<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 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 offices) (Zip Code)
(408) 947-7562
(Issuer's telephone number, including area code)
Not Applicable
(Former name, 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:
2,441,175 shares of common stock outstanding as of April 30, 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 Stmnts 6
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 7-26
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 27
Item 2. CHANGES IN SECURITIES 27
Item 3. DEFAULTS UPON SENIOR SECURITIES 27
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
Item 5. OTHER INFORMATION 27
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 27-29
SIGNATURES 30
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(dollars in thousands)
(Unaudited)
March 31, December 31,
Assets 1996 1995
- --------------------------------------------------------------------------------
Cash and due from banks $13,941 $12,574
Money market investments 2,000 3,200
Investment securities:
Held to maturity (Market value: $15,375 at 3/31/96
and $15,492 at December 31, 1995) 15,264 15,248
Available for sale 48,190 42,542
- --------------------------------------------------------------------------------
Total investment securities 63,454 57,790
- --------------------------------------------------------------------------------
Loans 166,942 158,867
Loans available for sale 12,612 11,933
Allowance for possible loan losses (3,859) (3,847)
- --------------------------------------------------------------------------------
Loans, net 175,695 166,953
- --------------------------------------------------------------------------------
Premises and equipment, net 3,527 3,494
Other real estate owned 664 664
Accrued interest receivable and other assets 3,038 2,764
Intangibles, net of accumulated amortization of $860 at
March 31, 1996 and $735 at December 31, 1995 5,039 4,756
- --------------------------------------------------------------------------------
Total $267,358 $252,195
================================================================================
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $50,547 $52,775
Interest-bearing 153,190 143,917
- --------------------------------------------------------------------------------
Total deposits 203,737 196,692
- --------------------------------------------------------------------------------
Other short-term borrowings 31,567 24,000
Accrued interest payable and other liabilities 5,025 4,845
- --------------------------------------------------------------------------------
Total liabilities 240,329 225,537
- --------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value; authorized, 20,000 shares;
issued and outstanding, 2,434 shares at 3/31/96
and 2,418 shares at December 31, 1995 19,711 19,627
Retained earnings 7,392 6,798
Net unrealized gain (loss) on securities available (74) 233
for sale
- --------------------------------------------------------------------------------
Total shareholders' equity 27,029 26,658
- --------------------------------------------------------------------------------
Commitments and contingencies ---- ----
- --------------------------------------------------------------------------------
Total $267,358 $252,195
================================================================================
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
Quarter ended
March 31,
--------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $4,914 $4,161
Interest on investment securities held to maturity 226 224
Interest and dividends on investment securities available for sale 682 230
Interest on money market investments 30 31
Other interest and investment income (2) (18)
- ----------------------------------------------------------------------------------------------------
Total interest income 5,850 4,628
- ----------------------------------------------------------------------------------------------------
Interest expense:
Interest expense on interest-bearing deposits:
Certificates of deposit over $100 621 415
Other 1,308 891
- ----------------------------------------------------------------------------------------------------
Total interest expense 1,929 1,306
- ----------------------------------------------------------------------------------------------------
Net interest income 3,921 3,322
- ----------------------------------------------------------------------------------------------------
Provision for possible loan losses 20 210
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 3,901 3,112
- ----------------------------------------------------------------------------------------------------
Other income:
Service charges on deposits 133 131
Other operating income 127 131
Net loss on securities available for sale ---- (6)
Total other income 260 256
- ----------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 1,402 1,075
Occupancy 171 207
Other 900 904
- ----------------------------------------------------------------------------------------------------
Total other expenses 2,473 2,186
- ----------------------------------------------------------------------------------------------------
Income before income taxes 1,688 1,182
Income taxes 729 531
- ----------------------------------------------------------------------------------------------------
Net income $959 $651
====================================================================================================
Net income per share $0.37 $0.27
====================================================================================================
Weighted average number of shares outstanding 2,578 2,430
====================================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Quarter ended
March 31,
----------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $959 $651
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 20 210
Depreciation and amortization 118 104
Amortization on intangibles 125 140
Net loss on securities available for sale ---- 6
Net gain on sale of other real estate owned ---- 10
Increase in loans available for sale, net (678) (2,012)
Amortization of premium on investment securities, net (2) (51)
(Increase) decrease in accrued interest receivable and other assets (1,172) 897
Increase (decrease) in accrued interest payable and other liabilities (193) 475
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (823) 430
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of securities available for sale 1,079 4,202
Maturities of securities held to maturity ---- 145
Purchase of securities available for sale (7,251) (3,998)
Purchase of securities held to maturity ---- (809)
Cash and equivalents used to acquire Astra Financial Corp. (650) ----
Loans, net (6,367) 10,110
Capital expenditures (151) (461)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (13,340) 9,189
- --------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Deposits, net 7,045 (4,876)
Other short-term borrowings 7,567 9,000
Cash dividends (365) ----
Proceeds from stock options exercised 83 43
- --------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 14,330 4,167
- --------------------------------------------------------------------------------------------------------------
Net increase in cash and equivalents 167 13,786
Cash and equivalents at beginning of year 15,774 14,591
- -------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $15,941 $28,377
==============================================================================================================
Other cash flow information:
Interest paid $4,398 $1,266
============================
Income taxes paid $965 ----
==============================================================================================================
Noncash transactions:
Transfer of loans to other real estate owned ---- $256
Unrealized gain (loss) on securities available for sale, net of tax $(307) 128
<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 Acquisition of Astra Financial Services
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 estimated purchase price of Astra is approximately $760 including
a covenant not to compete and compensation to the sole owner of
Astra. The purchase price is contingent and may be increased based
upon the first year's performance not to exceed a total of $1.2
million. The acquisition was accounted for as a purchase
transaction and closed on January 2, 1996.
Note C Net Deferred Tax Asset
As of March 31, 1996 the net deferred tax asset was approximately
$376 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 D 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
March 31,
------------------------------
1996 1995
------------------------------
Weighted average number of shares
outstanding during the period 2,426 2,362
Common stock equivalents 152 68
==============================
Total 2,578 2,430
==============================
In October 1995, the Financial Accounting Standard Board (FASB)
issued a Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation." SFAS No. 123
permits a company to choose either a new fair value based method of
accounting for its stock-based compensation (stock options) or the
current Accounting Principles Board Opinion 25 (APB 25) intrinsic
value based method of accounting for its stock-based compensation.
SFAS No. 123 requires pro forma disclosures of net income and
earnings per share computed as if the fair value based method had
been applied in financial statements of companies that continue to
follow current practice in accounting for such arrangements under APB
25. The Company has elected to continue to use current practice under
APB 25, but is unable to determine the impact of the required
disclosures as it is still reviewing the requirements of SFAS No.
123.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SJNB Financial Corp. (the "Company") is the holding company for San Jose
National Bank ("SJNB" and the "Bank"), San Jose, California. This discussion
focuses primarily on the results of operations of the Company on a consolidated
basis for the three months ended March 31, 1996 and the liquidity and financial
condition of the Company and SJNB as of March 31, 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.
The following presents selected financial data and ratios as of and for the
three months ended March 31, 1996 and 1995:
Summary of Financial Results
The Company reported net income of $959 or $.37 per share for the quarter ended
March 31, 1996, compared with net income of $651 or $.27 per share for the first
quarter of 1995. The improvement in earnings is due primarily to additional
volume growth and a reduction in the loan loss provisions.
Net Interest Income
Net interest income for the quarter ended March 31, 1996 increased $599 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 $57 million, primarily as the result of the addition of $30
million of on-balance-sheet hedge instruments (average of $27 million for the
first quarter 1996 versus none in 1995) and significant growth in the Bank's
loan portfolio. See the discussion in the sections "Loan Portfolio" and
"Asset/Liability Management" below.
The Bank's net interest margin decreased from 7.51% in the first quarter of 1995
to 6.69% in the first quarter of 1996. This decrease is mainly due to the
collection of a loan and the recovery of interest income of approximately $94 in
1995 and none in 1996. Net interest margin in 1995 without this recovery would
be 7.30% as compared to the 6.69% in 1996. Offsetting the impact of the interest
recovery in 1995 is the impact of factoring. During the first quarter of 1995
factoring represented 1.7% of the average loans outstanding, while in the same
period in 1996, factoring accounted for 2.6%. As factoring yields are
significantly greater than other loan products, the impact is to increase the
net interest margin.
The competitive environment within the Bank's marketplace has become more
aggressive and the competition among banks for both loan and deposit growth has
caused more competitive pricing. To the extent that such competitive pricing
continues, the Bank's net interest margins could continue to decline. See
"Loans" and "Funding".
A substantial portion (25% for the three months ended March 31, 1996 and 25% for
the three month period ended March 31, 1995) 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, an increase in interest rates should
positively affect the Company's net interest income. Conversely stable or
declining rates will have an adverse impact on net interest income. 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 collectibility of interest or principal or
when the payment of principal or interest is ninety days past due, unless the
amount is well-secured and in the process of collection. For these loans,
interest is recorded when payment is received. See "Nonperforming Loans."
The effect of nonaccrual of interest income based on loans classified as
nonaccrual at March 31, 1996 and 1995, is set forth in the following table:
IMPACT OF NONACCRUAL LOANS
(dollars in thousands) Quarter ended
March 31,
-----------------------
1996 1995
- --------------------------------------------------------------------------------
Interest revenue which would have been
recorded under original terms $6 $119
Interest revenue actually realized (reversed) 2 (98)
- --------------------------------------------------------------------------------
Negative impact on interest revenue $8 $21
================================================================================
This table does not reflect the cash basis interest received on several
significant loan collections, as such loans were not classified as nonaccrual as
of March 31, 1996 and 1995. When interest payments are received on a loan that
has been on nonaccrual, those interest payments are included in interest income
in the period the payments are received. See the above discussion regarding the
collection of such income and its impact on net interest income for the first
quarter of 1995.
The following table shows the composition of average earning assets and average
funding sources, average yields and rates and the net interest margin, on an
annualized basis, for the three months ended March 31, 1996 and 1995.
SELECTED FINANCIAL DATA AND RATIOS
- --------------------------------------------------------------------------------
For the quarters
ended March 31,
--------------------------
SELECTED ANNUALIZED OPERATING RATIOS: 1996 1995
- --------------------------------------------------------------------------------
Return on average equity 14.42% 11.04%
Return on average tangible equity 20.13 16.85
Return on average assets 1.50 1.32
Net chargeoffs to average loans .13 .31
Average equity to average assets 10.37 11.97
Average tangible equity to average tangible assets 8.56 9.77
================================================================================
At March 31,
PER SHARE DATA: 1996 1995
- --------------------------------------------------------------------------------
Shareholders' equity per share $11.10 $10.23
Tangible equity per share $9.03 $8.19
SELECTED FINANCIAL POSITION RATIOS:
- --------------------------------------------------------------------------------
Leverage capital ratio 8.68% 9.98%
Nonperforming loans to total loans .27 3.13
Nonperforming assets to total assets .43 2.76
Allowance for possible loan losses to total loans 2.15 2.41
Allowance for possible loan losses
to nonperforming loans 802.16 76.94
Allowance for possible loan losses
to nonperforming assets 336.98 58.37
================================================================================
<PAGE>
<TABLE>
AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands)
Quarter ended March 31,
---------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Assets Balance Interest Yield (1) Balance Interest Yield (1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net (2) $173,495 $4,914 11.39% $145,639 $4,161 11.59%
Securities held to maturity:
Taxable (3) 12,195 190 6.27 12,069 206 6.92
Nontaxable (4) 3,059 50 6.63 2,149 34 6.44
Securities available for sale (5) 45,480 682 6.03 17,483 230 5.34
Money market investments 2,373 30 5.08 2,469 31 5.10
Interest rate hedging instruments ---- (2) ---- ---- (25) ----
- -------------------------------------------------------------------------- --------------------------
Total interest-earning assets 236,602 5,864 9.97 179,809 4,637 10.46
- -------------------------------------------------------------------------- --------------------------
Allowance for possible loan losses (3,965) (3,408)
Cash and due from banks 13,785 10,861
Bank premises and equipment, net 3,540 3,165
Other real estate owned 664 1,310
Accrued interest receivable and
other assets 2,357 3,097
Core deposit intangibles and
goodwill, net 5,099 4,870
- -------------------------------------------------------------- -------------
Total $258,082 $199,704
============================================================== =============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $37,330 261 2.81 $28,739 240 3.38
Money market and savings 53,092 406 3.08 48,896 414 3.43
Certificates of deposit:
Less than $100 14,273 195 5.49 15,770 184 4.73
$100 or more 43,414 621 5.75 33,385 415 5.04
- -------------------------------------------------------------------------- --------------------------
Total certificates of deposits 57,687 816 5.69 49,155 599 4.94
- -------------------------------------------------------------------------- --------------------------
Other borrowings 30,403 446 5.90 3,389 54 6.45
- -------------------------------------------------------------------------- --------------------------
Total interest-bearing liabilities 178,512 1,929 4.35 130,179 1,307 4.07
- -------------------------------------------------------------------------- --------------------------
Noninterest-bearing demand 48,457 43,111
Accrued interest payable and
other liabilities 4,355 2,509
- -------------------------------------------------------------- -------------
Total liabilities 231,324 175,799
- -------------------------------------------------------------- -------------
Shareholders' equity 26,758 23,905
- -------------------------------------------------------------- =============
Total $258,082 $199,704
==============================================================------------ =============-------------
Net interest income and margin (6) $3,935 6.69% $3,330 7.51%
================================================= ======================== =========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $240 for 1996, and $284 for 1995. Nonperforming
loans have been included in average loan balances.
(3) Includes dividend income of $8 received in 1996 and $7 in 1995.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory rate ($14 in 1996
and $9 in 1995).
(5) Includes dividend income of $54 and $59 received in 1996 and 1995.
(6) The net interest margin represents the fully taxable equivalent net interest income as a percentage
</FN>
</TABLE>
Interest margin is affected by changes in volume, changes in rates, and a
combination of changes in volume and rates. Volume changes are caused by
differences in the level of earning assets, deposits and borrowings. Rate
changes result in differences in yields earned on assets and rates paid on
liabilities. Changes not solely attributable to volume or rates are allocated to
volume and rate in proportion to the relationship to the absolute dollar amounts
of changes in each. The following table shows the effect on the interest
differential of volume and rate changes for the quarters ended March 31, 1996
and 1995.
<PAGE>
VOLUME/RATE ANALYSIS
(dollars in thousands)
Quarter ended March 31, 1996 vs.
Quarter ended March 31, 1995
- --------------------------------------------------------------------------------
Increase (decrease)
due to change in
- --------------------------------------------------------------------------------
Average Average Total
Volume Rate Change
- --------------------------------------------------------------------------------
Interest income:
Loans (1) $843 $(90) $753
Securities:
Taxable 2 (18) (16)
Nontaxable 15 1 16
Available for sale 373 79 452
Money market investments (1) (1)
- --------------------------------------------------------------------------------
Total interest income 1,232 (28) 1,204
- --------------------------------------------------------------------------------
Interest expense
Interest checking 78 (57) 21
Money market and savings 27 (35) (8)
Certificates of deposits:
Less than $100 (20) 31 11
$100 or greater 128 78 206
Other short-term borrowings 434 (42) 392
- --------------------------------------------------------------------------------
Total interest expense 647 (25) 622
- --------------------------------------------------------------------------------
Interest rate hedging instruments ---- 23 23
- --------------------------------------------------------------------------------
Change in net interest income $585 $20 $605
================================================================================
(1) The effect of the change in loan fees is included as an adjustment to the
average rate.
Provision for Possible Loan Losses
The level of the allowance for possible loan losses and therefore the related
provision reflect the Company's judgment as to the inherent risks associated
with the loan and lease portfolios. Based on management's evaluation of such
risks, additions of $20 and $210 were made to the allowance for possible loan
losses for the quarters ended March 31, 1996 and 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 primary cause for the
decrease in the first quarter of 1996 was due to the improved credit quality of
the Bank's loan portfolio. Please refer to the section regarding the "Loan
Portfolio" for a detailed discussion of loan quality and the allowance for
possible loan losses.
Other Income
The following table sets forth the components of other income and the percentage
distribution of such income for the quarters ended March 31, 1996 and 1995.
OTHER INCOME
(dollars in thousands)
Quarter ended March 31,
-----------------------------------
1996 1995
Amount Percent Amount Percent
- --------------------------------------------------------------------------------
Depositor service charges $133 51.15% $131 51.17%
Other operating income 127 48.85 131 51.17
Net loss on securities available for sale ---- ---- (6) (2.34)
- --------------------------------------------------------------------------------
Total $260 100.00% $256 100.00%
================================================================================
Other Expenses
The following schedule summarizes the major categories of expense as a
percentage of average assets on an annualized basis:
<PAGE>
OTHER EXPENSES AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands)
Quarter ended March 31,
------------------------------------------
1996 1995
Amount Percent Amount Percent
* *
- --------------------------------------------------------------------------------
Salaries and benefits $1,402 2.17% $1,075 2.15%
Amortization of core deposit
intangibles and goodwill 125 .19 140 .28
Data processing 127 .20 109 .22
Legal and professional fees 119 .18 63 .13
Business promotion 98 .15 87 .17
Furniture and equipment 89 .14 89 .18
Occupancy 82 .13 118 .24
Advertising 60 .09 46 .09
Loan and collection 59 .09 42 .08
Directors' fees and costs 58 .09 60 .12
Client services paid by bank 49 .08 62 .12
Stationery and supplies 47 .07 40 .08
Regulators assessments 18 .03 128 .26
Net cost of foreclosed property 5 .01 (11) (.02)
Other 135 .21 138 .28
- --------------------------------------------------------------------------------
Total $2,473 3.83% $2,186 4.38%
================================================================================
* The percentages are calculated by annualizing the quarterly expense, and
comparing that amount to average assets for the respective periods ended March
31, 1996 and 1995.
Total other expenses for the first quarter of 1996 increased $287 from the same
period a year ago. The increases relate primarily to salaries and benefits
mainly due to the addition of staff relating to the acquisition of a factoring
company as of January 2, 1996, and an increase in volume and incentive accruals.
In addition, legal and professional fees increased mainly due to litigation
costs in regards to the litigation described in the Form 10KSB for the year
ended December 31, 1995. These increases were offset by a decrease in FDIC
premiums on insured deposits.
Income Tax Provision
The Company accounts for income taxes using the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" (SFAS No. 109). Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income during the period which includes the enactment
date.
The effective tax rate of 43% for the three months ended March 31, 1996 is
affected by several items, the most significant of which are the amortization of
the intangibles' estimates for tax exempt income and the California Franchise
Tax Enterprise Tax Zone Credit. The effective tax rate for the year ended
December 31, 1995 was 44%.
Financial Condition and Earning Assets
Consolidated assets increased to $267 million at March 31, 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 deposit accounts. See "Funding." In addition, there was an
increase in other short-term borrowings of $7 million relating primarily to the
Bank's hedging activities. See "Asset/Liability Management."
Money Market Investments
Money market investments, which include federal funds sold, decreased to $2
million at March 31, 1996 from $3.2 million at December 31, 1995. This decrease
was related to the growth in loans.
<PAGE>
<TABLE>
<CAPTION>
Securities
The following table shows the composition of the securities portfolio at March
31, 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.
SECURITIES PORTFOLIO
(dollars in thousands)
March 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gain (Loss) Value Cost Gain (Loss) Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U. S. Treasury $4,267 $16 $4,283 $4,265 $28 $4,293
U. S. Government Agencies 4,978 21 4,999 4,976 76 5,052
State and municipal (nontaxable) 3,057 14 3,071 3,060 24 3,084
Mortgage backed 2,443 60 2,503 2,428 116 2,544
Federal Reserve Bank Stock 519 ---- 519 519 ---- 519
- -------------------------------------------------------------------------------------------------------------
Securities held to maturity 15,264 111 15,375 15,248 244 15,492
- -------------------------------------------------------------------------------------------------------------
Securities available for sale:
U. S. Treasury 3,998 40 4,038 3,998 59 4,057
U. S. Government Agencies 34,183 73 34,256 34,129 449 34,578
Mortgage backed 6,113 (84) 6,029 9 ---- 9
Mutual funds 4,032 (165) 3,867 4,018 (120) 3,898
- -------------------------------------------------------------------------------------------------------------
Securities available for sale 48,326 (136) 48,190 42,154 388 42,542
- -------------------------------------------------------------------------------------------------------------
Total $63,590 $(25) $63,565 $57,402 $632 $58,034
=============================================================================================================
</TABLE>
Securities held to maturity include those securities which management has the
ability and intent to hold to maturity. This decision is dependent upon the
liquidity and asset/liability needs of the Bank and does not involve any
specific type of securities except that all state and municipal securities will
be included in the "held to maturity" category and all mutual funds are
classified as "available for sale." The Bank's policy is to acquire generally
"A" rated or better state and municipal securities. The specific issues are
monitored for changes in financial condition and appropriate action would be
taken if significant deterioration was noted. Management's policy is to reduce
the market valuation risk of the investment portfolio by generally limiting
portfolio maturities to 60 months or less. It is management's intent to maintain
at least 50% of its total investment securities portfolio in U.S. Treasury and
U.S. Government Agencies securities.
Unrealized gains on securities held to maturity were $111 as of March 31, 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 quarter ended March 31, 1996. The Bank's weighted average
maturity of the held to maturity investment portfolio was approximately 1.67
years as of March 31, 1996. It is estimated that for each 1% change in interest
rates, the value of the Company's securities held to maturity will change by
approximately 1.51%. 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 March 31,
1996 was $136 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 1.77 years as of March 31, 1996. It is estimated that for each 1%
change in interest rates the value of the Company's available for sale
securities will change by 1.56%.
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 no later than November 2000, and the purchases were financed by short
term repurchase agreements. See "Asset and Liability Management."
<PAGE>
Mortgage backed securities are considered to have increased risks associated
with them because of the timing of principal repayments. At March 31, 1996, the
Bank had the following securities which were mortgage-backed related securities:
Historical Market
(dollars in thousands) Cost Value
- -------------------------------------------------------------
Federal Home Loan Mortgage Corp.
(U.S. Agency) $8,549 $8,521
Federal National Mortgage Association
(U.S. Agency) 6 10
Federated ARMs Funds * 1,686 1,633
Overland Variable Rate
Government Fund* 1,263 1,170
- -------------------------------------------------------------
* 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 ended March
31, 1996 and 1995 are as follows:
INTEREST AND DIVIDEND INCOME ON INVESTMENT SECURITIES
(dollars in thousands) Quarter ended
March 31,
-------------------------
1996 1995
- -----------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury $54 $53
U.S. Government agencies 76 95
State and municipal (nontaxable) 36 25
Mortgage backed 52 52
Federal Reserve Bank Stock 8 7
Securities available for sale:
U.S. Treasury 69 134
U. S. Government Agencies 519 37
Mortgage backed 40 (1)
Mutual funds 54 59
- ----------------------------------------------------------------------------
Interest and dividend income $908 $461
=============================================================================
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)
March 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Loans Amount Loans
- --------------------------------------------------------------------------------
Commercial $55,054 30.66% $48,121 28.17%
Real estate construction 16,041 8.94 14,488 8.48
Real estate-other 66,116 36.82 66,949 39.20
Consumer 8,958 4.99 8,800 5.15
Other 21,516 11.98 21,302 12.47
Unearned fee income (743) (.41) (793) (.46)
- --------------------------------------------------------------------------------
Loan portfolio 166,942 92.98% 158,867 93.01%
Loans available for sale 12,612 7.02 11,933 6.9
- --------------------------------------------------------------------------------
Total loans $179,554 100.00% $170,800 100.00%
================================================================================
Consolidated loans increased to $180 million at March 31, 1996 from $171 million
at December 31, 1995. The increase in the loan portfolio can be attributed to
the success of the Bank's business development efforts in regards to commercial
and real estate construction loans. Improvement in weather conditions has also
caused an increase in real estate construction loans.
Economic conditions in Northern California have begun to level off during early
1996. At the same time, the competitive environment within the Bank's
marketplace has become more aggressive and the competition between lenders for
additional loan growth has caused more competitive pricing. The Bank's net
interest margin has declined from 7.30% (excluding effect of recovery of
interest on non-accrual loans) for the quarter ended March 31, 1995 to 6.69% for
the quarter ended March 31, 1996. To the extent that such competitive pricing
continues throughout 1996 and the Bank finds it necessary to meet such
competition, the Bank's net interest margins could continue to decline.
<PAGE>
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) has declined to
80% in March, 1996, the lowest level in several years. This could suggest a
possible slow down in the semiconductor industry, which would impact Santa Clara
County as a whole. Loans are generally made on the basis of a secure repayment
source and collateral is generally a secondary 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 (included in the Consumer category) (2%),
mortgage warehouse line (1%) and loans to real estate developers for short-term
investment purposes (2%) and loans for real estate investments purposes made to
non-developers (3%). The latter three types are included in the Other category.
Approximately 31% 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:
Category of Real Estate Collateral Maximum LTV
Ratio
Raw land 50%
Land Development 60%
Construction:
1-4 Single family residence,
Less than $500,000 75%
Greater than $500,000 70%
Other 70%
Term loans (construction take-out and commercial) 70%
Other improved property 70%
Prime equity loans 75%
Any term loans on income producing properties must have a maximum debt service
coverage of at least 1.2 to 1 for non-owner occupied property and at least 1.1
to 1 for owner occupied.
One of the significant risks associated with real estate lending is the possible
existence of environmental risks or hazards on or in property affiliated with
the loan. The Bank mitigates such risk through the use of an Environmental Risk
Questionnaire for all loans secured by real estate. A Phase I environmental
report is required if indicated by the questionnaire or if for any other reason
it is determined appropriate. Other reasons would include the industry use of
environmentally sensitive substances or the proximity to 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 and the
financial experiences of borrowers. The allowance for possible loan losses,
which provides for the risk of losses inherent in the credit extension process,
is increased by the provision for possible loan losses charged to expense and
decreased by the amount of charge-offs net of recoveries. There is no precise
method of predicting specific losses or amounts that ultimately may be charged
off on particular segments of the loan portfolio, especially in light of the
current economic environment. The conclusion that a loan may become
uncollectable (in whole or in part) and be charged off against the allowance is
a matter of judgment. Similarly, the adequacy of the allowance for possible loan
losses and the level of the related provision for possible loan losses is
determined on a judgmental basis, after full review, including consideration of:
o Economic conditions;
o Borrowers' financial condition;
o Loan impairment;
o Evaluation of industry trends;
o Industry 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.
<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 financial statements are examined by independent accountants.
Additionally, the Company retains a consultant who performs credit reviews on a
quarterly basis and who provides an assessment of the adequacy of the allowance
for possible loan losses. Also, examinations of the loan portfolio are conducted
periodically by the Federal banking regulators.
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. Management believes that the allowance for possible loan
losses was determined as described above and therefore believes it to be an
adequate allowance against losses inherent in the loan portfolio at March 31,
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 allowance for possible loan losses was approximately $3.9 million at March
31, 1996, or 2.15% of total loans outstanding. The following schedule provides
an analysis of the allowance for possible loan losses:
ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
Quarter ended Year ended
March 31, December 31,
-----------------------------------
1996 1995 1995
- --------------------------------------------------------------------------------
Balance, beginning of the period $3,847 $3,311 $3,311
Charge-offs by loan category:
Commercial 50 230 233
Real estate-construction ---- ---- 154
Real estate-other 21 8 220
Consumer 12 ---- 89
Other 93 ---- ----
- --------------------------------------------------------------------------------
Total charge-offs 176 238 696
- --------------------------------------------------------------------------------
Recoveries by loan category:
Commercial 84 18 42
Real estate-other 4 ---- 27
Consumer 30 6 16
Other ---- 100 102
- --------------------------------------------------------------------------------
Total recoveries 118 124 187
- --------------------------------------------------------------------------------
Net charge-offs 58 114 509
- --------------------------------------------------------------------------------
Provision charged to expense 20 210 1,045
Allowance relating to Astra Financial Corp. 50 ---- ----
- --------------------------------------------------------------------------------
Balance, end of the period $3,859 $3,407 $3,847
================================================================================
Ratios:
Net charge-offs to average loans, annualized .13% .31% .33%
Allowance to total loans at end of period 2.15 2.41 2.25
Allowance to nonperforming loans at end of period 802.16 76.94 430.24
================================================================================
<PAGE>
During the three months ended March 31, 1996, the Company charged off $176 and
recovered $118 on loans previously charged off. This compares to $238 and $124,
respectively, for the three months ended March 31, 1995. There were no trends
indicated by the detail of the aggregate charge-offs for any of the periods
discussed.
The allowance for possible loan losses was 802% of nonperforming loans at March
31, 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 March 31, 1996 and December 31, 1995:
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
March 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Percentage Percentage
Amount of of loans to Amount of of loans to
Allowance total loans Allowance total loans
- --------------------------------------------------------------------------------
Commercial $1,605 33.67% $1,193 30.86%
Real estate construction 217 8.93 176 8.45
Real estate-other 1,366 40.84 1,134 43.15
Consumer 195 4.99 169 5.13
Other 218 11.57 337 12.41
Unallocated 258 --- 838 ---
- --------------------------------------------------------------------------------
Total $3,859 100.00% $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 and as described more fully
under the section "Asset Quality - Allowance for Possible Loan Losses." During
the first quarter of 1996, Management changed its method of determining the
allocation, which caused a shift of the unallocated portion to specified loan
categories.
Nonperforming Loans
Loans for which the accrual of interest has been suspended and other loans with
principal or interest contractually past due 90 days or more are set forth in
the following table.
NONPERFORMING LOANS
(dollars in thousands)
March 31, December 31,
1996 1995
- --------------------------------------------------------------------------------
Loans accounted for on a non-accrual basis $235 $866
Other loans with principal or interest contractually
past due 90 days or more 246 28
- --------------------------------------------------------------------------------
Total $481 $894
================================================================================
The Company follows the practice of discontinuing the accrual of interest and
reversing any accrued and unpaid interest when, in the opinion of management,
there is significant doubt as to the collectibility of interest or principal or
when the payment of principal or interest is ninety days past due, unless the
amount is well-secured and in the process of collection.
As of March 31, 1996, the Company had approximately $481 of nonperforming loans,
consisting of five loans, none of which were individually significant. At
December 31, 1995, there were four loans which were included as nonperforming
loans. Of these loans, 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 March 31, 1996, management has not identified
any borrowers 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
<TABLE>
<CAPTION>
At March 31, 1996 and December 31, 1995, the Bank had three properties which
were acquired through the foreclosure process in the amount of $664. A summary
of the properties are as follows:
(dollars in thousands) Carrying Value
Description of Property March 31, 1996 December 31, 1995
- ----------------------- -------------- -----------------
<S> <C> <C>
Two vacant parcels, currently subject to a one-year sewer moratorium $304 $304
SFR in Piedmont, CA 225 225
Raw land, 11.7 acres in San Jose, CA 135 135
=============== ==================
Total $664 $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. As of April 19, 1996, the 11.7 acres
of raw land was sold for approximately $179.
Commitments and Lines of Credit
It is the Bank's policy not to issue formal commitments or lines of credit
except to a limited number of well-established and financially responsible local
commercial enterprises. Such commitments can be either secured or unsecured and
are typically in the form of revolving lines of credit for seasonal working
capital needs.
Occasionally, such commitments are in the form of a letter of credit to
facilitate the customer's particular business transaction. Commitments and lines
of credit typically mature within one year. These commitments, to varying
degrees, involve credit risk in excess of the amount recognized as either an
asset or liability in the statement of financial position. The Company controls
credit risk through its credit approval process. The same credit policies are
used when entering into such commitments and lines of credit.
As of March 31, 1996 and December 31, 1995, the Company had undisbursed loan
commitments to extend credit under normal lending arrangements as follows:
UNDISBURSED LOAN COMMITMENTS
(dollars in thousands) March 31, December 31,
Loan Category 1996 1995
- ------------------------------------------------------------------------------
Commercial $27,362 $27,270
Real estate construction 10,617 13,267
Real estate-other 2,113 2,991
Consumer 5,502 5,633
Other 15,208 16,302
- -----------------------------------------------------------------------------
Total $60,802 $65,463
==============================================================================
In addition there was approximately $2.5 million for commitments under unused
letters of credit at March 31, 1996.
Funding
The following table provides a breakdown of deposits by category as of the dates
indicated:
DEPOSIT CATEGORIES
(dollars in thousands)
March 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Deposits Amount Deposits
- --------------------------------------------------------------------------------
Noninterest-bearing demand $50,547 24.81% $52,775 26.83%
Interest-bearing demand 38,840 19.06 34,641 17.61
Money market and savings 55,683 27.33 51,201 26.03
Certificates of deposit:
Less than $100 13,885 6.82 14,730 7.49
$100 or more 44,782 21.98 43,345 22.04
- --------------------------------------------------------------------------------
Total $203,737 100.00% $196,692 100.00%
================================================================================
<PAGE>
Consolidated deposits as of March 31, 1996, were $204 million compared to $197
million at December 31, 1995. The increase in deposits relates to the growth of
interest-bearing core deposits. Noninterest-bearing deposits have declined from
$53 million as of December 31, 1995 to $51 million as of March 31, 1996. The
decline in these deposits is due the impact of customers who have converted such
deposits to interest-bearing deposits. The growth in interest-bearing deposits
has been due to the successful business development efforts of the Bank's
business development officers and higher interest rates.
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 their repricing could negatively impact the Bank's net
interest margin without a corresponding increase in rates earned on its earning
assets. See "Liquidity."
Asset/Liability Management
The Company defines interest rate sensitivity as the measurement of the mismatch
in repricing characteristics of assets, liabilities and off-balance sheet
instruments at a specified point in time. This mismatch, or interest rate
sensitivity gap, represents the potential mismatch in the change in the rate of
accrual of interest revenue and interest expense that would result from a change
in interest rates. Mismatches in interest rate repricing among assets and
liabilities arise primarily from the interaction of various customer businesses
(i.e., types of loans versus the types of deposits maintained) and from
management's discretionary investment and funds gathering activities. The
Company attempts to manage its exposure to interest rate sensitivity; however
due to its size and direct competition from the major banks, it must offer
products which are competitive in the market place even if such products are not
optimum with respect to its interest rate exposure.
The Company's balance sheet position is asset-sensitive (based upon the
significant amount of variable rate loans and the repricing characteristics of
its deposit accounts). This balance sheet position provides a hedge against
rising interest rates, but has a detrimental effect during times of interest
rate decreases. Net interest revenues are negatively impacted by a decline in
interest rates. The interest rate gap is a measure of interest rate exposure and
is based upon the known repricing dates of certain assets and liabilities and
assumed repricing dates of others.
To counter its natural interest rate position, 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 the first quarter of 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 five 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 million matures in November 1997, $10
million matures in May 1998, $7 million matures in July 1998 and $4 million in
November 2000 and $2 million in December 2000. The repurchase agreements
interest rates range from 5.25% to 5.45% and mature through June 1996..
The following table quantifies the Company's interest rate exposure at March 31,
1996 based upon the known repricing dates of certain assets and liabilities and
the assumed repricing dates of others. At March 31, 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
March 31, 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 $2,000 ----- ----- ----- ----- $2,000
Investment securities-taxable 2,818 528 $1,061 $6,144 $1,656 12,207
Investment securities-non-taxable ----- 600 447 1,433 577 3,057
Securities available for sale 6,941 3,085 6,190 27,937 4,037 48,190
Loans 155,221 752 1,505 12,467 9,608 179,553
- --------------------------------------------------------------------------------------------------------------------
Total earning assets 166,980 4,965 9,203 47,981 15,878 245,007
- --------------------------------------------------------------------------------------------------------------------
Interest checking, money market
and savings 94,523 ----- ----- ----- ----- 94,523
Certificates of deposit:
Less than $100,000 6,864 2,273 2,809 1,919 20 13,885
$100,000 or more 30,842 6,004 4,883 3,053 ----- 44,782
Repurchase agreements 30,067 ----- ----- ----- ----- 30,067
Other borrowings 1,500 20 ----- 268 610 2,398
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 163,796 8,297 7,692 5,240 630 185,655
- --------------------------------------------------------------------------------------------------------------------
Interest rate gap $3,184 $(3,332) $1,511 $42,741 $15,248 $59,352
====================================================================================================================
Cumulative interest rate gap $3,184 $(148) $1,363 $44,104 $59,352
========================================================================================================
Interest rate gap ratio 1.02 0.60 1.20 9.16 25.20
========================================================================================================
Cumulative interest rate gap ratio 1.02 1.00 1.01 1.24 1.32
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
The maturities and yields of the investment portfolio at March 31, 1996 are
shown below:
MATURITY AND YIELDS OF INVESTMENT SECURITIES At March 31, 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
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U. S. Treasury $4,267 $3,304 4.43% $963 7.05% ---- ----
U. S. Government Agencies 4,978 1,000 4.12 3,978 6.66 ---- ----
State and municipal 3,057 1,297 6.86 1,760 7.94 ---- ----
Mortgage backed 2,443 ---- ---- 2,443 7.90 ---- ----
Other 519 ---- ---- ---- ---- $519 6.00%
- ------------------------------------------------------ ------------ -------------
Total 15,264 5,601 9,144 519
- ------------------------------------------------------ ------------ -------------
Securities available for sale:
U. S. Treasury 4,038 4,038 6.87 ---- ---- ---- ----
U.S. Government Agencies 34,256 8,061 5.95 26,195 6.13 ---- ----
Mortgage backed 6,029 ---- ---- 6,019 5.57 10 ----
Mutual funds 3,867 3,867 6.21 ---- ---- ---- ----
- ------------------------------------------------------ ------------ -------------
Total 48,190 15,966 32,214 10
- ------------------------------------------------------ ------------ -------------
Total $63,454 $21,567 5.91% $41,358 6.30% $529 5.89%
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
The following table shows the maturity and interest rate sensitivity of
commercial, real estate-other and real estate construction loans at March 31,
1996. Approximately 89% 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.
<PAGE>
COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE SENSITIVITY
(dollars in thousands)
Balances maturing Interest Rate Sensitivity
---------------------------------------------------------
Predeter-
Balances at One mined Floating
March 31, One year year to Over interest interest
1996 or less five years five years rates rates
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $60,456 $38,154 $17,342 $4,960 $2,071 $58,385
================================================================================================
Real estate construction $16,040 $13,866 $2,174 ---- $653 $15,387
================================================================================================
Real estate-other $73,326 $5,867 $31,702 $35,757 $20,702 $52,624
================================================================================================
</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 $11.10 and $11.02 on March 31, 1996 and
December 31, 1995, respectively. The increase reflects net income per share of
$.37 less cash dividends per share of $.15 and the impact of the change in the
unrealized gain (loss) of assets held for sale. Shareholders' equity was $27.0
million and $26.7 million as of March 31, 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.
The capital of the Company and SJNB exceed the amount required by the various
capital guidelines. The table below summarizes the various capital ratios of the
Company and the Bank at March 31, 1996 and December 31, 1995.
<PAGE>
Risk-based and Leverage Capital Ratios
(dollars in thousands)
Company March 31, 1996 December 31, 1995
- ------- -----------------------------------------
Risk-based Amount Ratio Amount Ratio
-----------------------------------------
Tier 1 capital $21,964 10.87% $21,589 11.34%
Tier 1 capital minimum requirement 8,086 4.00 7,617 4.00
-----------------------------------------
Excess $13,878 6.87% $13,972 7.34%
=========================================
Total capital $24,570 12.15% $24,046 12.63%
Total capital minimum requirement 16,172 8.00 15,233 8.00
-----------------------------------------
Excess $8,398 4.15% $8,813 4.63%
=========================================
Risk-adjusted assets $202,145 $190,417
======= ========
Leverage
Tier 1 capital $21,964 8.68% $21,589 9.00%
Minimum leverage ratio requirement(1) 10,118 4.00 9,596 4.00
-----------------------------------------
Excess $11,847 4.68% $11,993 5.00%
=======================================
Average total assets $252,943 $239,899
======= ========
Bank
Risk-based
Tier 1 capital $21,482 10.63% $20,819 10.94%
Tier 1 capital minimum requirement 8,083 4.00 7,614 4.00
-----------------------------------------
Excess $13,399 6.63% $13,205 6.94%
-----------------------------------------
Total capital $24,086 11.92% $23,275 12.23%
Total capital minimum requirement 16,165 8.00 15,228 8.00
-----------------------------------------
Excess $7,921 3.92% $8,047 4.23%
=========================================
Risk-adjusted assets $202,065 $190,345
======= ========
Leverage
Tier 1 capital $21,482 8.48% $20,819 8.67%
Minimum leverage ratio requirement (1) 10,137 4.00 9,607 4.00
-----------------------------------------
Excess $11,345 4.48% $11,212 4.67%
=========================================
Average total assets $253,422 $240,163
======= ========
(1) The required ratio is determined on an individual bank basis as a result of
factors considered by the Company's and Bank's regulators. To date, however, the
regulators have not established this amount. Amounts shown as the minimum
requirements relate to the standards imposed by the FDIC in their determination
of an "adequately capitalized" bank for their insurance premium determination.
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan funding and deposit withdrawals in the most economically
feasible manner. Liquidity requirements are evaluated by taking into
consideration factors such as deposit concentrations, seasonality and
maturities, loan demand, capital expenditures, and prevailing and anticipated
economic conditions. SJNB's business is generated primarily through customer
referrals and employee business development efforts; however the Bank utilizes
purchased deposits to satisfy temporary liquidity needs.
The Bank's source of liquidity consists of its deposits with other banks,
overnight funds sold to correspondent banks, and short-term marketable
investments. At March 31, 1996, consolidated liquid assets totaled $38 million
or 14% of consolidated total assets as compared to $35 million or 14% of
consolidated total assets on December 31, 1995. In addition to the liquid asset
portfolio, SJNB also has available $9 million in lines of credit with five major
commercial banks, a repurchase line with a maximum limit of $40 million (of
which approximately $30 million has been utilized), a credit facility with the
Federal Reserve Bank based on loans secured by real estate for approximately $4
million and $13 million of SBA guaranteed loans which are available for sale and
could be sold within a 30 day period.
SJNB is primarily a business and professional bank and, as such, its deposit
base is more susceptible to economic fluctuations. Accordingly, management
strives to maintain a balanced position of liquid assets to volatile and
cyclical deposits. Commercial clients in their normal course of business
maintain balances in large certificates of deposit, the stability of which hinge
upon, among other factors, market conditions and each business' seasonality.
Large certificates of deposit amounted to 22% of total deposits on March 31,
1996 and 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 March 31,
1996, approximately 32% of total consolidated assets had maturities under one
year and 86% 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.
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 quarter 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. On March 7,
1996, the Federal Bankruptcy Court dismissed the adversary proceedings against
the Bank and other defendants for lack of prosecution in the claims made by
Gianotta Properties, Inc. . On April 6, 1996, the attorney on behalf of Gianotta
filed with the Bankruptcy Court a Motion for Order from Relief from Order of
Dismissal based on his argument that he did not receive notice of the hearing on
March 7, 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.
*(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). 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. 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. Agreement between James R. Kenny and SJNB Financial Corp. and San Jose
National Bank dated March 27, 1996.
*(10)n. Agreement between Eugene E. Blakeslee and SJNB Financial Corp. and San
Jose National Bank dated March 27, 1996.
(10)o. 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)p. 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)q. 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)r. 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)s. Sublease by and between Greater Unified Management Businesses, Inc. (dba
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.
(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: May 6, 1996 S/ James R. Kenny
-----------------------------
James R. Kenny
President and
Chief Executive Officer
Date: May 6, 1996 S/ Eugene E. Blakeslee
-----------------------------
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer
<PAGE>
Exhibit (10) m
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of March 27, 1996 by and between SAN
JOSE NATIONAL BANK and SJNB Financial Corp., a national banking association
("Employer"), and James R. Kenny ("Employee").
RECITALS
WHEREAS, Employer and Employee desire to enter into an agreement for the
purposes of engaging the services of Employee by reason of his experience,
training and ability in the commercial banking industry;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Employer and Employee agree as follows:
AGREEMENT
1. Term of Employment. Employer employs Employee and Employee hereby accepts
employment with Employer, upon the terms and conditions hereinafter set forth,
for a period of three (3) years from the date hereof. Upon the occurrence of the
annual anniversary date of this Agreement, the term of this Agreement shall be
automatically extended for an additional one (1) year term, subject to the
termination provisions of paragraph 16.
2. Duties and Obligations of Employee. Employee shall serve as the President and
Chief Executive Officer of Employer and shall perform the customary duties of
such office in the commercial banking industry as may from time to time be
reasonably requested of him by the Board of Directors of Employer in addition to
the following:
(a) Acting as a member of the Board of Directors and all other board committees
to which Employee may be appointed or elected;
(b) Participating in community affairs which are beneficial to the Employer;
(c) Maintaining a good relationship with Employer's Board of Directors and
shareholders;
(d) Maintaining a good relationship with regulatory agencies and governmental
authorities having jurisdiction over Employer;
(e) Providing leadership in planning and implementing the conduct of business
and the affairs of the Employer; and
(f) Hiring and firing of employees, subject at all times to the policies and
directives set by the Employer's Board of Directors.
3. Devotion to Employer's Business.
(a) Employee shall devote his full business time, ability, and attention to the
business of Employer during the term of this Agreement and shall not during the
term of this Agreement, without the prior written consent of Employer's Board of
Directors, engage in any other business activities, duties, or pursuits
whatsoever, or directly or indirectly render any services of a business,
commercial, or professional nature to any other person or organization, whether
for compensation or otherwise, which are in conflict with Employer's business.
However, the expenditure of reasonable amounts of time for educational,
charitable, or professional activities shall not be deemed a breach of this
Agreement if those activities do not materially interfere with the services
required of Employee under this Agreement. Nothing in this Agreement shall be
interpreted to prohibit Employee from making passive personal investments.
However, Employee shall not directly or indirectly acquire, hold, or retain any
material interest in any business competing with or similar in nature to the
business of Employer.
(b) Employee agrees to conduct himself at all times with due regard to public
conventions and morals. Employee further agrees not to do or commit any act that
will reasonably tend to offend the community, or to prejudice Employer or the
banking industry in general.
(c) Employee hereby represents and agrees that the services to be performed
under the terms of this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character that gives them a peculiar value, the
loss of which cannot be reasonably or adequately compensated in damages in an
action at law. Employee therefore expressly agrees that Employer, in addition to
any other rights or remedies that Employer may possess, shall be entitled to
injunctive and other equitable relief to prevent or remedy a breach of this
Agreement by Employee.
4. Noncompetition by Employee. Employee shall not, during the term of this
Agreement, directly or indirectly, either as an employee, employer, consultant,
agent, principal, stockholder, officer, director, or in any other individual or
representative capacity, engage or participate in any competitive banking or
financial services business.
5. Indemnification for Negligence or Misconduct. Employee shall indemnify and
hold Employer harmless from all liability for loss, damage, or injury to persons
or property resulting from the gross negligence or intentional misconduct of the
Employee.
6. Disclosure of Information. Employee shall not, either before or after
termination of this Agreement, disclose to anyone any information relating to
Employer or any financial information, trade or business secrets, customer
lists, computer software or other information not otherwise publicly available
concerning the business or operations of Employer. Employee recognizes and
acknowledges that any financial information concerning any of Employer's
customers, as it may exist from time to time, is strictly confidential and is a
valuable, special and unique asset of Employer's business. Employee shall not,
either before or after termination of this Agreement, disclose to anyone said
financial information or any part thereof, for any reason or purpose whatsoever.
This paragraph 6 shall survive the expiration or termination of this Agreement.
7. Written or Printed Material. All written or printed materials, notebooks and
records used by Employee in performing duties for Employer, other than
Employee's personal notes and diaries, are and shall remain the sole property of
Employer. Upon termination of employment, Employee shall promptly return all
such material (including all copies) to Employer. This paragraph 7 shall survive
expiration or termination of this Agreement.
8. Surety Bond. Employee agrees that he will furnish all information and take
any other steps necessary from time to time to enable Employer to obtain or
maintain a fidelity bond conditional on the rendering of a true account by
Employee of all monies, goods, or other property which may come into the
custody, charge, or possession of Employee during the term of his employment.
The surety company issuing the bond and the amount of the bond must be
acceptable to Employer. All premiums on the bond shall be paid by Employer.
9. Base Salary. In consideration for the services to be performed hereunder,
Employee shall receive a salary at the rate of One Hundred Sixty Thousand
Dollars ($160,000) per annum, payable in installments during the term of this
Agreement of approximately Six Thousand, Six Hundred Sixty-Six Dollars and
Sixty-Six Cents ($6,666.66) on the fifteenth day and thirtieth day (or last day
during the month of February) of each month, subject to applicable adjustments
for withholding taxes and prorations for any partial employment period. Employee
shall receive such annual adjustment increases in salary, if any, as may be
determined by Employer's Board of Directors, in its sole discretion, resulting
from the Board of Directors Compensation Committee annual review of Employee's
compensation prior to January 1 of each year during the term of this Agreement.
10. Salary Continuation During Disability. If Employee for any reason (except as
expressly provided below) becomes temporarily or permanently disabled so that he
is unable to perform the duties under this Agreement, Employer agrees to pay
Employee the base salary otherwise payable to Employee pursuant to paragraph 9
of this Agreement, reduced by the amounts received by Employee from state
disability insurance, or worker's compensation or other similar insurance
benefits through policies provided by Employer, for a period of twelve (12)
months from the date of disability.
For purposes of this paragraph 10, "disability" shall be defined as provided in
Employer's disability insurance program. Notwithstanding anything herein to the
contrary, Employer shall have no obligation to make payments for a disability
resulting from the deliberate, intentional actions of Employee, such as, but not
limited to, attempted suicide or chemical dependence of Employee.
11. Incentive Compensation. Employee shall be entitled to receive one and
one-half percent (1.5%) of Employer's pre-tax, pre-bonus net earnings before
extraordinary items, provided that Employer's net earnings before extraordinary
items in any year during the term of this Agreement is equal to or exceeds one
percent (1%) of average assets.
12. Stock Options. Employer has previously granted stock options to Employee
evidenced by one or more stock option agreements attached hereto as Exhibit B
and incorporated herein by this reference. Employer may, but is not obligated
to, grant additional stock options to Employee in the future which grants, if
any, shall be within the sole discretion of the Board of Directors of Employer
and subject to the terms and provisions of Employer's stock option plan pursuant
to which such grants are effected. Any such grants shall be evidenced by a stock
option agreement entered into between Employer and Employee pursuant to such
stock option plan and a copy of each such stock option agreement shall be
attached to this Agreement as an exhibit. Notwithstanding any provision of any
such stock option plan or any such stock option agreement to the contrary, no
rights of employment shall be conferred upon Employee or result from any such
stock option plan or any stock option agreement entered into between Employer
and Employee. Any employment rights and corresponding duties of Employee
pursuant to his employment by Employer shall be limited to and interpreted
solely in accordance with the terms and provisions of this Agreement.
13. Other Benefits. Employee shall be entitled to those employee benefits
adopted by Employer for all employees of Employer, subject to applicable
qualification requirements and regulatory approval requirements, if any.
Employee shall be further entitled to the following additional benefits which
shall supplement or replace, to the extent duplicative of any part or all of the
general employee benefits, the benefits otherwise provided to Employee:
(a) Vacation. Employee shall be entitled to five (5) weeks annual vacation leave
at his then existing rate of base salary each year during the term of this
Agreement. Employee may be absent from his employment for vacation as long as
such leave is reasonable and does not jeopardize his responsibilities and duties
specified in this Agreement. All vacation time in excess of one (1) week shall
be approved in advance by the chairman or vice-chairman of the Board of
Directors of Employer. Accrual of vacation time, if any, shall be determined in
accordance with Employer's personnel policies.
(b) Automobile and Insurance. Employer shall acquire or otherwise make available
to Employee for his business and incidental personal use an automobile, suitable
to his position, and (i) maintain it in good condition and repair; and (ii)
provide public liability insurance and property damage insurance policies with
insurer(s) acceptable to Employer and with coverages in such amounts as may be
acceptable to Employer from time to time.
(c) Personal Insurance. Employer shall provide during the term of this Agreement
at Employer's sole cost, a policy or policies of term life insurance coverage in
the amount of Two Hundred Fifty Thousand Dollars ($250,000) and group life,
health (including medical, dental and hospitalization), accident and disability
insurance coverage for Employee and his dependents either through a policy or
policies of standard coverage provided by an insurer or insurers selected by
Employer in its sole discretion.
14. Annual Physical Examination. Employer shall pay for the cost of an annual
physical examination conducted by a California licensed physician selected by
Employee and reasonably acceptable to Employer. Employee shall provide or cause
to be provided to the chairman of the Board of Directors of Employer a copy of
such examination report as soon as such report is available.
15. Business Expenses. Employee shall be reimbursed for all ordinary and
necessary expenses incurred by Employee in connection with his employment.
Employee shall also be reimbursed for reasonable expenses incurred in activities
associated with promoting the business of Employer, including expenses for
entertainment, travel, conventions, educational programs and similar items, and
with the prior approval of the Chairman of the Board of Employer, expenses for
club memberships. Employer will pay for or will reimburse Employee for such
expenses upon presentation by Employee from time to time of receipts or other
appropriate evidence of such expenditures.
16. Termination of Agreement.
(a) Automatic Termination. This Agreement shall terminate automatically without
further act of the parties and immediately upon the occurrence of any one of the
following events, subject to either party's right, without any obligation
whatsoever, to waive an event reasonably susceptible of waiver, and the
obligation of Employer to pay the amounts which would otherwise be payable to
Employee under this Agreement through the end of the month in which the event
occurs, except that only in the event of termination based upon subparagraphs
(1), (4), (7) or (12, to the extent of Employer's breach) below shall Employee
be entitled to receive severance payments based upon automatic termination
pursuant to paragraph 16 (d) of this Agreement:
(1) The occurrence of circumstances that make it impossible or impractical for
Employer to conduct or continue its business.
(2) The death of Employee.
(3) The loss by Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) The willful, intentional and material breach of duty by Employee in the
course of his employment.
(6) The habitual and continued neglect by Employee of his employment duties and
obligations under this Agreement.
(7) The continuous mental or physical incapacity of Employee, subject to
Employee's rights under paragraph 10 of this Agreement.
(8) Employee's willful and intentional violation of any State of California or
federal banking laws, or of the Bylaws, rules, policies or resolutions of
Employer or its parent holding company, or of the rules or regulations of
the California Superintendent of Banks or the Federal Deposit Insurance
Corporation, or other regulatory agency or governmental authority having
jurisdiction over Employer or its parent holding company.
(9) The determination by a state or federal banking agency or governmental
authority having jurisdiction over Employer that Employee is not suitable
to act in the capacity for which he is employed by Employer.
(10) Employee is convicted of any felony or a crime involving moral turpitude or
commits a fraudulent or dishonest act.
(11) Employee discloses without authority any secret or confidential information
concerning Employer or takes any action which Employer's Board of Directors
determines, in its sole discretion and subject to good faith, fair dealing
and reasonableness, constitutes unfair competition with or induces any
customer to breach any contract with Employer.
(12) Either party breaches the terms or provisions of this Agreement. (b)
Termination by Employer. Employer may, at its election and in its sole
discretion, terminate this Agreement for any reason, or for no reason, by
giving not less than thirty (30) days' prior written notice of termination
to Employee, without prejudice to any other remedy to which Employer may be
entitled either at law, in equity or under this Agreement. Upon such
termination, Employee shall be entitled to receive any employment benefits
which shall have accrued prior to such termination and the severance pay
specified in paragraph 16 (d) below.
(c) Termination by Employee. This Agreement may be terminated by Employee for
any reason, or no reason, by giving not less than thirty (30) days' prior
written notice of termination to Employer. Upon such termination, all
rights and obligations accruing to Employee under this Agreement shall
cease, except that such termination shall not prejudice Employee's rights
regarding employment benefits which shall have accrued prior to such
termination and any other remedy which Employee may have at law, in equity
or under this Agreement, which remedy accrued prior to such termination.
(d) Severance Pay - Termination by Employer. In the event of termination by
Employer pursuant to paragraph 16 (b) or automatic termination based upon
paragraph 16 (a) (1), (4), (7) or (12, to the extent of Employer's breach)
of this Agreement, Employee or his designated beneficiary shall be entitled
to receive severance pay at Employee's rate of salary immediately preceding
such termination equal to twenty-four (24) months' salary (in addition to
incentive compensation or bonus payments due Employee, if any), payable in
lump sum. Notwithstanding the foregoing, (i) such severance pay shall be
reduced by the amount paid to Employee each month following termination
from another employer; and (ii) in the event of a "change in control" as
defined in subparagraph (e) below, Employee shall not be entitled to
severance pay pursuant to this subparagraph (d) and any rights of Employee
to severance pay shall be limited to such rights as are specified in
subparagraph (e) below. Employee acknowledges and agrees that severance pay
pursuant to this subparagraph (d) is in lieu of all damages, payments and
liabilities on account of the early termination of this Agreement and the
sole and exclusive remedy for Employee terminated at the will of Employer
pursuant to paragraph 16(b) or pursuant to certain provisions of paragraph
16 (a) described herein.
(e) Severance Pay - Change in Control. In the event of a "change in control" as
defined herein and within a period of two (2) years following consummation
of such a change in control (i) Employee's employment is terminated; or
(ii) without Employee's consent there occurs (A) any adverse change in the
nature and scope of Employee's position, responsibilities, duties, salary
or benefits, or (B) any change in Employee's location of employment from
within Santa Clara County, California, or (C) any event which reasonably
constitutes a demotion, significant diminution or constructive termination
(by resignation or otherwise) of Employee's employment, then Employee shall
be entitled to receive severance pay in addition to any bonus or incentive
compensation payments due Employee. Any such severance pay due Employee
shall be in an amount equal to two (2) times Employee's average annual
compensation for the five (5) years immediately preceding the change in
control. Employee's average annual compensation shall be the average of the
aggregate compensation paid by Employer to Employee which was includable in
Employee's gross income for federal income tax purposes for the five (5)
tax years ending immediately prior to the change in control divided by the
number five (5).
If all or any portion of the amounts payable to Employee pursuant to this
paragraph 16 (e) alone or together with other payments which Employee has
the right to receive from Employer, constitute "excess parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), that are subject to the excise tax imposed by Section
4999 of the Code (or similar tax and/or assessment), such amounts payable
hereunder shall be reduced to the extent necessary, so as to cause a
reduction of any excise tax pursuant to Section 4999 of the Code to equal
"zero".
Any such severance shall be payable in lump sum. Such severance payment, if
any, shall be in lieu of all damages, payments and liabilities on account
of the events described above for which such severance payment, if any, may
be due Employee and any severance payment rights of Employee under
paragraph 16 (d) of this Agreement. This subparagraph (e) shall be binding
upon and inure to the benefit of the parties and any successors or assigns
or employer or any "person" as defined herein.
Notwithstanding the foregoing, Employee shall not be entitled to receive
nor shall Employer, its successors, assigns or any "person" as defined
herein be obligated to pay severance payments pursuant to this subparagraph
(e) in the event of an occurrence described in paragraph 16 (a),
subparagraphs (5), (6), (8), (10), (11) or (12, to the extent of an
Employee breach), or in the event of a determination pursuant to
subparagraph (9) thereof, or in the event Employee terminates employment in
accordance with paragraph 16 (c) and the termination is not a result of or
based upon the occurrence of any event described in paragraph 16 (e)(ii).
A "change in control" of Employer for purposes of this Agreement and
subparagraph (e) shall mean the occurrence of any of the following events
with respect to Employer (with the term "Employer" being defined for such a
change in control to include any parent holding company): (i) a change in
control of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in
response to any other form or report to the regulatory agencies or
governmental authorities having jurisdiction over Employer or any stock
exchange on which Employer's shares are listed which requires the reporting
of a change in control; (ii) any merger, consolidation or reorganization of
Employer in which Employer does not survive; (iii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of Employer having
an aggregate fair market value of fifty percent (50%) of the total value of
the assets of Employer, reflected in the most recent balance sheet of
Employer; (iv) a transaction whereby any "person" (as such term is used in
the Exchange Act or any individual, corporation, partnership, trust or any
other entity) is or becomes the beneficial owner, directly or indirectly,
of securities of Employer representing 25% or more of the combined voting
power of Employer's then outstanding securities; (v) if in any one year
period, individuals who at the beginning of such period constitute the
Board of Directors of Employer cease for any reason to constitute at least
a majority thereof, unless the election, or the nomination for election by
Employer's shareholders, of each new director is approved by a unanimous
vote of the directors then still in office who were directors at the
beginning of the period; (iv) a majority of the members of the Board of
Directors of Employer in office prior to the happening of any event
determines in its sole discretion that as a result of such event there has
been a change in control.
17. Notices. Any notices to be given hereunder by either party to the other
shall be in writing and may be transmitted by personal delivery or by U.S.
mail, registered or certified, postage prepaid with return receipt
requested. Mailed notices shall be addressed to the parties at the
addresses listed as follows:
Employer: Principal place of business
Employee: Principal place of business as shown in Employer's Personnel
Records and Employee's personal file.
Each party may change the address for receipt of notices by written notice
in accordance with this paragraph 17. Notices delivered personally shall be
deemed communicated as of the date of actual receipt; mailed notices shall
be deemed communicated as of three (3) days after the date of mailing.
18. Arbitration. All claims, disputes and other matters in question arising out
of or relating to this Agreement or the breach or interpretation thereof,
other than those matters which are to be determined by the Employer in its
sole and absolute discretion, shall be resolved by binding arbitration
before a representative member, selected by the mutual agreement of the
parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
at their offices located in San Jose, California, in accordance with the
rules and procedures of JAMS then in effect. Notice of the demand for
arbitration shall be filed in writing with the other party to this
Agreement and with JAMS. In no event shall the demand for arbitration be
made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by
the applicable statute of limitations. Any award rendered by JAMS shall be
final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and
assigns, and may be entered in any court having jurisdiction thereof. The
obligation of the parties to arbitrate pursuant to this clause shall be
specifically enforceable in accordance with, and shall be conducted
consistently with, the provisions of Title 9 of Part 3 of the California
Code of Civil Procedure. Any arbitration hereunder shall be conducted in
San Jose, California, unless otherwise agreed to by the parties.
19. Attorneys' Fees and Costs. In the event of litigation, arbitration or any
other action or proceeding between the parties to interpret or enforce this
Agreement or any part thereof or otherwise arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover its costs
related to any such action or proceeding and its reasonable fees of
attorneys, accountants and expert witnesses incurred by such party in
connection with any such action or proceeding. The prevailing party shall
be deemed to be the party which obtains substantially the relief sought by
final resolution, compromise or settlement, or as may otherwise be
determined by order of a court of competent jurisdiction in the event of
litigation, an award or decision of one or more arbitrators in the event of
arbitration, or a decision of a comparable official in the event of any
other action or proceeding. Every obligation to indemnify under this
Agreement includes the obligation to pay reasonable fees of attorneys,
accountants and expert witnesses incurred by the indemnified party in
connection with matters subject to indemnification.
20. Entire Agreement. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the
employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to the employment of Employee
by Employer. Each party to this Agreement acknowledges that no other
representations, inducements, promises, or agreements, oral or otherwise,
have been made by any party, or anyone acting on behalf of any party, which
are not set forth herein, and that no other agreement, statement, or
promise not contained in this Agreement shall be valid or binding on either
party.
21. Modifications. Any modification of this Agreement will be effective only if
it is in writing and signed by a party or its authorized representative.
22. Waiver. The failure of either party to insist on strict compliance with any
of the terms, provisions, covenants, or conditions of this Agreement by the
other party shall not be deemed a waiver of any term, provision, covenant,
or condition, individually or in the aggregate, unless such waiver is in
writing, nor shall any waiver or relinquishment of any right or power at
any one time or times be deemed a waiver or relinquishment of that right or
power for all or any other times.
23. Partial Invalidity. If any provision in this Agreement is held by a court
of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
24. Interpretation. This Agreement shall be construed without regard to the
party responsible for the preparation of the Agreement and shall be deemed
to have been prepared jointly by the parties. Any ambiguity or uncertainty
existing in this Agreement shall not be interpreted against either party,
but according to the application of other rules of contract interpretation,
if an ambiguity or uncertainty exists.
25. overning Law and Venue. The laws of the State of California, other than
those laws denominated choice of law rules, shall govern the validity,
construction and effect of this Agreement. Any action which in any way
involves the rights, duties and obligations of the parties hereunder shall
be brought in the courts of the State of California and venue for any
action or proceeding shall be in Santa Clara County or in the United States
District Court for the Northern District of California, and the parties
hereby submit to the personal jurisdiction of said courts.
26. Payments Due Deceased Employee. If Employee dies prior to the expiration of
the term of his employment, any payments that may be due Employee from
Employer under this Agreement as of the date of death shall be paid to
Employee's executors, administrators, heirs, personal representatives,
successors, or assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement consisting of
twelve pages in the City of San Jose, County of Santa Clara, State of California
as of the date set forth above.
EMPLOYER: EMPLOYEE:
SAN JOSE NATIONAL BANK
By: S/Robert A. Archer S/ James R. Kenny
Robert A. Archer James R. Kenny
Chairman of the Board
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of March 27 1996 by and between SAN
JOSE NATIONAL BANK and SJNB Financial Corp., a national banking association
("Employer"), and Eugene E. Blakeslee ("Employee").
RECITALS
WHEREAS, Employer and Employee desire to enter into an agreement for the
purposes of engaging the services of Employee by reason of his experience,
training and ability in the commercial banking industry;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Employer and Employee agree as follows:
AGREEMENT
1. Term of Employment. Employer employs Employee and Employee hereby accepts
employment with Employer, upon the terms and conditions hereinafter set
forth, for a period of one (1) year from the date hereof. Upon the
occurrence of the annual anniversary date of this Agreement, the term of
this Agreement shall be automatically extended for an additional one (1)
year term, subject to the termination provisions of paragraph 16.
2. Duties and Obligations of Employee. Employee shall serve as the Executive
Vice President and Chief Financial Officer of Employer and shall perform
the customary duties of such office in the commercial banking industry as
may from time to time be reasonably requested of him by the Board of
Directors of Employer in addition to the following:
(a) Participating in community affairs which are beneficial to the
Employer;
(b) Maintaining a good relationship with Employer's Board of Directors and
shareholders; and
(c) Maintaining a good relationship with regulatory agencies and
governmental authorities having jurisdiction over Employer.
3. Devotion to Employer's Business.
(a) Employee shall devote his full business time, ability, and attention to
the business of Employer during the term of this Agreement and shall not
during the term of this Agreement, without the prior written consent of
Employer's Board of Directors, engage in any other business activities,
duties, or pursuits whatsoever, or directly or indirectly render any
services of a business, commercial, or professional nature to any other
person or organization, whether for compensation or otherwise, which are in
conflict with Employer's business. However, the expenditure of reasonable
amounts of time for educational, charitable, or professional activities
shall not be deemed a breach of this Agreement if those activities do not
materially interfere with the services required of Employee under this
Agreement. Nothing in this Agreement shall be interpreted to prohibit
Employee from making passive personal investments. However, Employee shall
not directly or indirectly acquire, hold, or retain any material interest
in any business competing with or similar in nature to the business of
Employer.
(b) Employee agrees to conduct himself at all times with due regard to
public conventions and morals. Employee further agrees not to do or commit
any act that will reasonably tend to offend the community, or to prejudice
Employer or the banking industry in general.
(c) Employee hereby represents and agrees that the services to be performed
under the terms of this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character that gives them a peculiar value,
the loss of which cannot be reasonably or adequately compensated in damages
in an action at law. Employee therefore expressly agrees that Employer, in
addition to any other rights or remedies that Employer may possess, shall
be entitled to injunctive and other equitable relief to prevent or remedy a
breach of this Agreement by Employee.
4. Noncompetition by Employee. Employee shall not, during the term of this
Agreement, directly or indirectly, either as an employee, employer,
consultant, agent, principal, stockholder, officer, director, or in any
other individual or representative capacity, engage or participate in any
competitive banking or financial services business.
5. Indemnification for Negligence or Misconduct. Employee shall indemnify and
hold Employer harmless from all liability for loss, damage, or injury to
persons or property resulting from the gross negligence or intentional
misconduct of the Employee.
6. Disclosure of Information. Employee shall not, either before or after
termination of this Agreement, disclose to anyone any information relating
to Employer or any financial information, trade or business secrets,
customer lists, computer software or other information not otherwise
publicly available concerning the business or operations of Employer.
Employee recognizes and acknowledges that any financial information
concerning any of Employer's customers, as it may exist from time to time,
is strictly confidential and is a valuable, special and unique asset of
Employer's business. Employee shall not, either before or after termination
of this Agreement, disclose to anyone said financial information or any
part thereof, for any reason or purpose whatsoever. This paragraph 6 shall
survive the expiration or termination of this Agreement.
7. Written or Printed Material. All written or printed materials, notebooks
and records used by Employee in performing duties for Employer, other than
Employee's personal notes and diaries, are and shall remain the sole
property of Employer. Upon termination of employment, Employee shall
promptly return all such material (including all copies) to Employer. This
paragraph 7 shall survive expiration or termination of this Agreement.
8. Surety Bond. Employee agrees that he will furnish all information and take
any other steps necessary from time to time to enable Employer to obtain or
maintain a fidelity bond conditional on the rendering of a true account by
Employee of all monies, goods, or other property which may come into the
custody, charge, or possession of Employee during the term of his
employment. The surety company issuing the bond and the amount of the bond
must be acceptable to Employer. All premiums on the bond shall be paid by
Employer.
9. Base Salary. In consideration for the services to be performed hereunder,
Employee shall receive a salary at the rate of One Hundred Seven Thousand
Dollars ($107,000) per annum, payable in installments during the term of
this Agreement of approximately Four Thousand Four Hundred Fifty-Eight
Dollars and Thirty-Three Cents ($4,458.33) on the fifteenth day and
thirtieth day (or last day during the month of February) of each month,
subject to applicable adjustments for withholding taxes and prorations for
any partial employment period. Employee shall receive such annual
adjustment increases in salary, if any, as may be determined by Employer's
Board of Directors, in its sole discretion, resulting from the Board of
Directors Compensation Committee annual review of Employee's compensation
prior to January 1 of each year during the term of this Agreement.
10. Salary Continuation During Disability. If Employee for any reason (except
as expressly provided below) becomes temporarily or permanently disabled so
that he is unable to perform the duties under this Agreement, Employer
agrees to pay Employee the base salary otherwise payable to Employee
pursuant to paragraph 9 of this Agreement, reduced by the amounts received
by Employee from state disability insurance, or worker's compensation or
other similar insurance benefits through policies provided by Employer, for
a period of twelve (12) months from the date of disability.
For purposes of this paragraph 10, "disability" shall be defined as
provided in Employer's disability insurance program. Notwithstanding
anything herein to the contrary, Employer shall have no obligation to make
payments for a disability resulting from the deliberate, intentional
actions of Employee, such as, but not limited to, attempted suicide or
chemical dependence of Employee.
11. Incentive Compensation. Employee shall be entitled to participate in any
bonus plan, pool or other arrangement authorized and approved by Employer's
Board of Directors for officers of Employer.
12. Stock Options. Employer has previously granted stock options to Employee
evidenced by one or more stock option agreements attached hereto as Exhibit
B and incorporated herein by this reference. Employer may, but is not
obligated to, grant additional stock options to Employee in the future
which grants, if any, shall be within the sole discretion of the Board of
Directors of Employer and subject to the terms and provisions of Employer's
stock option plan pursuant to which such grants are effected. Any such
grants shall be evidenced by a stock option agreement entered into between
Employer and Employee pursuant to such stock option plan and a copy of each
such stock option agreement shall be attached to this Agreement as an
exhibit. Notwithstanding any provision of any such stock option plan or any
such stock option agreement to the contrary, no rights of employment shall
be conferred upon Employee or result from any such stock option plan or any
stock option agreement entered into between Employer and Employee. Any
employment rights and corresponding duties of Employee pursuant to his
employment by Employer shall be limited to and interpreted solely in
accordance with the terms and provisions of this Agreement.
13. Other Benefits. Employee shall be entitled to those employee benefits
adopted by Employer for all employees of Employer, subject to applicable
qualification requirements and regulatory approval requirements, if any.
Employee shall be further entitled to the following additional benefits
which shall supplement or replace, to the extent duplicative of any part or
all of the general employee benefits, the benefits otherwise provided to
Employee:
(a) Vacation. Employee shall be entitled to four (4) weeks annual vacation
leave at his then existing rate of base salary each year during the term of
this Agreement. Employee may be absent from his employment for vacation as
long as such leave is reasonable and does not jeopardize his
responsibilities and duties specified in this Agreement. All vacation time
in excess of one (1) week shall be approved in advance by the President and
Chief Executive Officer of Employer. Accrual of vacation time, if any,
shall be determined in accordance with Employer's personnel policies.
(b) Automobile and Insurance. Employer shall acquire or otherwise make
available to Employee for his business and incidental personal use an
automobile, suitable to his position, and (i) maintain it in good condition
and repair; and (ii) provide public liability insurance and property damage
insurance policies with insurer(s) acceptable to Employer and with
coverages in such amounts as may be acceptable to Employer from time to
time.
14. Annual Physical Examination. Employer shall pay for the cost of an annual
physical examination conducted by a California licensed physician selected
by Employee and reasonably acceptable to Employer. Employee shall provide
or cause to be provided to the chairman of the Board of Directors of
Employer a copy of such examination report as soon as such report is
available.
15. Business Expenses. Employee shall be reimbursed for all ordinary and
necessary expenses incurred by Employee in connection with his employment.
Employee shall also be reimbursed for reasonable expenses incurred in
activities associated with promoting the business of Employer, including
expenses for entertainment, travel, conventions, educational programs and
similar items, and with the prior approval of the Chairman of the Board of
Employer, expenses for club memberships. Employer will pay for or will
reimburse Employee for such expenses upon presentation by Employee from
time to time of receipts or other appropriate evidence of such
expenditures.
16. Termination of Agreement.
(a) Automatic Termination. This Agreement shall terminate automatically
without further act of the parties and immediately upon the occurrence of
any one of the following events, subject to either party's right, without
any obligation whatsoever, to waive an event reasonably susceptible of
waiver, and the obligation of Employer to pay the amounts which would
otherwise be payable to Employee under this Agreement through the end of
the month in which the event occurs, except that only in the event of
termination based upon subparagraphs (1), (4), (7) or (12, to the extent of
Employer's breach) below shall Employee be entitled to receive severance
payments based upon automatic termination pursuant to paragraph 16 (d) of
this Agreement:
(1) The occurrence of circumstances that make it impossible or
impractical for Employer to conduct or continue its business.
(2) The death of Employee.
(3) The loss by Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) The willful, intentional and material breach of duty by Employee
in the course of his employment.
(6) The habitual and continued neglect by Employee of his employment
duties and obligations under this Agreement.
(7) The continuous mental or physical incapacity of Employee, subject
to Employee's rights under paragraph 10 of this Agreement.
(8) Employee's willful and intentional violation of any State of
California or federal banking laws, or of the Bylaws, rules,
policies or resolutions of Employer or its parent holding
company, or of the rules or regulations of the California
Superintendent of Banks or the Federal Deposit Insurance
Corporation, or other regulatory agency or governmental authority
having jurisdiction over Employer or its parent holding company.
(9) The determination by a state or federal banking agency or
governmental authority having jurisdiction over Employer that
Employee is not suitable to act in the capacity for which he is
employed by Employer.
(10) Employee is convicted of any felony or a crime involving moral
turpitude or commits a fraudulent or dishonest act.
(11) Employee discloses without authority any secret or confidential
information concerning Employer or takes any action which
Employer's Board of Directors determines, in its sole discretion
and subject to good faith, fair dealing and reasonableness,
constitutes unfair competition with or induces any customer to
breach any contract with Employer.
(12) Either party breaches the terms or provisions of this Agreement.
(b) Termination by Employer. Employer may, at its election and in its sole
discretion, terminate this Agreement for any reason, or for no reason, by
giving not less than thirty (30) days' prior written notice of termination
to Employee, without prejudice to any other remedy to which Employer may be
entitled either at law, in equity or under this Agreement. Upon such
termination, Employee shall be entitled to receive any employment benefits
which shall have accrued prior to such termination and the severance pay
specified in paragraph 16 (d) below.
(c) Termination by Employee. This Agreement may be terminated by Employee
for any reason, or no reason, by giving not less than thirty (30) days'
prior written notice of termination to Employer. Upon such termination, all
rights and obligations accruing to Employee under this Agreement shall
cease, except that such termination shall not prejudice Employee's rights
regarding employment benefits which shall have accrued prior to such
termination and any other remedy which Employee may have at law, in equity
or under this Agreement, which remedy accrued prior to such termination.
(d) Severance Pay - Termination by Employer. In the event of termination by
Employer pursuant to paragraph 16 (b) or automatic termination based upon
paragraph 16 (a) (1), (4), (7) or (12, to the extent of Employer's breach)
of this Agreement, Employee or his designated beneficiary shall be entitled
to receive severance pay at Employee's rate of salary immediately preceding
such termination equal to twelve (12) months' salary (in addition to
incentive compensation or bonus payments due Employee, if any), payable in
lump sum. Notwithstanding the foregoing, (i) such severance pay shall be
reduced by the amount paid to Employee each month following termination
from another employer; and (ii) in the event of a "change in control" as
defined in subparagraph (e) below, Employee shall not be entitled to
severance pay pursuant to this subparagraph (d) and any rights of Employee
to severance pay shall be limited to such rights as are specified in
subparagraph (e) below. Employee acknowledges and agrees that severance pay
pursuant to this subparagraph (d) is in lieu of all damages, payments and
liabilities on account of the early termination of this Agreement and the
sole and exclusive remedy for Employee terminated at the will of Employer
pursuant to paragraph 16(b) or pursuant to certain provisions of paragraph
16 (a) described herein.
(e) Severance Pay - Change in Control. In the event of a "change in
control" as defined herein and within a period of two (2) years following
consummation of such a change in control (i) Employee's employment is
terminated; or (ii) without Employee's consent there occurs (A) any adverse
change in the nature and scope of Employee's position, responsibilities,
duties, salary or benefits, or (B) any change in Employee's location of
employment from within Santa Clara County, California, or (C) any event
which reasonably constitutes a demotion, significant diminution or
constructive termination (by resignation or otherwise) of Employee's
employment, then Employee shall be entitled to receive severance pay in
addition to any bonus or incentive compensation payments due Employee. Any
such severance pay due Employee shall be in an amount equal to one (1)
times Employee's average annual compensation for the five (5) years
immediately preceding the change in control. Employee's average annual
compensation shall be the average of the aggregate compensation paid by
Employer to Employee which was includable in Employee's gross income for
federal income tax purposes for the five (5) tax years ending immediately
prior to the change in control divided by the number five (5).
If all or any portion of the amounts payable to Employee pursuant to this
paragraph 16 (e) alone or together with other payments which Employee has
the right to receive from Employer, constitute "excess parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), that are subject to the excise tax imposed by Section
4999 of the Code (or similar tax and/or assessment), such amounts payable
hereunder shall be reduced to the extent necessary, so as to cause a
reduction of any excise tax pursuant to Section 4999 of the Code to equal
"zero".
Any such severance shall be payable in lump sum. Such severance payment, if
any, shall be in lieu of all damages, payments and liabilities on account
of the events described above for which such severance payment, if any, may
be due Employee and any severance payment rights of Employee under
paragraph 16 (d) of this Agreement. This subparagraph (e) shall be binding
upon and inure to the benefit of the parties and any successors or assigns
or employer or any "person" as defined herein.
Notwithstanding the foregoing, Employee shall not be entitled to receive
nor shall Employer, its successors, assigns or any "person" as defined
herein be obligated to pay severance payments pursuant to this subparagraph
(e) in the event of an occurrence described in paragraph 16 (a),
subparagraphs (5), (6), (8), (10), (11) or (12, to the extent of an
Employee breach), or in the event of a determination pursuant to
subparagraph (9) thereof, or in the event Employee terminates employment in
accordance with paragraph 16 (c) and the termination is not a result of or
based upon the occurrence of any event described in paragraph 16 (e)(ii).
A "change in control" of Employer for purposes of this Agreement and
subparagraph (e) shall mean the occurrence of any of the following events
with respect to Employer (with the term "Employer" being defined for such a
change in control to include any parent holding company): (i) a change in
control of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in
response to any other form or report to the regulatory agencies or
governmental authorities having jurisdiction over Employer or any stock
exchange on which Employer's shares are listed which requires the reporting
of a change in control; (ii) any merger, consolidation or reorganization of
Employer in which Employer does not survive; (iii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions) of any assets of Employer having
an aggregate fair market value of fifty percent (50%) of the total value of
the assets of Employer, reflected in the most recent balance sheet of
Employer; (iv) a transaction whereby any "person" (as such term is used in
the Exchange Act or any individual, corporation, partnership, trust or any
other entity) is or becomes the beneficial owner, directly or indirectly,
of securities of Employer representing 25% or more of the combined voting
power of Employer's then outstanding securities; (v) if in any one year
period, individuals who at the beginning of such period constitute the
Board of Directors of Employer cease for any reason to constitute at least
a majority thereof, unless the election, or the nomination for election by
Employer's shareholders, of each new director is approved by a unanimous
vote of the directors then still in office who were directors at the
beginning of the period; (iv) a majority of the members of the Board of
Directors of Employer in office prior to the happening of any event
determines in its sole discretion that as a result of such event there has
been a change in control.
17. Notices. Any notices to be given hereunder by either party to the other
shall be in writing and may be transmitted by personal delivery or by U.S.
mail, registered or certified, postage prepaid with return receipt
requested. Mailed notices shall be addressed to the parties at the
addresses listed as follows:
Employer: Principal place of business
Employee: Principal place of business as shown in Employer's Personnel
Records and Employee's personal file.
Each party may change the address for receipt of notices by written notice
in accordance with this paragraph 17. Notices delivered personally shall be
deemed communicated as of the date of actual receipt; mailed notices shall
be deemed communicated as of three (3) days after the date of mailing.
18. Arbitration. All claims, disputes and other matters in question arising out
of or relating to this Agreement or the breach or interpretation thereof,
other than those matters which are to be determined by the Employer in its
sole and absolute discretion, shall be resolved by binding arbitration
before a representative member, selected by the mutual agreement of the
parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
at their offices located in San Jose, California, in accordance with the
rules and procedures of JAMS then in effect. Notice of the demand for
arbitration shall be filed in writing with the other party to this
Agreement and with JAMS. In no event shall the demand for arbitration be
made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by
the applicable statute of limitations. Any award rendered by JAMS shall be
final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and
assigns, and may be entered in any court having jurisdiction thereof. The
obligation of the parties to arbitrate pursuant to this clause shall be
specifically enforceable in accordance with, and shall be conducted
consistently with, the provisions of Title 9 of Part 3 of the California
Code of Civil Procedure. Any arbitration hereunder shall be conducted in
San Jose, California, unless otherwise agreed to by the parties.
19. Attorneys' Fees and Costs. In the event of litigation, arbitration or any
other action or proceeding between the parties to interpret or enforce this
Agreement or any part thereof or otherwise arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover its costs
related to any such action or proceeding and its reasonable fees of
attorneys, accountants and expert witnesses incurred by such party in
connection with any such action or proceeding. The prevailing party shall
be deemed to be the party which obtains substantially the relief sought by
final resolution, compromise or settlement, or as may otherwise be
determined by order of a court of competent jurisdiction in the event of
litigation, an award or decision of one or more arbitrators in the event of
arbitration, or a decision of a comparable official in the event of any
other action or proceeding. Every obligation to indemnify under this
Agreement includes the obligation to pay reasonable fees of attorneys,
accountants and expert witnesses incurred by the indemnified party in
connection with matters subject to indemnification.
20. Entire Agreement. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the
employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to the employment of Employee
by Employer. Each party to this Agreement acknowledges that no other
representations, inducements, promises, or agreements, oral or otherwise,
have been made by any party, or anyone acting on behalf of any party, which
are not set forth herein, and that no other agreement, statement, or
promise not contained in this Agreement shall be valid or binding on either
party.
21. Modifications. Any modification of this Agreement will be effective only if
it is in writing and signed by a party or its authorized representative.
22. Waiver. The failure of either party to insist on strict compliance with any
of the terms, provisions, covenants, or conditions of this Agreement by the
other party shall not be deemed a waiver of any term, provision, covenant,
or condition, individually or in the aggregate, unless such waiver is in
writing, nor shall any waiver or relinquishment of any right or power at
any one time or times be deemed a waiver or relinquishment of that right or
power for all or any other times.
23. Partial Invalidity. If any provision in this Agreement is held by a court
of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
24. Interpretation. This Agreement shall be construed without regard to the
party responsible for the preparation of the Agreement and shall be deemed
to have been prepared jointly by the parties. Any ambiguity or uncertainty
existing in this Agreement shall not be interpreted against either party,
but according to the application of other rules of contract interpretation,
if an ambiguity or uncertainty exists.
25. Governing Law and Venue. The laws of the State of California, other than
those laws denominated choice of law rules, shall govern the validity,
construction and effect of this Agreement. Any action which in any way
involves the rights, duties and obligations of the parties hereunder shall
be brought in the courts of the State of California and venue for any
action or proceeding shall be in Santa Clara County or in the United States
District Court for the Northern District of California, and the parties
hereby submit to the personal jurisdiction of said courts.
26. Payments Due Deceased Employee. If Employee dies prior to the expiration of
the term of his employment, any payments that may be due Employee from
Employer under this Agreement as of the date of death shall be paid to
Employee's executors, administrators, heirs, personal representatives,
successors, or assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement consisting of
twelve pages in the City of San Jose, County of Santa Clara, State of California
as of the date set forth above.
EMPLOYER: EMPLOYEE:
SAN JOSE NATIONAL BANK
By: S/ Robert A. Archer S/ Eugene E. Blakeslee
Robert A. Archer Eugene E. Blakeslee
Chairman of the Board
<PAGE>
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease"), dated for reference purposes the 15th day
of January, 1996, is entered into by and between SJNB FINANCIAL CORP., a
California corporation ("SJNB") and GREATER UNIFIED MANAGEMENT BUSINESSES, INC.,
a California corporation ("GUMBI"), doing business as "Logistics".
RECITALS
A. Pursuant to a ground lease agreement with the fee owner of the property,
Carl N. Swenson Co., Inc. obtained a leasehold estate in certain property
commonly known as 95 South Market Street, San Jose, California.
B. Pursuant to that Lease executed between Carl N. Swenson Co., Inc., as
lessor, and The First National Bank of San Jose, as lessee, dated October
1, 1976 (the "Master Lease") The First National Bank of San Jose leased
approximately 17,737 square feet on the ground floor of the building (the
"Building") located at 95 South Market Street, San Jose, California (the
"Master Lease Premises"), all as more specifically described in the Master
Lease.
C. Subsequent to the execution of the Master Lease, The First National Bank of
San Jose became Bank of the West.
D. Pursuant to that Sublease among Bank of the West, as sublessor, Business
Bancorp, a California corporation, as sublessee, Carl N. Swenson Co., Inc.,
and Northwestern Mutual Life Insurance Company, dated April 5, 1982 (the
"BB Sublease"), Business Bancorp subleased from Bank of the West space on
the ground floor of the building located at 95 South Market Street, San
Jose, California (the "BB Sublease Premises") for a term ending September
30, 2004, unless terminated sooner pursuant to any provision of the BB
Sublease or the Master Lease (including but not limited to, Master Lease
Sections 21 - Condemnation and 22- Destruction of Premises).
E. Pursuant to that Sublease Agreement between Business Bancorp and California
Business Bank, dated June 29, 1982 (the "California Business Bank
Sublease") California Business Bank subleased from Business Bancorp the BB
Sublease Premises.
F. Business Bancorp has merged into SJNB Financial Corp., a California
corporation.
G. California Business Bank's has merged into San Jose National Bank, a
national bank.
H. SJNB and San Jose National Bank have terminated the California Business
Bank Sublease.
I. The interest of Carl N. Swenson Co., Inc., under the Master Lease was
acquired through foreclosure by Zentac Investments, a Delaware corporation
by Trustee's Deed recorded on November 19, 1991. Thereafter, the Zentac
Investments' interest in the Master Lease was transferred to Miyoko Yuki
and Thomas M. Yuki, Trustees under agreement dated April 26, 1985, Thomas
M. Yuki, Emiko Yamate, Peni Chieko Morimoto and Horbert T. Yuki by deed
recorded on December 31, 1991. Thereafter, Barbara Yuki, Minovi Yamate and
Edward Morimoto quitclaim to their respective spouses, any interest they
may have had in the Building. The owners of the leasehold estate are doing
business as Stateside Properties and are hereinafter referred to as the
"Master Landlord".
J. A portion of the BB Sublease Premises is vacant and SJNB desires to obtain
a subtenant for such space.
K. GUMBI desires to sublease a portion of the BB Sublease Premises, as
described below.
NOW, THEREFORE, SJNB and GUMBI agree as follows:
1. Premises. SJNB hereby subleases to GUMBI, and GUMBI hereby subleases from
SJNB, the following described space located within the BB Sublease
Premises, consisting of approximately 3,070 square feet of rentable space:
that area located on the first floor of the Building, as delineated in red
on Exhibit "A" attached hereto (the "GUMBI Sublease Premises"). The parties
understand that the GUMBI Sublease Premises is a portion of the BB Sublease
Premises. For purposes of this Sublease, the GUMBI Sublease Premises is
agreed to be twenty-five and eight hundredths percent (25.08%) of the
entire BB Sublease Premises ("GUMBI's Share"). GUMBI acknowledges that SJNB
intends to seek the approval of the Master Landlord and the Bank of the
West to reconstruct the lobby area of the BB Sublease Premises, which
reconstruction will effect the lobby area to the GUMBI Sublease Premises.
Any such reconstruction shall not diminish, increase, or otherwise modify
the rights and obligations of SJNB or GUMBI hereunder.
2. Rental.
2.1 Monthly Rent. On the Commencement Date (as defined below) and first
day of each calendar month thereafter during the Term (as defined
below), GUMBI shall pay "Monthly Rent" in accordance with the schedule
set forth in Exhibit "B" attached hereto. Monthly Rent shall be
prorated for any periods during the Term which are less than one
month, on the basis of a thirty (30) day month. Monthly Rent, and all
other items of rent under this Sublease, shall be paid without
deduction, offset, prior notice or demand, and in lawful money of the
United States.
2.2 Additional Rent. All other sums to be paid by GUMBI under this
Sublease, the BB Sublease or the Master Lease shall be paid by GUMBI
as "additional rent" under this Sublease.
2.3 Late Charges. GUMBI hereby acknowledges that late payment by GUMBI to
SJNB of Monthly Rent and any other sums due hereunder will cause SJNB
to incur costs not contemplated by this Sublease, the exact amount of
which will be extremely difficult to ascertain. Such costs include,
but are not limited to, processing and accounting charges.
Accordingly, if GUMBI fails to deliver to SJNB any installment of rent
or any other sum within ten (10) business days after the due date,
then SJNB may notify GUMBI, in writing, of such delinquency and if
GUMBI fails to deliver the delinquent sums to SJNB within three (3)
business days following receipt of such notice, GUMBI shall pay to
SJNB a late charge equal to four percent (4%) of the overdue amount.
The parties hereby agree that the late charge represents a fair and
reasonable estimate of the costs SJNB will incur by reason of late
payment by GUMBI.
2.4 Items Included. The Monthly Rent includes base year costs of
maintenance, operation and management of the Building and base year
real estate taxes. Monthly Rent does not include janitorial costs or
taxes on tenant improvements, equipment, furnishings and trade
fixtures, which costs and taxes are to be paid by GUMBI. For the
purposes of the foregoing, "base year" shall mean the calendar year
1996. GUMBI is responsible for contracting for its own janitorial
service. In addition, that portion of any charges for excess utility
consumption assessed to the BB Sublease Premises by the Master
Landlord which is allocable to the GUMBI Sublease Premises shall be
paid by GUMBI, which portion shall be paid as additional rent within
ten (10) days following SJNB's written request.
3. Term of Sublease. This Sublease shall commence on the earlier of
(the"Commencement Date") (a) March 1, 1996, or (b) the date the Tenant
Improvements (as defined below) are substantially completed, and shall
expire, if not earlier terminated, on September 30, 2004 (the "Term").
4. Terms and Conditions of Sublease. This Sublease is subject to all of the
terms and conditions of the Master Lease attached hereto as Exhibit "C" and
to the BB Sublease attached hereto as Exhibit "D" and, in this regard,
GUMBI hereby assumes and agrees to perform all of the obligations of Bank
of the West under the Master Lease, (insofar as such obligations relate to
the GUMBI Sublease Premises) and of SJNB under the BB Sublease (insofar as
such obligations relate to the GUMBI Sublease Premises).
GUMBI covenants and agrees that it shall not commit or permit to be
committed on the GUMBI Sublease Premises any act or omission which will
violate any terms or conditions of the Master Lease or cause the
termination of the Master Lease or a default under the Master Lease. GUMBI
covenants and agrees that it shall not commit or permit to be committed on
the GUMBI Sublease Premises any act or omission which will violate any
terms or conditions of the BB Sublease or be a default under the BB
Sublease. In the event of the termination of the Master Lease or the BB
Sublease for any reason (including without limitation termination as a
result of a condemnation or following a damage or destruction), other than
a default by SJNB (which default does not result from a default by GUMBI),
this Sublease shall terminate coincidentally therewith without any
liability of SJNB to GUMBI's. All of the terms and conditions of the Master
Lease are incorporated herein by reference except the provisions of
Sections 4, 5, 6, 9, 19(c), 19(d), 25, 29, 30, 31 and 32. All of the terms
and conditions of the BB Sublease are incorporated herein by reference
except Sections 1, 2, 3, 4, 5, 6, 7, 8 and 10.
5. First Month's Rent. Upon execution of this Sublease, GUMBI shall deliver to
SJNB the sum of Two Thousand Dollars ($2,000.00), as payment of the first
installment of Monthly Rent.
6. Security Deposit. Upon execution of this Sublease, GUMBI shall deposit with
SJNB Five Six Thousand Six Hundred Dollars ($5,600.00) as a security
deposit for the performance by GUMBI of the provisions of this Lease. If
GUMBI is in default, SJNB can use the security deposit, or any portion of
it, to cure the default or to compensate SJNB for all damages sustained by
SJNB resulting from GUMBI's default. GUMBI shall pay immediately on demand
to SJNB a sum equal to the portion of the security deposit expended or
applied by SJNB as provided in this Section 6 so as to maintain the
security deposit in the sum initially deposited with SJNB. As soon as
practicable after the expiration or termination of this Sublease, SJNB
shall return the security deposit to GUMBI, less such amounts as are
reasonably necessary to remedy GUMBI's defaults in payment of Rent, to
repair damages to the GUMBI Sublease Premises caused by GUMBI or to clean
the GUMBI Sublease Premises upon such termination, reasonable and normal
wear and tear excepted. In the event of the sale of the Building, the
security deposit will be transferred to the purchaser and SJNB will be
relieved of any liability with reference to such security deposit upon such
transfer. SJNB shall not be required to keep the security deposit separate
from its other funds, and GUMBI shall not be entitled to interest on such
deposit.
7. Operating Expenses. Under the Master Lease, Section 13, Bank of the West is
required to pay seven and seven tenths percent (7.7 %) "of the total cost
of any increase in the cost of maintenance, operation and management of the
building, including common area maintenance costs..." Commencing on January
1, 1997, GUMBI shall, as additional rent, pay to SJNB GUMBI's Share of the
increase in operating costs (as determined under the Master Lease) which is
allocable to the GUMBI Sublease Premises (i.e. 25.08 % of the 7.7 % of the
increase in Building expenses) over the base year period of January 1, 1996
through December 31, 1996 Payments shall be made within ten (10) days of
receipt of an invoice from SJNB.
8. Insurance. Under the Master Lease, Section 18, Bank of the West is required
to maintain certain insurance coverage. GUMBI shall maintain insurance in
full compliance with Section 18, except that the required limits shall be
Two Million Dollars ($2,000,000) per occurrence, combined single limit and,
in addition to those parties named in Section 18, SJNB shall be named as an
additional insured under the personal injury policy.
9. Taxes. To the extent applicable to the GUMBI Sublease Premises, GUMBI shall
pay all taxes required under Section 19 of the Master Lease, provided that,
as to real estate taxes levied or assessed against the BB Sublease
Premises, GUMBI shall, commencing on January 1, 1997, pay GUMBI's Share of
increases in such taxes (i.e. 25.08 % of the 7.7 % of the increase in
Building taxes) over those assessed for the period July 1995-June 1996.
10. Use. GUMBI shall use the GUMBI Sublease Premises for general office
purposes. The GUMBI Sublease Premises shall not be used for any other
purposes without the prior consent of Master Landlord, Bank of the West and
SJNB. GUMBI shall not use the GUMBI Sublease Premises for, or carry on, or
permit to be carried on any offensive, noisy or dangerous trade, business,
manufacture, or occupation. GUMBI shall not do or suffer anything to be
done upon the GUMBI Sublease Premises which will cause structural injury to
the GUMBI Sublease Premises or the Building. The GUMBI Sublease Premises
shall not be overloaded and no machinery, apparatus or other appliance
shall be used or operated in or upon the GUMBI Sublease Premises which will
in any manner injure, vibrate or shake the GUMBI Sublease Premises or the
Building. No use shall be made of the GUMBI Sublease Premises which will in
any way impair the efficient operation of the sprinkler system within the
Building. No musical instrument of any sort, or any noise making device
will be operated or allowed upon the GUMBI Sublease Premises. In addition
to the foregoing, GUMBI shall fully comply with Section 10 of the Master
Lease.
11. Parking. GUMBI shall have the right to use four (4) designated parking
spaces in the parking area adjacent to the GUMBI Sublease Space (as shown
on Exhibit F hereto), and shared use of the handicapped parking space,
without the payment of any parking fee.
12. Signage. GUMBI desires to have signage on the exterior of the Building.
SJNB has the right to certain signage on the exterior of the Building
(which right is limited to the area shown on Exhibit "G") and is willing to
provide a portion of those rights to GUMBI. SJNB and GUMBI will work
together to identify exterior sign size and location for GUMBI. Once SJNB
and GUMBI have agreed on exterior signage and location, GUMBI must then
obtain the prior written consent of Master Landlord, Bank of the West and
the City of San Jose to place such signage on the exterior of the Building.
13. Brokers. The parties acknowledge that the real estate broker for this
transaction is Grubb & Ellis Company, and that SJNB will pay the real
estate commission for this transaction as agreed between SJNB and Grubb &
Ellis under a separate agreement. SJNB and GUMBI acknowledge that Grubb &
Ellis Company is the dual agent for both SJNB and GUMBI. GUMBI hereby
represents and warrants to SJNB that it has retained no brokers or other
agents in connection with this Sublease and, in this regard, GUMBI hereby
agrees to indemnify SJNB, and its successors and assigns from and against
any and all claims for commissions, finders fees, and similar payments
asserted by any person or entity claiming to have represented GUMBI.
14. Notices. All notices or demands of any kind required or desired to be given
by SJNB or by GUMBI hereunder shall be in writing and shall be deposited in
the United States mail, certified or registered, postage prepaid, addressed
to the parties at the addresses set forth after their signatures at the end
of this Sublease. Any notice sent by United States mail shall be deemed
delivered when actually delivered, or if delivery is not successful, when
the Postal Service first attempts delivery, as reflected in the records of
the Postal Service. Alternatively, notices may be sent by recognized
delivery service (such as Federal Express or UPS) in which case such
notices shall be deemed delivered when delivery is first attempted, as
reflected in the records of the delivery service.
15. No Representations. GUMBI hereby acknowledges that SJNB has acquired the
interest of the prior occupant of the BB Sublease Premises, that SJNB is
not currently occupying the BB Sublease Premises, and that SJNB has not
made any representations or warranties whatsoever regarding the GUMBI
Sublease Premises or the Building. Without limiting the foregoing, SJNB has
made no representations regarding (a) the condition of the GUMBI Sublease
Premises or the electrical, plumbing, heating or other systems located
therein; (b) the zoning for the GUMBI Sublease Premises; (c) compliance
with any laws or ordinances, including without limitation the Americans
With Disabilities Act; (d) the presence or absence of asbestos or other
Hazardous Materials; (e) the likelihood of obtaining the consent of the
Master Landlord or Bank of the West to this Sublease. Subject to the
installation of the Tenant Improvements, GUMBI shall accept the GUMBI
Sublease Premises in its "as is" condition on the Commencement Date.
16. Condition to SJNB's Obligations. Pursuant to the terms of the Master Lease
and of the BB Sublease, the consent of Master Landlord and of Bank of the
West, respectively, must be obtained to any sublease of the BB Sublease
Premises. Therefore, the obligations of SJNB under this Sublease shall be
conditioned upon its obtaining the consent of Master Landlord and of Bank
of the West, on or before February 1, 1996 to the terms and conditions of
this Sublease. Further, prior to any construction, Master Landlord and Bank
of the West must agree that the Tenant Improvements and any improvements
constructed by GUMBI may remain in place upon the expiration of their
respective leases. If such consents are not obtained on or before such
date, this Sublease shall be null and void and of no force or effect. SJNB
shall provide copies of such consents to GUMBI following SJNB's receipt
thereof.
17. Tenant Improvements. SJNB shall, at its expense, prepare plans and
specifications (the "Plans") incorporating the items of "Tenant
Improvements" set forth in Exhibit "E" attached hereto, which Plans shall
be submitted to GUMBI for review. GUMBI shall review and approve the Plans
within three (3) days following submission thereof. Following GUMBI's
approval of the Plans, SJNB shall obtain the issuance of all permits
required to construct the same and, upon such issuance, SJNB shall
construct and install within the GUMBI Sublease Premises the Tenant
Improvements in accordance with the Plans. On or before the sixtieth (60th)
month of the Term, SJNB shall provide an allowance to GUMBI for recarpeting
of the GUMBI Sublease Premises with building standard carpeting and paint
touchup, which allowance shall in no event exceed Eight Thousand Seven
Hundred Fifty-Seven Dollars ($8,757.00) and shall only be available to
GUMBI to the extent GUMBI actually recarpets and paints the subject
premises.
IN WITNESS HEREOF, the parties hereto have executed this Sublease as of the
dated set forth above:
SJNB: GUMBI:
SJNB FINANCIAL CORP., a California Greater Unified Management Businesses
corporation Inc., a California corporation
By: s/ Eugene E. Blakeslee By: s/ Evelyn Christopher
Eugene E. Blakeslee Evelyn Christopher
Chief Financial Officer President
Address For Notices: Address for Notices:
One North Market Street San Jose, CA The GUMBI Sublease Premises
95113 (408) 947-7562
<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> Jan-01-1996
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1
<CASH> 13,941
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,190
<INVESTMENTS-CARRYING> 15,264
<INVESTMENTS-MARKET> 15,375
<LOANS> 179,554
<ALLOWANCE> 3,859
<TOTAL-ASSETS> 267,358
<DEPOSITS> 203,737
<SHORT-TERM> 31,567
<LIABILITIES-OTHER> 5,025
<LONG-TERM> 0
<COMMON> 19,711
0
0
<OTHER-SE> 7,318
<TOTAL-LIABILITIES-AND-EQUITY> 267,358
<INTEREST-LOAN> 4,914
<INTEREST-INVEST> 938
<INTEREST-OTHER> (2)
<INTEREST-TOTAL> 5,850
<INTEREST-DEPOSIT> 1,483
<INTEREST-EXPENSE> 1,929
<INTEREST-INCOME-NET> 3,921
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,473
<INCOME-PRETAX> 1,688
<INCOME-PRE-EXTRAORDINARY> 1,688
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 959
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> .067
<LOANS-NON> 235
<LOANS-PAST> 246
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,847
<CHARGE-OFFS> 176
<RECOVERIES> 118
<ALLOWANCE-CLOSE> 3,859
<ALLOWANCE-DOMESTIC> 3,601
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 258
</TABLE>
