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 September 30, 1996
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 off (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:
2,567,480 shares of common stock outstanding as of November 10, 1996
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 7-28
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 29
Item 2. CHANGES IN SECURITIES 29
Item 3. DEFAULTS UPON SENIOR SECURITIES 29
- ------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 29
- ------
Item 5. OTHER INFORMATION 29
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 29-31
SIGNATURES 32
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(dollars in thousands)
(Unaudited)
September 30, December 31,
Assets 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $16,568 $12,574
Money market investments 1,500 3,200
Investment securities:
Held to maturity (Fair value: $15,408 at September 30, 1996
and $15,492 at December 31, 1995) 15,316 15,248
Available for sale 55,964 42,542
- --------------------------------------------------------------------------------------------
Total investment securities 71,280 57,790
- --------------------------------------------------------------------------------------------
Loans 178,664 158,867
Loans available for sale 12,420 11,933
Allowance for possible loan losses (3,998) (3,847)
- --------------------------------------------------------------------------------------------
Loans, net 187,086 166,953
- --------------------------------------------------------------------------------------------
Premises and equipment, net 3,548 3,494
Other real estate owned 304 664
Accrued interest receivable and other assets 3,106 2,764
Intangibles, net of accumulated amortization of $1,110 at
September 30, 1996 and $735 at December 31, 1995 4,790 4,756
- --------------------------------------------------------------------------------------------
Total $288,182 $252,195
============================================================================================
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $55,739 $52,775
Interest-bearing 174,016 143,917
- --------------------------------------------------------------------------------------------
Total deposits 229,755 196,692
- --------------------------------------------------------------------------------------------
Other short-term borrowings 25,256 24,000
Accrued interest payable and other liabilities 3,500 4,845
- --------------------------------------------------------------------------------------------
Total liabilities 258,511 225,537
- --------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value; authorized, 20,000 shares;
issued and outstanding, 2,525 shares at September 30, 1996
and 2,418 shares at December 31, 1995 20,170 19,627
Retained earnings 9,557 6,798
Net unrealized gain (loss) on securities available for sale (56) 233
- --------------------------------------------------------------------------------------------
Total shareholders' equity 29,671 26,658
- --------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
- -------------------------------------------------------------------------------------------
Total $288,182 $252,195
============================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
Quarter ended Nine months ended
September 30, September 30,
-----------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans $5,220 $4,525 $15,199 $13,364
Interest on investment securities held to maturity 241 228 704 653
Interest and dividends on investment securities available for 765 608 2,157 1,200
sale
Interest on money market investments 38 112 125 213
Other interest and investment income (2) (2) (7) (41)
- -------------------------------------------------------------------------------------------------------------------
Total interest income 6,262 5,471 18,178 15,389
- -------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest expense on interest-bearing deposits:
Certificates of deposit over $100 638 643 1,889 1,577
Other 1,396 1,265 4,121 3,155
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 2,034 1,908 6,010 4,732
- -------------------------------------------------------------------------------------------------------------------
Net interest income 4,228 3,563 12,168 10,657
- -------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 50 180 100 890
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 4,178 3,383 12,068 9,767
- -------------------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposits 149 140 421 426
Other operating income 100 138 340 337
Net loss on securities available for sale (67) ---- (146) (43)
- -------------------------------------------------------------------------------------------------------------------
Total other income 182 278 615 720
- -------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 1,388 1,091 4,139 3,212
Occupancy 178 177 515 560
Other 857 957 2,582 2,835
- -------------------------------------------------------------------------------------------------------------------
Total other expenses 2,423 2,225 7,236 6,607
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,937 1,436 5,447 3,880
Income taxes 817 629 2,324 1,721
- ------------------------------------------------------------------------------------------------------------------
Net income $1,120 $807 $3,123 $2,159
===================================================================================================================
Net income per share $0.42 $0.32 $1.19 $0.87
===================================================================================================================
Weighted average number of shares outstanding 2,648 2,508 2,633 2,493
===================================================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Nine months ended
September 30,
---------------------
1996 1995
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $3,123 $2,159
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 100 890
Depreciation and amortization 356 315
Amortization on intangibles 375 420
Net loss on securities available for sale 146 43
Net (gain) loss on sale of other real estate owned (46) 22
Increase in loans available for sale, net (486) (6,385)
Amortization of premium (discount) on investment securities, net 39 (114)
Increase in accrued interest receivable and other assets (1,253) (146)
Increase (decrease) in accrued interest payable and other liabilities (1,718) 1,880
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 636 (916)
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale or maturities of securities available for sale 11,658 13,162
Maturities of securities held to maturity 3,900 425
Purchase of securities available for sale (25,795) (36,144)
Purchase of securities held to maturity (3,919) (1,388)
Proceeds from the sale of other real estate owned 406 1,377
Cash and equivalents used to acquire Astra Financial, Inc. (650) ----
Loans, net (18,030) (9,920)
Capital expenditures (410) (689)
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (32,840) (33,177)
- ------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Deposits, net 33,063 14,687
Other short-term borrowings 1,256 20,295
Cash dividends (366) (215)
Common stock repurchased ---- (145)
Proceeds from stock options exercised 545 206
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 34,498 34,828
- ------------------------------------------------------------------------------------------------------
Net increase in cash and equivalents 2,294 735
Cash and equivalents at beginning of year 15,774 14,591
- -----------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $18,068 $15,326
======================================================================================================
Other cash flow information:
Interest paid $6,006 $4,398
=======================
Income taxes paid $3,241 $965
======================================================================================================
Noncash transactions:
Transfer of loans to other real estate owned ---- $950
=======================
Unrealized gain (loss) on securities available for sale, net of tax $(289) $247
======================================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<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 footnote 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, 1995.
Note B Net Deferred Tax Asset
As of September 30, 1996 the net deferred tax asset was approximately
$1,240 and $1,186 at December 31, 1995 which is included in the
category "Accrued interest receivable and other assets" on 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:
Weighted Average Number of Shares Outstanding
Quarter ended Nine months ended
September 30, September 30,
----------------------------------
1996 1995 1996 1995
----------------------------------
Weighted average number of shares
outstanding during the period 2,487 2,383 2,455 2,375
Common stock equivalents 161 125 178 118
----------------------------------
Total 2,648 2,508 2,633 2,493
==================================
<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 and nine months ended September 30, 1996 and the liquidity
and financial condition of the Company and SJNB as of September 30, 1996 and
December 31, 1995.
All dollar amounts in the text in this Item 2 are in thousands, except per
share amounts or as otherwise indicated.
Certain matters discussed in this report are forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Such risks
and uncertainties include, but are not limited to, the competitive environment
and its impact on the Company's net interest margin, changes in interest rates,
asset quality risks, concentrations of credit and the economic health of Santa
Clara County (particularly the health of the semiconductor industry), volatility
of rate sensitive deposits, asset/liability matching risks and liquidity risks.
Therefore, the matters set forth below should be carefully considered when
evaluating the Company's business and prospects.
In November 1995, the Company entered into an agreement to acquire Astra
Financial Inc. (Astra). Astra is an asset based lending company located in San
Jose, California. Its outstanding factoring receivables were approximately $2.2
million as of December 31, 1995. The acquisition was accounted for as a purchase
transaction and closed on January 2, 1996.
<TABLE>
<CAPTION>
The following presents selected financial data and ratios as of and for the
three and nine months ended September 30, 1996 and 1995:
SELECTED FINANCIAL DATA AND RATIOS
- -------------------------------------------------------------------------------------------------------
For the quarters For the nine months
ended September 30, ended September 30,
------------------------------------------------
SELECTED ANNUALIZED OPERATING RATIOS: 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on average equity 15.47% 12.70% 15.05% 11.75%
Return on average tangible equity 20.67 18.33 20.54 17.42
Return on average assets 1.61 1.35 1.55 1.34
Net chargeoffs (recoveries) to average loans .16 .25 ---- .46
Average equity to average assets 10.42 10.61 10.28 11.39
Average tangible equity to average tangible assets 8.82 8.80 8.60 9.39
=======================================================================================================
September 30, December 31,
PER SHARE DATA: 1996 1995 1995
- -----------------------------------------------------------------------------------------------
Shareholders' equity per share $11.75 $10.77 $11.02
Tangible equity per share $9.85 $8.72 $9.06
SELECTED FINANCIAL POSITION RATIOS:
- -----------------------------------------------------------------------------------------------
Leverage capital ratio 9.12% 8.91% 9.00%
Nonperforming loans to total loans .32 .56 .52
Nonperforming assets to total assets .32 .80 .62
Allowance for possible loan losses to total loans 2.09 2.24 2.25
Allowance for possible loan losses
to nonperforming loans 650 400 430
Allowance for possible loan losses
to nonperforming assets 435 188 247
===============================================================================================
</TABLE>
<PAGE>
Summary of Financial Results
The Company reported net income of $1,120 or $.42 per share for the quarter
ended September 30, 1996, compared with net income of $807 or $.32 per share for
the third quarter of 1995. The improvement in earnings is due primarily to an
increase in the net interest income due to the growth in volume and a reduction
in the loan loss provision which is offset by an increase in non-interest
expense and taxes.
For the nine months ended September 30, 1996, the net income was $3,123 or $1.19
per share compared with net income of $2,159 or $.87 per share in 1995. The
improvement was due primarily to the reasons discussed above regarding the
comparison of the third quarter results.
Net Interest Income
Net interest income for the quarter ended September 30, 1996 increased $665 as
compared to the same quarter a year ago. Net interest income is dependent upon
volume and net interest margin. The Bank's average earning assets for the same
period increased by $35 million, primarily as the result of the significant
growth in the Bank's loan portfolio. See the discussion in the sections "Loan
Portfolio" and "Asset/Liability Management" below.
Net interest income for the nine months ended September 30, 1996 increased
$1,511 over that of the same period a year ago. The increase was primarily due
to the increase in average earning assets ($51 million), offset by a decline in
the year-to-date net interest margin (7.31% for the nine months ended September
30, 1995 as compared to 6.62% for 1996). This decrease is mainly due to the
collection of nonaccrual loans and the recovery of interest income of
approximately $540 in 1995 as compared to an insignificant amount in 1996. Net
interest margin without this recovery for the nine months ended September 30,
1995 would have been 6.94%.
Net interest margin for the third quarter of 1996 was 6.68% as compared to 6.53%
for 1995. This increase was primarily related to a decline in the cost of the
Bank's interest-bearing funds. Such funds had an average cost of 4.25% for the
third quarter of 1996 as compared to 4.62% for the same period in 1995. This was
mainly due to the repricing of the Bank's interest checking demand accounts and
a reduction in its short-term borrowing costs. Offsetting this decline in
interest expense was a reduction in income earned on earning assets which was
due to a decline in the yield on interest-bearing assets from 10.01% in the
third quarter of 1995 to 9.88%. This was mainly attributable to the decline of
yields on loans from 11.54% for the third quarter of 1995 to 11.12% in 1996.
Net interest margin for the nine months ended September 30, 1996 was 6.62% as
compared to 7.31% for the nine months ended September 30, 1995. During the nine
months ended September 30, 1995, the Bank recognized approximately $492 of
income received on loans which had previously not been recognized as income as
they were on nonaccrual status. Adjusting for this would reduce the net interest
margin to 6.94% for the nine months ended September 30, 1995. The Bank's average
prime rate declined from 8.87% to 8.28% during such periods, but during the same
period the average cost of the Bank's funds did not decline.
Although economic conditions in Northern California have rebounded to date in
1996, 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. Even though the Bank's net interest margin
improved for the third quarter of 1996 over that of a year ago, on a year
to-date basis, it has declined as compared to the same period a year ago. To the
<PAGE>
extent that such competitive pricing continues throughout 1996 and 1997 and the
Bank finds it necessary to meet such competition or the prime rate declines, the
Bank's net interest margins could be negatively impacted. See "Loans and
"Funding".
In addition to the positive impact of the interest income recovery in 1995, net
interest income in 1996 was reduced due to the decrease in the prime interest
rate which the Bank utilizes to price approximately 85% of its loan portfolio
without a corresponding decrease in its cost of funds. Cost of funds for the
nine month periods remained stable at 3.37% for 1996 and 3.36% for 1995.
A substantial portion (24% for the three and nine months ended September 30,
1996 and 24 % and 25% for the three and nine months ended September 30, 1995,
respectively) of the Bank's average 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, management believes an increase in interest rates should positively affect
the Company's net interest margin. Conversely, Management believes stable or
declining rates will tend to have an adverse impact on net interest margin. The
Bank utilizes various vehicles to hedge its interest rate position. 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 collectability of interest or principal or
when the payment of principal or interest is ninety days past due, unless the
loan is well-secured and in the process of collection. For these loans, interest
is recorded when payment is received. The effect of nonaccrual of interest
income based on loans classified as nonaccrual at September 30, 1996 and 1995
was not significant for the periods. See "Nonperforming Loans."
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 and nine months ended September 30, 1996 and
1995.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands)
Quarter ended September 30,
-------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Assets Balance Interest Yield (1) Balance Interest Yield (1)
- ---------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans, net (2) $186,677 $5,220 11.12% $155,488 $4,524 11.54%
Securities held to maturity:
Taxable (3) 12,399 209 6.71 12,155 195 6.36
Nontaxable (4) 2,689 53 7.89 2,733 55 7.98
Securities available for sale (5) 48,384 765 6.29 39,521 608 6.10
Money market investments 2,963 38 5.10 7,857 113 5.71
Interest rate hedging instruments ---- (2) ---- ---- (2) ----
- ------------------------------------------------------------------- ---------------------------
Total interest-earning assets 253,112 6,283 9.88 217,754 5,493 10.01
- ------------------------------------------------------------------- ---------------------------
Allowance for possible loan losses (4,021) (3,610)
Cash and due from banks 15,675 11,608
Bank premises and equipment, net 3,533 3,321
Other real estate owned 314 1,556
Accrued interest receivable and
other assets 3,072 2,157
Core deposit intangibles and
goodwill, net 4,840 4,713
- -------------------------------------------------------- -------------
Total $276,525 $237,499
======================================================== =============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $41,591 295 2.82 $31,055 305 3.90
Money market and savings 63,275 549 3.45 53,111 446 3.33
Certificates of deposit:
Less than $100 14,898 206 5.50 15,447 215 5.52
$100 or more 47,169 638 5.38 44,820 643 5.69
- ------------------------------------------------------------------- ---------------------------
Total certificates of deposits 62,067 844 5.41 60,267 858 5.65
- ------------------------------------------------------------------- ---------------------------
Other borrowings 23,421 346 5.88 19,599 299 6.05
- ------------------------------------------------------------------- ---------------------------
Total interest-bearing liabilities 190,354 2,034 4.25 164,032 1,908 4.61
- ------------------------------------------------------------------- ---------------------------
Noninterest-bearing demand 53,981 44,894
Accrued interest payable and
other liabilities 3,378 3,377
- -------------------------------------------------------- -------------
Total liabilities 247,713 212,303
- -------------------------------------------------------- -------------
Shareholders' equity 28,812 25,196
======================================================== =============
Total $276,525 $237,499
========================================================----------- =============--------------
Net interest income and margin (6) $4,249 6.68% $3,585 6.53%
============================================ ====================== ==========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $241 for 1996, and $251 for 1995. Nonperforming
loans have been included in average loan balances.
(3) Includes dividend income of $8 received in 1996 and $8 in 1995.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory rate ($21 in 1996 and $22 in 1995).
(5) Includes dividend income of $54 and $58 received in 1996 and 1995.
(6) The net interest margin represents the fully taxable equivalent net interest income as a percentage of average
earning assets.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands)
Nine months ended September 30,
-------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Assets Balance Interest Yield (1) Balance Interest Yield (1)
- ---------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans, net (2) $181,169 $15,199 11.21% $149,743 $13,364 11.93%
Securities held to maturity:
Taxable (3) 12,350 600 6.49 12,105 566 6.25
Nontaxable (4) 2,934 173 7.89 2,547 145 7.61
Securities available for sale (5) 47,247 2,157 6.10 26,739 1,201 6.01
Money market investments 3,262 125 5.12 4,830 212 5.87
Interest rate hedging instruments ---- (7) ---- ---- (41) ----
- ------------------------------------------------------------------- ---------------------------
Total interest-earning assets 246,962 18,247 9.87 195,964 15,447 10.54
- ------------------------------------------------------------------- ---------------------------
Allowance for possible loan losses (3,984) (3,512)
Cash and due from banks 14,708 11,279
Bank premises and equipment, net 3,537 3,321
Other real estate owned 513 1,355
Accrued interest receivable and
other assets 2,781 2,468
Core deposit intangibles and
goodwill, net 4,968 4,778
- -------------------------------------------------------- -------------
Total $269,485 $215,653
======================================================== =============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $40,418 844 2.79 $29,797 829 3.72
Money market and savings 59,499 1,472 3.30 50,587 1,288 3.40
Certificates of deposit:
Less than $100 14,429 591 5.47 15,502 595 5.13
$100 or more 45,315 1,889 5.57 38,762 1,577 5.44
- ------------------------------------------------------------------- ---------------------------
Total certificates of deposits 59,744 2,480 5.54 54,264 2,172 5.35
- ------------------------------------------------------------------- ---------------------------
Other borrowings 27,754 1,214 5.84 9,631 443 6.15
- ------------------------------------------------------------------- ---------------------------
Total interest-bearing liabilities 187,415 6,010 4.28 144,279 4,732 4.38
- ------------------------------------------------------------------- ---------------------------
Noninterest-bearing demand 50,572 43,930
Accrued interest payable and
other liabilities 3,786 2,875
- -------------------------------------------------------- -------------
Total liabilities 241,773 191,084
- -------------------------------------------------------- -------------
Shareholders' equity 27,712 24,569
======================================================== =============
Total $269,485 $215,653
========================================================----------- =============--------------
Net interest income and margin (6) $12,237 6.62% $10,715 7.31%
============================================ ====================== ==========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $740 for 1996, and $827 for 1995. Nonperforming
loans have been included in average loan balances.
(3) Includes dividend income of $23 received in 1996 and $22 in 1995.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory rate ($69 in 1996 and $58 in 1995).
(5) Includes dividend income of $160 and $177 received in 1996 and 1995.
(6) The net interest margin represents the fully taxable equivalent net interest income as a percentage of average
earning assets
</FN>
</TABLE>
<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 and nine months ended
September 30, 1996 and 1995.
<TABLE>
<CAPTION>
VOLUME/RATE ANALYSIS
(dollars in thousands)
Quarter ended Sept. 30, 1996 vs. Nine months ended Sept. 30, 1996 vs.
Quarter ended Sept. 30, 1995 Nine months ended Sept. 30, 1995
-----------------------------------------------------------------------------
Increase (decrease) due to change in
- -----------------------------------------------------------------------------------------------------------------
Average Average Total Average Average Total
Volume Rate Change Volume Rate Change
- -----------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1) $887 $(191) $696 $2,822 $(987) $1,835
Securities:
Taxable 4 10 14 12 22 34
Nontaxable (1) (1) (2) 22 6 28
Available for sale 134 23 157 925 31 956
Money market investments (70) (5) (75) (69) (18) (87)
- -----------------------------------------------------------------------------------------------------------------
Total interest income 954 (164) 790 3,712 (946) 2,766
- -----------------------------------------------------------------------------------------------------------------
Interest expense:
Interest checking 109 (119) (10) 313 (298) 15
Money market and savings 84 19 103 226 (42) 184
Certificates of deposits:
Less than $100 (8) (1) (9) (38) 34 (4)
$100 or greater 55 (60) (5) 268 44 312
Other short-term borrowings 57 (10) 47 835 (64) 771
- -----------------------------------------------------------------------------------------------------------------
Total interest expense 297 (171) 126 1,604 (326) 1,278
- -----------------------------------------------------------------------------------------------------------------
Interest rate hedging instruments ---- ---- ---- ---- 34 34
- -----------------------------------------------------------------------------------------------------------------
Change in net interest income $657 $7 $664 $2,108 $(586) $1,522
=================================================================================================================
<FN>
(1) The effect of the change in loan fees is included as an adjustment to the
average rate.
</FN>
</TABLE>
Provision for Possible Loan Losses
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 $50 and $100 were made to the allowance for possible loan losses for the
third quarter and nine months ended September 30, 1996, respectively, as
compared to $180 and $890 for the third quarter and nine months ended September
30, 1995 respectively. Management's determinations of the provision in 1996 and
1995 were based on an analysis of the possibility of future loan losses through
various objective and subjective criteria and the impact of net charge-offs. The
causes for the decrease in 1996 were due to the improved credit quality of the
Bank's loan portfolio, the reduction in the amount of the net charge-offs and
other criteria deemed relevant by management. Please refer to the section
regarding the "Loan Portfolio" for a detailed discussion of loan quality and the
allowance for possible loan losses.
<PAGE>
Other Income
<TABLE>
<CAPTION>
The following table sets forth the components of other income and the percentage
distribution of such income for the quarters and nine months ended September 30,
1996 and 1995.
OTHER INCOME
(dollars in thousands)
Quarter ended September 30, Nine months ended September 30,
---------------------------------------------------------------------------------------
1996 1995 1996 1995
Amount Percent Amount Percent Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depositor service charges $149 81.87% $140 50.36% $421 68.46% $426 59.17%
Other operating income 100 54.94 138 49.64 340 55.28 337 46.81
Net loss on securities
available for sale (67) (36.81) ----- ----- (146) (23.74) (43) (5.98)
- ---------------------------------------------------------------------------------------------------------------------
Total $182 100.00% $278 100.00% $615 100.00% $720 100.00%
=====================================================================================================================
</TABLE>
Other income decreased from $278 for the quarter ended September 30, 1995 to
$182 for the comparable quarter in 1996. The primary reason for the decrease is
related to the realized loss on the sale of securities available for sale of $67
for the third quarter of 1996 and a decrease in wire transfer and SBA loan
servicing fees. Other income decreased from $720 for the nine months ended
September 30, 1995 to $615 for the comparable period in 1996. The major factors
were the difference in the net realized loss on securities available for sale, a
write off of unused assets of $62 in 1995 and a reduction in wire transfer and
SBA loan servicing fees.
Other Expenses
The following schedule summarizes the major categories of expense as a
percentage of average assets on an annualized basis:
<TABLE>
<CAPTION>
OTHER EXPENSES AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands)
Quarter ended September 30, Nine months ended September 30,
1996 1995 1996 1995
Amount Percent* Amount Percent* Amount Percent* Amount Percent*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $1,388 2.03% $1,091 1.84% $4,139 2.05% $3,212 1.99%
Data processing 164 .24 119 .20 425 .21 343 .21
Amortization of core deposit
intangibles and goodwill 125 .19 140 .24 375 .19 420 .26
Legal and professional fees 81 .12 126 .21 300 .15 359 .22
Furniture and equipment 93 .14 76 .13 272 .13 253 .15
Business promotion 76 .11 70 .12 262 .13 236 .15
Occupancy 85 .12 101 .17 243 .12 307 .19
Advertising 65 .09 46 .08 184 .09 138 .09
Client services paid by bank 68 .10 61 .10 179 .09 186 .11
Directors' fees and costs 52 .08 60 .10 165 .08 182 .11
Stationery and supplies 49 .07 49 .08 136 .07 130 .08
Loan and collection 17 .02 91 .15 133 .07 163 .10
Regulators assessments 19 .03 4 .01 54 .03 248 .15
Net cost of foreclosed property (3) --- 56 .09 (50) (.02) 43 .03
Other 144 .21 135 .23 419 .21 387 .24
- ---------------------------------------------------------------------------------------------------------------------
Total $2,423 3.54% $2,225 3.75% $7,236 3.58% $6,607 4.08%
=====================================================================================================================
<FN>
* The percentages are calculated by annualizing the quarterly or year to date
expenses, and comparing that amount to average assets for the respective periods
ended September 30, 1996 and 1995.
</FN>
</TABLE>
<PAGE>
Total other expenses for the third quarter of 1996 increased $198 from the same
period a year ago. The increase relates primarily to an increase in the salaries
and benefits relating to the acquisition of a factoring company as of January 2,
1996, plus an increase due to volume increases and profitability related
incentive payments to employees. In addition data processing expenses increased
$45 mainly due to the Bank's increased volume and increased investment in
technology. These increases were offset by decreases in legal and professional
fees, occupancy, amortization of intangibles and loan and collection costs.
Total other expenses for the nine months ended September 30, 1996 increased $629
from the same period a year ago. The increase relates primarily to increases in
salaries and benefits relating to factoring and volume and incentive payments
discussed above; plus volume related increases in advertising and business
promotion and data processing. These increases were offset by decreases in
occupancy (due to the impact of subletting certain bank facilities), a decrease
in FDIC premiums on insured deposits, a decrease in the amortization of
intangibles, and an increase in the recoveries on other real estate owned.
Income Tax Provision
The Company accounts for income taxes using the asset and liability method.
Under this 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 42% and 43% for the three and nine months ended
September 30, 1996, respectively, is affected by several items, the most
significant of which are the amortization of the intangibles, tax exempt income
and the California Franchise Tax Enterprise Tax Zone Credit. The effective tax
rate for the year ended December 31, 1995 was 44%. The reduction in the rate is
mainly due to the decline in amortization of the intangibles.
Financial Condition and Earning Assets
Consolidated assets increased to $288 million at September 30, 1996 compared to
$252 million at December 31, 1995. The increase consisted primarily of
securities available for sale and loans and was funded by an increase in the
Bank's core interest-bearing deposits and an increase in certificates of deposit
greater than $100. See "Funding."
Money Market Investments
Money market investments, which include federal funds sold were $1.5 million at
September 30, 1996 as compared to $3.2 million at December 31, 1995.
Securities
The following table shows the composition of the securities portfolio at
September 30, 1996 and December 31, 1995. 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.
<PAGE>
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO
(dollars in thousands)
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gain (Loss) Value Cost Gain (Loss) Value
- --------------------------------------------------------------------------------------------------------------
Securities held to maturity:
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury $1,971 $19 $1,990 $4,265 $28 $4,293
U. S. Government Agencies 7,454 25 7,479 4,976 76 5,052
State and municipal (nontaxable) 2,903 8 2,911 3,060 24 3,084
Mortgage backed 2,469 40 2,509 2,428 116 2,544
Federal Reserve Bank Stock 519 ---- 519 519 ---- 519
- ---------------------------------------------------------------------------------------------------------------
Securities held to maturity 15,316 92 15,408 15,248 244 15,492
- ---------------------------------------------------------------------------------------------------------------
Securities available for sale:
U. S. Treasury 3,998 21 4,019 3,998 59 4,057
U. S. Government Agencies 42,107 60 42,167 34,129 449 34,578
Mortgage backed 5,932 (28) 5,904 9 ---- 9
Mutual funds 4,032 (158) 3,874 4,018 (120) 3,898
- ---------------------------------------------------------------------------------------------------------------
Securities available for sale 56,069 (105) 55,964 42,154 388 42,542
- ---------------------------------------------------------------------------------------------------------------
Total $71,385 $(13) $71,372 $57,402 $632 $58,034
===============================================================================================================
Securities held to maturity include those securities as to which the Company 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 as a matter of policy 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
generally acquire "A" rated or better state and municipal securities.
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 present intent to maintain at least 50% of its total investment
securities portfolio in U.S. Treasury and U.S. Government Agencies securities.
Unrealized gains on securities held to maturity were $92 as of September 30,
1996 as compared to an unrealized gain of $244 as of December 31, 1995.
Unrealized gains result from the impact of current market rates being less than
those rates at the time in which the Bank purchased the securities. The decline
in the unrealized gains from December 31, 1995 is a result of an increase in
interest rates during the nine months ended September 30, 1996. The Bank's
weighted average maturity of the held to maturity investment portfolio was
approximately 2.05 years as of September 30, 1996. It is estimated by management
that for each 1% change in interest rates, the value of the Company's securities
held to maturity will change by approximately 1.88%. This volatility decreases
as the average maturity shortens. It is the intention of management to hold
these securities to maturity, and therefore, any increase 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 of
September 30, 1996 was $105 as compared to an unrealized gain of $388 as of
December 31, 1995. The Bank's weighted average maturity of the available for
sale portfolio was approximately 1.43 years as of September 30, 1996. It is
estimated by management that for each 1% change in interest rates the value of
the Company's available for sale securities will change by 1.26%.
<PAGE>
A substantial portion of the large increase in the available for sale securities
consists of $6 million of mortgage backed securities purchased as part of a
hedge transaction. The mortgage backed securities have fixed rates with fixed
maturities of no later than September 2001, and the purchases were financed by
$30 million in short term repurchase agreements maturing through December 1996.
See "Asset and Liability Management."
Mortgage backed securities are considered to have increased risks associated
with them because of the timing of principal repayments. At September 30, 1996,
the Bank had the following securities which were mortgage-backed related
securities:
Historical Fair
(dollars in thousands) Cost Value
----------------------------------------- ------------ -----------
Federal Home Loan Mortgage Corp.
(U.S. Agency) $6,178 $6,175
Federal National Mortgage Association
(U.S. Agency) 2,221 2,231
Federated ARMs Funds * 1,686 1,637
Overland Variable Rate
Government Fund* 1,263 1,174
----------------------------------------- ------------ -----------
* The assets of these mutual funds are invested mainly in adjustable rate U. S.
Treasury or Agency securities.
Interest income earned on the securities portfolio for the quarters and nine
months ended September 30, 1996 and 1995 are as follows:
INTEREST AND DIVIDEND INCOME ON INVESTMENT SECURITIES
(dollars in thousands) Quarter ended Nine months ended
September 30, September 30,
---------------------------------------------
1996 1995 1996 1995
- --------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury $35 $54 $135 $160
U.S. Government agencies 115 77 287 229
State and municipal (nontaxable) 32 33 104 87
Mortgage backed 51 56 155 155
Federal Reserve Bank Stock 8 8 23 22
Securities available for sale:
U.S. Treasury 70 69 208 348
U. S. Government Agencies 534 481 1,565 678
Mortgage backed 108 (1) 224 (2)
Mutual funds 53 58 160 176
- --------------------------------------------------------------------------------
Interest and dividend income $1,006 $835 $2,861 $1,853
================================================================================
<PAGE>
Loan Portfolio
The following table provides a breakdown of the Company's consolidated loans by
type of loan or borrower:
LOAN PORTFOLIO
(dollars in thousands)
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Loans Amount Loans
- --------------------------------------------------------------------------------
Commercial $62,907 32.92% $48,121 28.17%
Real estate construction 16,199 8.48 14,488 8.48
Real estate-other 68,415 35.80 66,949 39.20
Consumer 9,186 4.81 8,800 5.15
Other 22,689 11.87 21,302 12.47
Unearned fee income (732) (.38) (793) (.46)
- --------------------------------------------------------------------------------
Loan portfolio 178,664 93.50% 158,867 93.01%
Loans available for sale 12,420 6.50 11,933 6.99
- --------------------------------------------------------------------------------
Total loans $191,084 100.00% $170,800 100.00%
================================================================================
Consolidated loans increased to $191 million at September 30, 1996 from $171
million at December 31, 1995. Management believes the increase in the loan
portfolio can be primarily attributed to the success of the Bank's business
development efforts in regards to commercial loans and improvement in the
economic environment in the Bank's market area which has created greater demand
for loans in general.
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." Although there
has been no sign of an employment slow down, the semiconductor industry
statistics measuring orders versus sales (book-to-bill ratio) showed some
weakness in the first and second quarters of 1996; recently there has been some
improvement in this ratio. This could suggest a possible slow down in the
semiconductor industry, which could negatively impact the economy Santa Clara
County as a whole. The Bank's loans are generally made on the basis of a secure
repayment source and collateral is generally a tertiary source for loan
qualification.
Approximately 57% of the loan portfolio is directly related to real estate or
real estate interests, including real estate construction loans, real
estate-other, real estate equity lines (2%) (included in the Consumer category),
mortgage warehouse line (.9%) and loans to real estate developers for short-term
investment purposes (3%) and loans for real estate investments purposes made to
non-developers (4%). The latter three types are included in the Other category.
Approximately 36% 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:
<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 attempts to mitigate 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 management determines it to be appropriate. Other reasons would
include the industry use of environmentally sensitive substances or the
proximity to other known 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, rising
interest rates 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.
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 by management based on consideration of:
o Economic conditions;
o Borrowers' financial condition;
o Loan impairment;
o Evaluation of industry trends;
o Industry and other concentrations;
o Loans which are contractually current as to payment terms but
demonstrate a higher degree of risk as identified by
management;
o Continuing evaluation of the performing loan portfolio;
o Monthly review and evaluation of problem loans identified as
having loss potential;
o Quarterly review by the Board of Directors; and,
o Off-balance sheet risks.
o Assessments by regulators and other third parties
<PAGE>
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 fiscal year-end financial statements are examined by independent
accountants. Additionally, the Company retains a consultant who performs credit
reviews on a quarterly basis. Also, examinations of the loan portfolio are
conducted periodically by the Federal banking regulators.
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. Loans secured by real estate are
evaluated on the basis of their underlying collateral in addition to using the
assigned loss ratios. The methodology also considers (and assigns a risk factor
for) current economic conditions, off-balance sheet risk (including SBA
guarantees and servicing and letters of credit) and concentrations of credit. In
addition, each loan is evaluated on the basis of whether it is impaired and for
such loans, the expected cash flow is discounted on the basis of the loan's
interest rate. 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 objective, in addition to subjective measures, such as
knowledge of the borrowers' business, valuation of collateral and exposure to
potential losses. The allowance for possible loan losses was approximately $4.0
million at September 30, 1996, or 2.09% of total loans outstanding. Management
believes that the allowance for possible loan losses, determined as described
above, was adequate for foreseeable losses at September 30, 1996.
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.
There is uncertainty concerning future economic trends. Accordingly, it is not
possible to predict the effect future economic trends may have on the level of
the provision for possible loan losses in future periods.
The following schedule provides an analysis of the allowance for possible loan
losses:
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
Quarter ended Nine months ended Year ended
September 30, September 30, December 31,
------------------------------------------------------
1996 1995 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
Balance, beginning of the period $4,021 $3,604 $3,847 $3,311 $3,311
Charge-offs by loan category:
Commercial 155 ---- 205 230 233
Real estate-construction ---- ---- ---- 150 154
Real estate-other ---- 117 21 220 220
Consumer ---- 8 22 83 89
Other ---- ---- 93 ---- ----
- ------------------------------------------------------------------------------------------------------------------
Total charge-offs 155 125 341 683 696
- ------------------------------------------------------------------------------------------------------------------
Recoveries by loan category:
Commercial 75 2 248 36 42
Real estate-other 2 25 29 25 27
Consumer 5 ---- 65 6 16
Other ---- ---- ---- 101 102
- ------------------------------------------------------------------------------------------------------------------
Total recoveries 82 27 342 168 187
- ------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) 73 98 (1) 515 509
- ------------------------------------------------------------------------------------------------------------------
Provision charged to expense 50 180 100 890 1,045
Allowance relating to Astra Financial Corp. ---- ---- 50 ---- ----
- ------------------------------------------------------------------------------------------------------------------
Balance, end of the period $3,998 $3,686 $3,998 $3,686 $3,847
==================================================================================================================
Ratios:
Net charge-offs to average loans, annualized .16% .25% ---- .46% .33%
Allowance to total loans at the end of the period 2.09 2.24 2.09 2.24 2.25
Allowance to nonperforming loans at end of the period 650 400 650 400 430
==================================================================================================================
</TABLE>
During the three and nine months ended September 30, 1996, the Company charged
off $155 and $341 and recovered $83 and $342 on loans previously charged off,
respectively. This compares to $125 and $683 and $27 and $168, for the three and
nine months ended September 30, 1995, respectively. Management does not believe
there were any trends indicated by the detail of the aggregate charge-offs for
any of the periods discussed.
The allowance for possible loan losses was 650% of nonperforming loans at
September 30, 1996 compared to 430% at December 31, 1995. This increase relates
mainly to the reduction of nonperforming loans through collection efforts and
foreclosure.
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 September 30, 1996 and December 31, 1995:
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Percentage Percentage
Amount of of loans to Amount of of loans to
Allowance total loans Allowance total loans
- -------------------------------------------------------------------------------
Commercial $1,537 36.16% $1,193 30.86%
Real estate construction 221 8.48 176 8.45
Real estate-other 1,334 39.06 1,134 43.15
Consumer 150 4.81 169 5.13
Other 229 11.49 337 12.41
Unallocated 527 --- 838 ---
- --------------------------------------------------------------------------------
Total $3,998 100.00% $3,847 100.00%
================================================================================
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.
Nonperforming Loans
<TABLE>
<CAPTION>
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)
September 30, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans accounted for on a non-accrual basis $615 $866
Loans restructured and in compliance with modified terms 89 ----
Other loans with principal or interest contractually past
due 90 days or more ---- 28
- -----------------------------------------------------------------------------------------------------------
Total $704 $894
===========================================================================================================
</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 collectability of interest or principal or
when the payment of principal or interest is ninety days past due, unless the
loan is well-secured and in the process of collection.
As of September 30, 1996, the Company had approximately $704 of nonperforming
loans, consisting of seven loans, of which, $550 is secured by commercial or
residential real estate. At December 31, 1995, nonperforming loans totaled
approximately $894 consisting of four loans; of which two were secured by
commercial or residential real estate in the amount of $783.
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 September 30, 1996, management has identified
two borrowers with an aggregate loan balance of $536 (which is subject to
<PAGE>
collateral with a value of approximately $457) 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. Changes in general or local economic conditions or
specific industry segments, rising interest rates, declines in real estate
values and acts of nature could have an adverse effect on the ability of
borrowers to repay outstanding loans and the value of real estate and other
collateral securing such loans.
Other Real Estate Owned
At September 30, 1996 and December 31, 1995, the Bank had the following
properties which were acquired through the foreclosure process:
<TABLE>
<CAPTION>
OTHER REAL ESTATE OWNED
(dollars in thousands)
Carrying Value
Description of Property September 30, 1996 December 31, 1995
- ----------------------- ------------------ -----------------
<S> <C> <C>
Two vacant parcels, currently subject to a sewer moratorium $304 $304
SFR in Piedmont, CA ---- 225
Raw land, 11.7 acres in San Jose, CA ---- 135
---------------------------------------------
Total $304 $664
=============================================
</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. During the third quarter of 1996, the
11.7 acres of raw land was sold for a gain of $44. As of July 5, 1996, the SFR
in Piedmont was sold, which resulted in an insignificant gain. The Bank has
entered into a contract to sell the above vacant parcels for an insignificant
loss. The transaction is expected to close in December 1996.
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.
<PAGE>
As of September 30, 1996 and December 31, 1995, the Company had undisbursed loan
commitments to extend credit as follows:
UNDISBURSED LOAN COMMITMENTS
(dollars in thousands)
Loan Category September 30, 1996 December 31,1995
- --------------------------------------------------------------------------------
Commercial $34,319 $27,270
Real estate construction 14,296 13,267
Real estate-other 2,491 2,991
Consumer 5,372 5,633
Other 13,457 16,302
- --------------------------------------------------------------------------------
Total $69,935 $65,463
================================================================================
In addition there was approximately $3.2 million for commitments under unused
letters of credit at September 30, 1996.
Funding
The following table provides a breakdown of deposits by category as of the dates
indicated:
DEPOSIT CATEGORIES
(dollars in thousands)
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Deposits Amount Deposits
- --------------------------------------------------------------------------------
Noninterest-bearing demand $55,739 24.26% $52,775 26.83%
Interest-bearing demand 44,790 19.49 34,641 17.61
Money market and savings 60,882 26.50 51,201 26.03
Certificates of deposit:
Less than $100 14,957 6.51 14,730 7.49
$100 or more 53,387 23.24 43,345 22.04
- --------------------------------------------------------------------------------
Total $229,755 100.00% $196,692 100.00%
================================================================================
Deposits as of September 30, 1996, were $230 million compared to $197 million at
December 31, 1995. The increase in deposits relates to the growth in all areas
of the Bank's deposit products. The most significant growth occurred in the area
of interest-bearing core deposits which increased approximately $20 million.
Management believes this growth in interest-bearing core deposits has been due
to business development efforts of the Bank's business development officers and
higher interest rates. In addition certificates of deposit of greater than $100
increased approximately $10 million. These funds were generated in the Bank's
market area and are primarily associated with the Bank's core depositors.
The Bank raises a substantial amount of funds through certificates of deposits
of greater than $100. 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 cost of funds has been significantly less than its peer
group. However, these certificates of deposits are usually more interest rate
sensitive, and therefore at maturity their repricing could negatively impact the
Bank's net interest margin without a corresponding increase in rates earned on
its earning assets. See "Liquidity."
<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 major banks, mutual funds, community
banks and other financial intermediaries 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 generally 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.
To counter its asset sensitive interest rate position, the Bank entered into an
interest rate "floor" in the amount of $10 million which expires in May 1999.
The Bank has paid a fixed premium of $47 for which it will receive 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 this hedge on an accrual basis.
During 1995 and 1996, the Bank executed several transactions which are intended
to mitigate its exposure to a decline in general market interest rates. The
transactions involved the purchase of six U.S. Agency and mortgage backed
securities for an aggregate cost of $30 million which were financed through the
use of repurchase agreements. The repurchase agreements are shown as short-term
borrowings on the Company's balance sheet. The securities are fixed rate and
$7.1 million matures in November 1997, $10 million matures in May 1998, $7
million matures in July 1998, $1.4 million in November 2000, $2.3 million in
June 2001 and $2.2 million in September 2001. The repurchase agreements interest
rates range from 5.38% to 5.53% and mature through December 1996.
The following table quantifies the Company's interest rate exposure at September
30, 1996 based upon the known repricing dates of certain assets and liabilities
and the assumed repricing dates of others. Mortgage backed securities are
included in the repricing schedule based upon their market determined prepayment
speeds. At September 30, 1996, 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.
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF REPRICING OPPORTUNITIES
September 30, 1996
(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>
Money market investments $1,500 $1,500
Investment securities-taxable 1,034 $38 $1,084 $9,760 $497 12,413
Investment securities-non-taxable 445 0 250 1,602 606 2,903
Securities available for sale 14,963 3,069 2,200 31,852 3,880 55,964
Loans 164,371 1,904 3,145 13,614 8,049 191,083
- -------------------------------------------------------------------------------------------------------------------
Total earning assets 182,313 5,011 6,679 56,828 13,032 263,863
- -------------------------------------------------------------------------------------------------------------------
Interest checking, money market
and savings 105,673 ----- ----- ----- ----- 105,673
Certificates of deposit:
Less than $100 8,015 2,416 3,351 1,112 62 14,956
$100 or more 33,896 8,880 9,429 1,182 0 53,387
Repurchase agreements 22,756 0 0 0 0 22,756
Other borrowings 2,500 0 0 0 570 3,070
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 172,840 11,296 12,780 2,294 632 199,842
- -------------------------------------------------------------------------------------------------------------------
Interest rate gap $9,473 ($6,285) ($6,101) $54,534 $12,400 $64,021
===================================================================================================================
Cumulative interest rate gap $9,473 $3,188 ($2,913) $51,621 $64,021
=======================================================================================================
Interest rate gap ratio 1.05 0.44 0.52 24.77 20.62
=======================================================================================================
Cumulative interest rate gap ratio 1.05 1.02 0.99 1.26 1.32
=======================================================================================================
</TABLE>
The maturities and yields of the investment portfolio at September 30, 1996 are
shown below:
<TABLE>
<CAPTION>
MATURITY AND YIELDS OF INVESTMENT SECURITIES At September 30, 1996 (dollars in
thousands)
Maturity
-------------------------------------------------------------------------
After one year
Carrying Within one year within five years After ten years
Value Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
<S> <C> <C> <C>
U. S. Treasury $1,971 ---- ---- $1,971 6.71% ---- ----
U. S. Government Agencies 7,454 $2,000 5.25% 5,454 6.63 ---- ----
State and municipal 2,903 695 7.64 2,208 7.72 ---- ----
Mortgage backed 2,469 ---- ---- 2,469 7.90 ---- ----
Other 519 ---- ---- ---- ---- $519 6.00%
- ------------------------------------------------------- ------------ ------------
Total 15,316 2,695 12,102 519
- ------------------------------------------------------- ------------ ------------
Securities available for sale:
U. S. Treasury 4,019 3,015 7.18 1,004 6.42 ---- ----
U.S. Government Agencies 42,167 13,034 5.36 29,133 6.21 ---- ----
Mortgage backed 5,904 ---- ---- 5,896 6.55 8 0.00%
Mutual funds 3,874 3,874 5.38 ---- ---- ---- ----
- ------------------------------------------------------- ------------ ------------
Total 55,964 19,923 36,033 8
- ------------------------------------------------------- ------------ ------------
Total $71,280 $22,618 5.67% $48,135 6.48% $527 6.00%
========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table shows the maturity and interest rate sensitivity of
commercial, real estate-other and real estate construction loans at September
30, 1996. Approximately 82% 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.
COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE SENSITIVITY
(dollars in thousands)
Balances maturing Interest Rate Sensitivity
--------------------------------------------------------------
Predeter-
Balances at One mined Floating
September 30, One year year to Over interest interest
1996 or less five years five years rates rates
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $69,104 $42,148 $18,884 $8,072 $2,005 $67,099
==============================================================================================================
Real estate construction $16,199 $14,730 $1,469 ---- $4,320 $11,879
==============================================================================================================
Real estate-other $74,638 $8,885 $30,183 $35,570 $22,327 $52,311
==============================================================================================================
</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 $11.75 and $11.02 on September 30, 1996
and December 31, 1995, respectively. The increase reflects net income per share
of $1.19 less cash dividends per share of $.15, the impact of the change in the
unrealized gain (loss) of assets held for sale and exercise of stock options.
Shareholders' equity was $29.7 million and $26.7 million as of September 30,
1996 and December 31, 1995, 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 a bank holding company capital requirements are based upon the
composition of the Company's 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 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 also has adopted risk-based capital requirements. Similar to the
Federal Reserve's guidelines, the amount of capital the Comptroller requires a
bank to maintain is 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.
<PAGE>
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 September 30, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
Risk-based and Leverage Capital Ratios
(dollars in thousands)
Company September 30, 1996 December 31, 1995
- ------- -------------------------------------------------
Risk-based Amount Ratio Amount Ratio
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 capital $24,779 11.51% $21,589 11.34%
Tier 1 capital minimum requirement 8,608 4.00 7,617 4.00
--------------------------------------------------
Excess $16,172 7.51% $13,972 7.34%
==================================================
Total capital $27,486 12.77% $24,046 12.63%
Total capital minimum requirement 17,215 8.00 15,233 8.00
==================================================
Excess $10,270 4.77% $8,813 4.63%
==================================================
Risk-adjusted assets $215,194 $190,417
============= =============
Leverage
Tier 1 capital $24,779 9.12% $21,589 9.00%
Minimum leverage ratio requirement (1) 10,869 4.00 9,596 4.00
--------------------------------------------------
Excess $13,910 5.12% $11,993 5.00%
==================================================
Average total assets $271,736 $239,899
============= =============
Bank
Risk-based
Tier 1 capital $23,880 11.10% $20,819 10.94%
Tier 1 capital minimum requirement 8,605 4.00 7,614 4.00
--------------------------------------------------
Excess $15,275 7.10% $13,205 6.94%
--------------------------------------------------
Total capital $26,585 12.36% $23,275 12.23%
Total capital minimum requirement 17,209 8.00 15,228 8.00
---------------------------------------------------
Excess $9,376 4.36% $8,047 4.23%
==================================================
Risk-adjusted assets $215,117 $190,345
============= =============
Leverage
Tier 1 capital $23,880 8.80% $20,819 8.67%
Minimum leverage ratio requirement (1) 10,858 4.00 9,607 4.00
--------------------------------------------------
Excess $13,023 4.80% $11,212 4.67%
==================================================
Average total assets $271,439 $240,163
============= =============
<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. 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.
</FN>
</TABLE>
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan funding and deposit withdrawals in an 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
<PAGE>
referrals and employee business development efforts; however the Bank utilizes
purchased deposits to satisfy temporary liquidity needs.
The Bank's source of liquidity consists of its deposits with other banks,
overnight funds sold to correspondent banks, short-term securities held to
maturity and securities available for sale and loans held for sale, less
short-term borrowings. At September 30, 1996, consolidated net liquid assets
totaled $64 million or 22% of consolidated total assets as compared to $52
million or 21% of consolidated total assets on December 31, 1995. In addition to
the liquid asset portfolio, SJNB also has available $12 million in lines of
credit with five major commercial banks, a collateralized repurchase agreement
with a maximum limit of $40 million (of which approximately $25 million has been
utilized), a credit facility with the Federal Reserve Bank based on loans
secured by real estate for approximately $6 million.
SJNB is primarily a business and professional bank and, as such, its deposit
base may be more susceptible to economic fluctuations than other potential
competitors. 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 hinge upon, among other factors, market conditions,
interest rates and business' seasonality. Large certificates of deposit amounted
to 23% of total deposits on September 30, 1996 and 22% at December 31, 1995.
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 September
30, 1996, approximately 35% of total consolidated assets had maturities under
one year and 85% 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. There are no material
commitments for capital expenditures in 1996, except for the renovation of the
lower level of the Bank's primary facility at a cost of approximately $400 (of
which $92 has been expended to date.
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 the first nine months of 1996.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank is a party to any material pending legal
proceedings other than as previously disclosed. Material legal proceedings were
reported in the Form 10KSB for the year ended December 31, 1995, and Form 10QSB
for the three months ended March 31, 1996 and June 30, 1996.
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
The following exhibits are filed as part of this report:
(2) a. The Plan of Acquisition and Merger by and between SJNB Financial Corp.
and Business Bancorp (as amended) is hereby incorporated by reference to
Annex A filed with Registration Statement on Form S-4, Amendment No. 2
Commission File No. 33-79874, filed with the Securities and Exchange
Commission on August 3, 1994.
(2) b. The Stock Acquisition Agreement by and among San Jose National Bank,
Astra Financial Inc. and Thomas D. Griffin, dated November 17, 1995, and
related side letters dated December 14, are hereby incorporated by
reference to Exhibit (2) b. of the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995.
(3) a. The Certificate of Amendment to Articles of Incorporation filed June 17,
1988 and restated Articles of Incorporation are hereby incorporated by
reference to Exhibit (3) b. of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988.
(3) b. Amendments to the Registrant's bylaws dated February 28, 1996 and the
Registrant's restated bylaws as of February 28, 1996 are hereby
incorporated by reference to Exhibit (3) b. of the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 1996.
<PAGE>
*(10)a. The Registrant's Stock Option Plan is hereby incorporated by reference
from Exhibit 4.1 of the Registrant's Registration Statement on Form S-8, as
filed on October 4, 1989 and amended January 24,1992 under Registration No.
33-31392.
*(10)b. The form of Incentive Stock Option Agreement being utilized under the
Stock Option Plan is hereby incorporated by reference from Exhibit 4.2 of
Amendment No. 1 to the Registrant's Registration Statement on Form S-8, as
filed on January 24, 1992, under Registration No. 33-31392.
*(10)c. The form of Stock Option Agreement being utilized under the Stock
Option Plan is hereby incorporated by reference from Exhibit 4.3 of
Amendment No. 1 to the Registrant's Registration Statement on Form S-8, as
filed on January 24, 1992, under Registration No. 33-31392.
*(10)d. Amendment No. 3 to the Stock Option Plan is hereby incorporated by
reference from Exhibit 4.4 of Amendment No. 1 to the Registrant's
Registration Statement on Form S-8, as filed on January 24, 1992, under
Registration No. 33-31392.
*(10)e. Amendment No. 4 to the Stock Option Plan is hereby incorporated by
reference from Exhibit 4.5 of Amendment No. 2 to the Registrant's
Registration Statement on Form S-8, as filed on June 22, 1992, under
Registration No. 33-31392.
*(10)f. The Registrant's 1992 Employee Stock Option Plan is hereby incorporated
by reference from Exhibit 4.1 of the Registrant's Registration Statement on
Form S-8, as filed on September 4, 1992, under Registration No. 33-51740.
*(10)g. Amendment No. 1 to the 1992 Employee Stock Option Plan is hereby
incorporated by reference to Exhibit (10) f. of the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 1995.
*(10)h. The form of Incentive Stock Option Agreement being utilized under the
1992 Employee Stock Option Plan is hereby incorporated by reference from
Exhibit 4.2 of the Registrant's Registration Statement on Form S-8, as
filed on September 4, 1992, under Registration No. 33-51740.
*(10)i. The form of Stock Option Agreement being utilized under the 1992
Employee Stock Option Plan is hereby incorporated by reference from Exhibit
4.3 of the Registrant's Registration Statement on Form S-8, as filed on
September 4, 1992, under Registration No. 33-51740.
*(10)j. The Registrant's 1992 Director Stock Option Plan is hereby incorporated
by reference from Exhibit (10) i. of the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1992.
*(10)k. Amendment No. 1 to the 1992 Director Stock Option Plan is hereby
incorporated by reference to Exhibit (10) i. of the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 1995.
*(10)l. The form of Stock Option Agreement being utilized under the 1992
Director Stock Option Plan is hereby incorporated by reference from Exhibit
(10) j. of the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992.
*(10)m. The Registrant's 1996 Stock Option Plan is incorporated by reference to
exhibit 99.1 of the Registrant's Form S-8 filed July 30, 1996.
*(10)n. Agreement between James R. Kenny and SJNB Financial Corp. and San Jose
National Bank dated March 27, 1996 is hereby incorporated by reference to
Exhibit (10) m. of the Registrant's Quarterly Form 10-QSB for the quarterly
period ended March 31, 1996.
*(10)o. Agreement between Eugene E. Blakeslee and SJNB Financial Corp. and San
Jose National Bank dated March 27, 1996 is hereby incorporated by reference
to Exhibit (10) n. of the Registrant's Quarterly Form 10-QSB for the
quarterly period ended March 31, 1996.
(10) p. Systems Management Services Agreement by and between Systematics, Inc.
and San Jose National Bank dated March 1, 1990, and amendments dated April
5, 1990, July 10, 1990 and January 27, 1992 are hereby incorporated by
reference from Exhibit (10) g. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991.
(10) q. Agreement for Item Processing Services by and between Datatronix
Financial Services and San Jose National Bank dated April 13, 1992 is
hereby incorporated by reference from Exhibit (10) m. of the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992.
(10) r. Sublease dated April 5, 1982, for premises at 95 South Market Street,
San Jose, CA is hereby incorporated by reference to Exhibit (10) n. of the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994.
(10) s. Sublease by and between McWhorter's Stationary and San Jose National
Bank, dated July 6, 1995, and as amended August 11, 1995 and September 21,
1995, for premises at 95 South Market Street, San Jose CA is hereby
incorporated by reference to Exhibit (10) o. of the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended September 30, 1995.
(10) t. Sublease by and between Greater Unified Management Businesses, Inc.
(d.b.a. as Logistics) and SJNB Financial Corp., dated January 15, 1996, and
as amended March 19, 1996, for premises at 95 South Market Street, San Jose
CA is hereby incorporated by reference to Exhibit (10) s. of the
Registrant's Quarterly Form 10-QSB for the quarterly period ended March 31,
1996.
(27) Financial Data Schedule.
* Indicates management contract or compensation plan or arrangement.
<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: November 12, 1996 S/J. Kenny
James R. Kenny
President and
Chief Executive Officer
Date: November 12, 1996 S/E. Blakeslee
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000721161
<NAME> SJNB FINANCIAL CORP.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jul-01-1996
<PERIOD-END> Sep-30-1996
<EXCHANGE-RATE> 1
<CASH> 16,568
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,964
<INVESTMENTS-CARRYING> 15,316
<INVESTMENTS-MARKET> 15,408
<LOANS> 191,084
<ALLOWANCE> 3,998
<TOTAL-ASSETS> 288,182
<DEPOSITS> 229,755
<SHORT-TERM> 25,256
<LIABILITIES-OTHER> 3,500
<LONG-TERM> 0
<COMMON> 20,170
0
0
<OTHER-SE> 9,501
<TOTAL-LIABILITIES-AND-EQUITY> 288,182
<INTEREST-LOAN> 5,220
<INTEREST-INVEST> 1,044
<INTEREST-OTHER> (2)
<INTEREST-TOTAL> 6,262
<INTEREST-DEPOSIT> 1,688
<INTEREST-EXPENSE> 2,034
<INTEREST-INCOME-NET> 4,228
<LOAN-LOSSES> 50
<SECURITIES-GAINS> (67)
<EXPENSE-OTHER> 2,423
<INCOME-PRETAX> 1,937
<INCOME-PRE-EXTRAORDINARY> 1,937
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,120
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> .066
<LOANS-NON> 615
<LOANS-PAST> 0
<LOANS-TROUBLED> 89
<LOANS-PROBLEM> 536
<ALLOWANCE-OPEN> 4,021
<CHARGE-OFFS> 155
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 3,998
<ALLOWANCE-DOMESTIC> 3,471
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 527
</TABLE>
