 in the number of clients we served.
Total deposits were $4.1 billion at December 31, 1999, an increase of
$839.7 million, or 25.7%, from the prior year-end total of $3.3 billion. A
significant portion of the increase in deposits during 1999 was concentrated in
our noninterest-bearing demand deposits, which increased $1.0 billion, or
109.2%, from the prior year end. This increase was explained by high levels of
client liquidity attributable to a strong inflow of investment capital into the
venture capital community and the equity markets, and by growth in the number of
clients served by us during 1999.
Client deposits in our bonus money market product totaled $1.5 billion at
December 31, 1999, a $353.8 million, or 19.3%, decrease from the $1.8 billion
prior year-end balance. Despite the high levels of client liquidity, our money
market deposits at December 31, 1999 decreased $340.0 million from the prior
year end. The decrease in money market deposits was the result of our lowering
bonus money market deposit rates 163 basis points during 1999 and marketing
higher-yielding off-balance sheet private label mutual fund products to clients.
We took this action in order to lower total assets and thereby increase our Tier
1 leverage capital ratio. See "--Regulatory Matters" for further discussion.
The aggregate amount of time deposit accounts individually exceeding
$100,000 totaled $258.1 million and $122.8 million at December 31, 1999 and
1998, respectively. At December 31, 1999, all time deposit accounts exceeding
$100,000 were scheduled to mature within one year. No material portion of our
deposits has been obtained from a single depositor and the loss of any one
depositor would not materially affect our business.
MARKET RISK MANAGEMENT
Interest rate risk is the most significant market risk impacting us. Our
monitoring activities related to managing interest rate risk include both
interest rate sensitivity "gap" analysis and the use of a simulation model to
measure the impact of market interest rate changes on the net present value of
39
<PAGE>
estimated cash flows from our assets, liabilities and off-balance sheet items,
defined as our market value of portfolio equity. See our 1999 Annual Report on
Form 10-K which is incorporated by reference in this prospectus for disclosure
of the quantitative and qualitative information regarding the interest rate risk
inherent in interest rate risk sensitive instruments as of December 31, 1999.
There have been no changes in the assumptions we used in monitoring interest
rate risk, and we are in compliance with all material interest rate risk policy
guidelines as of March 31, 2000. Other types of market risk affecting us in the
normal course of our business activities include foreign currency exchange risk
and equity price risk. We do not consider the impact on us resulting from these
other two types of market risks to be material. We do not maintain a portfolio
of trading securities and do not intend to engage in such activity in the
immediate future.
LIQUIDITY
Another important objective of asset/liability management is to manage
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.
We regularly assess 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 business activities.
Our asset/liability committee provides oversight to the liquidity management
process and recommends policy guidelines, subject to approval of our board of
directors, and courses of action to address our actual and projected liquidity
needs.
The ability to attract a stable, low-cost base of deposits is our primary
source of liquidity. Other sources of liquidity available to us include
short-term borrowings, which consist of federal funds purchased, security
repurchase agreements and other short-term borrowing arrangements. We can also
meet our liquidity requirements through the use of our portfolio of liquid
assets. We define liquid assets to 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.
Our policy guidelines provide that liquid assets as a percentage of total
deposits should not fall below 20.0%. At March 31, 2000, Silicon Valley Bank's
ratio of liquid assets to total deposits was 57.5%. This ratio is well in excess
of Silicon Valley Bank's minimum policy guidelines and is higher than the
comparable ratio of 55.7% as of December 31, 1999. In addition to monitoring the
level of liquid assets relative to total deposits, Silicon Valley Bank also
utilizes other internal policy measures in its liquidity management activities.
As of March 31, 2000 and as of December 31, 1999 and 1998, Silicon Valley Bank
was in compliance with all of these policy measures.
CAPITAL RESOURCES
Our management seeks to maintain adequate capital to support anticipated
asset growth and credit risks, and to ensure that Silicon and Silicon Valley
Bank are in compliance with all regulatory capital guidelines. Our primary
sources of new capital include the issuance of common stock and trust preferred
securities, as well as retained earnings.
In December 1999 we issued 2.8 million shares of common stock at $21.00 per
share. In January 2000, we issued an additional 0.4 million shares at $21.00 per
share in relation to the exercise of an over-allotment option by the
underwriters for that offering. Proceeds from the sale of these securities
totaled $63.3 million, net of underwriting commissions and other offering
expenses. In addition, in 1998
40
<PAGE>
we issued $40.0 million face amount in cumulative trust preferred securities
through a newly formed special-purpose trust, SVB Capital I. The securities had
an offering price (liquidation amount) of $25 per security and distributions at
a fixed rate of 8.25% are paid quarterly. The securities have a maximum maturity
of 30 years and qualify as Tier 1 capital under the capital guidelines of the
Federal Reserve Board. We received proceeds of $38.5 million related to the sale
of these securities, net of underwriting commissions and other offering
expenses. The trust preferred securities are presented as a separate line item
in the consolidated balance sheet under the caption "Company obligated
mandatorily redeemable trust preferred securities of subsidiary trust holding
solely junior subordinated debentures."
Stockholders' equity totaled $400.7 million at March 31, 2000, an increase
of $31.8 million, or 8.6%, from the $368.9 million balance at December 31, 1999.
This increase was primarily due to net income of $54.7 million for the three
months ended March 31, 2000 and net proceeds from the issuance of common stock
of $17.6 million, partially offset by a decrease in the after-tax net unrealized
gain on available-for-sale investments of $38.6 million. See "--Investment
Securities" for additional discussion on the net unrealized loss on
available-for-sale investments as of March 31, 2000.
Stockholders' equity was $368.9 million at December 31, 1999, an increase of
$153.0 million, or 70.9%, from the $215.9 million balance at December 31, 1998.
This increase was primarily due to 1999 net income of $52.2 million, net
proceeds from the common stock issuance of $55.1 million and an increase in
after-tax net unrealized gains on available-for-sale securities of
$39.6 million. We have not paid a cash dividend on our common stock since 1992,
and did not have any material commitments for capital expenditures as of
March 31, 2000.
In March 2000 our board of directors approved a two-for-one stock split, in
the form of a stock dividend on our common stock. Holders of our common stock as
of the record date, April 21, 2000, received one additional share of our common
stock for each share of common stock held as of the record date. The settlement
date for this stock dividend was May 15, 2000.
Both Silicon and Silicon Valley Bank are subject to capital adequacy
guidelines of the Federal Reserve Board. Under these capital guidelines, the
minimum total risk-based capital ratio 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.
Both Silicon's and Silicon Valley Bank's capital ratios were in excess of
regulatory guidelines for a well capitalized depository institution as of
March 31, 2000 and December 31, 1999, 1998, and 1997.
Capital ratios for Silicon are set forth below:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------
2000 1999 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Total risk-based capital ratio................. 16.2% 15.5% 11.5% 11.5%
Tier 1 risk-based capital ratio................ 14.9% 14.3% 10.3% 10.2%
Tier 1 leverage ratio.......................... 9.0% 8.8% 7.6% 7.1%
</TABLE>
Capital ratios for Silicon Valley Bank are set forth below:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------
2000 1999 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Total risk-based capital ratio................. 14.4% 14.0% 10.2% 10.8%
Tier 1 risk-based capital ratio................ 13.1% 12.7% 9.0% 9.6%
Tier 1 leverage ratio.......................... 7.9% 7.9% 6.6% 6.6%
</TABLE>
41
<PAGE>
The increase in our total risk-based capital ratio and Tier 1 risk-based
capital ratio from December 31, 1999, to March 31, 2000, was primarily
attributable to an increase in Tier 1 capital. This increase was due to both the
issuance of common stock in January 2000 related to the exercise of an
over-allotment option with respect to the issuance of common stock in
December 1999, which generated net proceeds of $17.6 million, and internally
generated capital, primarily net income of $54.7 million. The Tier 1 leverage
ratio remained fairly consistent between December 31, 1999 and March 31, 2000 as
an increase in quarterly average total assets offset the increase in Tier 1
capital. Quarterly average total assets increased due to strong growth in
deposits during the 2000 first quarter.
In an informal arrangement with Silicon Valley Bank's primary banking
regulators, pursuant to a memorandum of understanding entered into in late
September 1999 and terminated in June 2000, Silicon Valley Bank agreed to
maintain a Tier 1 leverage ratio of at least 7.25%. Although the memorandum of
understanding has been terminated, our internal policy guidelines require
Silicon Valley Bank to maintain a Tier 1 leverage ratio at this level.
The increase in the total risk-based capital ratio and the Tier 1 risk-based
capital ratio at the end of 1999 from the prior year end was primarily
attributable to an increase in Tier 1 capital. This increase was due to both the
issuance of common stock during 1999, which generated net proceeds of
$55.1 million, and internally generated capital, primarily net income of
$52.2 million. The Tier 1 leverage ratio also improved as of December 31, 1999
when compared to December 31, 1998, although not as significantly as the
risk-based capital ratios, due to an increase in quarterly average total assets
partially offsetting the increase in Tier 1 capital. Quarterly average total
assets increased due to the strong growth in deposits during 1999.
Our total risk-based capital ratio at the end of 1998 was unchanged from the
prior year end and the Tier 1 risk-based capital ratio was slightly higher than
the prior year end, as growth in Tier 1 capital was offset by an increase in
total assets. This increase in total assets was largely in lower risk-weighted
categories and resulted from our strong deposit growth exceeding our loan growth
during 1998. Our Tier 1 leverage ratio increased to 7.6% at the end of 1998 from
7.1% at December 31, 1997. This increase, together with the maintenance of our
other regulatory ratios were partially achieved through the issuance of
$40.0 million face amount in cumulative trust preferred securities during 1998
through SVB Capital I.
REGULATORY MATTERS
MEMORANDUM OF UNDERSTANDING
In late September 1999, Silicon Valley Bank entered into an informal
arrangement pursuant to a memorandum of understanding with the Federal Reserve
Bank of San Francisco and the California Department of Financial Institutions,
Silicon Valley Bank's primary banking regulators. The memorandum of
understanding and its associated restrictions were terminated in June 2000.
Under the memorandum of understanding, Silicon Valley Bank had committed to
maintain a Tier 1 leverage ratio of at least 7.25%; obtain the regulators'
consent prior to payment of dividends; further enhance our credit monitoring and
review policies and submit reports to the regulators regarding credit quality.
The Federal Reserve Bank of San Francisco had also directed Silicon to obtain
its approval before incurring debt, paying dividends, repurchasing capital stock
or entering into agreements to acquire any entities or portfolios. These
restrictions were also terminated in June 2000.
All of our capital ratios are in excess of regulatory guidelines for a well
capitalized depository institution. During the first nine months of 1999,
Silicon Valley Bank's Tier 1 leverage ratio had declined from the level at
December 31, 1998, largely as a result of the rapid growth in deposits
experienced by Silicon Valley Bank during the first half of 1999. Silicon Valley
Bank's deposit growth in the first half of 1999 was driven by high levels of
client liquidity attributable to a strong inflow of investment capital into the
venture capital and emerging growth capital communities, and by growth in
42
<PAGE>
the number of clients served by Silicon Valley Bank. In order to slow the growth
in deposits due to the Tier 1 leverage ratio capital constraints, Silicon Valley
Bank implemented a program during the third quarter of 1999 to market
off-balance sheet products, such as mutual fund products, to clients. This
allowed Silicon Valley Bank to continue serving its clients' needs while
restraining balance sheet growth driven by deposits. Silicon also contributed
$41.6 million of the proceeds of the common stock offering in December 1999 to
the capital of Silicon Valley Bank.
FINANCIAL MODERNIZATION ACT
On November 12, 1999, the President signed into law the Gramm-Leach-Bliley
Act, or GLB Act, which significantly changed the regulatory structure and
oversight of the financial services industry. The GLB Act revises the Bank
Holding Company Act of 1956 and repeals the affiliation provisions of the
Glass-Steagall Act of 1933, permitting a qualifying holding company, called a
financial holding company, to engage in a full range of financial activities,
including banking, insurance, and securities activities, as well as merchant
banking and additional activities that are "financial in nature" or "incidental"
to such financial activities. The GLB Act thus provides expanded financial
affiliation opportunities for existing bank holding companies and permits
various non-bank financial services providers to acquire banks by allowing bank
holding companies to engage in activities such as securities underwriting, and
underwriting and brokering of insurance products. The GLB Act also expands
passive investments by financial holding companies in any type of company,
financial or nonfinancial, through merchant banking and insurance company
investments. In order for a bank holding company to qualify as a financial
holding company, its subsidiary depository institutions must be
"well-capitalized" and "well-managed" and have at least a "satisfactory"
Community Reinvestment Act rating.
The GLB Act also reforms the regulatory framework of the financial services
industry. Under the GLB Act, financial holding companies are subject to primary
supervision by the Federal Reserve Board while current federal and state
regulators of financial holding company regulated subsidiaries such as insurers,
broker-dealers, investment companies and banks generally retain their
jurisdiction and authority. In order to implement its underlying purposes, the
GLB Act preempts state laws restricting the establishment of financial
affiliations authorized or permitted under the GLB Act, subject to specified
exceptions for state insurance regulators. With regard to securities laws, the
GLB Act removes the current blanket exemption for banks from the broker-dealer
registration requirements under the Securities Exchange Act of 1934, amends the
Investment Company Act of 1940 with respect to bank common trust fund and mutual
fund activities, and amends the Investment Advisers Act of 1940 to require
registration of banks that act as investment advisers for mutual funds. The GLB
Act also includes provisions concerning subsidiaries of national banks,
permitting a national bank to engage in most financial activities through a
financial subsidiary, provided that the bank and its depository institution
affiliates are "well capitalized" and "well managed" and meet certain other
qualification requirements relating to total assets, subordinated debt, capital,
risk management, and affiliate transactions. With respect to subsidiaries of
state banks, new activities as "principal" would be limited to those permissible
for a national bank financial subsidiary. The GLB Act requires a state bank with
a financial subsidiary permitted under the GLB Act as well as its depository
institution affiliates to be "well capitalized," and also subjects the bank to
the same capital, risk management and affiliate transaction rules as applicable
to national banks. The provisions of the GLB Act relating to financial holding
companies became effective on March 12, 2000, excluding the federal preemption
provisions, which became effective on the date of enactment.
Silicon is currently evaluating the benefits of electing financial holding
company status at some point in the future.
43
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information about our directors and executive
officers, their ages (at March 17, 2000, the date of our proxy statement), and
their positions and offices with us.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ------------------------------------------
<S> <C> <C>
Daniel J. Kelleher........................ 57 Chairman of the Board
John C. Dean.............................. 52 President, Chief Executive Officer and
Director; Chairman of the Board of Silicon
Valley Bank
Gary K. Barr.............................. 55 Director
James F. Burns, Jr........................ 62 Director
David M. deWilde.......................... 59 Director
Stephen E. Jackson........................ 54 Director
James R. Porter........................... 64 Director
Kenneth P. Wilcox......................... 51 Executive Vice President and Director;
President and Chief Executive Officer of
Silicon Valley Bank
L. Blake Baldwin.......................... 48 Executive Vice President of Silicon Valley
Bank
David A. Jones............................ 42 Executive Vice President and Chief Credit
Officer of Silicon Valley Bank
Barbara B. Kamm........................... 48 Executive Vice President of Silicon and
Silicon Valley Bank
Harry W. Kellogg, Jr...................... 56 Executive Vice President; Executive Vice
President and Vice Chairman of the Board
of Silicon Valley Bank
Christopher T. Lutes...................... 32 Executive Vice President and Chief
Financial Officer of Silicon and Silicon
Valley Bank
A. Catherine Ngo.......................... 39 Executive Vice President, General Counsel
and Secretary of Silicon and Silicon
Valley Bank
Marc J. Verissimo......................... 44 Executive Vice President of Silicon Valley
Bank
</TABLE>
DANIEL J. KELLEHER. Mr. Kelleher is a private investor.
JOHN C. DEAN. Mr. Dean has been President and Chief Executive Officer of
Silicon since April 1993. He was appointed Chairman of the Board of Silicon
Valley Bank in May 1999. From April 1993 to May 1999, he served as President of
Silicon Valley Bank. From April 1993 to January 2000, he served as Chief
Executive Officer of Silicon Valley Bank. He also has been an Advisory Member of
the Board of Directors of American Central Gas Companies, Inc., Tulsa, Oklahoma,
since August 1994, eGroupTravel.com, San Luis Obispo, California since
January 2000, Institutional Venture Partners, Menlo Park, California since
January 2000, and grassroots.com, San Bruno, California since December 1999. He
has also been a member of the Board of Directors of garage.com-TM-, Palo Alto,
California since December 1997, startups.com, Palo Alto, California since
January 1999, and United Overseas Bank, Singapore since February 2000. Prior to
joining Silicon and Silicon Valley Bank in April 1993, Mr. Dean served as
President and Chief Executive Officer of Pacific First Bank, a $6.5 billion
federal savings bank, headquartered in Seattle, Washington, from
44
<PAGE>
December 1991 until April 1993. From 1990 to 1991, Mr. Dean served as Chairman
and Chief Executive Officer of First Interstate Bank of Washington, and from
1986 to 1990, Chairman and Chief Executive Officer of First Interstate Bank of
Oklahoma.
GARY K. BARR. Mr. Barr has been President and Chief Executive Officer of
Pacific Coast Capital (a real estate investment and management company),
Carbondale, Colorado, since August 1992. He also has served as Chief Executive
Officer of Sports Participant Network (an internet services company) since
February 1999.
JAMES F. BURNS, JR. Mr. Burns has been a Trustee of CBR Liquidating Trust
since October 1996, and was Executive Vice President and Chief Financial Officer
of CBR Information Group (a credit and mortgage reporting company), Houston,
Texas, from September 1993 to October 1996. He was Executive Vice President and
Chief Financial Officer of Integratec, Inc. (a company providing credit
origination, servicing and collection services, and the parent company of CBR
Information Group prior to the spin-off of CBR in 1993) from 1988 to 1993.
Mr. Burns was founder and has been a member of the Board of Directors of Bank
First (a New Mexico chartered state bank), Albuquerque, New Mexico, since
November 1997.
DAVID M. DEWILDE. Mr. deWilde has been Managing Partner of L.A.I. (an
executive search firm) since January 1998. He was Founder and Chief Executive
Officer of Chartwell Partners International, Inc. (an executive search firm)
from 1989 to January 1998. Mr. deWilde has been a Director of Berkshire Realty
Company, Inc. (a real estate investment trust), Boston, Massachusetts, since
1993.
STEPHEN E. JACKSON. Mr. Jackson has been President and Chief Executive
Officer of American Central Gas Companies, Inc. (a gas pipeline company), Tulsa,
Oklahoma since April 1996. Mr. Jackson was the founder and has served as
President and Chief Executive Officer of American Land Development Company (a
developer of residential homesites), Tulsa, Oklahoma, since 1988. He was the
co-founder and has served as Chairman of the Board of Bristol Resources
Corporation (an oil and gas exploration and production company) since 1985.
JAMES R. PORTER. Mr. Porter has been a member of the Board of Directors of
CCI/Triad (a computer services company) Austin, Texas, since February 1997. He
served as Chairman of CCI/Triad from February 1997 to May 1999. He was
President, Chief Executive Officer and Director of Triad Systems Corporation (a
computer software company), Livermore, California, from September 1985 to
February 1997. Mr. Porter has been a member of the Board of Directors of
Firstwave Technologies (a sales automation company), Atlanta, Georgia, since
April 1993, and a member of the Board of Directors of Cellular Technical
Services (a cellular device company), Seattle, Washington, since July 1997.
KENNETH P. WILCOX. Mr. Wilcox joined Silicon Valley Bank in April 1990 as
Regional Vice President of Silicon Valley Bank's East Coast Technology Group.
Prior to becoming Executive Vice President and Manager of the East Coast
Technology Group in November 1995, Mr. Wilcox held increasingly responsible
positions with Silicon Valley Bank (having served as Manager of the East Coast
Technology Group since June 1993). Mr. Wilcox was appointed Chief Banking
Officer in December 1997 and was named President and Chief Operating Officer of
Silicon Valley Bank in May 1999, and was appointed Chief Executive Officer of
Silicon Valley Bank in January 2000.
L. BLAKE BALDWIN. Mr. Baldwin joined Silicon Valley Bank in July 1988 as
Vice President of Silicon Valley Bank's Real Estate Division. Mr. Baldwin was
promoted to Senior Vice President and Division Manager of the Real Estate Group
in December 1992. In March 1996, Mr. Baldwin was appointed Executive Vice
President and Manager of Silicon Valley Bank's Special Industries Group. In
45
<PAGE>
September 1998, Mr. Baldwin was appointed Manager of the Human Resources Group
and in November 1998 was appointed Manager of the Client and Corporate Resources
Group.
DAVID A. JONES. Mr. Jones joined Silicon Valley Bank in August 1997 as
Executive Vice President and Chief Credit Officer. Prior to joining Silicon
Valley Bank, Mr. Jones served as Senior Vice President of Wells Fargo Bank in
Portland, Oregon, from April 1996 to August 1997. From January 1982 to
April 1996, Mr. Jones was a Senior Vice President with First Interstate Bank in
Oklahoma, Texas and Oregon.
BARBARA B. KAMM. Ms. Kamm joined Silicon Valley Bank in 1991 as Vice
President and Senior Loan Officer of Silicon Valley Bank's Southern California
Group. Ms. Kamm served as Senior Vice President and Manager of Silicon Valley
Bank's Southern California Group from August 1995 to September 1996 (having been
promoted to Executive Vice President in November 1995). Ms. Kamm served as Chief
Administrative Officer from September 1996 to November 1998 and Manager of
Silicon Valey Bank's Products and Services Group from November 1998 to January
2000. She was appointed Manager of the Angels and Incubators Group in January
2000.
HARRY W. KELLOGG, JR. Mr. Kellogg joined Silicon Valley Bank in
October 1986 as Senior Vice President of Silicon Valley Bank's Technology
Division. Mr. Kellogg served as Executive Vice President and Chief Marketing
Officer from September 1993 to April 1994 (when he left Silicon Valley Bank for
ten months, during which time, he served as Executive Vice President for the
Emerging Growth Industries Division of Cupertino Bank). Mr. Kellogg returned to
Silicon Valley Bank in February 1995 as Executive Vice President and Chief
Marketing Officer. From December 1997 to November 1998, he served as the Manager
of Silicon Valley Bank's Products and Services Group. Mr. Kellogg was appointed
Manager of Silicon Valley Bank's Strategic Marketing Group in November 1998, and
as the Vice Chairman of the Board of Silicon Valley Bank in May 1999.
CHRISTOPHER T. LUTES. Mr. Lutes joined Silicon Valley Bank's Treasury
Department in November 1994 as a Senior Treasury Analyst. In June 1995, he was
named Senior Vice President and Controller. Mr. Lutes was appointed Executive
Vice President and Chief Financial Officer in May 1998. Prior to joining Silicon
Valley Bank, Mr. Lutes served in various positions within the Finance Department
of Household Credit Services, a banking services company, in Salinas, California
from March 1993 to November 1994. Prior to that he served as an auditor with
Coopers & Lybrand LLP in Phoenix, Arizona.
A. CATHERINE NGO. Ms. Ngo joined Silicon Valley Bank in April 1993 as Vice
President and was appointed Manager of the Legal Department in November 1993.
Ms. Ngo held increasingly responsible positions with Silicon Valley Bank from
November 1993 to February 1997, when she was appointed Executive Vice President
and named Manager of the Legal and Loan Services Group. Prior to joining Silicon
Valley Bank, Ms. Ngo served as a senior associate for Hopkins & Carley, a law
corporation, from June 1989 to April 1993.
MARC J. VERISSIMO. Mr. Verissimo joined Silicon Valley Bank in May 1993 as
Team Leader in the Northern California Technology Division. Mr. Verissimo was
promoted to Manager of the Silicon Valley Lending Division in September 1993. He
was appointed Manager of Silicon Valley Bank's Corporate Finance Group in
January 2000 Prior to joining Silicon Valley Bank, Mr. Verissimo served as Vice
President in the High Technology Group of Bank of America.
46
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dain Rauscher
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting
as representatives of the underwriters listed below. Subject to the terms and
conditions set forth in the purchase agreement among us and the underwriters, we
have agreed to sell to the underwriters, and the underwriters severally have
agreed to purchase from us, the number of shares listed opposite their names
below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Dain Rauscher Incorporated..................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
---------
Total............................................ 2,000,000
=========
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
non-defaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of shares, and other conditions contained
in the purchase agreement, such as the receipt by the underwriters of officers'
certificates and legal opinions. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares to the public at the public offering price on the cover page
of this prospectus and to dealers at that price less a concession not in excess
of $ per share. The underwriters may allow, and the dealers may reallow, a
discount not in excess of $ per share to other dealers. After the public
offering, the public offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Silicon. This information assumes either no
exercise or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price....................................
Underwriting discount....................................
Proceeds, before expenses, to Silicon....................
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $400,000 and are payable by Silicon.
47
<PAGE>
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters to purchase up to 300,000
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise this option for 30 days from the date of this
prospectus solely to cover any over-allotments. If the underwriters exercise
this option, each will be obligated, subject to conditions contained in the
purchase agreement, to purchase a number of additional shares proportionate to
that underwriter's initial amount reflected in the above table.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock prior to the 90th day after the date of
this prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not to directly or
indirectly:
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- file, or request or demand that we file, a registration statement
related to the common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
As an exception to the lockup provision, some of our executive officers and
directors will be permitted to sell, and currently intend to sell, up to a total
of 157,000 shares of our common stock during the lockup period, including 50,000
shares that Daniel J. Kelleher, the Chairman of the Board of Silicon, and 30,000
shares that Marc J. Verissimo, an Executive Vice President of Silicon Valley
Bank, currently intend to sell.
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of common stock to stabilize its price or to reduce a
short position may cause the price of the common stock to be higher than it
might be in the absence of such purchases.
48
<PAGE>
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act during a period before the commencement of offers or sales of common stock
and extending through the completion of distribution. A passive market maker
must display its bid at a price not in excess of the highest independent bid of
that security. However, if all independent bids are lowered below the passive
market maker's bid, that bid must then be lowered when specified purchase limits
are exceeded.
QUOTATION ON THE NASDAQ NATIONAL MARKET
The shares are quoted on the Nasdaq National Market under the symbol "SIVB."
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged, and may in the
future engage, in investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by our counsel, Gibson, Dunn & Crutcher LLP, San
Francisco, California. Certain legal matters will be passed upon for the
underwriters by Shearman & Sterling, New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and 1998, and
for each of the years in the three-year period ended December 31, 1999, have
been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG LLP, independent auditors, incorporated by
reference in this prospectus, given upon the authority of said firm as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We have filed with the Commission a registration statement on Form S-3 under
the Securities Act of 1933, as amended, with respect to the shares of common
stock offered by this prospectus. This prospectus, which constitutes a part of
the registration statement, does not contain all the information set forth in
the registration statement and the exhibits and schedules thereto. For further
information about us and the shares of common stock, we refer you to the
registration statement and to the exhibits and schedules filed with it.
Statements contained in this prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are not
necessarily complete. We refer you to those copies of contracts or other
documents that have been filed as exhibits to the registration statement, and
statements relating to such documents are qualified in all aspects by such
reference. Anyone may inspect a copy of the registration statement without
charge at the Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain copies of all or any portion of the
registration statement by writing to the Commission's Public
49
<PAGE>
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, and paying
prescribed fees. You may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0300. In addition, the
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding companies such
as Silicon that file electronically with the Commission.
We are subject to the information requirements of the Exchange Act and
therefore we file reports, proxy statements and other information with the
Commission. You can inspect and copy the reports, proxy statements and other
information that we file at the public reference facilities maintained by the
Commission at the Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You can also obtain copies of such material from the
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also makes electronic filings
publicly available on its Web site. Reports, proxy and information statements
and other information about us may be inspected at the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The following documents, which we have filed with the SEC, are incorporated
by reference in this prospectus:
(1) our annual report on Form 10-K for the fiscal year ended December 31,
1999,
(2) our report on Form 10-Q for the quarter ended March 31, 2000,
(3) our Proxy Statement dated March 17, 2000, and
(4) our current reports on Form 8-K dated June 16, 2000, July 24, 2000 and
July 25, 2000.
All documents that we file with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
before the termination of the offering of the shares of common stock shall be
deemed incorporated by reference in this prospectus and to be a part of this
prospectus from the respective dates of filing such documents.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information incorporated by reference in this prospectus,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates. Requests should be directed to Investor Relations Department, 3003
Tasman Drive, Santa Clara, California 85054, telephone number (408) 654-7400.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
that also is or is deemed to be incorporated by reference in this prospectus
modifies, supersedes or replaces such statement. Any statement so modified,
superseded or replaced shall not be deemed, except as so modified, superseded or
replaced, to constitute a part of this prospectus.
50
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
COMMON STOCK
----------------
P R O S P E C T U S
----------------
MERRILL LYNCH & CO.
DAIN RAUSCHER WESSELS
DONALDSON, LUFKIN & JENRETTE
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 23,134
NASD fee.................................................... 9,263
Nasdaq fee.................................................. 17,500
Legal fees and expenses..................................... 100,000
Blue Sky fees and expenses.................................. 10,000
Accounting fees and expenses................................ 100,000
Printing expenses........................................... 70,000
Miscellaneous expenses...................................... 70,103
--------
Total................................................... $400,000
========
</TABLE>
All of the above items except the registration fee, NASD fee and Nasdaq fee
are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws provide that the Registrant 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, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant) by reason of the fact that he is or was a director,
officer, employee or agent of the Registrant, or is or was serving at the
request of the Registrant as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Registrant's Bylaws also provide that the Registrant 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 or suit by or in the right of the
Registrant to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Registrant, or is or was
serving at the request of the Registrant as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Registrant unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Any indemnification made under the previous two paragraphs will be made by
the Registrant only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent in proper in the
circumstances because he has met the applicable standard of conduct as set forth
above.
II-1
<PAGE>
The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, as the same exists or
hereafter may be amended, or (iv) for any transaction from which the director
derived an improper personal benefit. If the Delaware General Corporation Law is
amended to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Registrant, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware General Corporation Law.
Pursuant to Section 6 of the purchase agreement, the form of which is filed
as Exhibit 1.1 hereto, the underwriters have agreed to indemnify the directors
and certain officers of the Registrant against certain liabilities.
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
<C> <S>
*1.1 Form of Purchase Agreement.
*5.1 Opinion and Consent of Gibson, Dunn & Crutcher LLP.
23.1 Consent of KPMG LLP.
*23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1 above).
*24.1 A power of attorney is set forth on the signature page of
the Registration Statement.
</TABLE>
* Previously filed.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
(3) The Registrant hereby undertakes that:
(A) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(B) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Santa Clara, State of California, on
July 31, 2000.
<TABLE>
<S> <C> <C>
SILICON VALLEY BANCSHARES
By *
-----------------------------------------
John C. Dean
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Chairman of the Board July 31, 2000
------------------------------------
Daniel J. Kelleher
* President, Chief Executive Officer and July 31, 2000
------------------------------------ Director (Principal Executive Officer)
John C. Dean
* Executive Vice President, Chief July 31, 2000
------------------------------------ Financial Officer (Principal Financial
Christopher T. Lutes Officer)
* Senior Vice President, Controller July 31, 2000
------------------------------------ (Principal Accounting Officer)
Donal Delaney
* Director July 31, 2000
------------------------------------
Gary K. Barr
* Director July 31, 2000
------------------------------------
James F. Burns, Jr.
* Director July 31, 2000
------------------------------------
David M. deWilde
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
* Director July 31, 2000
------------------------------------
Stephen E. Jackson
* Director July 31, 2000
------------------------------------
James R. Porter
* Executive Vice President and Director July 31, 2000
------------------------------------
Kenneth P. Wilcox
/s/ A. CATHERINE NGO Attorney-in-fact July 31, 2000
------------------------------------
A. Catherine Ngo
</TABLE>
* A. Catherine Ngo, by signing her name hereto, does sign this document on
behalf of the persons noted above, pursuant to a power of attorney duly
executed by such persons and previously filed.
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
<C> <S>
*1.1........ Form of Purchase Agreement.
*5.1........ Opinion and Consent of Gibson, Dunn & Crutcher LLP.
23.1........ Consent of KPMG LLP.
*23.2........ Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1 above).
*24.1........ A power of attorney is set forth on the signature page of
the Registration Statement.
</TABLE>
* Previously filed.
