<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission File Number: 0-11771
---------------------------------------
SJNB FINANCIAL CORP.
--------------------
(Exact name of small business issuer as specified in its charter)
California 77-0058227
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE NORTH MARKET STREET, SAN JOSE, CALIFORNIA 95113
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 947-7562
---------------
(Issuer's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed, since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------ ------
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
2,373,160 shares of common stock outstanding as of April 17, 1995.
Transitional Small Business Disclosure Format; Yes No X
----- ------
<PAGE>
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. - FINANCIAL STATEMENTS
SJNB FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 7-27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 28
ITEM 2. CHANGES IN SECURITIES 28
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 28
ITEM 5. OTHER INFORMATION 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 28
SIGNATURES 29
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $12,977 $14,591
Money market investments 15,400 -----
Investment securities:
Held to maturity (Market value: $14,365 at
March 31, 1995 and $13,392 at
December 31, 1994) 14,533 13,859
Available for sale 18,751 18,706
Loans 134,251 144,399
Loans available for sale 7,020 5,008
Allowance for possible loan losses (3,407) (3,311)
- --------------------------------------------------------------------------------
Loans, net 137,864 146,096
- --------------------------------------------------------------------------------
Premises and equipment, net 3,380 3,022
Other real estate owned 1,408 1,495
Accrued interest receivable and other assets 2,239 3,267
Intangibles, net of accumulated amortization
of $306 and $166 4,819 4,913
- --------------------------------------------------------------------------------
Total $211,371 $205,949
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $47,582 $54,003
Interest-bearing 127,829 126,285
- --------------------------------------------------------------------------------
Total deposits 175,411 180,287
- --------------------------------------------------------------------------------
Other short-term borrowings 9,000 -----
Accrued interest payable and other liabilities 2,695 2,220
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 187,106 182,507
- --------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value; authorized, 20,000,000
shares; issued and outstanding, 2,373,160 shares
at March 31, 1995 and 2,362,550 shares at
December 31, 1994 19,464 19,421
Retained earnings 4,929 4,278
Net unrealized loss on securities available for (128) (257)
sale
- --------------------------------------------------------------------------------
Total shareholders' equity 24,264 23,442
- --------------------------------------------------------------------------------
Commitments and contingencies --- ---
- --------------------------------------------------------------------------------
Total $211,371 $205,949
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(dollars in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended
March 31,
------------------------
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,161 $2,275
Interest on investment securities held to maturity 224 97
Interest and dividends on investment securities 230 73
available for sale
Interest on money market investments 31 36
Other interest and investment income (18) 62
- -----------------------------------------------------------------------------
TOTAL INTEREST INCOME 4,628 2,543
- -----------------------------------------------------------------------------
INTEREST EXPENSE:
Interest expense on interest-bearing deposits:
Certificates of deposit over $100 415 209
Other 891 339
- -----------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,306 548
- -----------------------------------------------------------------------------
NET INTEREST INCOME 3,322 1,995
- -----------------------------------------------------------------------------
Provision for possible loan losses 210 150
- -----------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 3,112 1,845
- -----------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposits 131 83
Other operating income 131 45
Net gain (loss) on securities available for sale (6) 2
Gain on sale of SBA loans ---- 75
- -----------------------------------------------------------------------------
TOTAL OTHER INCOME 256 205
- -----------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and benefits 1,075 757
Occupancy 207 124
Other 904 546
- -----------------------------------------------------------------------------
TOTAL OTHER EXPENSES 2,186 1,427
- -----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,182 623
Income taxes 531 249
- -----------------------------------------------------------------------------
NET INCOME $651 $374
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Net income per share $0.27 $0.22
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Weighted average number of shares outstanding 2,430,114 1,712,303
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
- --------------------------------------------------------------------------------
4
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended
March 31,
-----------------------
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $651 $374
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 210 150
Depreciation and amortization 104 70
Amortization on intangibles 140 ----
Net loss (gain) on securities available for sale 6 (2)
Net gain on sale of other real estate owned 10 ----
(Increase) decrease in loans available for
sale, net (2,012) 377
Amortization of premium on investment
securities, net (51) 12
(Increase) decrease in accrued interest
receivable and other assets 897 (441)
Increase in accrued interest payable and other
liabilities 475 191
- ------------------------------------------------------------------------------
Net cash provided by operating activities 430 731
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of securities available for sale 4,202 2,076
Maturities of securities held to maturity 145 1,240
Purchase of securities available for sale (3,998) (4,239)
Purchase of securities held to maturity (809) ----
Loans, net 10,110 (653)
Capital expenditures (461) (91)
- ------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 9,189 (1,667)
- ------------------------------------------------------------------------------
Cash flow from financing activities:
Deposits, net (4,876) 4,984
Other short-term borrowings 9,000 (1,400)
Proceeds from stock options exercised 43 ----
- ------------------------------------------------------------------------------
Net cash provided by financing activities 4,167 3,584
- ------------------------------------------------------------------------------
Net increase in cash and equivalents 13,786 2,648
Cash and equivalents at beginning of year 14,591 11,052
- ------------------------------------------------------------------------------
Cash and equivalents at end of period $28,377 $13,700
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Other cash flow information:
Interest paid $1,266 $543
------ -------
------ -------
Income taxes paid --- $150
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Noncash transactions:
Transfer of loans to other real estate owned $256 $840
Unrealized gain (loss) on securities available
for sale, net of tax 128 $(58)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
- ------------------------------------------------------------------------------
5
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Note A UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements of SJNB Financial
Corp. (the "Company") and its subsidiary, San Jose National Bank, are
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. In the opinion of management, all adjustments necessary for a
fair presentation of the financial position, results of operations and
cash flows for the periods have been included and are normal and
recurring. The results of operations and cash flows are not
necessarily indicative of those expected for the full fiscal year.
Certain information and note disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report to Shareholders
for the year ended December 31, 1994.
Note B NET DEFERRED TAX ASSET
As of March 31, 1995 the net deferred tax asset was approximately
$401,000 which is included in the category "Accrued interest
receivable and other assets" of the Company's condensed consolidated
balance sheet. The Company believes that the net deferred tax asset
is realizable through sufficient taxable income within the carryback
periods and the current year's taxable income.
Note C NET INCOME PER SHARE OF COMMON STOCK
The weighted average number of common stock shares and common stock
equivalent shares used in computing net income per share of common
stock are set forth below for the periods indicated:
<TABLE>
<CAPTION>
Quarter ended
March 31,
------------------------
1995 1994
------------------------
<S> <C> <C>
Weighted average number of shares
outstanding during the period 2,362,542 1,629,962
Common stock equivalents 67,572 82,341
------------------------
Total 2,430,114 1,712,303
------------------------
------------------------
</TABLE>
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SJNB Financial Corp. (the "Company") is the holding company for San Jose
National Bank ("SJNB" and the "Bank"), San Jose, California. This discussion
focuses primarily on the results of operations of the Company on a consolidated
basis for the three months ended March 31, 1995 and the liquidity and financial
condition of the Company and SJNB as of March 31, 1995 and December 31, 1994.
The following presents selected financial data and ratios as of and for the
three months ended March 31, 1995 and 1994:
SELECTED FINANCIAL DATA AND RATIOS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
For the quarters
ended March 31,
--------------------
SELECTED ANNUALIZED RATIOS: 1995 1994
- ---------------------------------------------------------
<S> <C> <C>
Return on average equity 11.04% 9.39%
Return on average assets 1.32 1.18
Average equity to average assets 11.97 12.59
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At March 31, At December 31,
- --------------------------------------------------------------------------------
OTHER STATISTICS AND SELECTED RATIOS: 1995 1994 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity per share $10.27 $10.05 $9.92
<CAPTION>
SELECTED RATIOS:
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Leverage capital ratio 9.98% 12.74% 9.33%
Nonperforming loans to total loans 3.13 3.63 3.67
Net chargeoffs to average loans .31 .47 1.11
Allowance for loan losses to total loans 2.41 2.15 2.22
Allowance for loan losses to
nonperforming loans 76.94 59.21 60.45
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
SUMMARY OF FINANCIAL RESULTS
The Company reported net income of $651,000 or $.27 per share for the quarter
ended March 31, 1995 compared with net income of $374,000 or $.22 per share for
the first quarter of 1994. The improvement in earnings is due mainly to the
acquisition of Business Bancorp ("BB") and its subsidiary California Business
Bank ("CBB"), which was completed as of October 1, 1994, and an increase in the
net interest margin. Average interest earning assets increased approximately
$61 million from the first quarter of 1994. The increase in the net interest
margin is due primarily to the increase in interest rates.
NET INTEREST INCOME
Net interest income for the quarter ended March 31, 1995 increased $1.3 million
as compared to the same quarter a year ago. Net interest income is dependent
primarily upon volume and net interest margin. The significant volume increase
is attributable to the acquisition of CBB which had $59.8 million of interest
earning assets as of the acquisition date. The Bank's prime rate averaged 6.02%
during the first quarter of 1994, while during the first quarter of 1995 it
averaged 8.83%. The impact of the Bank's hedging vehicles partially offset the
effect of interest rate increase in 1995. Income from hedge contracts was
$58,000 the first quarter of 1994 as compared to a cost of $25,000 for the first
quarter of 1995, or a decrease of $83,000. See "Asset\Liability Management."
7
<PAGE>
A substantial portion (an average of 25% and 32%, respectively, for the quarters
ended March 31, 1995 and 1994) of the Bank's deposits are non-interest-bearing
and therefore do not reprice when interest rates change. See "Funding." Due to
the nature of the Company's market in which loans are generally tied to the
prime rate, an increase in interest rates should positively affect the Company's
future earnings, subject to the impact of the Bank's interest rate hedges.
Increases in the prime rate since early 1994 have had a significant positive
impact on net interest income. Should the trend of increasing interest rates
level off, the Bank expects an increase in its cost of funds relative to the
rates earned on its earning assets and a decrease in its net interest margin.
See "Asset/Liability Management."
Net interest income also reflects the impact of nonperforming loans. Interest
income on the loan portfolio is recorded on the accrual basis. However, the
Company follows the practice of discontinuing the accrual of interest and
reversing any accrued and unpaid interest when, in the opinion of management,
there is significant doubt as to the collectibility of interest or principal or
when the payment of principal or interest is ninety days past due, unless the
amount is well-secured and in the process of collection. For these loans,
interest is recorded when payment is received. See "Nonperforming Loans."
The effect of nonaccrual of interest income based on loans classified as
nonaccrual at March 31, 1995 and 1994, is set forth in the following table:
IMPACT OF NONACCRUAL LOANS
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended
March 31,
---------------------
1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
Interest revenue which would have been
recorded under original terms $119 $59
Interest revenue actually realized (98) ----
- -------------------------------------------------------------------
Negative impact on interest revenue $21 $59
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
The negative impact on nonaccrual loans decreased during the first quarter of
1995 as compared to the first quarter of 1994. This was mainly due to the
collection of a loan and the related recovery of interest income of
approximately $94,000 which had previously been on nonaccrual status. In
addition there was an increase in the amount of loans on nonaccrual status as of
March 31, 1995 as compared to March 31, 1994, which accounted for the increase
in the amount of interest revenue which would have been recorded, but, due to
the nonaccrual status, was not. In July, 1993 the Bank placed a single
commercial loan with a balance of approximately $2.5 million on nonaccrual
status. See "Nonperforming Loans." As long as this particular loan is on
nonaccrual, the impact of nonperforming loans on interest income will continue
to be significant. In addition, should other loans become nonaccruing, the
negative impact on the interest income could increase.
The following table shows the composition of average earning assets and average
funding sources, average yields and rates and the net interest margin, on an
annualized basis, for the three months ended March 31, 1995 and 1994.
8
<PAGE>
AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands, except for footnotes)
<TABLE>
<CAPTION>
Quarter ended March 31,
-------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------------
Average Average Average Average
ASSETS Balance Interest Yield (1) Balance Interest Yield (1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net (2) $145,639 $4,161 11.59% $98,371 $2,275 9.38%
Securities held to maturity:
Taxable (3) 12,069 206 6.92 6,852 80 4.71
Nontaxable (4) 2,149 34 6.44 1,759 30 6.98
Securities available for sale (5) 17,483 230 5.34 6,926 73 4.29
Money market investments 2,469 31 5.10 4,554 36 3.23
Interest rate hedging instruments ---- (25) ---- ---- 58 ----
- ---------------------------------------------------------------- --------------------
TOTAL INTEREST-EARNING ASSETS 179,809 4,637 10.46 118,462 2,552 8.74
- ---------------------------------------------------------------- --------------------
Allowance for possible loan losses (3,408) (2,073)
Cash and due from banks 10,861 7,014
Bank premises and equipment, net 3,165 2,502
Other real estate owned 1,310 989
Accrued interest receivable and
other assets 3,097 1,636
Core deposit intangibles and
goodwill, net 4,870 ----
- --------------------------------------------------- ----------
Total $199,704 $128,530
- --------------------------------------------------- ----------
- --------------------------------------------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $28,739 240 3.38 $8,447 28 1.35
Money market and savings 48,896 414 3.43 30,450 197 2.63
Certificates of deposit:
Less than $100,000 15,770 184 4.73 12,566 110 3.55
$100,000 or more 33,385 415 5.04 23,826 209 3.55
- -------------------------------------------------------------- ---------------------
Total certificates of
deposits 49,155 599 4.94 36,392 319 3.55
- -------------------------------------------------------------- ---------------------
Other short-term borrowings 3,389 54 6.45 560 4 3.18
- -------------------------------------------------------------- ---------------------
TOTAL INTEREST-BEARING
LIABILITIES 130,179 1,306 4.07 75,849 548 2.93
- -------------------------------------------------------------- ---------------------
Noninterest-bearing demand 43,111 35,687
Accrued interest payable and
other liabilities 2,509 817
- --------------------------------------------------- ----------
Total liabilities 175,799 112,353
- --------------------------------------------------- ----------
Shareholders' equity 23,905 16,177
- --------------------------------------------------- ----------
Total $199,704 $128,530
- --------------------------------------------------- ----------
- --------------------------------------------------- --------- ---------- ---------
NET INTEREST INCOME AND MARGIN (6) $3,331 7.51% $2,004 6.86%
- ----------------------------------- ---------------------- ---------------------
- ----------------------------------- ---------------------- ---------------------
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $284,000 for 1995, and $241,000 for 1994.
Nonperforming loans have been included in average loan balances.
(3) Includes dividend income of $7,000 received in 1995 and $4,000 in 1994.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($9,000 in 1995 and 1994).
(5) Includes dividend income of $59,000 and $42,000 received in 1995 and 1994.
(6) The net interest margin represents the net interest income as a percentage
of average earning assets.
</TABLE>
9
<PAGE>
Interest margin is affected by changes in volume, changes in rates, and a
combination of changes in volume and rates. Volume changes are caused by
differences in the level of earning assets, deposits and borrowings. Rate
changes result in differences in yields earned on assets and rates paid on
liabilities. Changes not solely attributable to volume or rates are allocated
to volume and rate in proportion to the relationship to the absolute dollar
amounts of changes in each. The following table shows the effect on the
interest differential of volume and rate changes for the quarters ended March
31, 1995 and 1994.
VOLUME/RATE ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended March 31, 1995 vs.
Quarter ended March 31, 1994
- --------------------------------------------------------------------------------
Increase (decrease)
due to change in
- --------------------------------------------------------------------------------
Average Average Total
Volume Rate Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans (1) $1,266 $620 $1,886
Securities:
Taxable 78 48 126
Nontaxable 6 (2) 4
Available for sale 135 22 157
Money market investments (17) 12 (5)
- --------------------------------------------------------------------------------
Total interest income 1,468 700 2,168
- --------------------------------------------------------------------------------
Interest expense:
Interest checking 67 145 212
Money market and savings 120 97 217
Certificates of deposits:
Less than $100,000 28 46 74
$100,000 or greater 84 122 206
Other short-term borrowings 22 28 50
- --------------------------------------------------------------------------------
Total interest expense 321 438 759
- --------------------------------------------------------------------------------
Interest rate hedging instruments --- (83) (83)
- --------------------------------------------------------------------------------
Change in net interest income $1,147 $179 $1,326
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<FN>
(1) The effect of the change in loan fees is included as adjustment to the
average rate.
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
The level of the allowance for possible loan losses and therefore the related
provision reflect the Company's judgment as to the inherent risks associated
with the loan and lease portfolios. Based on management's evaluation of such
risks, additions of $210,000 and $150,000 were made to the allowance for
possible loan losses for the quarters ended March 31, 1995 and 1994,
respectively. Management's determinations of the provision in 1995 and 1994
were based on the measurement of the possibility of future loan losses through
various objective and subjective criteria and the impact of net charge-offs.
Please refer to the section regarding the "Loan Portfolio" for a detailed
discussion of loan quality and the allowance for possible loan losses.
10
<PAGE>
OTHER INCOME
The following table sets forth the components of other income and the
percentage distribution of such income for the quarters ended March 31, 1995
and 1994
OTHER INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended March 31,
--------------------------------------------------
1995 1994
Amount Percent Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depositor service charges $131 51.25% $83 40.49%
Other operating income 131 51.19 45 21.95
Gain on sale of SBA loans ---- ---- 75 36.59
Net loss on securities
available for sale (6) (2.44) 2 .97
- --------------------------------------------------------------------------------
Total $256 100.00% $205 100.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Other income increased from $205,000 for the first quarter of 1994 to $256,000
for the first quarter of 1995. The increase relates primarlily to the increase
in business due to the CBB acquisition.
OTHER EXPENSES
The following schedule summarizes the major categories of expense as a
percentage of average assets on an annualized basis:
OTHER EXPENSE AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended March 31,
---------------------------------------------
1995 1994
Amount Percent * Amount Percent *
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and benefits $1,075 2.15% $757 2.36%
Occupancy 207 .42 124 .39
Amortization of core deposit
intangibles and goodwill 140 .28 ---- ----
Regulators assessments 128 .26 82 .26
Data processing 109 .22 72 .22
Business promotion 87 .17 56 .17
Legal and professional fees 63 .13 54 .17
Client services paid by bank 62 .13 38 .12
Directors' fees and costs 60 .12 33 .10
Advertising 46 .09 16 .05
Stationery and supplies 40 .08 29 .09
Loan and collection 42 .08 57 .18
Net cost of foreclosed property (11) (.02) 33 .10
Other 138 .27 76 .23
- -----------------------------------------------------------------------------
Total $2,186 4.38% $1,427 4.44%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<FN>
* The percentages are calculated by annualizing the quarter expense, and
comparing that amount to average assets for the respective periods ended
March 31, 1995 and 1994.
</TABLE>
Total other expenses for the first quarter of 1995 increased $759,000 from the
same quarter a year ago. The increase relates principally to the increased
costs associated with the acquisition of CBB including the amortization of core
deposit premium and goodwill. Most other costs showed an increase in amount,
but remained stable or improved as a percent of average assets.
11
<PAGE>
The net cost of other real estate owned are summarized below.
<TABLE>
<CAPTION>
NET COST OF OTHER REAL ESTATE OWNED Quarter ended
(dollars in thousands) March 31,
----------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Costs relating to foreclosed properties $10 $58
Gains on dispositions (10) ---
Income collected on foreclosed property (11) (25)
- --------------------------------------------------------------------------------
Net cost of other real estate owned $(11) $33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
INCOME TAX PROVISION
The Company accounts for income taxes using the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109 "ACCOUNTING
FOR INCOME TAXES" (SFAS No. 109). Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income during the period which includes the
enactment date.
The effective tax rate of 45% for the quarter ended March 31, 1995 is affected
by several items, the most significant of which are the amortization of the
intangibles; estimates for tax exempt income; and the California Franchise Tax
Board Enterprise Tax Zone Credit. The effective tax rate for the year ended
December 31, 1994 was 42%.
FINANCIAL CONDITION AND EARNING ASSETS
Consolidated assets increased to $211.4 million at March 31, 1995 compared to
$205.9 million at December 31, 1994. The increase primarily consisted of an
increase in money market investments and was funded by an increase in short-term
borrowings.
Money Market Investments
Money market investments, which include federal funds sold and liquid money
market cash mutual funds, increased to $15.4 million at March 31, 1995 from zero
at December 31, 1994. This increase related primarily to short-term borrowings
increase of $9 million in addition to the reduction in the loans outstanding at
March 31, 1995 as compared to December 31, 1994.
Securities
The following table shows the composition of the securities portfolio, at book
value, at March 31, 1995 and December 31, 1994. There were no issuers of
securities for which the book value of specific securities held by the Bank
exceeded 10% of the Company's shareholders' equity, except U.S. Government
Securities.
12
<PAGE>
SECURITIES PORTFOLIO
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gain (Loss) Value Cost Gain (Loss) Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U. S. Treasury $4,261 $(78) $4,183 $4,260 $(159) $4,101
U. S. Government Agencies 4,967 (92) 4,875 4,963 (211) 4,752
State and municipal (nontaxable) 2,457 (10) 2,447 1,797 (34) 1,763
Mortgage backed 2,386 11 2,397 2,377 (63) 2,314
Federal Reserve Bank Stock 462 ---- 462 462 --- 462
- ----------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity 14,533 (169) 14,365 13,859 (467) 13,392
- ----------------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
U. S. Treasury 10,991 (75) 10,916 9,989 (203) 9,786
U. S. Government Agencies 3,939 7 3,946 4,960 (5) 4,955
Mortgage backed 17 1 18 19 (1) 18
Mutual funds 4,031 (160) 3,871 4,180 (233) 3,947
- ----------------------------------------------------------------------------------------------------------------------------------
Securities available for sale 18,978 (227) 18,751 19,148 (442) 18,706
- ----------------------------------------------------------------------------------------------------------------------------------
Total $33,511 $(395) $33,116 $33,007 $(909) $32,098
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities held to maturity include those securities which management has the
ability and intent to hold to maturity. This decision is dependent upon the
liquidity and asset/liability needs of the Bank and does not involve any
specific type of securities except that all state and municipal securities will
be included in the "held to maturity" category and all mutual funds are
classified as "available for sale." The Bank's policy is to acquire generally
"A" rated or better state and municipal securities. The specific issues are
monitored for changes in financial condition and appropriate action would be
taken if significant deterioration was noted. Management's policy is to reduce
the market valuation risk of the investment portfolio by generally limiting
portfolio maturities to 60 months or less. It is management's intent to
maintain at least 50% of its total investment securities portfolio in U.S.
Treasury and U.S. Government Agencies securities.
Net unrealized losses on securities held to maturity were $169,000 as of March
31, 1995 as compared to net unrealized losses of $467,000 as of December 31,
1994. The unrealized losses on both dates result from the significant increase
in interest rates over the last fourteen months. The improvement in the
unrealized losses since December 31, 1994 results from a decline in intermediate
and long-term interest rates over this period. The increase in interest rates
has an inverse effect on the value of securities for which the interest rate is
fixed. The Bank's weighted average maturity of the held to maturity investment
portfolio was approximately 2.59 years as of March 31, 1995. It is estimated
that for each 1% change in interest rates, the value of the Company's securities
held to maturity will change by approximately 1.9%. This volatility decreases
as the average maturity shortens. It is the intention of management to hold
these securities to maturity and therefore this decline in value will be
recognized over the life of the securities as the interest income is recognized.
Securities available for sale, which include all mutual funds, are acquired
without the intent to hold until maturity. Any unrealized gain or loss is
reflected in the carrying value of the security and reported net of income taxes
in the equity section of the condensed consolidated balance sheets. Realized
gains and losses are reported in the condensed consolidated statement of
operations. The unrealized loss on securities available for sale as March 31,
1995 was $227,000 as compared to $442,000 at December 31, 1994. The Bank's
weighted average maturity of the available for sale portfolio was approximately
1.07 years as of March 31, 1995. It is estimated that for each 1% change in
interest rates the value of the Company's available for sale securities will
change by 1.5%.
13
<PAGE>
Mortgage backed securities are considered to have increased risks associated
with them because of the timing of principal repayments. At March 31, 1995, the
Bank had the following securities which were mortgage-backed related securities:
<TABLE>
<CAPTION>
Historical Market
(dollars in thousands) Cost Value
--------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corp.
(U.S. Agency) $2,386 $2,397
Federal National Mortgage Association
(U.S. Agency) 17 18
Federated ARMs Funds * 1,686 1,626
Overland Variable Rate
Government Fund* 1,263 1,178
--------------------------------------------------------------
<FN>
* The assets of these mutual funds are invested mainly in adjustable rate U.S.
Treasury or Agency securities.
</TABLE>
Interest and dividend income earned on investment securities for the quarters
ended March 31, 1995 and 1994 are as follows:
INTEREST AND DIVIDEND INCOME EARNED ON INVESTMENT SECURITIES
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended
March 31,
-------------------------
1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Securities held to maturity:
U.S. Treasury $53 $51
U.S. Government agancies 95 25
State and municipal (nontaxable) 25 21
Mortgage backed 52 ----
Federal Reserve Bank Stock 7 4
Securities available for sale:
U.S. Treasury 134 31
U.S. Government Agancies 37 ----
Mortgage backed (1) ----
Mutual funds 59 42
- -----------------------------------------------------------------------------
Interest income $461 $174
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Loan Portfolio
The following table provides a breakdown of the Company's consolidated loans by
type of loan or borrower:
<TABLE>
<CAPTION>
LOAN PORTFOLIO
(dollars in thousands)
March 31, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $42,707 30.23% $49,018 32.81%
Real estate construction 10,294 7.29 16,343 10.94
Real estate-other 64,267 45.49 63,104 42.23
Consumer 10,111 7.16 9,461 6.34
Other 7,684 5.44 7,362 4.93
Unearned fee income (812) (.57) (889) (.60)
- ----------------------------------------------------------------------------------------
Loan portfolio 134,251 95.03% 144,399 96.65%
Loans available for sale 7,020 4.96 5,008 3.35
- ----------------------------------------------------------------------------------------
Total loans $141,271 100.00% $149,407 100.00%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
Consolidated loans decreased to $141.3 million at March 31, 1995 from $149.4
million at December 31, 1994. The decrease in the loan portfolio was mainly
centered in the areas of the real estate construction and commercial loans. The
decrease in real estate resulted from a substantial number of payoffs and fewer
new construction projects due to the significant amount of rainfall in the
Bank's market area throughout the period of January through March, 1995. The
decline in commercial loans was attributable to a significant amount of loan
paydowns and lower utilization of commitments, an effort by the Bank to reduce
lower quality loans and expected attrition of several accounts obtained in the
acquisition of CBB.
Economic conditions in Northern California has continued to improve during 1994
and early 1995. At the same time, the competitive environment within the Bank's
marketplace has become more aggressive and the competition between lenders for
additional loan growth has caused more competitive pricing. To the extent that
such competitive pricing continues throughout 1995 and the Bank finds it
necessary to meet such competition, the Bank's net interest margins could
decline.
Concentrations of credit risk arise when a number of customers are engaged in
similar business activities, or activities in the same geographic region, or
have similar economic features that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic
conditions. Although the Company has a diversified loan portfolio, a
substantial portion of its customers' ability to honor contracts is reliant upon
the economic stability of Santa Clara County, which in some degree relies on the
stability of high technology companies in its "Silicon Valley." Loans are
generally made on the basis of a secure repayment source and collateral is
generally a secondary source for loan qualification.
Approximately 58% of the loan portfolio is directly related to real estate or
real estate interests, including real estate construction loans, real estate-
other loans and certain other loans to real estate developers for short-term
investment purposes (approximately 1% of the loan portfolio). Approximately 30%
of the loan portfolio is made up of commercial loans; however, no particular
industry represents a significant portion of such loans.
Inherent in any loan portfolio are risks associated with certain types of loans.
The Company attempts to limit these risks through stringent loan policies and
review procedures. Included in these policies are specific maximum loan-to-
value (LTV) limitations as to various categories of real estate related loans.
These ratios are as follows:
15
<PAGE>
Category of Real Estate Collateral Maximum
---------------------------------- LTV Ratio
---------
Raw land 50%
Land Development 60%
Construction:
1-4 Single family residence,
Less than $500,000 75%
Greater than $500,000 70%
Other 70%
Term loans (construction take-out and commercial) 70%
Other improved property 70%
Prime equity loans 75%
Any term loans on income producing properties must have a maximum debt service
coverage of at least 1.2 to 1 for non-owner occupied property and at least 1.1
to 1 for owner occupied.
One of the significant risks associated with real estate lending is the possible
existence of environmental risks or hazards on or in property affiliated with
the loan. The Bank mitigates such risk through the use of an Environmental Risk
Questionnaire for all loans secured by real estate. A Phase I environmental
report is required if indicated by the questionnaire or if for any other reason
it is determined appropriate. Other reasons would include the industry use of
environmentally sensitive substances or the proximity to known other
environmental problems. A Phase II report is required in certain cases,
depending on the outcome of the Phase I report.
QUALITY OF LOANS
A consequence of lending activities is that losses will be experienced and that
the amount of such losses will vary from time to time depending upon the risk
characteristics of the loan portfolio as affected by economic conditions and the
financial experiences of borrowers. The allowance for possible loan losses,
which provides for the risk of losses inherent in the credit extension process,
is increased by the provision for possible loan losses charged to expense and
decreased by the amount of charge-offs net of recoveries. There is no precise
method of predicting specific losses or amounts that ultimately may be charged
off on particular segments of the loan portfolio, especially in light of the
current economic environment. The conclusion that a loan may become
uncollectable (in whole or in part) and be charged off against the allowance is
a matter of judgment. Similarly, the adequacy of the allowance for possible
loan losses and the level of the related provision for possible loan losses is
determined on a judgmental basis, after full review, including consideration of:
- Economic conditions;
- Borrowers' financial condition;
- Evaluation of industry trends;
- Loans which are contractually current as to payment terms but
demonstrate a higher degree of risk as identified by
management;
- Continuing evaluation of the performing loan portfolio;
- Monthly review and evaluation of problem loans identified as
having loss potential; and,
- Quarterly review by the Board of Directors.
In addition to the continuing internal assessment of the loan portfolio (and
off-balance sheet credit risk, such as letters of credit, etc.), the
consolidated financial statements are examined by independent accountants and
the Company retains a consultant who performs credit reviews on a quarterly
basis and who provides an assessment of the adequacy of the allowance for
possible loan losses. Also, examinations of the loan portfolio are conducted
periodically by the Federal banking regulators.
16
<PAGE>
The Company utilizes a method of assigning a minimum and maximum loss ratio for
each grade of loan within each category of loans (commercial, real estate-other,
real estate construction, etc.) Loans are graded on a ranking system based on
management's assessment of the loan's credit quality. The assigned loss ratio
is based upon the Company's prior experience, industry experience, delinquency
trends and the level of nonaccrual loans. In addition, the methodology
considers (and assigns a risk factor for) current economic conditions, off-
balance sheet risk and concentrations of credit. The methodology provides a
systematic approach for the measurement of the possible existence of future loan
losses. Management and the Board of Directors evaluate the allowance and
determine the desired level of the allowance considering the objective in
addition to subjective measures, such as knowledge of the borrowers' business,
valuation of collateral and exposure to potential losses. Management believes
that the allowance for possible loan losses was determined as described above
and therefore believes it to be an adequate allowance against losses inherent in
the loan portfolio.
The allowance for possible loan losses is a general reserve available against
the total loan portfolio and off-balance sheet credit exposure. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
losses on loans. Such agencies may require the Bank to provide additions to the
allowance based on their judgment of information available to them at the time
of their examination. The most recent examinations conducted in June 1994 for
the Bank and July 1993 for CBB did not result in any recommended adjustments to
established allowances.
There is uncertainty concerning the future economic trends. Accordingly, it is
not possible to predict the effect such uncertainty may have on the level of the
provision for possible loan losses in future periods.
The allowance for possible loan losses was $3.4 million at March 31, 1995, or
2.4% of loans outstanding. The following schedule provides an analysis of the
allowance for possible loan losses:
17
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended Year ended
March 31, December 31,
-------------------------------------------
1995 1994 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the period $3,311 $2,057 $2,057
Charge-offs by loan category:
Commercial 230 85 148
Real estate-other 8 100 637
Consumer - - 73
Other - - 824
- --------------------------------------------------------------------------------------------------
Total charge-offs 238 185 1,682
- --------------------------------------------------------------------------------------------------
Recoveries by loan category:
Commercial 18 15 192
Real estate-other - - 10
Consumer 6 1 7
Other 100 53 222
- --------------------------------------------------------------------------------------------------
Total recoveries 124 69 431
- --------------------------------------------------------------------------------------------------
Net charge-offs 114 116 1,251
- --------------------------------------------------------------------------------------------------
Provision charged to expense 210 150 600
Allowance relating to California Business Bank - - 1,905
- --------------------------------------------------------------------------------------------------
--- ---
Balance, end of the period $3,407 $2,091 $3,311
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Ratios:
Net charge-offs to average loans, annualized .31% .47% 1.11%
Allowance to total loans at the end of the period 2.41 2.15 2.22
Allowance to nonperforming loans at end of the period 76.95 59.20 60.45
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
Net chargeoffs were $114,000 or .31% (annualized) of average loans during the
first quarter of 1995. During the same quarter a year ago, the Company
experienced net chargeoffs of $116,000 or .47% (annualized) .
Commercial loan losses in the first quarter of 1995 involved five borrowers, one
of which represents approximately $200,000. This loan was acquired in the CBB
acquisition and appropriate allowances had been provided. There were no
individually significant loans charged off during the first quarter of 1994.
The allowance for possible loan losses as a percent of loans was 2.41% at March
31, 1995 and 2.22% at December 31, 1994. The allowance for possible loan losses
as a percent of nonperforming loans was approximately 77% at March 31, 1995 as
compared to 60% at December 31, 1994. Nonperforming loans at March 31, 1995
were $4.4 million compared to $5.5 million at December 31, 1994. See
"Nonperforming Loans" below.
Based on an evaluation of individual credits, historical credit loss experienced
by loan type and economic conditions, management has allocated the allowance for
possible loan losses as follows as of March 31, 1995 and December 31, 1994:
18
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------------
Percentage Percentage
Amount of of loans to Amount of of loans to
Allowance total loans Allowance total loans
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $756 31.93% $1,192 33.96%
Real estate construction 282 7.25 310 10.87
Real estate-other 971 48.30 1,051 43.97
Consumer 188 7.12 219 6.29
Other 96 5.41 94 4.91
- --------------------------------------------------------------------------------------------------------------
Unallocated 1,114 --- 445 ---
Total $3,407 100.00% $3,311 100.00%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The allowance for possible loan losses is maintained without any internal
allocation to the segments of the loan portfolio. The above schedule is being
presented in accordance with the Securities and Exchange Commission's
requirements to provide an allocation of the allowance. The allocation is based
on subjective estimates that take into account historical loss experience and
management's current assessment of the relative risk characteristics of the
portfolio as of the reporting dates noted above and as described more fully
under the section "Asset Quality - ALLOWANCE FOR POSSIBLE LOAN LOSSES".
NONPERFORMING LOANS
Loans for which the accrual of interest has been suspended and other loans with
principal or interest contractually past due 90 days or more are set forth in
the following table.
NONPERFORMING LOANS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Loans accounted for on a non-accrual basis $4,428 $5,395
Other loans with principal or interest
contractually past
due 90 days or more ---- 83
- ---------------------------------------------------------------------------
Total $4,428 $5,478
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The Company follows the practice of discontinuing the accrual of interest and
reversing any accrued and unpaid interest when, in the opinion of management,
there is significant doubt as to the collectibility of interest or principal or
when the payment of principal or interest is ninety days past due, unless the
amount is well-secured and in the process of collection.
As of March 31, 1995, the Company had approximately $4.4 million of
nonperforming loans, consisting of 12 loans, of which the most significant are
summarized below.
19
<PAGE>
SUMMARY OF SIGNIFICANT NONPERFORMING LOANS AS OF MARCH 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Purpose Amount Description of Collateral Date of Appraisal
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business loan $2,512 1st deed of trust on 22 acres of October 1992
bare land, San Jose and 2nd deed
of trust on 579 acres of land,
Saratoga, CA
Land development 744 2nd deed of trust on five rural August 1993
lots and a 1st deed of trust on
another lot, San Jose, CA
Business loan 396 1st deed of trust of SFR, January 1994
Petaluma, CA
Business loan 222 2nd deed of trust on commercial August 1991
building in Campbell, CA
Land development 184 1st deed of trust of 11.7 acres, August 1993
San Jose, CA
Real estate development 106 2nd deed of trust on SFR in May 1993
Piedmont, CA
</TABLE>
Of the $4.4 million total nonperforming loans at March 31, 1995, $1.9 million
were loans acquired from CBB. Although a significant percent of the
nonperforming loans are secured by real estate collateral, most did not involve
the lending of funds for real estate investment purposes. In most cases real
estate was taken as collateral for additional protection and represented a
secondary source of repayment.
The $2.5 million business loan noted above is secured by a junior deed of trust
on 579 acres located in Saratoga, California. The senior position on this loan
has a balance of approximately $1.15 million. In addition, SJNB holds a first
deed of trust on a second parcel of approximately 22 acres located on Monterey
Road in San Jose, California. The Bank believes the loan to be adequately
secured, based on a 1992 appraisal on the Saratoga property, a 1994 appraisal on
the Monterey Road property and the information the Bank has about current
marketing efforts. As this loan is on nonaccrual, the Bank is not realizing
approximately $70,000 of interest income per quarter for this loan. If the Bank
completes its foreclosure of the 579 acre property and pays off the senior debt,
the resulting amount of interest income not realized would increase to
approximately $90,000 per quarter in total.
At December 31, 1994, there were 14 loans which were included as nonperforming
loans. Of these loans, 11 were secured by commercial or residential real estate
(approximately 89%) and three were secured by general business assets
(approximately 11%).
Management conducts an ongoing evaluation and review of the loan portfolio in
order to identify potential nonperforming loans. Management considers loans
which are classified for regulatory purposes, loans which are graded as
classified by the Bank's outside loan review consultant and internal personnel,
as to whether they (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (ii) represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. Based on such reviews as of March 31, 1995, there were no significant
loans which management has identified with respect to which known information
causes management to have doubts about the borrower's abilities to comply with
present repayment terms, such that the loans might subsequently be classified as
nonperforming.
OTHER REAL ESTATE OWNED
At March 31, 1995, the Bank had four properties which were acquired through the
foreclosure process in the amount of $1.4 million. A summary of the properties
at March 31, 1995 and December 31, 1994 follows:
20
<PAGE>
<TABLE>
<CAPTION>
Carrying Value
Description of Property March 31, 1995 December 31, 1994
----------------------- -------------- -----------------
<S> <C> <C>
72 berth marina, property sold January 1995, see note $800 $800
below
Two vacant parcels, currently subject to a one-year 304 304
sewer moratorium
Single family residence 256 -----
Commercial office converted from a SFR, participated 48 48
with SBA
Other properties ----- 343
-----------------------------------------------
Total $1,408 $1,495
-----------------------------------------------
-----------------------------------------------
</TABLE>
At the time of foreclosure, any difference between the loan balance and the net
realizable value of the collateral is charged to the allowance for possible loan
losses. Foreclosed property is recorded at the lower of its revised basis or
fair value, less estimated selling costs. Any subsequent decline in value is
charged directly to the income statement. See "Financial Review - Other
Expense" for the analysis of the net cost of other real estate owned for the
quarters ended March 31, 1995 and 1994.
On December 31, 1994 the Bank entered into an agreement to sell the marina
property which was acquired through the foreclosure process in early 1994 for
$800,000. The Bank received a down payment of $100,000 and took back a note for
the remainder. The property is subject to a cease and desist order from the
Army Corps of Engineers specifying that there is to be no further encroachment
of the protected wetlands area which is located on the marina property. In
addition, the Army Corps of Engineers has suggested that certain cleanup of the
wetlands be undertaken. The purchaser has agreed to expend $200,000 relating to
this restoration and cleanup. If the Army Corps of Engineers does not accept
the cleanup effort after the expenditure of the agreed $200,000 and prior to
September 20, 1995, the purchaser has the right to return the property to the
Bank and receive the amount of his down payment and the return to the $200,000
expended on the cleanup effort. If the property is returned, the Bank would be
subject to any potential costs of any further environmental remediation. Due to
the percentage of the down payment to total consideration and the contingency
relating to the return of the property, the Bank has not recorded the sale and
continues to classify the property as other real estate owned. The Bank will
record the sale when the contingency expires and other conditions are met.
Commitments and Lines of Credit
It is the Bank's policy not to issue formal commitments or lines of credit
except to a limited number of well-established and financially responsible local
commercial enterprises. Such commitments can be either secured or unsecured and
are typically in the form of revolving lines of credit for seasonal working
capital needs.
Occasionally, such commitments are in the form of a letter of credit to
facilitate the customer's particular business transaction. Commitments and
lines of credit typically mature within one year. These commitments, to varying
degrees, involve credit risk in excess of the amount recognized as either an
asset or liability in the statement of financial position. The Company controls
credit risk through its credit approval process. The same credit policies are
used when entering into such commitments and lines of credit.
As of March 31, 1995 and December 31, 1994, the Company had undisbursed loan
commitments to extend credit under normal lending arrangements as follows:
21
<PAGE>
<TABLE>
<CAPTION>
UNDISBURSED LOAN COMMITMENTS
(dollars in thousands) March 31, December 31,
Loan Category 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Commercial $22,702 $22,837
Real estate-other 2,504 3,658
Real estate construction 11,713 9,314
Consumer 6,549 6,955
Other 12,397 11,832
- ----------------------------------------------------------------------
Total $55,865 $54,596
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
In addition at March 31, 1995 there was approximately $2.6 million for
commitments under unused letters of credit.
FUNDING
The following table provides a breakdown of deposits by category as of the dates
indicated:
<TABLE>
<CAPTION>
DEPOSIT CATEGORIES
(dollars in thousands)
March 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Deposits Amount Deposits
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest-bearing demand $47,582 27.13% $54,002 29.95%
Interest-bearing demand 29,965 17.08 29,041 16.11
Money market and savings 48,213 27.49 47,170 26.16
Certificates of deposit:
Less than $100,000 15,866 9.04 16,038 8.90
$100,000 or more 33,785 19.26 34,036 18.88
- ---------------------------------------------------------------------------------------------------------
Total $175,411 100.00% $180,287 100.00%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated deposits as of March 31, 1995, were $175.4 million compared to
$180.3 million at December 31, 1994. The decrease relates mainly to the decline
in volatile title company escrow deposits, which declined from $6.2 million at
December 31, 1994 to $2.7 million at March 31, 1995.
The Bank has been able to attract a high proportion of its deposits in the form
of non-interest-bearing deposits. The Bank's primary business is commercially
oriented and significant non-interest bearing deposits are maintained by its
commercial customers. Non-interest bearing demand deposits include the
aforementioned title company escrow deposits, which are cyclical in nature and
are dependent upon the real estate activity in Santa Clara County. This
activity has been negatively impacted by increased interest rates. This decline
caused the percentage of non-interest-bearing balances to decrease to 27% as
compared to 30% as of December 31, 1994. See "Liquidity."
The Bank also raises a substantial amount of funds through certificates of
deposits of greater than $100,000. These deposits are usually at interest rates
greater than other types of deposits and are more sensitive to interest rate
changes. Historically, the Bank's overall cost of funds has been significantly
less than its peer group. However, these certificates of deposits are usually
more interest rate sensitive, and therefore their repricing, in an increasing
interest rate environment, could negatively impact the Bank's net interest
margin. See "Liquidity."
22
<PAGE>
ASSET/LIABILITY MANAGEMENT
The Company defines interest rate sensitivity as the measurement of the mismatch
in repricing characteristics of assets, liabilities and off-balance sheet
instruments at a specified point in time. This mismatch, or interest rate
sensitivity gap, represents the potential mismatch in the change in the rate of
accrual of interest revenue and interest expense that would result from a change
in interest rates. Mismatches in interest rate repricing among assets and
liabilities arise primarily from the interaction of various customer businesses
(i.e., types of loans versus the types of deposits maintained) and from
management's discretionary investment and funds gathering activities. The
Company attempts to manage its exposure to interest rate sensitivity; however
due to its size and direct competition from the major banks, it must offer
products which are competitive in the market place even if such products are not
optimum with respect to its interest rate exposure.
The Company's balance sheet position is asset-sensitive (based upon the
significant amount of variable rate loans and the repricing characteristics of
its deposit accounts). This balance sheet position provides a hedge against
rising interest rates, but has a detrimental effect during times of interest
rate decreases. Net interest revenues are negatively impacted by a decline in
interest rates. The interest rate gap is a measure of interest rate exposure
and is based upon the known repricing dates of certain assets and liabilities
and assumed repricing dates of others.
To counter its natural interest rate position, on May 10, 1994, the Bank entered
into an interest rate "swap" in the amount of $10 million for a period of one
year and an interest rate "floor" in the amount of $10 million for a period of
five years. In the swap, the Bank has agreed to pay a floating rate equal to
the prime rate of interest (which is currently 9.00%) in exchange for receiving
a fixed rate (7.93%). The floating rate adjusts based on a daily average of the
prime rate.
In the floor, the Bank has paid a fixed premium of $47,000, for which it will
receive, for five years, the amount of interest on $10 million based on the
difference of 7% and prime when prime is less than 7%. This will protect the
Bank against decreases in its net income when the prime decreases to less than
7%. Settlement is done quarterly and the Bank records the impact of these
hedges on an accrual basis.
The following table quantifies the Company's interest rate exposure at March 31,
1995 based upon the known repricing dates of certain assets and liabilities and
the assumed repricing dates of others. At March 31, 1995, the Company was, as
noted above, asset sensitive in the near term. This table displays a static
view of the Company's interest rate sensitivity position and does not consider
the dynamics of the balance sheet and interest rate movements.
23
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF REPRICING OPPORTUNITIES
At March 31, 1995
(dollars in thousands)
After three After six After one
Within months but months but year but After
three within six within one within five
months months year five years years Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment securities-taxable ----- ----- ----- $11,614 $462 $12,076
Investment securities-non-taxable ----- $533 ----- 1,924 ----- 2,457
Securites available for sale $5,865 973 $5,889 6,006 18 18,751
Loans 125,510 443 355 11,584 3,379 141,271
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 131,374 1,950 6,244 31,128 3,859 174,556
- ------------------------------------------------------------------------------------------------------------------------------------
Interest checking, money market
and savings 78,178 ----- ----- ----- ----- 78,178
Certificates of deposit:
Less than $100,000 7,561 2,286 4,502 1,517 ----- 15,866
$100,000 or more 20,008 7,515 5,563 699 ----- 33,785
- ---------------------------------------------------------------------------------------------------- ----------------
Total interest-bearing liabilities 105,747 9,801 10,065 2,216 127,829
- ---------------------------------------------------------------------------------------------------- ------- ----------------
Interest rate gap $25,627 ($7,851) ($3,821) $28,912 $3,859 $46,727
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative interest rate gap $25,627 $17,776 $13,956 $42,867 $46,727
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Interest rate gap ratio 1.24 0.20 0.62 14.05
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cumulative interest rate gap ratio 1.24 1.15 1.11 1.34 1.37
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The maturities and yields of the investment portfolio at March 31, 1995 are
shown below:
<TABLE>
<CAPTION>
MATURITY AND YIELDS OF
INVESTMENT SECURITIES
At March 31, 1994
(dollars in thousands)
Maturity
------------------------------------------------------------------------------
After one year
Carrying Within one year within five years After ten years
Value Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity
U. S. Treasury $4,261 ---- ---- $4,261 5.01% ---- ----
U. S. Government Agencies 4,967 ---- ---- 4,967 6.14 ---- ----
State and municipal 2,457 $533 7.25% 1,924 6.75 ---- ----
Mortgage backed 2,386 ---- ---- 2,386 7.90 ---- ----
Other 462 ---- ---- ---- ---- $245 6.00%
- ----------------------------------------------------------------- ------------ ------------
Total 14,533 533 13,538 245
- ----------------------------------------------------------------- ------------ ------------
Securities available for sale
U. S. Treasury 10,915 3,948 4.61 6,967 6.12 ---- ----
U.S. Government Agencies 3,946 2,937 6.11 1,009 7.63 ---- ----
Mortgage backed 18 ---- ---- ---- ---- 18 0.00%
Mutual funds 3,863 3,863 5.33 ---- ---- ---- ----
- ----------------------------------------------------------------- ------------ ------------
Total 18,742 10,748 7,976 18
- ----------------------------------------------------------------- ------------ ------------
Total $33,275 $11,281 5.37% $21,514 6.23% $263 5.59%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table shows the maturity and interest rate sensitivity of
commercial, real estate-other and real estate construction loans at March 31,
1995. Approximately 88% of the commercial and real estate loan portfolio is
priced with floating interest rates which limits the exposure to interest rate
risk on long-term loans.
24
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE SENSITIVITY
(dollars in thousands)
Balances maturing Interest Rate Sensitivity
--------------------------------------------------------------------
Predeter-
Balances at One mined Floating
March 31, One year year to Over interest interest
1995 or less five years five years rates rates
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $43,539 $29,041 $12,514 $1,984 $2,014 $41,522
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Real estate-other $70,458 $10,825 $27,474 $32,159 $12,917 $57,541
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Real estate construction $10,294 $10,294 --- --- --- $10,294
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The above table does not take into account the possibility that a loan may be
renewed at the time of maturity. In most circumstances, the Company treats a
renewal request in substantially the same manner in which it considers the
request for an initial extension of credit. The Company does not have a policy
to automatically renew loans.
CAPITAL AND LIQUIDITY
Capital
The Company's book value per share was $10.22 and $9.92 on March 31, 1995 and
December 31, 1994, respectively. Shareholders' equity was $24.3 million and
$23.4 million as of March 31, 1995 and December 31, 1994, respectively.
The Federal Reserve Board's risk-based capital guidelines require that total
capital be in excess of 8% of total assets on a risk-weighted basis. Under the
guidelines for bank holding companies, capital requirements are based upon the
composition of the consolidated asset base and the risk factors assigned to
those assets. The guidelines characterize an institution's capital as being
"Tier 1" capital (defined to be principally shareholders' equity) and "Tier 2"
capital (defined to be principally the allowance for loan losses, limited to one
and one-fourth percent of loans, and other supplemental capital). The
guidelines require the Company to maintain a risk-based capital target ratio of
8%, one-half or more of which should be in the form of Tier 1 capital.
The Comptroller of the Currency also requires SJNB to maintain adequate capital.
The Comptroller's current regulations require national banks to maintain a Tier
1 leverage capital ratio equal to at least 3% to 5% of total assets, depending
on the Comptroller's evaluation of the Bank.
The Comptroller has also adopted risk-based capital requirements. Similar to
the Federal Reserve's guidelines, the amount of capital the Comptroller will
require a bank to maintain will be based upon the composition of its asset base
and risk factors assigned to those assets. The guidelines require the Bank to
maintain a risk-based capital target ratio of 8%, one-half or more of which
should be in the form of Tier 1 capital.
The capital of the Company and SJNB exceed the amount required by the various
capital guidelines. The table below summarizes the various capital ratios of
the Company and the Bank at March 31, 1995 and December 31, 1994.
25
<PAGE>
<TABLE>
<CAPTION>
RISK-BASED AND LEVERAGE CAPITAL RATIOS
(DOLLARS IN THOUSANDS)
COMPANY March 31, 1995 December 31, 1994
-------------------------------------------------------
RISK-BASED Amount Ratio Amount Ratio
-------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $19,445 12.00% $18,530 10.93%
Tier 1 capital minimum requirement 6,482 4.00% 6,781 4.00%
-------------------------------------------------------
EXCESS $12,964 8.00% $11,749 6.93%
-------------------------------------------------------
-------------------------------------------------------
Total capital $21,547 13.30% $20,724 12.23%
Total capital minimum requirement 12,963 8.00% 13,561 8.00%
-------------------------------------------------------
EXCESS $8,584 5.30% $7,163 4.23%
-------------------------------------------------------
-------------------------------------------------------
Risk-adjusted assets $162,038 $169,514
------------- -------------
------------- -------------
LEVERAGE
Tier 1 capital $19,445 9.98% $18,530 9.33%
Minimum leverage ratio requirement (1) 7,790 4.00% 7,942 4.00%
-------------------------------------------------------
EXCESS $11,655 5.98% $10,588 5.33%
-------------------------------------------------------
-------------------------------------------------------
Average total assets $194,757 $198,542
------------- -------------
------------- -------------
BANK
RISK-BASED
Tier 1 capital $18,346 11.36% $17,477 10.34%
Tier 1 capital minimum requirement 6,459 4.00% 6,759 4.00%
-------------------------------------------------------
EXCESS $11,887 7.36% $10,718 6.34%
-------------------------------------------------------
Total capital $20,441 12.66% $19,664 11.64%
Total capital minimum requirement 12,918 8.00% 13,518 8.00%
-------------------------------------------------------
EXCESS $7,523 4.66% $6,146 3.64%
-------------------------------------------------------
-------------------------------------------------------
Risk-adjusted assets $161,476 $168,976
------------- -------------
------------- -------------
LEVERAGE
Tier 1 capital $18,346 9.44% $17,477 8.81%
Minimum leverage ratio requirement (1) 7,771 4.00% 7,934 4.00%
-------------------------------------------------------
-------------------------------------------------------
EXCESS $10,575 5.44% $9,543 4.81%
-------------------------------------------------------
-------------------------------------------------------
Average total assets $194,286 $198,341
------------- -------------
------------- -------------
<FN>
(1) The required ratio is determined on an individual bank basis as a result of
factors considered by the Company's and Bank's regulators. To date, however,
the regulators have not established this amount. Amounts shown as the minimum
requirements relate to the standards imposed by the FDIC in their determination
of an "adequately capitalized" bank for their insurance premium determination.
</TABLE>
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan funding and deposit withdrawals in the most economically
feasible manner. Liquidity requirements are evaluated by taking into
consideration factors such as deposit concentrations, seasonality and
maturities, loan demand, capital expenditures, and prevailing and anticipated
economic conditions. SJNB's business is generated primarily through customer
referrals and employee business development efforts; however the Bank utilizes
purchased deposits to satisfy temporary liquidity needs.
26
<PAGE>
The Bank's source of liquidity consists of its deposits with other banks,
overnight funds sold to correspondent banks, and short-term marketable
investments. At March 31, 1995, consolidated liquid assets totaled $30.7
million or 15% of consolidated total assets as compared to $31.0 million or 15%
of consolidated total assets on December 31, 1994. In addition to the liquid
asset portfolio, SJNB also has available $9 million in lines of credit with five
major commercial banks and has a credit facility with the Federal Reserve Bank
for approximately $3.5 million based on loans secured by real estate.
SJNB is primarily a business and professional bank and, as such, its deposit
base is more susceptible to economic fluctuations. Accordingly, management
strives to maintain a balanced position of liquid assets to volatile and
cyclical deposits. Commercial clients in their normal course of business
maintain balances in large certificates of deposit, the stability of which
hinges upon, among other factors, market conditions and each business'
seasonality. Large certificates of deposit amounted to 19% of total deposits on
March 31, 1995 and December 31, 1994.
Additionally, SJNB is a depository of title company funds which are cyclical and
dependent mainly upon the residential real estate market. There were $2.7
million of such title company deposits on March 31, 1995, compared to $6.2
million at December 31, 1994.
Liquidity is also affected by portfolio maturities and the effect of interest
rate fluctuations on the marketability of both assets and liabilities. The loan
portfolio consists primarily of floating rate, short-term loans. On March 31,
1995, approximately 66% of total consolidated assets had maturities under one
year and 88% of total consolidated loans had floating rates tied to the prime
rate or similar indexes. The short-term nature of the loan portfolio, and loan
agreements which generally require monthly interest payments, provide the
Company with an additional secondary source of liquidity. In addition, the Bank
currently has available $7.0 million of SBA loans available for sale. These
loans could be sold within a 30 day period.
There are no material commitments for capital expenditures in 1995.
EFFECTS OF INFLATION
The most direct effect of inflation on the Company is higher interest rates.
Because a significant portion of the Bank's deposits are represented by non-
interest-bearing demand accounts, changes in interest rates have a direct impact
on the financial results of the Bank. See the discussion regarding
asset/liability management. Another effect of inflation is the upward pressure
on the Company's operating expenses. Inflation did not have a material effect
on the Bank's operations in 1995 or 1994.
27
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Neither the registrant nor its subsidiary bank is a party to any material
pending legal proceedings. The Bank is party to routine litigation incidental
to its business.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(3)(ii) Amendments to Bylaws dated January 25, February 22 and
March 22, 1995 and the restated bylaws as of March 22, 1995
(27) Financial Data Schedule
(b) Reports on Form 8-K.
Not applicable.
28
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SJNB FINANCIAL CORP.
(Registrant)
Date: April 27, 1995 s\ James R. Kenny
------------------------------------
James R. Kenny
President and
Chief Executive Officer
Date: April 27, 1995 s\ Eugene E. Blakeslee
------------------------------------
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer
29
<PAGE>
Certificate of Secretary of
SJNB Financial Corp.
I, Jocelyn L. Stephen, Assistant Secretary of SJNB Financial Corp., a California
Corporation, do hereby certify that at a meeting of the Board of Directors of
said Corporation, duly held on January 25, 1995, at which a quorum was present
and acting throughout, the following resolution was adopted and is now in full
force and effect:
RESOLVED that Article 3, Section 2, Paragraph 1, of the Bylaws as
adopted at the organization meeting of April 22, 1983 is hereby
amended to read as follows:
"The authorized number of directors shall be not less than nine (9)
nor more than seventeen (17) until changed by an amendment to the
Bylaw adopted by the vote or written consent of holders of a majority
of the outstanding shares entitled to vote. The exact number of
directors shall be sixteen (16), until changed, within the limits
specified above, by a bylaw amending this Section 2, duly adopted by
the Board or Directors or by the shareholders."
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Corporation
this 26th day of April, 1995.
/s/ Jocelyn L. Stephen
- -------------------------
Jocelyn L. Stephen
Assistant Secretary
<PAGE>
Certificate of Secretary of
SJNB Financial Corp.
I, Jocelyn L. Stephen, Assistant Secretary of SJNB Financial Corp., a California
Corporation, do hereby certify that at a meeting of the Board of Directors of
said Corporation, duly held on February 22, 1995, at which a quorum was present
and acting throughout, the following resolution was adopted and is now in full
force and effect:
RESOLVED, that Article II, Section 2 of the Bylaws of SJNB Financial
Corp. is hereby amended to read as follows:
"The annual meeting of shareholders shall be held on the fourth
Wednesday of May each year at 10:00 a.m., or such other date or such
other time as may be fixed by the Board of Directors. However, if
this day falls on a legal holiday, then the meeting shall be held at
the same time and place on the next succeeding full business day. At
this meeting, directors shall be elected and any other proper business
within the power of the shareholders may be transacted.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Corporation
this 26th day of April, 1995.
/s/ Jocelyn L. Stephen
- -------------------------
Jocelyn L. Stephen
Assistant Secretary
<PAGE>
Certificate of Secretary of
SJNB Financial Corp.
I, Jocelyn L. Stephen, Assistant Secretary of SJNB Financial Corp., a California
Corporation, do hereby certify that at a meeting of the Board of Directors of
said Corporation, duly held on March 22, 1995, at which a quorum was present and
acting throughout, the following resolution was adopted and is now in full force
and effect:
RESOLVED that Article 3, Section 2, Paragraph 1, of the Bylaws as
adopted at the organization meeting of April 22, 1983 is hereby
amended to read as follows:
"The authorized number of directors shall be not less than nine (9)
nor more than seventeen (17) until changed by an amendment to the
Bylaw adopted by the vote or written consent of holders of a majority
of the outstanding shares entitled to vote. The exact number of
directors shall be fifteen (15), until changed, within the limits
specified above, by a bylaw amending this Section 2, duly adopted by
the Board or Directors or by the shareholders."
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Corporation
this 26th day of April, 1995
/s/ Jocelyn L. Stephen
- -------------------------
Jocelyn L. Stephen
Assistant Secretary
<PAGE>
BYLAWS
OF
SJNB FINANCIAL CORP.
(Amended 3-22-95)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The Board of Directors shall fix the location of
the principal executive office of the corporation at any place within or outside
the State of California. If the principal executive office is located outside
this State, and the corporation has one or more business offices in this State,
the Board of Directors shall fix and designate a principal business office in
the State of California.
SECTION 2. OTHER OFFICES. Branch or other subordinate offices may at any time
be established by the Board at such other places as it deems appropriate.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any
place within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders shall be held on
the 4th Wednesday of May of each year at 10:00am., or such other date or such
other time as may be fixed by the Board of Directors. However, if this day
falls on a legal holiday, then the meeting shall be held at the same time and
place on the next succeeding full business day. At this meeting, directors
shall be elected, and any other proper business within the power of the
shareholders may be transacted.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the Board, the Chairman of the Board, the President, or by
the holders of shares entitled to cast not less than ten percent (10%) of the
votes at such meeting. If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or by registered mail to the
Chairman of the Board, the President, any Vice President or the Secretary of the
corporation. The officer receiving the request, shall cause notice to be
promptly given to the shareholders entitled to vote that a meeting will be held
at a time requested by the person or persons calling the meeting, not less than
35 nor more than 60 days after the receipt of the request. If the notice is not
given within 20 days after receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing in this paragraph shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
SECTION 4. NOTICE OF MEETINGS. Written notice, in accordance with Section 5 of
this Article II, of each annual or special meeting of shareholders shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (a) in the case of a special meeting, the
general nature of the business to be transacted, and no other business may be
transacted, or (b)
<PAGE>
in the case of the annual meeting, those matters which the Board, at the time of
the mailing of the notice, intends to present for action by the shareholders,
but, subject to the provisions of applicable law, any proper matter may be
presented at the meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by management for election.
If action is proposed to be taken at any meeting for approval of (a) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the Corporations Code of California, (b) an amendment
of the Articles of Incorporation, pursuant to Section 902 of that Code, (c) a
reorganization of the corporation, pursuant to Section 1201 of that Code, (d) a
voluntary dissolution of the corporation, pursuant to Section 1900 of that Code,
or (e) a distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of that Code, the notice
shall also state the general nature of that proposal.
SECTION 5. MANNER OF GIVING NOTICE. Notice of a shareholders' meeting shall be
given either personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal office or if
published at least once in a newspaper of general circulation in the county of
which that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication. An affidavit of mailing or other means of
giving any notice in accordance with the above provisions, executed by the
Secretary, Assistant Secretary or other transfer agent shall be prima facie
evidence of the giving of the notice or report.
SECTION 6. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting shall constitute a quorum
for the transaction of business. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
SECTION 7. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares, the holders of which are either present in
person or represented by proxy thereat, but in the absence of a quorum (except
as provided in Section 6 of this Article) no other business may be transacted at
such meeting.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, when any shareholders' meeting is adjourned for more than 45 days from
the date set for the original meeting, or, if after adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. At any adjourned meeting the
corporation may transact any business which may have been transacted at the
original meeting.
SECTION 8. VOTING. The shareholders entitled to notice of any meeting or to
vote at any such meeting shall be only persons in whose name shares stand on the
stock records of the corporation on the record date determined in accordance
with Section 9 of this Article.
Voting shall in all cases be subject to the provisions of Section 702 through
704, inclusive, of the California General Corporation Law (relating to voting
shares held by a fiduciary, in the name of a corporation, or in joint
ownership).
<PAGE>
The shareholders' vote may be by voice or ballot; provided, however, that any
election for directors must be by ballot if demanded by any shareholder before
the voting has begun. On any matter other than elections of directors, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal (other than
the election of directors), but, if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
that the shareholder is entitled to vote. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter (other than the election of directors) shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California Corporation Law or by the Articles of
Incorporation.
Subject to the following sentence and to the provisions of Section 708 of the
California General Corporation Law, every shareholder entitled to vote at any
election of directors may cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among as
many candidates as the shareholder thinks fit. No shareholder shall be entitled
to cumulate votes for any candidate or candidates pursuant to the preceding
sentence unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice, at the
meeting and before the voting begins, of the shareholder's intention to cumulate
the shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination.
In any election of directors, the candidates receiving the highest number of
votes of the shares entitled to be voted for them up to the number of directors
to be elected, shall be elected.
SECTION 9. NOMINATIONS FOR DIRECTORS. Nominations for election to the Board of
Directors may be made by the Board or by any shareholder entitled to vote in the
election of directors. Nominations, other than those made by or on behalf of
the existing management of the corporation, shall be made in writing and shall
be mailed or delivered to the President of the corporation not less than 14 days
nor more than 50 days prior to any meeting of shareholders called for the
election of directors; provided, however, that if less than 21 days' notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the corporation not later than the close of
business on the seventh day following the date on which the notice of meeting
was mailed. Such written nomination shall include the following information to
the extent known to the nominating shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
total number of voting shares that will be voted for each proposed nominee; (d)
the name and residence address of the nominating shareholder; and (e) the number
of shares of voting stock of the corporation owned by the nominating
shareholder. Nominations not made in accordance herewith may, in his
discretion, be disregarded by the Chairman of the meeting, and upon his
instructions, the inspectors of election may disregard all votes cast for each
such nominee.
SECTION 10. RECORD DATE. The Board may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall be not more than 60 days nor less than
10 days prior to the date of the meeting nor more than 60 days prior to any
other action. When a record date is so fixed, only shareholders of record on
that date are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution, or allotment of rights, or to exercise of the rights, as
the case may be, notwithstanding any transfer of shares on the books of the
corporation after the record date. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting unless the
<PAGE>
Board fixes a new record date for the adjourned meeting. The Board shall fix a
new record date if the meeting is adjourned for more than 45 days.
If no record date is fixed by the Board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the date on which
the meeting is held. The record date for determining shareholders for any
purpose other than set forth in this Section 10 or Section 12 of this Article
shall be at the close of business of the day on which the Board adopts the
resolution relating there-to, or the sixtieth day prior to the date of such
other action, whichever is later.
SECTION 11. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a waiver of notice, or a consent to the holding of the meeting or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Neither the business to be transacted at nor the purpose of any
regular or special meeting of shareholders need be specified in any written
waiver of notice, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section 4
of this Article II, the waiver of notice or consent shall state the general
nature of the proposal.
SECTION 12. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Subject to Section
603 Of the California General Corporation Law, any action which may be taken at
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice if a consent in writing, setting forth the action so taken,
is signed by the holders of the outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted, or their proxies. All such consents shall be filed with the Secretary of
the corporation and shall be maintained in the corporate records. Provided,
however, that (1) unless the consents of all shareholders entitled to vote have
been solicited in writing, notice of any shareholder approval without a meeting
by less than unanimous written consent shall be given, as provided by Section
603(b) of the California Corporations Code, and (2) in the case of election of
directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided,
however, that subject to applicable law, a director may be elected at any time
to fill a vacancy on the Board of Directors that has not been filled by the
directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors. Any written
consent may be revoked by a writing received by the Secretary of the corporation
prior to the time that written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary.
Unless a record date for voting purposes be fixed as provided in Section 10 of
this Article, the record date for determining shareholders entitled to give
consent pursuant to this Section 12, when no prior action by the Board has been
taken, shall be the day on which the first written consent is given.
SECTION 13. PROXIES. Every person entitled to vote shares or execute written
consents has the right to do so either in person or by one or more persons
authorized by a written proxy executed and dated by such shareholder and filed
with the Secretary of the corporation prior to the convening of any meeting of
the shareholders at which any such proxy is to be used or prior to the use of
such written consent. A validly executed proxy which does not state that it is
irrevocable continues in full force and effect unless (1) revoked by the person
executing it, before the vote pursuant thereto, by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by, or by attendance at the meeting and voting in person by, the person
executing the proxy; or (2) written notice of the death or incapacity of the
maker of the proxy is received by the corporation before the vote pursuant
thereto is counted;
<PAGE>
provided, however, that no proxy shall be valid after the expiration of 11
months from the date of its execution unless otherwise provided in the proxy.
SECTION 14. INSPECTORS OF ELECTION. In advance of any meeting of shareholders,
the Board may appoint any persons other than nominees for office as inspectors
of election to act at such meeting and any adjournment thereof. If no
inspectors of election are so appointed, or if any persons so appointed fail to
appear or fail or refuse to act, the Chairman of any such meeting may, and on
the request of any shareholder or shareholder's proxy shall, appoint inspectors
of election at the meeting. The number of inspectors shall be either one (1) or
three (3). If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present shall determine whether one (1) or three (3) inspectors are to
be appointed.
The duties of such inspectors shall be as prescribed by Section 707(b) of the
California General Corporation Law and shall include: determining the number of
shares outstanding and the voting power of each; the shares represented at the
meeting; the existence of a quorum; the authenticity, validity and effect of
proxies; receiving votes, ballots or consents; hearing and determining all
challenges and questions in any arising in connection with the right to vote;
counting and tabulating all votes or consents, determining when the polls shall
close; determining the result; and doing such acts as may be proper to conduct
the election or vote with fairness to all shareholders. If there are three
inspectors of election, the decision, act, or certificate of a majority is
effective in all respects as the decision, act, or certificate of all.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors. The Board may delegate the management of the day-today
operation of the business of the corporation to a management company or other
person provided that the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised under the ultimate direction
of the Board. without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board shall have the
following powers in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents, and employees of the
corporation, prescribe any powers and duties for them that are consistent
with law, or with the Articles or these Bylaws, fix their compensation, and
require from them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the corporation
and to make such rules and regulations therefor not inconsistent with law,
or with the Articles or these Bylaws, as they may deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgment they may deem best.
(d) To authorize the issuance of shares of stock of the corporation from time
to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the corporation,
and to cause to be executed and delivered therefor, in the corporate name,
promissory and
<PAGE>
capital notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities therefor and any
agreements pertaining thereto.
(f) To prescribe the manner in which and the person or persons by whom any or
all of the checks, drafts, notes, contracts and other corporate instruments
shall be executed.
(g) To appoint and designate, by resolution adopted by a majority of the
authorized number of directors, one or more committees, each consisting of
two or more directors, including the appointment of alternate members of
any committee who may replace any absent member at any meeting of the
committee.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors shall be not less than nine (9) nor more than seventeen (17) until
changed by an amendment to this Bylaw adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote. The exact
number of directors shall be fifteen (15), until changed, within the limits
specified above, by a bylaw amending this Section 2, duly adopted by the Board
of Directors or by the shareholders.
No person (except, in respect to the limitation in clause (a) below, of this
Section 2.3, or any person who shall be a member of the Board of Directors of
this Corporation on the date these Bylaws shall be adopted) shall be a member of
the Board of Directors of this Corporation (a) who has not been a resident, for
a period of at least one (1) year immediately prior to his election, of a state
in which the Corporation or any of its subsidiaries maintains an office, or (b)
who owns, together with his family residing with him, directly or indirectly,
more than one percent (1%) of the outstanding shares of any banking corporation,
affiliate or subsidiary thereof, or bank holding company engaged in business in
California, other than the Corporation or any of its subsidiaries or affiliates,
or (c) who is a director, officer, employee, agent, nominee, or attorney of any
banking corporation, affiliate or subsidiary thereof, or bank holding company
engaged in business in California, other than the Corporation or any of its
subsidiaries or affiliates, or (d) who has or is the nominee of anyone who has a
contract, arrangement or understanding with any banking corporation, or
affiliate or subsidiary thereof, or bank holding company, other than the
Corporation or any of its subsidiaries or affiliates, or with any officer,
director, employee, agent, nominee, attorney or other representative thereof
that he will reveal or in any way utilize information obtained as a director or
that he will, directly or indirectly, attempt to effect or encourage any action
of the Corporation.
SECTION 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at each
annual meeting of shareholders but if any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of shareholders held for that purpose. Each director shall hold office
until the next annual meeting and until a successor has been elected and
qualified.
SECTION 4. VACANCIES. Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, the Secretary, or the Board,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Vacancies in the Board may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified. Provided, however, that a
vacancy in the Board existing as the result of a removal of a director may not
be filled by the directors, unless the Articles or a bylaw adopted by the
shareholders so provides.
The Board may declare vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony.
<PAGE>
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent, other than to fill a vacancy created by removal, requires the consent
of a majority of the outstanding shares entitled to vote. Any such election by
written consent to fill a vacancy created by removal requires the unanimous
consent of the outstanding shares entitled to vote. If the Board accepts the
resignation of a director tendered to take effect at a future time, the Board or
the shareholders shall have power to elect a successor to take office when the
resignation is to become effective.
SECTION 5. PLACE OF MEETING. Regular meetings of the Board shall be held at
any place within the State of California which has been designated in the notice
of meeting or if there is no notice, at the principal office of the corporation,
or at a place designated by resolution of the Board or by the written consent of
the Board. Any regular or special meeting is valid wherever held if held upon
written consent of all members of the Board given either before or after the
meeting and filed with the Secretary of the corporation.
SECTION 6. REGULAR MEETINGS. Immediately following each annual meeting of
shareholders and at the same place, the Board shall hold a regular meeting for
the purpose of organization, any desired election of officers, and the
transaction of other business. Notice of this meeting shall not be required.
Other regular meetings of the Board shall be held without notice either on the
3rd Wednesday of January, April, July and October of each year, at the hour of
5:00 p.m., or at such different date and time as the Board may from time to time
fix by resolution; provided, however, should said day fall upon a legal holiday
observed by the corporation at its principal office, the said meeting shall be
held at the same time and place on the next succeeding full business day. Call
and notice of all regular meetings of the Board are hereby dispensed with.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board, the President,
or the Secretary or by any two directors.
Special meetings of the Board shall be held upon four days written notice by
mail or 24 hours notice delivered personally or by telephone or telegraph. Any
such notice shall be addressed or delivered to each director at such director's
address as it is shown upon the records of the corporation or as may have been
given to the corporation by the director for purposes of notice or, if such
address is not shown on such records or is not readily ascertainable, at the
place in which the meetings of the directors are regularly held. Such notice
may, but need not, specify the purpose of the meeting, nor the place if the
meeting is to be held at the principal office of the corporation. Notice of any
meeting of the Board need not be given to any director who attends the meeting
without protesting either prior thereto or at its commencement, the lack of
notice to such director.
Notice by mail shall be deemed to have been given at the time a written notice
is deposited in the United States mail, postage prepaid. Any other written
notice shall be deemed to have been given at the time it is personally delivered
to the recipient or is delivered to a common carrier for transmission, or
actually transmitted by the person giving the notice by electronic means, to the
recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
SECTION 8. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board, unless a greater number be
<PAGE>
required by the Articles and subject to the provisions of Section 310 of the
California General Corporation Law (as to approval of contracts or transactions
in which a director has a direct or indirect material financial interest),
Section 311 (as to appointment of committees), and Section 317(e) (as to
indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for such meeting.
SECTION 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the
Board may participate in a meeting through use of a conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Participation in a meeting pursuant to Section 9
constitutes "presence" in person at such meeting.
SECTION 10. WAIVER OF NOTICE. The transactions of any meeting of the Board,
however called and noticed or wherever held, are as valid as though had at a
meeting duly held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the directors not present signs a
written waiver of notice, a consent to holding such meeting or an approval of
the minutes thereof. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
SECTION 11. ADJOURNMENT. A majority of the directors present, whether or not a
quorum is present, may adjourn any directors' meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given, unless the meeting is adjourned for more than twenty-four hours, in which
case notice of the time and place shall be given before the time of the
adjourned meeting, in the manner specified in Section 7 of this Article III, to
the directors who were not present at the time of the adjournment.
SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
action by written consent shall have the same effect as a unanimous vote of the
Board. Such consent or consents shall be filed with the minutes of the
proceedings of the Board.
SECTION 13. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the Board. This
Section shall not be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee, or otherwise,
and receiving compensation for those services.
SECTION 14. RIGHTS OF INSPECTION. Every director of the corporation shall have
the absolute right at any reasonable time to inspect and copy all books,
records, and documents of every kind and to inspect the physical properties of
the corporation and also of its subsidiary corporations, domestic or foreign.
Such inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a president, a
secretary, and a chief financial officer. The corporation may also have, at the
discretion of the Board, a chairman of the board, a vice chairman of the board,
one or more vice presidents, one or more assistant vice presidents, one or more
assistant treasurers, one or more assistant secretaries and such other officers
as may be elected or appointed in accordance with the provisions of Section 3 of
this Article. One person may hold two or more offices, except those of president
and chief financial officer.
<PAGE>
SECTION 2. ELECTION. The officers of the corporation, except such officers as
may be elected or appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen by, and shall serve at the pleasure
of, the Board, and shall hold their respective offices until their resignation,
removal, or other disqualification from service, or until their respective
successors shall be elected, subject to the rights, if any, of an officer under
any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board may elect, and may empower the
President to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
SECTION 4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of an
officer under any contract of employment, any officer may be removed, either
with or without cause, by the Board at any time, or, except in the case of an
officer chosen by the Board, by any officer upon whom such power of removal may
be conferred by the Board.
Any officer may resign at any time by giving written notice to the corporation,
but without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular election or appointment to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board and of
the shareholders, and exercise and perform such other powers and duties as may
be from time to time assigned by the Board.
SECTION 7. VICE CHAIRMAN. The Vice Chairman of the Board, if there shall be
such an officer, shall, in the absence of the Chairman of the Board of
Directors, preside at all meetings of the Board and of the shareholders, and
exercise and perform such other powers and duties as may be from time to time
assigned by the Board.
SECTION 8. PRESIDENT. Subject to such powers, if any, as may be given by the
Board to the Chairman of the Board, if there be such an officer, the President
is the General Manager and Chief Executive Officer of the corporation and has,
subject to the control of the Board, general supervision, direction, and control
of the business and officers of the corporation. In the absence of both the
Chairman of the Board and the Vice Chairman, or if there be none, the President
shall preside at all meetings of the shareholders and at all meetings of the
Board. The President has the general powers and duties of management usually
vested in the office of President and General Manager of a corporation and such
other powers and duties as may be prescribed by the Board.
SECTION 9. VICE PRESIDENTS. In the absence or disability of the President, the
Vice Presidents in order of their rank as fixed by the Board or, if not ranked,
the Vice President designated by the Board, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board or the Bylaws, and the President,
or the Chairman of the Board.
<PAGE>
SECTION 10. SECRETARY. The Secretary shall keep or cause to be kept, at the
principal office and such other place as the Board may order, a book of minutes
of all the meetings of shareholders, the Board, and its committees, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present or represented
at shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal office or business office in accordance with
Section 213 of the California General Corporation Law. The Secretary shall
keep, or cause to be kept, at the principal office or at the office of the
corporation's transfer agent or registrar, if one be appointed, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of
the shareholders, of the Board and of any committees thereof required by these
Bylaws or by law to be given, shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
SECTION 11. ASSISTANT SECRETARY. The Assistant Secretary or the Assistant
Secretaries, in the order of their seniority, shall, in the absence or
disability of the Secretary, or in the event of such officer's refusal to act,
perform the duties and exercise the powers and discharge such duties as may be
assigned from time to time by the President or by the Board of Directors.
SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings, and shares, and shall send or cause to be
sent to the shareholders of the corporation such financial statements and
reports as are by law or these Bylaws required to be sent to them. The books of
account shall at all times be open to inspection by any director of the
corporation.
The Chief Financial Officer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the Board. The Chief Financial officer shall disburse the funds
of the corporation as may be ordered by the Board, shall render to the President
and directors, whenever they request it, an account of all transactions as Chief
Financial Officer and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
Board.
SECTION 13. ASSISTANT TREASURER. The Assistant Treasurer or the Assistant
Treasurers, in the order of their seniority, shall, in the absence or disability
of the Chief Financial Officer, or in the event of such officer's refusal to
act, perform the duties and exercise the powers of the Chief Financial Officer,
and shall have such additional powers and discharge such duties as may be
assigned from time to time by the President or by the Board of Directors.
SECTION 14. SALARIES. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary by reason of the fact that such officer is also a director of the
corporation.
SECTION 15. OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices,
except those of President and Chief Financial Officer, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity.
SECTION 16. INABILITY TO ACT. In the case of absence or inability to act of
any officer of the corporation and of any person herein authorized to act in his
place, the Board may from time to
<PAGE>
time delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select.
ARTICLE V
OTHER PROVISIONS
SECTION 1. INSPECTION OF CORPORATE RECORDS. The corporation shall keep at its
principal executive office a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder. A shareholder or shareholders of the corporation holding at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may:
(a) Inspect and copy the record of shareholders; names and addresses and
shareholdings during usual business hours upon five business days prior
notice demand upon the corporation; or
(b) Obtain from the transfer agent, if any, for the corporation, upon five
business days prior written demand and upon the tender of its usual charges
for such a list (the amount of which charges shall be stated to the
shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election
of directors and their shareholdings, as of the most recent record date for
which it has been compiled or as of the date specified by the shareholder
subsequent to the date of demand.
SECTION 2. INSPECTION OF BYLAWS. The corporation shall keep at its principal
office the original or a copy of these Bylaws as amended to date which shall be
open to inspection by shareholders at all reasonable times during business
hours.
SECTION 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the provisions of
applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, conveyance, or other instrument in writing and any assignment or
endorsements thereof executed or entered into between this corporation and any
other person, when signed by the President or any Vice President and the
Treasurer or any Assistant Treasurer of this corporation shall be valid and
binding upon this corporation in the absence of actual knowledge on the part of
the other person that the signing officers had not the authority to execute the
same. Any such instruments may be signed by any other person or persons and in
such manner as from time to time shall be determined by the Board, and, unless
so authorized by the Board, no officer, agent, or employee shall have any power
or authority to bind the corporation by any contract or arrangement or to pledge
its credit or to render it liable for any purpose or amount.
SECTION 4. CERTIFICATES OF STOCK. Every holder of shares of the corporation
shall be entitled to have a certificate signed in the name of the corporation by
the President or Vice President and by the Chief Financial Officer or Assistant
Financial Officer or by the Secretary or Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder.
Any or all of the signatures on the certificates may be facsimile. If any
officer, transfer agent, or registrar who has signed a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if such
person were an officer, transfer agent, or registrar at the date of issue.
Except as provided in this Section, no new certificate for shares shall be
issued in lieu of an old one unless the latter is surrendered and canceled at
the same time. The Board may, however, in case any certificate for shares is
alleged to have been lost, stolen, or destroyed, authorize the issuance of a new
certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may
<PAGE>
be made against it (including expense or liability) on account of the alleged
loss, theft, or destruction of such certificate or the issuance of such new
certificate.
Prior to the due presentment for registration of transfer in the stock transfer
book of the corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to exercise
all the rights and powers of an owner, except as expressly provided otherwise by
the laws of the State of California.
SECTION 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or
any other officer or officers authorized by the Board or the President are each
authorized to vote, represent, and exercise on behalf of the corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the corporation. The authority herein granted may be
exercised by any such officer in person or by any other person authorized to do
so by proxy or power of attorney duly executed by said officer.
SECTION 6. ANNUAL REPORT TO SHAREHOLDERS. Except when this corporation has 100
or more holders of record of its shares (determined as provided in Section 605
of the Corporations Code), the annual report to shareholders referred to in
Section 1501 of the California General Corporation Law is expressly waived, but
nothing herein shall be interpreted as prohibiting the Board from issuing annual
or other periodic reports to shareholders.
SECTION 7. SEAL. The corporate seal of the corporation shall consist of two
concentric circles, between which shall be the name of the corporation, and in
the center shall be inscribed the word "Incorporated" and the date of its
incorporation.
SECTION 8. FISCAL YEAR. The fiscal year of this corporation shall begin on the
first day of January and end on the 31st day of December of each year.
SECTION 9. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction, and definitions
contained in the California General Corporation Law shall govern the
construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
SECTION 10. BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF
LAW. Any article, section, subsection, subdivision, sentence, clause or phrase
of these Bylaws which, upon being construed in the manner provided in Section 9
of this Article, shall be contrary to or inconsistent with any applicable
provision of the California General Corporation Law or other applicable law of
the State of California or of the United States shall not apply so long as said
provisions of law shall remain in effect, but such result shall not affect the
validity of applicability of any other portions of these Bylaws, it being hereby
declared that these Bylaws would have been adopted and each article, section,
subsection, subdivision, sentence, clause or phrase thereof, irrespective of the
fact that any one or more articles, sections, subsections, subdivisions,
sentences, clauses or phrases is or are illegal.
ARTICLE VI
INDEMNIFICATION
SECTION 1. DEFINITIONS. For the purposes of this Article, "agent" includes any
person who is or was a director, officer, employee, or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise, or was a
director, officer, employee, or agent of a foreign or domestic corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" includes any threatened,
pending, or completed action or proceeding,
<PAGE>
whether civil, criminal, administrative or investigative and "expenses" includes
without limitation attorneys' fees and any expenses of establishing a right to
indemnification pursuant to law.
SECTION 2. EXTENT OF INDEMNIFICATION. The corporation shall, to the maximum
extent permitted by the California General Corporation Law, advance expenses to
and indemnify each of its agents against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact any such person is or was an agent of
the corporation.
SECTION 3. INSURANCE. The corporation shall have power to purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not the corporation would have the
power to indemnify the agent against such liability under the provisions of this
Article.
ARTICLE VII
AMENDMENTS
SECTION 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the Articles of the corporation set forth the number of authorized directors of
the corporation, the authorized number of directors may be changed only by an
amendment of the Articles.
SECTION 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders
as provided in Section 1 of this Article VII, Bylaws, other than a bylaw or an
amendment of a bylaw changing the authorized number of directors, may be
adopted, amended, or repealed by the Board of Directors.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,977
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,751
<INVESTMENTS-CARRYING> 14,533
<INVESTMENTS-MARKET> 14,365
<LOANS> 141,271
<ALLOWANCE> 3,407
<TOTAL-ASSETS> 211,371
<DEPOSITS> 175,411
<SHORT-TERM> 9,000
<LIABILITIES-OTHER> 2,695
<LONG-TERM> 0
<COMMON> 19,464
0
0
<OTHER-SE> 4,801
<TOTAL-LIABILITIES-AND-EQUITY> 211,371
<INTEREST-LOAN> 4,161
<INTEREST-INVEST> 485
<INTEREST-OTHER> (18)
<INTEREST-TOTAL> 4,628
<INTEREST-DEPOSIT> 1,299
<INTEREST-EXPENSE> 1,306
<INTEREST-INCOME-NET> 3,322
<LOAN-LOSSES> 210
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 2,186
<INCOME-PRETAX> 1,182
<INCOME-PRE-EXTRAORDINARY> 1,182
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 651
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<YIELD-ACTUAL> 7.49
<LOANS-NON> 4,428
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,311
<CHARGE-OFFS> 238
<RECOVERIES> 124
<ALLOWANCE-CLOSE> 3,407
<ALLOWANCE-DOMESTIC> 2,293
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,114
</TABLE>
