SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
---- OF 1934
For the quarterly period ended September 30, 1998
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 registrant 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
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed, since last
report)
Indicate by check mark whether the registrant (1) has 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,460,771 shares of common
stock outstanding as of November 3, 1998.
<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 Shareholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - ------
CONDITION AND RESULTS OF OPERATIONS 9
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
- - ------
MARKET RISK 27
PART II - OTHER INFORMATION
- - ---------------------------
Item 1. LEGAL PROCEEDINGS
- - ------ 29
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 29
- - ------
Item 3. DEFAULTS UPON SENIOR SECURITIES 29
- - ------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 29
- - ------
Item 5. OTHER INFORMATION 29
- - ------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 29
- - ------
SIGNATURES 32
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
<TABLE>
September 30, December 31,
Assets 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $19,552 $22,825
Money market investments 8,796 2,700
Investment securities:
Available for sale 46,863 48,305
Held to maturity (Fair value: $11,687 at September 30, 1998
and $13,843 at December 31, 1997) 11,492 13,737
- - ----------------------------------------------------------------------------------------------------------------------------
Total investment securities 58,355 62,042
- - ----------------------------------------------------------------------------------------------------------------------------
Loans 246,653 228,972
Allowance for possible loan losses (4,702) (4,493)
- - ----------------------------------------------------------------------------------------------------------------------------
Loans, net 241,951 224,479
- - ----------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 3,864 3,916
Accrued interest receivable and other assets 6,247 5,202
Intangibles, net of accumulated amortization of $2,044 at
September 30, 1998 and $1,707 at December 31, 1997 4,188 3,755
- - ----------------------------------------------------------------------------------------------------------------------------
Total $342,953 $324,919
============================================================================================================================
Liabilities and Shareholders' Equity
- - ----------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $78,042 $78,437
Interest-bearing 224,121 191,908
- - ----------------------------------------------------------------------------------------------------------------------------
Total deposits 302,163 270,345
- - ----------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings ---- 16,000
Accrued interest payable and other liabilities 6,238 5,415
- - ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 308,401 291,760
- - ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value; authorized, 20,000 shares; issued and outstanding,
2,460 shares at September 30, 1998
and 2,493 shares at December 31, 1997 16,688 18,800
Retained earnings 17,450 14,254
Accumulated other comprehensive income 414 105
- - ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 34,552 33,159
- - ----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
- - ----------------------------------------------------------------------------------------------------------------------------
Total $342,953 $324,919
============================================================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
Quarter ended Nine months ended
September 30, September 30,
----------------------------------------------------------
1998 1997 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $6,249 $5,776 $18,404 $16,571
Interest on money market investments 428 82 823 475
Interest and dividends on investment securities available for 658 758 2,172 2,233
sale
Interest on investment securities held to maturity 171 232 551 720
Other interest and investment income (2) (2) (7) (7)
- - ----------------------------------------------------------------------------------------------------------------------------
Total interest income 7,504 6,846 21,943 19,992
- - ----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest expense on interest-bearing deposits:
Certificates of deposit over $100 863 759 2,364 2,231
Other 1,522 1,412 4,475 4,243
- - ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,385 2,171 6,839 6,474
- - ----------------------------------------------------------------------------------------------------------------------------
Net interest income 5,119 4,675 15,104 13,518
- - ----------------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 150 215 150 395
- - ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 4,969 4,460 14,954 13,123
- - ----------------------------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposits 149 156 461 437
Other operating income 101 91 324 340
Net loss on securities available for sale ---- ---- (8) (41)
- - ----------------------------------------------------------------------------------------------------------------------------
Total other income 250 247 777 736
- - ----------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 1,679 1,438 5,009 4,337
Occupancy 215 194 564 519
Other 1,040 831 2,871 2,520
- - ----------------------------------------------------------------------------------------------------------------------------
Total other expenses 2,934 2,463 8,444 7,376
- - ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,285 2,244 7,287 6,483
Income taxes 960 948 3,046 2,740
- - ----------------------------------------------------------------------------------------------------------------------------
Net income $1,325 $1,296 $4,241 $3,743
============================================================================================================================
Net income per share - basic $0.54 $0.52 $1.70 $1.49
============================================================================================================================
Net income per share - diluted $0.51 $0.50 $1.61 $1.42
============================================================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Shareholders' Equity
(in thousands)
(Unaudited)
<TABLE>
Net
Unrealized
Gain (Loss)
on Total
Securities Share-
Common Retained Available holders'
Nine months ended September 30, 1997 Shares Stock Earnings for Sale Equity
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 2,571 $20,880 $10,263 $62 $31,205
--------------
Net income 3,743 3,743
Other comprehensive income - Unrealized loss
on securities held for sale, net 22 22
--------------
Comprehensive income 3,765
--------------
Common stock repurchased (102) (2,496) (2,496)
Stock options exercised 19 129 129
Cash dividends (527) (527)
- - ----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1997 2,488 $18,513 $13,479 $84 $32,076
============================================================================================================================
Nine months ended September 30, 1998
- - ----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 2,493 $18,800 $14,254 $105 $33,159
--------------
Net income 4,241 4,241
Other comprehensive income - Unrealized gains
on securities held for sale, net 309 309
--------------
Comprehensive income 4,550
--------------
Common stock repurchased (77) (3,119) (3,119)
Issuance of common stock for purchase of Epic Funding, Corp. 12 501
Stock options exercised 32 506 506
Cash dividends (1,045) (1,045)
- - ----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1998 2,460 $16,688 $17,450 $414 $34,051
============================================================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
<TABLE>
Nine months ended
September 30,
-------------------------------------------
1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $4,241 $3,743
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 150 395
Depreciation and amortization 417 394
Amortization on intangibles 337 355
Net loss on securities available for sale 8 41
Net gain on sale of other real estate owned ---- (37)
Amortization of premium on investment securities, net (49) (32)
Increase in deferred tax benefit ---- (1,535)
Increase in intangibles assets (91) ----
Increase in accrued interest receivable and other assets (947) (444)
Increase in accrued interest payable and other liabilities 386 1,858
- - ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,452 4,738
- - ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of securities available for sale 21,009 10,057
Maturities of securities held to maturity 3,991 1,250
Purchase of securities available for sale (19,008) (10,699)
Purchase of securities held to maturity (1,749) (753)
Proceeds from the sale of other real estae owned ---- 491
Loans, net (17,473) (24,186)
Capital expenditures (354) (505)
Cash used to acquire Epic Funding, Corp. (206) ----
- - ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,790) (24,345)
- - ----------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Deposits, net 31,819 25,145
Other short-term borrowings (16,000) (17,688)
Cash dividends (1,045) (526)
Stock buyback (3,119) (2,496)
Proceeds from stock options exercised 506 129
- - ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,161 4,564
- - ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and equivalents 2,823 (15,043)
Cash and equivalents at beginning of year 25,525 40,008
- - ----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $28,348 $24,965
============================================================================================================================
Other cash flow information:
Interest paid $7,058 $6,336
===========================================
Income taxes paid $2,625 $2,365
============================================================================================================================
Noncash transactions:
Unrealized gain (loss) on securities available for sale, net of tax $309 $22
============================================================================================================================
Purchase of Epic Funding Corp.:
Leases $149 ----
Other assets 789 ----
- - ----------------------------------------------------------------------------------------------------------------------------
Total assets acquired 938 ----
Cash paid and expenses incurred (206) ----
Liabilities assumed:
Other liabilities 231 ----
- - ----------------------------------------------------------------------------------------------------------------------------
Total liabilities assumed 231 ----
- - ----------------------------------------------------------------------------------------------------------------------------
Common stock issued, net of registration costs $501 ----
============================================================================================================================
<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 and
its subsidiary Epic Funding Corp.(which was acquired on May 22,
1998), are prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to
Form 10-Q. 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, 1997.
Note B Net Income Per Share of Common Stock
The reconciliation of the numerators and denominators of the basic
and diluted earnings per share (EPS) computations are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter ended Quarter ended
September 30, 1998 September 30, 1997
-------------------------------------------------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amounts Income Shares Amounts
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income and basic EPS $1,325 2,466 $0.54 $1,296 2,487 $0.52
============ ===========
Effect of stock option dilutive shares 139 129
------------------------- -------------------------
Diluted earnings per share $1,325 2,605 $0.51 $1,296 2,616 $0.50
=========================================================================
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
----------------------------------------------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amounts Income Shares Amounts
----------------------------------------------------------------------------------------------------------------
Net income and basic EPS $4,241 2,492 $1.70 $3,743 2,513 $1.49
============ ===========
Effect of stock option dilutive shares 147 118
------------------------- ------------------------
Diluted earnings per share $4,241 2,639 $1.61 $3,743 2,631 $1.42
=========================================================================
</TABLE>
Note C Other Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. The Statement establishes standards for the way public
business enterprises are to report information about operating
segments in annual financial statements and requires those
enterprises to report selected information about operating segments
in interim financial reports issued to shareholders. The Statement is
effective for fiscal years ending after December 31, 1998; the
Company is still evaluating the Statement's impact upon adoption.
In February 1998, the FASB issued SFAS No.132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. SFAS No. 132
changes disclosure only on applicable defined benefit pension or
postretirement plans, of which the Company has none. The Company does
not believe SFAS No. 132 will have any impact on its consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement requires that an
entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. The Statement is effective for fiscal quarters of fiscal
years beginning after June 15, 1999. The Company expects to adopt
this Statement on January 1, 2000. The Company will begin evaluating
the impact of its adoption on the Company's consolidated financial
statements. Currently, management believes the Statement would not
have a significant effect on the Company's consolidated financial
position or its consolidated statement of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SJNB Financial Corp. (the "Company") is the holding company for San Jose
National Bank and subsidiary ("SJNB" and the "Bank"), San Jose, California. This
discussion focuses primarily on the results of operations of the Company on a
consolidated basis for the three and nine months ended September 30, 1998 and
1997 and the liquidity and financial condition of the Company and SJNB as of
September 30, 1998 and December 31, 1997.
All dollar amounts in the text in Item 2 are in thousands, except per share
amounts or as otherwise indicated.
Forward-looking Information
This Quarterly Report on Form 10-Q includes forward-looking information which is
subject to the "safe harbor" created by the Securities Act of 1933 and
Securities Exchange Act of 1934. These forward-looking statements (which involve
the Company's plans, beliefs and goals, refer to estimates or use similar terms)
involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
competitive pressure in the banking industry; changes in the interest rate
environment; the health of the economy declines, either nationally or
regionally; credit quality deteriorates, which could cause an increase in the
provision for possible loan losses; changes in the regulatory environment;
changes in business conditions, particularly in Santa Clara County and high tech
industries; certain operational risks involving data processing systems or
fraud; volatility of rate sensitive deposits; asset/liability matching risks and
liquidity risks; risks associated with the Year 2000 which could cause
disruptions in the Company's operations; and changes in the securities markets.
The Company undertakes no obligation to revise or publicly release the results
of any revision to these forward looking statements. For additional information
concerning risks and uncertainties related to the Company and its operations
please refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Current Developments
During the second quarter of 1998, the Company announced that the Board of
Directors approved the repurchase of up to $3.5 million of the Company's common
stock. Through September 30, 1998, the Company had repurchased 77,300 shares for
a total of $3.1 million.
Year 2000 Project
The Company's business is dependent on technology and data processing. As a
result, it has created a Year 2000 team whose members are familiar with the
Company's business and operations. The "Year 2000 issue" relates to the fact
that many computer programs and other technology utilizing microprocessors only
use two digits to represent a year, such as "98" to represent "1998," which
means that in the year 2000 such programs/processors could incorrectly treat the
year 2000 as the year 1900. This issue has grown in importance as the use of
computers and microprocessors has become more pervasive throughout the economy,
and interdependencies between systems has multiplied. The issue must be
recognized as a business problem, rather than simply a computer problem, because
of the way its effects could ripple through the economy. The Company could be
affected either directly or indirectly by the Year 2000 issue. This could happen
if any of its critical computer systems or equipment containing embedded logic
fail, if the local infrastructure (electric power, communications, or water
system) fails, if its significant vendors are adversely impacted, or if its
borrowers or depositors are significantly impacted by their internal systems or
their customers or suppliers.
The Company does not rely on its own data processing software for its
mission-critical applications needs. Rather, it uses outside vendors to license
software and/or data processing services for its critical applications such as
data and item processing and customer statements. The Company also is dependent
on an IBM AS 400 computer and OS 400 operating system, as well as personal
computers connected on a local area network. The foregoing systems are
classified by the Company as mission critical information technology ("IT")
systems.
The Company's business also involves non-IT products and services, some of which
have embedded technology which might not be Year 2000 ready. Some non-IT
products and services involve various infrastructure issues such as power,
communications and water, as well as elevators, ventilation and air conditioning
equipment. The Company classifies power and communications as non-IT
mission-critical systems.
The Company's application software, data processing vendors, computer operating
systems, local area network and the power and communication infrastructure
provide critical support to substantially all of its business and operations.
Failure to successfully complete renovation, validation and implementation of
its mission critical IT systems could have a material adverse effect on the
operations and financial performance of the Company. Moreover, Year 2000
problems experienced by significant vendors or customers of the Company could
negatively impact the business and operations of the Company even if its own
critical IT systems function satisfactorily. Due to the numerous issues and
problems which might arise and the lack of information on Year 2000 readiness
from non-IT service providers such as power and communication systems vendors,
the Company cannot quantify the potential cost of problems if the Company's
renovation and implementation efforts or the efforts of significant vendors or
customers are not successful.
State of Readiness
The Company has conducted a comprehensive review of its IT systems to identify
systems that present Year 2000 issues. The Company has developed a plan which it
believes should satisfactorily resolve Year 2000 problems related to its
mission-critical IT systems. The Company's Y2K team is also using external
resources provided by its outside vendors and a consultant hired to assist the
Company. Management anticipates that initial renovation and validation (testing)
of its critical IT systems should be completed by December 31, 1998.
The Company converted to a new core processing system (which handles accounting
for loans, deposit accounts and general ledger) in November 1997. The Conversion
to this system was not based on Year 2000 issues, however, the vendor of this
system represented to the Company that the system was Y2K compliant. Vendors of
the Company's other critical IT systems have also informed the Company that
their products/systems are Y2K compliant. If initial testing for critical IT
systems are not satisfactory the Company plans to take corrective action and
complete secondary testing by June 30, 1999.
The Company ran tests on its core processing system at a remote disaster
recovery site during October 1998 with technical assistance from the vendor and
an outside consultant. Actual data from a prior period was used to conduct
future date tests. The Company had not completed an assessment of the test
results as of the date of this Report. The Company is also monitoring the Y2K
readiness of its outside item processing and operating system vendors. At the
date of this report the Company believes it remains on schedule to complete
initial testing of all mission-critical IT applications systems by December 31,
1998.
By September 30, 1998 the Company had also tested 57% of its critical network
applications and 36% of its non-critical network applications. The Company's
target for completion of non-critical IT application testing is March 31, 1999.
The Company cannot test for Y2K readiness of its power and telecommunication
vendors, although the Company is monitoring their readiness. Additionally, at
the date of this report the Company had not identified any serious problems with
any of its systems.
Costs
The Company is expensing all period costs associated with the Year 2000 problem.
Through September 30, 1998, the amount of such expense has been approximately
$73. Management estimates that the Bank will incur approximately an additional
$130 in Year 2000 related expenses for the identification, correction and
reprogramming, and testing of systems for Year 2000 compliance during the last
three months of 1998 and in fiscal 1999. There can be no assurance that these
expenses will not increase as further testing and assessment of vendor and
customer readiness for the Year 2000 continues. The above cost estimates include
costs for consultants, running tests and technical assistance from vendors.
These costs exclude the cost of the Company's internal staff time and systems or
products which were not replaced due to the Y2K problem.
Risks
It is inherently difficult to predict the future outcome of most events and the
Y2K issue is no exception due to the complexity of technology, the numerous
variables and the inability to assess the impact of the Year 2000 problem on the
local, national and international economy. Management has identified a
long-range most reasonably likely worst case scenario. This scenario suggests
that the Y2K problem might negatively impact some significant customers and
non-IT vendors/products through the failure of the customer/vendor to be
prepared or the impact on them of their own vendors and customers. Management
believes that this scenario could occur in conjunction with an economic
recession, arising from the Y2K problem and, if it did, its asset quality and
earnings could be adversely impacted. It is not possible to predict the effect
of this scenario on the economic viability of its customers and the related
adverse impact it may have on SJNB's financial position and results of
operations, including the level of the Bank's provision for possible loan losses
in future periods.
The Company presently believes that, with modifications to existing software
which is Year 2000 compliant and assuming representations of Year 2000 readiness
from significant vendors and customers are accurate, the Year 2000 issue should
not pose significant operational risks for the Company's IT systems as so
modified. However, other significant risks relating to the Year 2000 problem are
that of the unknown impact of this problem on the operations of the Bank's
customers and vendors, the impact of catastrophic infrastructure issues such as
power, communications and water on the economy and future actions which banking
or securities regulators may take.
The Company is making efforts to ensure that its customer base is aware of the
Year 2000 problem. In addition to seminars for and mailings to its customer
base, the Bank has amended its credit policy and credit authorization
documentation to include consideration regarding the Year 2000 problem.
Significant customer relationships have been identified, and such customers are
being contacted by the Bank's account officers to determine whether they are
aware of Year 2000 risks and whether they are taking preparatory actions. An
initial assessment of these customers was substantially complete as of September
30, 1998. The Bank intends to take follow-up action based on the results of this
assessment.
The Company has also attempted to contact major vendors and suppliers of
non-software products and services including those where products utilize
embedded technology, to determine the Year 2000 readiness of such organizations
and/or the products and services which the Company purchases from such
organizations. The Company is monitoring reports provided by such vendors
regarding their preparations for Year 2000. This is an ongoing process, and the
company intends to continue to monitor the progress of such vendors through the
century date change.
Federal banking regulators have responsibility for supervision and examination
of banks to determine whether each institution has an effective plan for
identifying, renovating, testing and implementing solutions for Year 2000
processing and coordinating Year 2000 processing capabilities with its
customers, vendors and payment system partners. Examiners are also required to
assess the soundness of an institution's internal controls and to identify
whether further corrective action may be necessary to assure an appropriate
level of attention to Year 2000 processing capabilities. Management believes it
is currently in compliance with the federal bank regulatory guidelines and
timetables.
Contingency Plans
The Company has developed contingency plans for its software systems, should
they not successfully pass the Company's Year 2000 testing. Generally this
involves the identification of an alternate vendor or expected actions the
Company could take, as well as the establishment of a trigger date to implement
the contingency plan. The Company intends to develop, in accordance with
regulatory guidelines, further contingency plans to address potential business
disruptions resulting from Year 2000 issues, however, this process is not
expected to be completed until December 31, 1998.
Selected Financial Data
The following presents selected financial data and ratios as of and for the
three and nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA AND RATIOS
- - ----------------------------------------------------------------------------------------------------------------------------
For the quarters For the nine months
ended September 30, ended September 30,
---------------------------------------------------------------------
SELECTED ANNUALIZED OPERATING RATIOS: 1998 1997 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on average equity 15.56% 16.43% 16.72% 16.28%
Return on average tangible equity 19.39 20.67 20.41 20.70
Return on average assets 1.51 1.64 1.69 1.61
Net chargeoffs (recoveries) to average loans (.02) (.04) (.03) .06
Average equity to average assets 9.71 9.98 10.12 9.91
Average tangible equity to average tangible assets 8.60 8.77 9.05 8.66
PER SHARE DATA:
Net income per share - basic $.54 $.52 $1.70 $1.49
Net income per share - diluted .51 .50 1.61 1.42
Net income per share - (core) - diluted (1) .55 .54 1.74 1.56
Dividends per share (2) .14 ---- .42 .21
============================================================================================================================
At September 30, At September 30, At December 31,
SHAREHOLDERS' EQUITY 1998 1997 1997
- - ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity per share $14.04 $12.89 $13.30
Tangible equity per share 12.34 11.24 11.80
SELECTED FINANCIAL POSITION RATIOS:
- - ----------------------------------------------------------------------------------------------------------------------------
Leverage capital ratio 8.80% 8.97% 9.06%
Nonperforming loans to total loans .18 1.07 .19
Nonperforming assets to total assets .13 .74 .13
Allowance for possible loan losses to total loans 1.91 1.94 1.96
Allowance for possible loan losses
to nonperforming loans 1,081.00 181.00 1,060.00
Allowance for possible loan losses
to nonperforming assets 1,081.00 181.00 1,060.00
============================================================================================================================
<FN>
(1) Excludes after-tax effect of goodwill and core deposit intangible
amortization.
(2) Effective with the first quarter of 1998, the Company commenced a policy of
paying quarterly cash dividends to its shareholders; previously semi-annual
dividends were paid.
</FN>
</TABLE>
Summary of Financial Results
The Company reported net income of $1,325 or $.51 per share - diluted for the
quarter ended September 30, 1998, compared with net income of $1,296 or $.50 per
share - diluted for the third quarter of 1997. The improvement in earnings is
due primarily to an increase in net interest income due to growth in volume.
For the nine months ended September 30, 1998, net income was $4,241 or $1.61 per
share - diluted compared with net income of $3,743 or $1.42 per share - diluted
in 1997. The improvement is due primarily to an increase in net interest income
due to the growth in volume offset by an increase in third quarter 1998 expenses
which were primarily related to the new employees of Epic Funding and the
start-up of the East Bay Regional Office.
Net Interest Income
Net interest income for the quarter ended September 30, 1998 increased $448 as
compared to the same quarter a year ago. The Bank's average earning assets for
the same period increased by $39 million, primarily as the result of growth in
the Bank's loan portfolio and other short-term investments.
Net interest margin for the third quarter of 1998 was 6.28% as compared to 6.52%
for the same quarter in 1997. This decrease was primarily related to the
decrease in the yield on earning assets; in particular the yield on loans, which
account for 73% of earning assets, declined from 10.58% to 10.41%.
In contrast, the net interest margin for the nine months of 1998 was 6.51% as
compared to 6.42% for the same period in 1997. This increase was primarily
related to a decline in the cost of funds from 4.11% in 1997 to 4.0% in 1998 and
collection of a $107 prepayment fee in March 1998 relating to a fixed rate loan
which was repaid prior to its contractual maturity.
Economic conditions in Northern California have remained relatively strong in
the first nine months of 1998, although, there are indications that this
economic strength could be threatened by the problems in Asia and Latin America,
slow-down in demand for semi-conductors and other technology products, the
tightening of a skilled labor force and the potential for the real estate market
to slowdown. In addition, the competitive environment within the Bank's
marketplace continues to be aggressive and the competition between banks for
additional loans and deposits has caused more competitive pricing.
Due to the nature of the Company's target market in which loans are generally
tied to the prime rate, management believes modest increases in interest rates
should positively affect the Bank's net interest margin. Conversely, management
believes stable or declining rates will tend to have an adverse impact on net
interest margin. The Bank utilizes various methods to hedge some of its interest
rate risk. See "Loans" and "Asset/Liability Management." On September 30, 1998,
the Federal Open Market Committee decreased its target rate for interbank
borrowings to 5 1/4%. As a result, most domestic banks decreased their prime
lending rate to 8 1/4%, which was matched by SJNB. In management's view, the
future effect of this rate decrease is not precisely determinable due to the
many factors influencing the Bank's net interest margin, although the Bank's
margin will likely be negatively impacted.
The following tables shows the composition of average earning assets and average
funding sources, average yields and rates and the net interest margin, on an
annualized basis, for the three and nine months ended September 30, 1998 and
1997.
<PAGE>
AVERAGE BALANCES, RATES AND YIELDS
Fully Taxable Equivalent
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended September 30,
------------------------------------------------------------------------------------
1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
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) $238,197 $6,249 10.41% $216,630 $5,776 10.58%
Securities available for sale (3) 44,265 658 5.90 48,793 758 6.16
Securities held to maturity:
Taxable (4) 8,348 127 6.04 11,485 194 6.70
Nontaxable (5) 3,946 73 7.37 3,116 63 8.02
Money market investments 30,305 428 5.60 6,040 82 5.39
Interest rate hedging instruments ---- (2) ---- ---- (2) ----
- - -------------------------------------------------------------------- ----------------------------
Total interest-earning assets 325,061 7,533 9.19 286,064 6,871 9.53
- - -------------------------------------------------------------------- ----------------------------
Allowance for possible loan losses (4,545) (4,135)
Cash and due from banks 13,691 19,029
Other assets 9,526 8,517
Core deposit intangibles and
goodwill, net 4,231 4,155
- - ------------------------------------------------------ --------------
Total $347,964 $313,630
====================================================== ==============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $54,787 369 2.67 $47,509 304 2.54
Money market and savings 107,645 966 3.56 85,083 745 3.47
Certificates of deposit:
Less than $100 12,986 166 5.07 14,368 203 5.61
$100 or more 63,184 862 5.41 55,300 759 5.45
- - -------------------------------------------------------------------- ----------------------------
Total certificates of deposits 76,170 1,028 5.35 69,668 962 5.48
- - -------------------------------------------------------------------- ----------------------------
Other borrowings 981 22 8.90 10,347 160 6.13
- - -------------------------------------------------------------------- ----------------------------
Total interest-bearing 239,583 2,385 3.95 212,607 2,171 4.05
liabilities
- - -------------------------------------------------------------------- ----------------------------
Noninterest-bearing demand 68,973 63,267
Accrued interest payable and
other liabilities 5,633 6,459
- - ------------------------------------------------------ --------------
Total liabilities 314,189 282,333
- - ------------------------------------------------------ --------------
Shareholders' equity 33,775 31,297
- - ------------------------------------------------------ --------------
Total $347,964 $313,630
======================================================-------------- ==============--------------
Net interest income and margin (6) $5,148 6.28% $4,700 6.52%
======================================== ============================ ============================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $301 for 1998, and $248 for 1997. Nonperforming
loans have been included in average loan balances.
(3) Includes dividend income of $34 and $54 received in 1998 and 1997.
(4) Includes dividend income of $8 received in 1998and 1997.
(5) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($29 in 1998 and $25 in 1997).
(6) The net interest margin represents the fully taxable equivalent net
interest income as a percentage
</FN>
</TABLE>
<PAGE>
AVERAGE BALANCES, RATES AND YIELDS
Fully Taxable Equivalent
(dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------------------------------------------------------------
1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
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) $231,296 $18,404 10.64% $208,160 $16,571 10.64%
Securities available for sale (3) 47,779 2,172 6.08 48,108 2,233 6.21
Securities held to maturity:
Taxable (4) 9,169 423 6.17 12,114 617 6.81
Nontaxable (5) 3,728 213 7.65 2,840 172 8.10
Money market investments 19,777 823 5.56 11,807 475 5.38
Interest rate hedging instruments ---- (7) ---- ---- (7) ----
- - -------------------------------------------------------------------- ----------------------------
Total interest-earning assets 311,749 22,028 9.45 283,029 20,061 9.48
- - -------------------------------------------------------------------- ----------------------------
Allowance for possible loan losses (4,565) (4,090)
Cash and due from banks 14,602 18,890
Other assets 9,411 7,998
Core deposit intangibles and
goodwill, net 3,931 4,275
- - ------------------------------------------------------ --------------
Total $335,128 $310,102
====================================================== ==============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $50,941 997 2.62 $45,051 866 2.57
Money market and savings 100,640 2,706 3.59 84,746 2,257 3.56
Certificates of deposit:
Less than $100 13,713 527 5.14 15,120 607 5.37
$100 or more 57,989 2,364 5.45 54,113 2,231 5.51
- - -------------------------------------------------------------------- ----------------------------
Total certificates of deposits 71,702 2,891 5.39 69,233 2,838 5.48
- - -------------------------------------------------------------------- ----------------------------
Other borrowings 5,218 245 6.28 11,462 514 6.00
- - -------------------------------------------------------------------- ----------------------------
Total interest-bearing liabilities 228,501 6,839 4.00 210,492 6,475 4.11
- - -------------------------------------------------------------------- ----------------------------
Noninterest-bearing demand 67,365 63,847
Accrued interest payable and
other liabilities 5,347 5,018
- - ------------------------------------------------------ --------------
Total liabilities 301,213 279,357
- - ------------------------------------------------------ --------------
Shareholders' equity 33,915 30,745
- - ------------------------------------------------------ --------------
Total $335,128 $310,102
======================================================-------------- ==============--------------
Net interest income and margin (6) $15,189 6.51% $13,586 6.42%
======================================== ============================ ============================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $928 for 1998, and $740 for 1997. Nonperforming
loans have been included in average loan balances.
(3) Includes dividend income of $113 and $166 received in 1998 and 1997.
(4) Includes dividend income of $23 received in 1998and 1997.
(5) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($85 in 1998 and $69 in 1997).
(6) The net interest margin represents the fully taxable equivalent net
interest income as a percentage of average earning assets.
</FN>
</TABLE>
Provision for Possible Loan Losses
The level of the allowance for possible loan losses and the related provision,
if any, reflect management's judgment as to the inherent risk of loss associated
with the loan and lease portfolios as of September 30, 1998 and 1997 based on
information available to management as of said dates. Based on management's
evaluation of such risks, an addition of $150 was made to the allowance for
possible loan losses for the three and nine months ended September 30, 1998 and
additions of $215 and $395 were made in the three and nine months ended
September 30, 1997, respectively. See "Loan Portfolio."
Other Income
The following table sets forth the components of other income and the percentage
distribution of such income for the three and nine month periods ended September
30, 1998 and 1997:
OTHER INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended September 30, Nine months ended September 30,
------------------------------------------------------------------------------------
1998 1997 1998 1997
Amount Percent Amount Percent Amount Percent Amount Percent
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depositor service charges $149 59.60% $156 63.16% $461 59.33% $437 59.38%
Other operating income 101 40.40 91 36.84 324 41.70 340 46.19
Net loss on securities available for sale ----- ----- ----- ----- (8) (1.03) (41) (5.57)
- - ----------------------------------------------------------------------------------------------------------------------------
Total $250 100.00% $247 100.00% $777 100.00% $736 100.00%
============================================================================================================================
</TABLE>
<PAGE>
Other Expenses
The following schedule summarizes the major categories of expense as a
percentage of average assets on an annualized basis:
OTHER EXPENSES AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended September 30, Nine months ended September 30,
--------------------------------------------------------------------------------------------
1998 1997 1998 1997
Amount Percent * Amount Percent * Amount Percent * Amount Percent *
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $1,679 1.93% $1,438 1.83% $5,009 1.99% $4,337 1.86%
Data processing 172 .20 102 .13 497 .20 310 .13
Amortization of core deposit
intangibles and goodwill 119 .14 118 .15 337 .13 355 .15
Client services paid by bank 129 .15 80 .10 315 .13 243 .10
Furniture and equipment 113 .13 97 .12 301 .12 277 .12
Occupancy 102 .12 97 .12 263 .10 242 .10
Business promotion 79 .09 86 .11 248 .10 250 .11
Legal and professional fees 80 .09 90 .11 224 .09 190 .08
Directors' & shareholders' 70 .08 80 .10 193 .08 255 .11
Stationery and supplies 58 .07 31 .04 149 .06 124 .05
Advertising & marketing 47 .05 24 .03 138 .05 84 .04
Loan and collection 44 .05 31 .04 96 .04 77 .03
Regulators assessments 30 .03 28 .04 86 .03 81 .03
Net cost of foreclosed property 2 ----- 4 ----- 3 .01 (45) (.02)
Sundry losses ----- ----- ----- ----- (29) (.01) 124 .05
Other 210 .24 157 .20 614 .24 472 .20
- - ----------------------------------------------------------------------------------------------------------------------------
Total $2,934 3.37% $2,463 3.14% $8,444 3.36% $7,376 3.17%
============================================================================================================================
<FN>
(1) The percentages are calculated by annualizing the expenses and comparing
that amount to the average assets for the respective three and nine month
periods ended September 30, 1998 and 1997.
(2) Certain amounts have been reclassified in 1997 to conform to the 1998
classifications.
</FN>
</TABLE>
Total other expenses for the third quarter of 1998 increased $471 from the same
period a year ago, primarily as a result of increases in salaries and benefits
(relating to the acquisition of Epic Funding Corp. during the second quarter and
the opening of the East Bay Regional Office in July 1998), an increase in data
processing expenses (relating to greater technology costs, impact of a
conversion of the Bank's core data processing system in November 1997 and
attention to the year 2000 issue), an increase in furniture and equipment,
occupancy, advertising and promotion and stationery and supplies also due to the
addition of Epic and the new East Bay Regional Office, an increase in client
services paid by the Bank representing an increase in costs associated with
several significant customers and an increase in other expense due to employment
fees.
Total other expenses for the nine months ended September 30, 1998 increased
$1,068 from the same period a year ago, primarily as a result of the same items
discussed above for the third quarter.
Income Tax Provision
The effective tax rate of 42% for the three months ended September 30, 1998 is
affected by several items. The most significant are the amortization of
intangibles, tax exempt income and the California Franchise Tax Enterprise Tax
Zone Credit. The effective tax rate for the year ended December 31, 1997 was
42%.
<PAGE>
Financial Condition and Earning Assets
Consolidated assets increased to $343 million at September 30, 1998 compared to
$325 million at December 31, 1997. The increase related primarily to an increase
in loans and money market investments and was funded principally by an increase
in the Bank's core interest-bearing money market deposits and a growth in
certificates of deposits of greater than $100. See "Funding."
Money Market Investments
Money market investments, which include federal funds sold, were $8.8 million at
September 30, 1998 as compared to $2.7 million at December 31, 1997. This
increase is related to the increase in the Bank's core interest-bearing money
market deposits and a growth in certificates of deposits of greater than $100.
Securities
The following table shows the composition of the securities portfolio at
September 30, 1998 and December 31, 1997. There were no issuers of securities
(except U.S. Government Securities) for which the book value of securities of
any issuer held by the Bank exceeded 10% of the Company's shareholders' equity.
SECURITIES PORTFOLIO
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
- - --------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gain (Loss) Value Cost Gain (Loss) Value
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U. S. Treasury $5,005 $93 $5,098 $5,001 $40 $5,041
U. S. Government Agencies 34,201 624 34,825 34,148 179 34,327
Mortgage backed 4,212 102 4,314 5,097 74 5,171
Mutual funds 2,767 (141) 2,626 3,898 (132) 3,766
- - ----------------------------------------------------------------------------------------------------------------------------
Total available for sale 46,185 678 46,863 48,144 161 48,305
- - ----------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U. S. Treasury 1,000 11 1,011 1,992 16 2,008
U. S. Government Agencies 3,494 53 3,547 5,485 27 5,512
State and municipal (nontaxable) 4,221 97 4,318 3,224 34 3,258
Mortgage backed 2,259 34 2,293 2,518 29 2,547
- - ----------------------------------------------------------------------------------------------------------------------------
Total held to maturity 10,974 195 11,169 13,219 106 13,325
Federal Reserve Bank Stock 518 ---- 518 518 ---- 518
- - ----------------------------------------------------------------------------------------------------------------------------
Total 11,492 195 11,687 13,737 106 13,843
- - ----------------------------------------------------------------------------------------------------------------------------
Total investment securities portfolio 57,677 873 58,550 61,881 267 62,148
============================================================================================================================
<FN>
Unrealized gains generally result from the impact of current market rates being
less than those rates in effect at the time the Bank purchased the securities.
The unrealized gain on securities available for sale as of September 30, 1998
was $678 as compared to an unrealized gain of $161 as of December 31, 1997. The
Bank's weighted average maturity of the available for sale portfolio was
approximately 1.71 years as of September 30, 1998. It is estimated by management
that for each 1% change in interest rates the value of the Company's available
for sale securities will change by 1.37%.
</FN>
</TABLE>
<PAGE>
The unrealized gain on securities held to maturity was $195 as of September 30,
1998 as compared to an unrealized gain of $106 as of December 31, 1997. The
Bank's weighted average maturity of the held to maturity investment portfolio
was approximately 4.03 years as of September 30, 1998. It is estimated by
management that for each 1% change in interest rates, the value of the Company's
securities held to maturity will change by approximately 2.54%. The increase in
the maturity and duration are due to a 1997 change in Company policy relating to
the purchase and treatment of several securities. Since that time, management
has classified all new purchases of securities as "available for sale" except
for the state and municipal securities, which are classified as "held to
maturity."
The maturities and yields of the investment portfolio at September 30, 1998 are
shown below:
<TABLE>
<CAPTION>
MATURITY AND YIELDS OF INVESTMENT SECURITIES
- - -----------------------------------------------------------------------------------------------------------------------------
At September 30, 1998
(dollars in thousands)
Available for Sale Held to Maturity
---------------------------------------------------------------------------------------------
FTE FTE
Amortized Estimated Average Amortized Estimated Average
Cost Fair Value Yield Cost Fair Value Yield
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury:
Within 1 year $2,999 $3,015 6.03% $1,000 $1,011 6.38%
After 1 year within 5 years 2,006 2,083 6.11 ----- ----- -----
----------------------------------------------------------------------------------------------
Totals 5,005 5,098 6.06 1,000 1,011 6.38
----------------------------------------------------------------------------------------------
U.S. Government Agencies:
Within 1 year 14,982 15,056 5.76 1,995 2,011 6.42
After 1 year within 5 years 19,219 19,769 6.01 1,499 1,536 6.41
----------------------------------------------------------------------------------------------
Totals 34,201 34,825 5.90 3,494 3,547 6.42
----------------------------------------------------------------------------------------------
State and municipal:
Within 1 year ----- ----- ----- 645 648 6.90
After 1 year within 5 years ----- ----- ----- 1,199 1,220 6.11
After 10 years ----- ----- ----- 2,377 2,450 6.84
-----------------------------------------------
Totals ----- ----- ----- 4,221 4,318 6.64
-----------------------------------------------
Mortgage backed
After 1 year within 5 years 3,233 3,304 6.77 ----- ----- -----
After 5 years within 10 years 979 1,010 6.71 2,259 2,293 7.90
----------------------------------------------------------------------------------------------
Totals 4,212 4,314 6.76 2,259 2,293 7.90
----------------------------------------------------------------------------------------------
Mutual funds:
-----------------------------------------------
Within 1 year 2,767 2,626 5.05 ----- ----- -----
-----------------------------------------------
Other
-----------------------------------------------
After 10 years ----- ----- ----- 518 518 6.00
----------------------------------------------------------------------------------------------
Total investment securities 46,185 $46,863 5.95% $11,492 $11,687 6.77%
==============================================================================
Net unrealized gain on
securities available for sale 678
----------------
Total investment securities,
net carrying value $46,863
================
(1) Fully taxable equivalent.
</TABLE>
<PAGE>
Loan Portfolio
The following table provides a breakdown of the Company's consolidated loans by
type of loan or borrower:
LOAN PORTFOLIO
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
- - --------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Loans Amount Loans
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $90,331 36.6% $92,693 40.5%
Real estate construction 32,683 13.2 17,818 7.8
Real estate-other 97,148 39.4 90,495 39.5
Consumer 9,338 3.8 9,042 3.9
Other 17,919 7.3 19,568 8.6
Unearned fee income (766) (0.3) (644) (0.3)
- - --------------------------------------------------------------------------------------------------------------------------
Total loans $246,653 100.0% $228,972 100.0%
==========================================================================================================================
</TABLE>
Consolidated loans increased to $247 million at September 30, 1998 from $229
million at December 31, 1997. The decline in commercial loans related to the
sale of several of the Bank's commercial business customers and the competitive
market place. The growth in real estate construction loans is due to the impact
of the strong current demand in the local real estate market. The increase is
primarily related to growth in construction of single family residences.
Additionally the Bank has elected not to aggressively seek or renew loans where
in management's opinion the Bank's underwriting criteria is not satisfied; this
has caused a slow down in loan production and an increase in payoffs when the
Bank has not met competitive pressures.
Approximately 58% of the loan portfolio is directly related to real estate or
real estate interests, including real estate construction loans, real
estate-other, mortgage warehouse lines (1%, included in the Commercial
category), real estate equity lines (2%, included in the Consumer category), and
loans to real estate developers for short-term investment purposes (1%) and
loans for real estate investment purposes made to non-developers (1%). The
latter two types are included in the Other category. Approximately 38% of the
loan portfolio is made up of commercial loans; however, in management's view, no
particular industry represents a significant portion of such loans.
The following table shows the maturity and interest rate sensitivity of
commercial, real estate-other and real estate construction loans at September
30, 1998. Approximately 82% of the commercial and real estate loan portfolio
have floating interest rates which in management's opinion generally limits the
exposure to interest rate risk on long-term loans but can have a negative impact
when rates decline.
COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE
SENSISTIVITY
<TABLE>
<CAPTION>
(dollars in thousands) Balances maturing Interest Rate Sensitivity
----------------------------------------------------------------------------------
Predeter-
Balances at One year mined Floating
September 30, One year to five Over five interest interest
1998 or less years years rates rates
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $90,331 $58,077 $27,268 $4,986 $2,974 $87,357
============================================================================================================================
Real estate construction $32,683 $31,251 $1,432 ----- $2,261 $30,422
============================================================================================================================
Real estate-other $97,148 $13,769 $25,716 $57,663 $33,770 $63,378
============================================================================================================================
</TABLE>
The Company utilizes a method of assigning a minimum and maximum loss ratio to
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, among other things, 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 or not it is impaired. For impaired loans, the expected cash flow is
discounted on the basis of the loan's interest rate. The methodology provides a
systematic approach believed by management to measure the risk of possible
future loan losses. Management and the Board of Directors evaluate the allowance
and determine the desired level of the allowance considering objective and
subjective measures, such as knowledge of the borrowers' business, valuation of
collateral and exposure to potential losses. The allowance for possible loan
losses was approximately $4.7 million at September 30, 1998, or 1.91% of total
loans outstanding. Based on information available as of the date of this report,
management believes the allowance for possible loan losses, determined as
described above, is adequate for potential losses foreseeable at September 30,
1998.
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 or other
factors. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses. Such agencies may require the Bank to provide additions to the allowance
based on their judgment of information available to them at the time of their
examination.
The following schedule provides an analysis of the allowance for possible loan
losses:
ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended Nine months ended Year ended
September 30, September 30, December 31,
-------------------------------------------------------------------
1998 1997 1998 1997 1997
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of the period $4,540 $4,076 $4,493 $4,005 $4,005
Charge-offs by loan category:
Commercial ---- ---- 125 115 242
Real estate-construction ---- ---- ---- 33 ----
Real estate-other ---- ---- ---- ---- 33
Consumer ---- ---- ---- ---- 13
- - ------------------------------------------------------------------------------------------------------------------------------
Total charge-offs ---- ---- 125 148 288
- - ------------------------------------------------------------------------------------------------------------------------------
Recoveries by loan category:
Commercial 12 20 84 55 67
Real estate-other ---- ---- 33 4 4
Consumer ---- ---- 67 ---- ----
- - ------------------------------------------------------------------------------------------------------------------------------
Total recoveries 12 20 184 59 71
- - ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (12 ) (20 ) (59) 89 217
- - ------------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 150 215 150 395 705
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, end of the period $4,702 $4,311 $4,702 $4,311 $4,493
==============================================================================================================================
Ratios:
Net charge-offs (recoveries) to average loans, annualized (.02%) (.04%) (.03%) .06% .10%
Allowance to total loans at the end of the period 1.91 1.94 1.91 1.94 1.96
Allowance to nonperforming loans at end of the period 1,081.00 181.00 1,081.00 181.00 1,060.00
==============================================================================================================================
During the three months ended September 30, 1998 and 1997, there were no
charge-offs. During the nine months ended September 30, 1998 and 1997, there
were charge-offs of $125 and $148. Management does not believe there were any
trends indicated by the detail of the aggregate charge-offs for any of the
periods discussed. The allowance for possible loan losses was 1,081% of
nonperforming loans at September 30, 1998 compared to 1,060% at December 31,
1997.
Nonperforming Loans
Nonperforming loans consist of loans for which the accrual of interest has been
suspended, restructured loans and other loans with principal or interest
contractually past due 90 days or more and still accruing. The following table
provides information about such loans:
<PAGE>
NONPERFORMING LOANS
(dollars in thousands)
September 30, December 31,
1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
Loans accounted for on a non-accrual basis $388 $360
Loans restructured and in compliance with modified terms 47 $63
Other loans with principal or interest contractually past
due 90 days or more 1
- - ----------------------------------------------------------------------------------------------------------------------------
Total $435 $424
============================================================================================================================
</TABLE>
As of September 30, 1998, nonperforming loans consisted of six loans, none of
which were individually significant.
Management conducts an ongoing evaluation and review of the loan portfolio in
order to identify potential nonperforming loans. Management considers loans
which are classified for regulatory purposes, loans which are graded as
classified by the Bank's outside loan review consultant and internal personnel,
as to whether they (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (ii) represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. Based on such reviews as of September 30, 1998, management has not
identified any loans not included within the Nonperforming Loan table above with
respect to which known information causes management to have serious doubts
about the borrowers' abilities to comply with present repayment terms, such that
the loans might subsequently be classified as nonperforming. Changes in world,
national or local economic conditions or specific industry segments (including
declining exports), rising interest rates, declines in real estate values, year
2000 problems, declines in securities markets 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.
Funding
The following table provides a breakdown of deposits by category as of the dates
indicated:
DEPOSIT CATEGORIES
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
- - ----------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Deposits Amount Deposits
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand $78,041 25.8% $78,437 29.0%
Interest-bearing demand 49,543 16.4 45,655 16.9
Money market and savings 100,970 33.5 82,619 30.6
Certificates of deposit:
Less than $100 12,442 4.1 15,207 5.6
$100 or more 61,167 20.2 48,427 17.9
- - ----------------------------------------------------------------------------------------------------------------------------
Total $302,163 100.0% $270,345 100.0%
============================================================================================================================
</TABLE>
Deposits as of September 30, 1998 were $302 million compared to $270 million at
December 31, 1997. The most significant growth in deposits has occurred in the
area of interest-bearing core deposits which increased approximately $22
million. Management believes this growth in interest-bearing core deposits has
been due to unusual activity by several of the Bank's customers and to the
business development efforts of the Bank's business development officers.
Because of this high level of unusual activity, the Bank has maintained
significant short-term liquidity. The growth in the certificates of deposit
greater than $100 was due to activity of several significant customers. While
the amount of noninterest-bearing demand deposits was essentially unchanged the
percentage of such deposits declined 3.2%. Management believes this trend could
continue due, in part, to competitive pressures and changes in the deposit
products being utilized by some of the Bank's customers, which has caused a
shift to interest-bearing products. In addition, the Bank has been notified that
a large customer with money market deposit accounts is consolidating accounts in
the Midwest and approximately $18 million of such deposits will be transferred
out of the Bank over the next six to nine months, commencing in the fourth
quarter of 1998. See "Liquidity."
<PAGE>
Asset/Liability Management
The Company's balance sheet position is asset-sensitive (based upon the
significant amount of variable rate loans and the repricing characteristics of
its deposit accounts). This balance sheet position generally provides a hedge
against rising interest rates, but has a detrimental effect during times of
interest rate decreases. Net interest revenues are negatively impacted by a
decline in interest rates. The recent cuts, and any further cuts, in interest
rates by the Federal Reserve System could negatively impact the Company's net
interest revenues in future periods. Management notes, however, that these cuts
and any further interest rate cuts might stimulate demand for loans in the
future which could offset some of the decline in the Company's interest income.
To counter a portion of its asset sensitive interest rate position, the Bank
entered into an interest rate "floor" in the amount of $10 million which expires
in May 1999. The Bank 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 protects the Bank against decreases in its net
income when the prime decreases to less than 7%. Settlement, if any, is done
quarterly and the Bank records the impact of this hedge on an accrual basis.
Capital and Liquidity
Capital
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 less intangible assets)
and "Tier 2" capital (defined to be principally the allowance for loan losses,
limited to one and one-fourth percent of gross risk weighted assets). 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
ratios of the Bank are similar to the capital ratios of the Company.
<PAGE>
The table below summarizes the various capital ratios of the Company at
September 30, 1998 and December 31, 1997.
Risk-based and Leverage Capital Ratios
(dollars in thousands)
<TABLE>
Company September 30, 1998 December 31, 1997
- - ------- ----------------------------------------------------------------------
Risk-based
- - ---------- Amount Ratio Amount Ratio
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $29,809 10.58% $29,167 11.28%
Tier 1 capital minimum requirement 11,267 4.00 10,344 4.00
----------------------------------------------------------------------
Excess $18,542 6.58% $18,823 7.28%
======================================================================
Total capital $33,344 11.84% $32,415 12.53%
Total capital minimum requirement 22,534 8.00 20,689 8.00
----------------------------------------------------------------------
Excess $10,810 3.84% $11,726 4.53%
======================================================================
Risk-adjusted assets $281,677 $258,608
================== ==================
Leverage
- - --------
Tier 1 capital $29,809 8.80% $29,167 9.07%
Minimum leverage ratio requirement 13,545 4.00 12,870 4.00
----------------------------------------------------------------------
Excess $16,264 4.80% $16,297 5.07%
======================================================================
Average total assets $338,623 $321,747
================== ==================
Bank
- - ----
Risk-based
- - ----------
Tier 1 capital $29,237 10.38% $28,879 11.17%
Tier 1 capital minimum requirement 11,264 4.00 10,341 4.00
----------------------------------------------------------------------
Excess $17,973 6.38% $18,538 7.17%
----------------------------------------------------------------------
Total capital $32,771 11.64% $32,126 12.43%
Total capital minimum requirement 22,528 8.00 20,683 8.00
----------------------------------------------------------------------
Excess $10,243 3.64% $11,443 4.43%
======================================================================
Risk-adjusted assets $281,602 $258,533
================== ==================
Leverage
- - --------
Tier 1 capital $29,237 8.50% $28,879 8.97%
Minimum leverage ratio requirement 13,757 4.00 12,881 4.00
----------------------------------------------------------------------
Excess $15,480 4.50% $15,998 4.97%
======================================================================
Average total assets $343,914 $322,014
================== ==================
</TABLE>
To allow for the effective management of capital, the Board of Directors has
approved the repurchase from time-to-time of up to $3.5 million of its common
stock through open market or privately negotiated transactions. Through
September 30, 1998, the Company had repurchased 77,300 shares for a total price
of $3.1 million.
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan funding and deposit withdrawals in an economically
feasible manner. Liquidity requirements are evaluated by taking into
consideration factors such as deposit concentrations, seasonality and
maturities, loan demand, capital expenditures, and prevailing and anticipated
economic conditions. SJNB's business is generated primarily through customer
referrals and employee business development efforts; however the Bank could
utilize purchased deposits to satisfy temporary liquidity needs.
The Bank's source of liquidity consists of its deposits with other banks,
overnight funds sold to correspondent banks, short-term securities held to
maturity, and securities available for sale less short-term borrowings. At
September 30, 1998, consolidated net liquid assets totaled $87 million or 25% of
consolidated total assets as compared to $62 million or 19% of consolidated
total assets at December 31, 1997. The increase in the liquid assets is due to
the growth of the deposits. See "Funding." In addition to the liquid asset
portfolio, SJNB also has available $17 million in lines of credit with five
major commercial banks, a collateralized repurchase agreement with a maximum
limit of $30 million (of which none has been utilized at September 30, 1998),
the guaranteed portion of the SBA loan portfolio of approximately $16 million,
and a credit facility with the Federal Reserve Bank based on loans secured by
real estate for approximately $4 million.
SJNB is primarily a business and professional bank and, as such, its deposit
base may be more susceptible to economic fluctuations than other potential
competitors. Accordingly, management strives to maintain a balanced position of
liquid assets to volatile and cyclical deposits. Commercial clients in their
normal course of business maintain balances in large certificates of deposit,
the stability of which hinge upon, among other factors, market conditions,
interest rates and business' seasonality. Large certificates of deposit amounted
to 20% of total deposits on September 30, 1998 and 18% at December 31, 1997.
Recently one of the Bank's significant depositors was acquired by a large
multi-national corporation. In this connection the parent of the Bank's customer
consolidated domestic operations in the Midwest. The impact of this move will be
the withdrawal of approximately $18 million included in money market savings
accounts over a six to nine month period commencing during the fourth quarter of
1998. Management believes it has adequate liquidity and additional sources of
funds to replenish the loss of these accounts.
Liquidity is also affected by portfolio maturities and the effect of interest
rate fluctuations on the marketability of both assets and liabilities. The loan
portfolio consists primarily of floating rate, short-term loans. On September
30, 1998, approximately 41% of total consolidated assets had maturities under
one year and 82% 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 a secondary source of liquidity. There are no material commitments
for capital expenditures in 1998.
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 "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
1997 or the first nine months of 1998.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 (known as interest rate
sensitivity gap) represents the potential mismatch in the change in the rate of
interest income 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, the Company must offer products which
are competitive in the market place, even if less than optimum with respect to
its interest rate exposure.
The Company's balance sheet position at September 30, 1998 was asset-sensitive,
based upon the significant amount of variable rate loans and the repricing
characteristics of its deposit accounts. This 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. Management believes there has been no
significant change in the Bank's market risk exposures disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. See
"Summary of Financial Results - Net Interest Income."
On September 30, 1998, the Federal Open Market Committee ("FOMC") decreased its
target rate for interbank borrowings to 5 1/4%. As a result, most domestic banks
decreased their prime lending rate to 8 1/4%, which was matched by SJNB.
Additionally, on October 21, 1998 the FOMC decreased its target rate for
interbank borrowings to 5% and reduced its discount rate to 4 3/4%. In
management's view, the future effect of there rate decreases is not precisely
determinable due to the many factors influencing the Bank's net interest margin,
including the repricing of deposits, a change in mix of the loan and deposit
portfolios, changes in relative volume, the speed in which fixed rate loans are
repriced, discretionary investment activities and other factors, although the
Bank's margin will likely be negatively impacted.
In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis must be considered. For example, although
certain assets and liabilities may have similar maturities or periods to
reprice, they may react in different degrees to changes in market interest
rates. Additionally, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market interest rates.
Further, certain earning assets have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. The Company
considers the anticipated effects of these various factors when implementing its
interest rate risk management activities, including the utilization of certain
interest rate hedges. Considering the above it is estimated that the annual
impact of the 25 basis point decrease in the Bank's prime rate on a pre-tax
basis would be a decrease in income of approximately $270 or $162 after tax.
<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 and
changes were reported in the Company's Form 10-K for the year ended December 31,
1997 and the Company's Form 10-Q for the six months ended June 30, 1998; and,
subsequent thereto, there have been no material changes in said proceedings.
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:
(3) a. The Registrant's restated Articles of Incorporation.
(3) b. The Registrant's restated bylaws as of July 23, 1998.
*(10) a. 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) b. 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) c. 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) d. 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) e. 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) f. 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) g. 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) h. The Registrant's Amended 1996 Stock Option Plan is
incorporated by reference to exhibit 99.1 of the
Registrant's Form S-8 filed July 1, 1998.
*(10) i. Agreement between James R. Kenny and SJNB Financial
Corp. and San Jose National Bank dated March 27,
1996 is hereby incorporated by reference to Exhibit
(10) m. of the Registrant's Quarterly Form 10-QSB
for the quarterly period ended June 30, 1996.
*(10) j. Agreement between Eugene E. Blakeslee and SJNB
Financial Corp. and San Jose National Bank dated
March 27, 1996 is hereby incorporated by reference
to Exhibit (10) n. of the Registrant's Quarterly
Form 10-QSB for the quarterly period ended June 30,
1996.
(10) k. 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) l. 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) m. Sublease by and between Greater Unified Management
Businesses, Inc. (d.b.a. as Logistics) and SJNB
Financial Corp., dated January 15, 1996, and as
amended March 19, 1996, for premises at 95 South
Market Street, San Jose CA is hereby incorporated
by reference to Exhibit (10) s. of the Registrant's
Quarterly Form 10-QSB for the quarterly period
ended June 30, 1996.
(27) Financial Data Schedule.
* Indicates management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SJNB FINANCIAL CORP.
(Registrant)
Date: November 10, 1998 /S/ J. Kenny
-------------------------------
James R. Kenny
President and
Chief Executive Officer
Date: November 10, 1998 /S/ E. Blakeslee
-------------------------------
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer (Chief
Accounting Officer)
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SJNB FINANCIAL CORP.
The undersigned certify that:
1. They are the President and the Secretary, respectively of SJNB
Financial Corp., a California corporation.
2. The Articles of Incorporation, as amended, of this Corporation are
restated to read in full as set forth in Exhibit A attached hereto and
incorporated herein by this reference.
3. The foregoing restatement of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing restatement of Articles of Incorporation may be
adopted with the approval of the Board of Directors alone, without the approval
of the outstanding shares, pursuant to Section 910 of the California
Corporations Code since it does not itself alter or amend the articles in any
respect.
5. Article Six of the foregoing restatement of Articles of
Incorporation was subject to Section 710 of the California Corporations Code
when it was adopted and filed in 1989 and has not been renewed since its initial
adoption. This restatement of Articles of Incorporation does not constitute a
re-adoption of Article Six because this restatement has not been approved by the
shareholders of this Corporation.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: November 5, 1998
/S/ J. Kenny
---------------------------
James R. Kenny, President
/S/ M. Castro
---------------------------
Madaline Castro, Assistant
Corporate Secretary
EXHIBIT (3) a
RESTATED ARTICLES OF INCORPORATION
OF
SJNB FINANCIAL CORP.
ONE: NAME
----
The name of this corporation is:
SJNB Financial Corp.
TWO: PURPOSES
--------
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business, or the practice of a profession permitted to be incorporated by the
California Corporations Code.
THREE: TOTAL NUMBER OF SHARES AUTHORIZED
---------------------------------
This corporation is authorized to issue one class of stock
designated "Common Stock." The number of shares of Common Stock is twenty
million (20,000,000).
FOUR: LIMITATION ON LIABILITY OF DIRECTORS
------------------------------------
The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
FIVE: INDEMNIFICATION OF AGENTS
-------------------------
The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the Corporations Code, subject only to the applicable limits on
such excess indemnification set forth in Section 204 of the Corporations Code
with respect to breach of duty to the corporation and its shareholders.
SIX: REQUIREMENT OF SHAREHOLDERS' VOTE ON REORGANIZATIONS
----------------------------------------------------
In all cases in which Section 1201 of the California General
Corporation Law requires the approval by the outstanding shares of this
corporation of the principal terms of a reorganization, such approval shall
require the affirmative vote or written consent of the holders of two-thirds
(2/3) of the outstanding shares entitled to vote, if such reorganization is not
approved 80% or more of the authorized number of directors. If such
reorganization is approved by 80% or more of the authorized number of directors,
such approval shall require the affirmative vote or written consent of the
holders of a majority of the outstanding shares entitled to vote.
SEVEN:
a. No holder of any class of stock of the corporation shall be
entitled to cumulate votes in connection with any election of directors of the
corporation.
b. Any action required to be taken at any annual or special
meeting of shareholders of this corporation, or any action which may be taken at
any annual or special meeting of shareholders, may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, provided that the board of directors of this corporation, by
resolution, shall have previously approved any such action.
<PAGE>
EXHIBIT (3) b
BYLAWS
OF
SJNB FINANCIAL CORP.
--------------------
(Amended 7-23-98)
ARTICLE I
Offices
Section 1. Principal Office. The Board of Directors shall fix the location of
the principal executive office of the corporation at any place within or outside
the State of California. If the principal executive office is located outside
this State, and the corporation has one or more business offices in this State,
the Board of Directors shall fix and designate a principal business office in
the State of California.
Section 2. Other Offices. Branch or other subordinate offices may at any time
be established by the Board at such other places as it deems appropriate.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. Meetings of shareholders shall be held at any
place within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meeting. The annual meeting of shareholders shall be held on
the 4th Wednesday of May of each year at 10:00am., or such other date or such
other time as may be fixed by the Board of Directors. However, if this day falls
on a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At this meeting, directors shall be
elected, and any other proper business within the power of the shareholders may
be transacted.
Section 3. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board, the Chairman of the Board, the President, or by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at such meeting. If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or by registered mail to the
Chairman of the Board, the President, any Vice President or the Secretary of the
corporation. The officer receiving the request. shall cause notice to be
promptly given to the shareholders entitled to vote that a meeting will be held
at a time requested by the person or persons calling the meeting, not less than
35 nor more than 60 days after the receipt of the request. If the notice is not
given within 20 days after receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing in this paragraph shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
Section 4. Notice of Meetings. Written notice, in accordance with Section 5 of
this Article II, of each annual or special meeting of shareholders shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (a) in the case of a special meeting, the
general nature of the business to be transacted, and no other business may be
transacted, or (b) in the case of the annual meeting, those matters which the
Board, at the time of the mailing of the notice, intends to present for action
by the shareholders, but, subject to the provisions of applicable law, any
proper matter may be presented at the meeting for such action. The notice of any
meeting at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
If action is proposed to be taken at any meeting for approval of (a) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the Corporations Code of California, (b) an amendment
of the Articles of Incorporation, pursuant to Section 902 of that Code, (c) a
reorganization of the corporation, pursuant to Section 1201 of that Code, (d) a
voluntary dissolution of the corporation, pursuant to Section 1900 of that Code,
or (e) a distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of that Code, the notice
shall also state the general nature of that proposal.
Section 5. Manner of Giving Notice. Notice of a shareholders' meeting shall be
given either personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal office or if
published at least once in a newspaper of general circulation in the county of
which that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication. An affidavit of mailing or other means of
giving any notice in accordance with the above provisions, executed by the
Secretary, Assistant Secretary or other transfer agent shall be prima facie
evidence of the giving of the notice or report.
Section 6. Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting shall constitute a quorum
for the transaction of business. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 7. Adjourned Meeting and Notice Thereof. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares, the holders of which are either present in
person or represented by proxy thereat, but in the absence of a quorum (except
as provided in Section 6 of this Article) no other business may be transacted at
such meeting.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, when any shareholders' meeting is adjourned for more than 45 days from
the date set for the original meeting, or, if after adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. At any adjourned meeting the
corporation may transact any business which may have been transacted at the
original meeting.
Section 8. Voting. The shareholders entitled to notice of any meeting or to vote
at any such meeting shall be only persons in whose name shares stand on the
stock records of the corporation on the record date determined in accordance
with Section 9 of this Article.
Voting shall in all cases be subject to the provisions of Section 702 through
704, inclusive, of the California General Corporation Law (relating to voting
shares held by a fiduciary, in the name of a corporation, or in joint
ownership).
The shareholders' vote may be by voice or ballot; provided, however, that any
election for directors must be by ballot if demanded by any shareholder before
the voting has begun. On any matter other than elections of directors, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal (other than
the election of directors), but, if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
that the shareholder is entitled to vote. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter (other than the election of directors) shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California General Corporation Law or by the Articles
of Incorporation.
No shareholder shall be entitled to cumulate votes for any candidate or
candidates.
In any election of directors, the candidates receiving the highest number of
votes of the shares entitled to be voted for them up to the number of directors
to be elected, shall be elected.
Section 9. Nominations for Directors. Nominations for election to the Board of
Directors may be made by the Board or by any shareholder entitled to vote in the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the corporation, shall be made in writing and shall be
mailed or delivered to the President of the corporation not less than 14 days
nor more than 50 days prior to any meeting of shareholders called for the
election of directors; provided, however, that if less than 21 days' notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the corporation not later than the close of
business on the seventh day following the date on which the notice of meeting
was mailed. Such written nomination shall include the following information to
the extent known to the nominating shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
total number of voting shares that will be voted for each proposed nominee; (d)
the name and residence address of the nominating shareholder; and (e) the number
of shares of voting stock of the corporation owned by the nominating
shareholder. Nominations not made in accordance herewith may, in his discretion,
be disregarded by the Chairman of the meeting, and upon his instructions, the
inspectors of election may disregard all votes cast for each such nominee.
Section 10. Record Date. The Board may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall be not more than 60 days nor less than 10
days prior to the date of the meeting nor more than 60 days prior to any other
action. When a record date is so fixed, only shareholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise of the rights, as the case
may be, notwithstanding any transfer of shares on the books of the corporation
after the record date. A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any adjournment
of the meeting unless the Board fixes a new record date for the adjourned
meeting. The Board shall fix a new record date if the meeting is adjourned for
more than 45 days.
If no record date is fixed by the Board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the date on which
the meeting is held. The record date for determining shareholders for any
purpose other than set forth in this Section 10 or Section 12 of this Article
shall be at the close of business of the day on which the Board adopts the
resolution relating there-to, or the sixtieth day prior to the date of such
other action, whichever is later.
Section 11. Consent of Absentees. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a waiver of notice, or a consent to the holding of the meeting or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Neither the business to be transacted at nor the purpose of any regular
or special meeting of shareholders need be specified in any written waiver of
notice, except that if action is taken or proposed to be taken for approval of
any of those matters specified in the second paragraph of Section 4 of this
Article II, the waiver of notice or consent shall state the general nature of
the proposal.
Section 12. Action by Written Consent Without a Meeting. Subject to the
Corporation's Articles of Incorporation and Section 603 of the California
General Corporation Law, any action which may be taken at any annual or special
meeting of shareholders may be taken without a meeting and without prior notice
if a consent in writing, setting forth the action so taken, is signed by the
holders of the outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, or their
proxies; provided, however, that the board of directors of this corporation, by
resolution, shall have previously approved any such action. All such consents
shall be filed with the Secretary of the corporation and shall be maintained in
the corporate records. Provided, however, that (1) unless the consents of all
shareholders entitled to vote have been solicited in writing, notice of any
shareholder approval without a meeting by less than unanimous written consent
shall be given, as provided by Section 603(b) of the California Corporations
Code, and (2) in the case of election of directors, such a consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of directors; provided, however, that subject to
applicable law, a director may be elected at any time to fill a vacancy on the
Board of Directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. Any written consent may be revoked by a writing
received by the Secretary of the corporation prior to the time that written
consents of the number of shares required to authorize the proposed action have
been filed with the Secretary.
Unless a record date for voting purposes be fixed as provided in Section 10 of
the Article, the record date for determining shareholders entitled to give
consent pursuant to this Section 12, when no prior action by the Board has been
taken, shall be the day on which the first written consent is given.
Section 13. Proxies. Every person entitled to vote shares or execute written
consents has the right to do so either in person or by one or more persons
authorized by a written proxy executed and dated by such shareholder and filed
with the Secretary of the corporation prior to the convening of any meeting of
the shareholders at which any such proxy is to be used or prior to the use of
such written consent. A validly executed proxy which does not state that it is
irrevocable continues in full force and effect unless (1) revoked by the person
executing it, before the vote pursuant thereto, by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by, or by attendance at the meeting and voting in person by, the person
executing the proxy; or (2) written notice of the death or incapacity of the
maker of the proxy is received by the corporation before the vote pursuant
thereto is counted; provided, however, that no proxy shall be valid after the
expiration of 11 months from the date of its execution unless otherwise provided
in the proxy.
Section 14. Inspectors of Election. In advance of any meeting of shareholders,
the Board may appoint any persons other than nominees for office as inspectors
of election to act at such meeting and any adjournment thereof. If no inspectors
of election are so appointed, or if any persons so appointed fail to appear or
fail or refuse to act, the Chairman of any such meeting may, and on the request
of any shareholder or shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present shall determine whether one (1) or three (3) inspectors are to be
appointed.
The duties of such inspectors shall be as prescribed by Section 707(b) of the
California General Corporation Law and shall include: determining the number of
shares outstanding and the voting power of each; the shares represented at the
meeting; the existence of a quorum; the authenticity, validity and effect of
proxies; receiving votes, ballots or consents; hearing and determining all
challenges and questions in any arising in connection with the right to vote;
counting and tabulating all votes or consents, determining when the polls shall
close; determining the result; and doing such acts as may be proper to conduct
the election or vote with fairness to all shareholders. If there are three
inspectors of election, the decision, act, or certificate of a majority is
effective in all respects as the decision, act, or certificate of all.
ARTICLE III
Directors
Section 1. Powers. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors. The Board may delegate the management of the day-today
operation of the business of the corporation to a management company or other
person provided that the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised under the ultimate direction
of the Board. without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the Board shall have the
following powers in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents, and employees of
the corporation, prescribe any powers and duties for them that are
consistent with law, or with the Articles or these Bylaws, fix their
compensation, and require from them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, or with the Articles or these Bylaws, as they
may deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgment they may deem best.
(d) To authorize the issuance of shares of stock of the corporation from
time to time, upon such terms and for such consideration as may be
lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory and capital notes, bonds, debentures, deeds
of trust, mortgages, pledges, hypothecations, or other evidences of
debt and securities therefor and any agreements pertaining thereto.
(f) To prescribe the manner in which and the person or persons by whom any
or all of the checks, drafts, notes, contracts and other corporate
instruments shall be executed.
(g) To appoint and designate, by resolution adopted by a majority of the
authorized number of directors, one or more committees, each consisting
of two or more directors, including the appointment of alternate
members of any committee who may replace any absent member at any
meeting of the committee.
Section 2. Number and Qualification of Directors. The authorized number of
directors shall be not less than nine (9) nor more than seventeen (17) until
changed by an amendment to this Bylaw adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote. The exact
number of directors shall be eleven (11), until changed, within the limits
specified above, by a bylaw amending this Section 2, duly adopted by the Board
of Directors or by the shareholders.
No person (except, in respect to the limitation in clause (a) below, of this
Section 2.3, or any person who shall be a member of the Board of Directors of
this Corporation on the date these Bylaws shall be adopted) shall be a member of
the Board of Directors of this Corporation (a) who has not been a resident, for
a period of at least one (1) year immediately prior to his election, of a state
in which the Corporation or any of its subsidiaries maintains an office, or (b)
who owns, together with his family residing with him, directly or indirectly,
more than one percent (1%) of the outstanding shares of any banking corporation,
affiliate or subsidiary thereof, or bank holding company engaged in business in
California, other than the Corporation or any of its subsidiaries or affiliates,
or (c) who is a director, officer, employee, agent, nominee, or attorney of any
banking corporation, affiliate or subsidiary thereof, or bank holding company
engaged in business in California, other than the Corporation or any of its
subsidiaries or affiliates, or (d) who has or is the nominee of anyone who has a
contract, arrangement or understanding with any banking corporation, or
affiliate or subsidiary thereof, or bank holding company, other than the
Corporation or any of its subsidiaries or affiliates, or with any officer,
director, employee, agent, nominee, attorney or other representative thereof
that he will reveal or in any way utilize information obtained as a director or
that he will, directly or indirectly, attempt to effect or encourage any action
of the Corporation.
Section 3. Election and Term of Office. The directors shall be elected at each
annual meeting of shareholders but if any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of shareholders held for that purpose. Each director shall hold office
until the next annual meeting and until a successor has been elected and
qualified.
Section 4. Vacancies. Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, the Secretary, or the Board,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Vacancies in the Board may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified. Provided, however, that a
vacancy in the Board existing as the result of a removal of a director may not
be filled by the directors, unless the Articles or a bylaw adopted by the
shareholders so provides.
The Board may declare vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent, other than to fill a vacancy created by removal, requires the consent
of a majority of the outstanding shares entitled to vote. Any such election by
written consent to fill a vacancy created by removal requires the unanimous
consent of the outstanding shares entitled to vote. If the Board accepts the
resignation of a director tendered to take effect at a future time, the Board or
the shareholders shall have power to elect a successor to take office when the
resignation is to become effective.
Section 5. Place of Meeting. Regular meetings of the Board shall be held at any
place within the State of California which has been designated in the notice of
meeting or if there is no notice, at the principal office of the corporation, or
at a place designated by resolution of the Board or by the written consent of
the Board. Any regular or special meeting is valid wherever held if held upon
written consent of all members of the Board given either before or after the
meeting and filed with the Secretary of the corporation.
Section 6. Regular Meetings. Immediately following each annual meeting of
shareholders and at the same place, the Board shall hold a regular meeting for
the purpose of organization, any desired election of officers, and the
transaction of other business. Notice of this meeting shall not be required.
Other regular meetings of the Board shall be held without notice either on the
3rd Wednesday of January, April, July and October of each year, at the hour of
5:00 p.m., or at such different date and time as the Board may from time to time
fix by resolution; provided, however, should said day fall upon a legal holiday
observed by the corporation at its principal office, the said meeting shall be
held at the same time and place on the next succeeding full business day. Call
and notice of all regular meetings of the Board are hereby dispensed with.
Section 7. Special Meetings. Special meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board, the President,
or the Secretary or by any two directors.
Special meetings of the Board shall be held upon four days written notice by
mail or 24 hours notice delivered personally or by telephone or telegraph. Any
such notice shall be addressed or delivered to each director at such director's
address as it is shown upon the records of the corporation or as may have been
given to the corporation by the director for purposes of notice or, if such
address is not shown on such records or is not readily ascertainable, at the
place in which the meetings of the directors are regularly held. Such notice
may, but need not, specify the purpose of the meeting, nor the place if the
meeting is to be held at the principal office of the corporation. Notice of any
meeting of the Board need not be given to any director who attends the meeting
without protesting either prior thereto or at its commencement, the lack of
notice to such director.
Notice by mail shall be deemed to have been given at the time a written notice
is deposited in the United States mail, postage prepaid. Any other written
notice shall be deemed to have been given at the time it is personally delivered
to the recipient or is delivered to a common carrier for transmission, or
actually transmitted by the person giving the notice by electronic means, to the
recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
Section 8. Quorum. A majority of the authorized number of directors constitutes
a quorum of the Board for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board, unless a greater number be required by the
Articles and subject to the provisions of Section 310 of the California General
Corporation Law (as to approval of contracts or transactions in which a director
has a direct or indirect material financial interest) , Section 311 (as to
appointment of committees), and Section 317(e) (as to indemnification of
directors). A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
Section 9. Participation in Meetings by Conference Telephone. Members of the
Board may participate in a meeting through use of a conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Participation in a meeting pursuant to Section 9
constitutes "presence" in person at such meeting.
Section 10. Waiver of Notice. The transactions of any meeting of the Board,
however called and noticed or wherever held, are as valid as though had at a
meeting duly held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the directors not present signs a
written waiver of notice, a consent to holding such meeting or an approval of
the minutes thereof. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting
Section 11. Adjournment. A majority of the directors present, whether or not a
quorum is. present, may adjourn any directors' meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given, unless the meeting is adjourned for more than twenty-four hours, in which
case notice of the time and place shall be given before the time of the
adjourned meeting, in the manner specified in Section 7 of this Article III, to
the directors who were not present at the time of the adjournment.
Section 12. Action Without Meeting. Any action required or permitted to be taken
by the Board may be taken without a meeting if all members of the Board shall
individually or collectively consent in writing to such action. Such action by
written consent shall have the same effect as a unanimous vote of the Board.
Such consent or consents shall be filed with the minutes of the proceedings of
the Board.
Section 13. Fees and Compensation. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the Board. This
Section shall not be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee, or otherwise,
and receiving compensation for those services.
Section 14. Rights of Inspection. Every director of the corporation shall have
the absolute right at any reasonable time to inspect and copy all books,
records, and documents of every kind and to inspect the physical properties of
the corporation and also of its subsidiary corporations, domestic or foreign.
Such inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
ARTICLE IV
Officers
Section 1. Officers. The officers of the corporation shall be a president, a
secretary, and a chief financial officer. The corporation may also have, at the
discretion of the Board, a chairman of the board, a vice chairman of the board,
one or more vice presidents, one or more assistant vice presidents, one or more
assistant treasurers, one or more assistant secretaries and such other officers
as may be elected or appointed in accordance with the provisions of Section 3 of
this Article. one person may hold two or more offices, except those of president
and chief financial officer.
Section 2. Election. The officers of the corporation, except such officers as
may be elected or appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen by, and shall serve at the pleasure
of, the Board, and shall hold their respective offices until their resignation,
removal, or other disqualification from service, or until their respective
successors shall be elected, subject to the rights, if any, of an officer under
any contract of employment.
Section 3. Subordinate Officers. The Board may elect, and may empower the
President to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
Section 4. Removal and Resignation. Subject to the rights, if any, of an officer
under any contract of employment, any officer may be removed, either with or
without cause, by the Board at any time, or, except in the case of an officer
chosen by the Board, by any officer upon whom such power of removal may be
conferred by the Board.
Any officer may resign at any time by giving written notice to the corporation,
but without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party. Any such resignation shall take effect
at the date of the receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular election or appointment to such office.
Section 6. Chairman of the Board. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board and of
the shareholders, and exercise and perform such other powers and duties as may
be from time to time assigned by the Board.
Section 7. Vice Chairman. The Vice Chairman of the Board, if there shall be such
an officer, shall, in the absence of the Chairman of the Board of Directors,
preside at all meetings of the Board and of the shareholders, and exercise and
perform such other powers and duties as may be from time to time assigned by the
Board.
Section 8. President. Subject to such powers, if any, as may be given by the
Board to the Chairman of the Board, if there be such an officer, the President
is the General Manager and Chief Executive Officer of the corporation and has,
subject to the control of the Board, general supervision, direction, and control
of the business and officers of the corporation. In the absence of both the
Chairman of the Board and the Vice Chairman, or if there be none, the President
shall preside at all meetings of the shareholders and at all meetings of the
Board. The President has the general powers and duties of management usually
vested in the office of President and General Manager of a corporation and such
other powers and duties as may be prescribed by the Board.
Section 9. Vice Presidents. In the absence or disability of the President, the
Vice Presidents in order of their rank as fixed by the Board or, if not ranked,
the Vice President designated by the Board, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board or the Bylaws, and the President,
or the Chairman of the Board.
Section 10. Secretary. The Secretary shall keep or cause to be kept, at the
principal office and such other place as the Board may order, a book of minutes
of all the meetings of shareholders, the Board, and its committees, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present or represented
at shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the
corporation at the principal office or business office in accordance with
Section 213 of the California General Corporation Law. The Secretary shall keep,
or cause to be kept, at the principal office or at the office of the
corporation's transfer agent or registrar, if one be appointed, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of
the shareholders, of the Board and of any committees thereof required by these
Bylaws or by law to be given, shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
Section 11. Assistant Secretary. The Assistant Secretary or the Assistant
Secretaries, in the order of their seniority, shall, in the absence or
disability of the Secretary, or in the event of such officer's refusal to act,
perform the duties and exercise the powers and discharge such duties as may be
assigned from time to time by the President or by the Board of Directors.
Section 12. Chief Financial officer. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings, and shares, and shall send or cause to be
sent to the shareholders of the corporation such financial statements and
reports as are by law or these Bylaws required to be sent to them. The books of
account shall at all times be open to inspection by any director of the
corporation.
The Chief Financial Officer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the Board. The Chief Financial officer shall disburse the funds of
the corporation as may be ordered by the Board, shall render to the President
and directors, whenever they request it, an account of all transactions as Chief
Financial Officer and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
Board.
Section 13. Assistant Treasurer. The Assistant Treasurer or the Assistant
Treasurers, in the order of their seniority, shall, in the absence or disability
of the Chief Financial Officer, or in the event of such officer's refusal to
act, perform the duties and exercise the powers of the Chief Financial Officer,
and shall have such additional powers and discharge such duties as may be
assigned from time to time by the President or by the Board of Directors.
Section 14. Salaries. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary by reason of the fact that such officer is also a director of the
corporation.
Section 15. Officers Holding More Than One Office. Any two or more offices,
except those of President and Chief Financial Officer, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity.
Section 16. Inability to Act. In the case of absence or inability to act of any
officer of the corporation and of any person herein authorized to act in his
place, the Board may from time to time delegate the powers or duties of such
officer to any other officer, or any director or other person whom it may
select.
ARTICLE V
Other Provisions
Section 1. Inspection of Corporate Records. The corporation shall keep at its
principal executive office a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder. A shareholder or shareholders of the corporation holding at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may:
(a) Inspect and copy the record of shareholders; names and addresses and
shareholdings during usual business hours upon five business days prior
notice demand upon the corporation; or
(b) Obtain from the transfer agent, if any, for the corporation, upon five
business days prior written demand and upon the tender of its usual
charges for such a list (the amount of which charges shall be stated to
the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the
election of directors and their shareholdings, as of the most recent
record date for which it has been compiled or as of the date specified
by the shareholder subsequent to the date of demand.
Section 2. Inspection of Bylaws. The corporation shall keep at its principal
office the original or a copy of these Bylaws as amended to date which shall be
open to inspection by shareholders at all reasonable times during business
hours.
Section 3. Endorsement of Documents; Contracts. Subject to the provisions of
applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, conveyance, or other instrument in writing and any assignment or
endorsements thereof executed or entered into between this corporation and any
other person, when signed by the President or any Vice President and the
Treasurer or any Assistant Treasurer of this corporation shall be valid and
binding upon this corporation in the absence of actual knowledge on the part of
the other person that the signing officers had not the authority to execute the
same. Any such instruments may be signed by any other person or persons and in
such manner as from time to time shall be determined by the Board, and, unless
so authorized by the Board, no officer, agent, or employee shall have any power
or authority to bind the corporation by any contract or arrangement or to pledge
its credit or to render it liable for any purpose or amount.
Section 4. Certificates of Stock. Every holder of shares of the corporation
shall be entitled to have a certificate signed in the name of the corporation by
the President or Vice President and by the Chief Financial Officer or Assistant
Financial Officer or by the Secretary or Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificates may be facsimile. If any officer,
transfer agent, or registrar who has signed a certificate shall have ceased to
be such officer, transfer agent, or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if such person were
an officer, transfer agent, or registrar at the date of issue.
Except as provided in this Section, no new certificate for shares shall be
issued in lieu of an old one unless the latter is surrendered and canceled at
the same time. The Board may, however, in case any certificate for shares is
alleged to have been lost, stolen, or destroyed, authorize the issuance of a new
certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it (including expense or
liability) on account of the alleged loss, theft, or destruction of such
certificate or the issuance of such new certificate.
Prior to the due presentment for registration of transfer in the stock transfer
book of the corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to exercise
all the rights and powers of an owner, except as expressly provided otherwise by
the laws of the State of California.
Section 5. Representation of Shares of Other Corporations. The President or any
other officer or officers authorized by the Board or the President are each
authorized to vote, represent, and exercise on behalf of the corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the corporation. The authority herein granted may be
exercised by any such officer in person or by any other person authorized to do
so by proxy or power of attorney duly executed by said officer.
Section 6. Annual Report to Shareholders. Except when this corporation has 100
or more holders of record of its shares (determined as provided in Section 605
of the Corporations Code), the annual report to shareholders referred to in
Section 1501 of the California General Corporation Law is expressly waived, but
nothing herein shall be interpreted as prohibiting the Board from issuing annual
or other periodic reports to shareholders.
Section 7. Seal. The corporate seal of the corporation shall consist of two
concentric circles, between which shall be the name of the corporation, and in
the center shall be inscribed the word "Incorporated" and the date of its
incorporation.
Section 8. Fiscal Year. The fiscal year of this corporation shall begin on the
first day of January and end on the 31st day of December of each year.
Section 9. Construction and Definitions. Unless the context otherwise requires,
the general provisions, rules of construction, and definitions contained in the
California General Corporation Law shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
Section 10. Bylaw Provisions Contrary to or Inconsistent with Provisions of Law.
Any article, section, subsection, subdivision, sentence, clause or phrase of
these Bylaws which, upon being construed in the manner provided in Section 9 of
this Article, shall be contrary to or inconsistent with any applicable provision
of the California General Corporation Law or other applicable law of the State
of California or of the United States shall not apply so long as said provisions
of law shall remain in effect, but such result shall not affect the validity of
applicability of any other portions of these Bylaws, it being hereby declared
that these Bylaws would have been adopted and each article, section, subsection,
subdivision, sentence, clause or phrase thereof, irrespective of the fact that
any one or more articles, sections, subsections, subdivisions, sentences,
clauses or phrases is or are illegal.
ARTICLE VI
Indemnification
Section 1. Definitions. For the purposes of this Article, "agent" includes any
person who is or was a director, officer, employee, or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise, or was a
director, officer, employee, or agent of a foreign or domestic corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" includes any threatened,
pending, or completed action or proceeding, whether civil, criminal,
administrative or investigative and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification
pursuant to law.
Section 2. Extent of Indemnification. The corporation shall, to the maximum
extent permitted by the California General Corporation Law, advance expenses to
and indemnify each of its agents against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact any such person is or was an agent of
the corporation.
Section 3. Insurance. The corporation shall have power to purchase and maintain
insurance on behalf of any agent of the corporation against any liability
asserted against or incurred by the agent in such capacity or arising out of the
agent's status as such whether or not the corporation would have the power to
indemnify the agent against such liability under the provisions of this Article.
ARTICLE VII
Amendments
Section 1. Amendment By Shareholders. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the Articles of the corporation set forth the number of authorized directors of
the corporation, the authorized number of directors may be changed only by an
amendment of the Articles.
Section 2. Amendment By Directors. Subject to the rights of the shareholders as
provided in Section 1 of this Article VII, Bylaws, other than a bylaw or an
amendment of a bylaw changing the authorized number of directors, may be
adopted, amended, or repealed by the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
</LEGEND>
<CIK> 0000721161
<NAME> SJNB Financial Corp.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 19,552
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,796
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,863
<INVESTMENTS-CARRYING> 11,492
<INVESTMENTS-MARKET> 11,687
<LOANS> 246,653
<ALLOWANCE> 4,702
<TOTAL-ASSETS> 342,953
<DEPOSITS> 302,163
<SHORT-TERM> 0
<LIABILITIES-OTHER> 6,238
<LONG-TERM> 0
0
0
<COMMON> 16,688
<OTHER-SE> 17,684
<TOTAL-LIABILITIES-AND-EQUITY> 342,953
<INTEREST-LOAN> 18,404
<INTEREST-INVEST> 3,546
<INTEREST-OTHER> (7)
<INTEREST-TOTAL> 21,943
<INTEREST-DEPOSIT> 6,594
<INTEREST-EXPENSE> 6,839
<INTEREST-INCOME-NET> 15,104
<LOAN-LOSSES> 150
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 8,444
<INCOME-PRETAX> 7,287
<INCOME-PRE-EXTRAORDINARY> 7,287
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,241
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.61
<YIELD-ACTUAL> 0.065
<LOANS-NON> 388
<LOANS-PAST> 0
<LOANS-TROUBLED> 47
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,493
<CHARGE-OFFS> 125
<RECOVERIES> 184
<ALLOWANCE-CLOSE> 4,702
<ALLOWANCE-DOMESTIC> 4,702
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 125
</TABLE>
