SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
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 Securities Exchange Act of 1934 during
the preceding 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 the issuer's classes of common
stock, as of the latest practicable date: 3,697,031 shares of common stock
outstanding as of November 1, 2000.
<PAGE>
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. - FINANCIAL STATEMENTS
SJNB FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statements of Shareholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 23
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 24
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 24
Item 3. DEFAULTS UPON SENIOR SECURITIES 24
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25
Item 5. OTHER INFORMATION 25
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURES 29
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. -Financial Statements
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $24,801 $18,938
Interest-bearing deposits in other banks 599 2,042
Federal funds sold 2,000 7,000
Money market investments 17,915 5,651
Investment securities:
Available for sale 121,525 90,878
Held to maturity (Fair value: $18,462 at September 30, 2000
and $20,708 at December 31, 1999) 19,203 22,196
-----------------------------------------------------------------------------------------------------------------------------
Total investment securities 140,728 113,074
-----------------------------------------------------------------------------------------------------------------------------
Loans and leases 433,895 403,318
Allowance for loan and lease losses (7,169) (6,412)
-----------------------------------------------------------------------------------------------------------------------------
Loans and leases, net 426,726 396,906
-----------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 5,382 5,564
Accrued interest receivable 3,682 3,202
Intangibles, net of accumulated amortization of $2,949 at
September 30, 2000 and $2,620 at December 31, 1999 3,287 3,617
Other assets 24,767 12,087
-----------------------------------------------------------------------------------------------------------------------------
Total Assets $649,887 $568,081
=============================================================================================================================
Liabilities and Shareholders' Equity
-----------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $126,824 $94,687
Interest-bearing 421,815 379,046
-----------------------------------------------------------------------------------------------------------------------------
Total deposits 548,639 473,733
-----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank advances 20,371 22,503
Other borrowings 14,602 11,022
Accrued interest payable 2,304 1,720
Other liabilities 5,319 5,884
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities 591,235 514,862
-----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value, 5,000 shares authorized;
none issued or outstanding in 2000 or 1999. ---- ----
Common stock, no par value; authorized, 20,000 shares;
issued and outstanding, 3,692 shares at September 30, 2000
and 3,593 shares at December 31, 1999. 21,642 20,769
Retained earnings 37,851 33,942
Accumulated other comprehensive losses (841) (1,492)
-----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 58,652 53,219
-----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
-----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $649,887 $568,081
=============================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
September 30, September 30,
-------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans and leases $11,459 $9,335 $33,062 $26,157
Interest on money market investments 602 368 1,675 1,072
Interest on time deposits 14 26 66 80
Interest and dividends on investment securities available for sale 1,870 1,313 4,960 3,304
Interest on investment securities held to maturity 250 302 833 899
Other interest and investment income (expense) 5 (14) 5 (34)
----------------------------------------------------------------------------------------------------------------------------
Total interest income 14,200 11,330 40,601 31,478
----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Interest-bearing demand 564 542 1,685 1,633
Money market and savings 1,643 1,062 4,646 2,721
Certificates of deposits less than $100 843 709 2,406 1,903
Certificates of deposit over $100 2,074 1,273 5,365 3,630
Federal Home Loan Bank advances 335 343 999 1,016
Other borrowings 222 239 642 367
----------------------------------------------------------------------------------------------------------------------------
Total interest expense 5,681 4,168 15,743 11,270
----------------------------------------------------------------------------------------------------------------------------
Net interest income 8,519 7,162 24,858 20,208
----------------------------------------------------------------------------------------------------------------------------
Provision for loan and lease losses 150 150 525 316
----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan and lease losses 8,369 7,012 24,333 19,892
----------------------------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposits 261 297 826 761
Other operating income 322 222 761 847
Net loss on securities available for sale ---- (51) (587) (51)
----------------------------------------------------------------------------------------------------------------------------
Total other income 583 468 1,000 1,557
----------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 2,487 2,365 7,130 6,768
Occupancy 431 375 1,125 1,080
Merger related costs, nonrecurring ---- ---- 3,424 ----
Other 1,505 1,456 4,310 4,160
----------------------------------------------------------------------------------------------------------------------------
Total other expenses 4,423 4,196 15,989 12,008
----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,529 3,284 9,344 9,441
Income taxes 1,760 1,300 3,683 3,803
----------------------------------------------------------------------------------------------------------------------------
Net income $2,769 $1,984 $5,661 $5,638
============================================================================================================================
Net income per share - basic $0.75 $0.57 $1.55 $1.62
============================================================================================================================
Net income per share - diluted $0.72 $0.53 $1.48 $1.50
============================================================================================================================
Excluding merger related costs, net of tax
Net income per share - basic $0.75 $0.57 $2.14 $1.62
============================================================================================================================
Net income per share - diluted $0.72 $0.53 $2.04 $1.50
============================================================================================================================
Dividends declared $0.16 $0.14 $0.48 $0.42
============================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Shareholders' Equity
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) Total
on Securities Share-
Common Retained Available holders'
Nine months ended September 30, 1999 Shares Stock Earnings for Sale Equity
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1998 3,590 $21,461 $28,996 $282 $50,739
--------------
Net income 5,638 5,638
Other comprehensive income - Unrealized losses
on securities held for sale, net (1,243) (1,243)
-----------------------------------------------------------------------------------------------------------------------------
Comprehensive income 4,395
-----------------------------------------------------------------------------------------------------------------------------
Common stock repurchased (148) (3,390) (522) (3,912)
Stock options exercised 21 223 223
Cash dividends (1,319) (1,319)
-----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1999 3,463 $18,294 $32,793 ($961) $50,126
=============================================================================================================================
Nine months ended September 30, 2000
-----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999 3,593 $20,769 $33,942 ($1,492) $53,219
Net income 5,661 5,661
Other comprehensive income - Realized losses
on securities held for sale, net (587) (587)
Unrealized gains on securities held for sale, net 1,238 1,238
-----------------------------------------------------------------------------------------------------------------------------
Comprehensive income 6,312
-----------------------------------------------------------------------------------------------------------------------------
Stock options exercised 99 873 873
Cash dividends (1,752) (1,752)
-----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 2000 3,692 $21,642 $37,851 ($841) $58,652
=============================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $5,661 $5,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses 525 316
Depreciation and amortization 624 846
Gain on sale of leased assets ---- 33
Amortization on intangibles 330 342
Net loss on securities available for sale 587 51
Amortization of (premium) discount on investment securities, net (119) 44
Increase in intangibles assets ---- (45)
Increase in accrued interest receivable and other assets (4,467) (1,284)
Increase (decrease) in accrued interest payable and other liabilities 999 (131)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,140 5,810
-----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale/maturity of securities available for sale 20,097 18,204
Maturities of securities held to maturity 3,157 5,195
Purchase of securities available for sale (50,122) (38,560)
Purchase of securities held to maturity (132) (5,488)
Purchase of life insurance policies (9,070) (1,238)
Increase in loans and leases, net (30,439) (41,375)
Proceeds from sale of premises and equipment ---- 481
Capital expenditures (441) (3,460)
-----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (66,950) (66,241)
-----------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Increase in deposits, net 74,906 43,746
Increase in other borrowings 99 24,057
Increase (decrease) in federal funds purchased 2,500 (2,000)
Decrease in Federal Home Loan Bank borrowings (2,132) (126)
Cash dividends (1,752) (1,319)
Stock repurchase ---- (3,912)
Proceeds from stock options exercised 873 223
-----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 74,494 60,669
-----------------------------------------------------------------------------------------------------------------
Net increase in cash and equivalents 11,684 238
Cash and equivalents at beginning of period 33,631 56,312
-----------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $45,315 $56,550
=================================================================================================================
Other cash flow information:
Interest paid $15,159 $11,025
=================================
---------------------------------
Income taxes paid 3,562 4,126
=================================================================================================================
Noncash transactions:
Unrealized gain (loss) on securities available for sale, net of tax $1,238 $(1,243)
=================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed 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 condensed consolidated financial statements of SJNB
Financial Corp. (the "Company") and its subsidiary, San Jose National
Bank (SJNB), and its subsidiary, Epic Funding Corp., are prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. The condensed
consolidated financial statements presents the combined results of the
Company and Saratoga Bancorp on a pooling of interests basis, as if
the combination had been consummated at the beginning of the earliest
period presented. 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, 1999.
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, September 30
2000 1999
-----------------------------------------------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amounts Income Shares Amounts
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income and basic EPS $2,769 3,690 $0.75 $1,984 3,461 $0.57
============ ============
Effect of stock option dilutive shares 175 310
---------------------------------------------------------------- -------------------------
Diluted earnings per share $2,769 3,865 $0.72 $1,984 3,771 $0.53
=================================================================================================================
Nine months ended, September 30
2000 1999
-----------------------------------------------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amounts Income Shares Amounts
-----------------------------------------------------------------------------------------------------------------
Net income and basic EPS $5,661 3,653 $1.55 $5,638 3,487 $1.62
============ ============
Effect of stock option dilutive shares 172 260
-----------------------------------------------------------------------------------------------------------------
Diluted earnings per share $5,661 3,825 $1.48 $5,638 3,747 $1.50
=================================================================================================================
</TABLE>
Note C Business Combination
On January 5, 2000, the Company acquired Saratoga Bancorp, the parent
company of Saratoga National Bank, pursuant to a merger of Saratoga
Bancorp with and into the Company. Saratoga National Bank,
headquartered in Saratoga, California, operated three branches and as
of the acquisition date had $142 million in assets and $103 million in
deposits. Saratoga National Bank's San Jose office, which was located
near SJNB's San Jose office was consolidated into SJNB's San Jose
office in January 2000. The shareholders of Saratoga received 0.70
shares of the Company's common stock for each outstanding share of
Saratoga common stock. Total shares issued were 1,175,743. Based on
the closing price of the Company's stock on January 5, 2000 of $29.125
the transaction is valued at approximately $34.2 million, excluding
the value of any unexercised options, and each Saratoga shareholder
received SJNB common stock valued at $20.39 per share. The merger has
been accounted for as a pooling of interests. The condensed
consolidated financial statements and selected financial data present
the combined results of the Company and Saratoga Bancorp on a pooling
of interests basis, as if the combination had been consummated at the
beginning of the earliest period presented. The results of operations
previously reported by the separate companies and the combined amounts
presented in the accompanying unaudited condensed consolidated
financial statements are summarized below:
For the quarter ended September 30, 1999
------------------------------ ------------------------------------------------
SJNB Saratoga Combined
------------------------------ ---------------------------- -----------
Net interest income $5,729 $1,433 $7,162
Net income 1,498 486 1,984
For the nine months ended September 30, 1999
------------------------------ ----------------------------------------
Net interest income $15,949 $4,259 $20,208
Net income 4,204 1,434 5,638
Note D Segment Reporting
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires certain information about the operating segments
of the Company. The objective of requiring disclosures about segments
of an enterprise and related information is to provide information
about the different types of business activities in which an
enterprise engages and the different economic environments in which it
operates to help users of financial statements better understand its
performance; better assess its prospects for future cash flows and
make more informed judgments about the enterprise as a whole. The
Company has determined it has three segments, general commercial
banking, leasing, and factoring/asset based financing. Neither leasing
nor factoring/asset based financing meet the required thresholds for
disaggregation and therefore the disclosures and related information
about such segments has not been included in the consolidated
financial statements. At such time these segments meet the required
thresholds, such disclosures and other information will be included.
Note E Accounting for Derivative Instruments and Hedging Activities
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. In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of Effective
Date. This Statement deferred the effective date to the fiscal
quarters of fiscal years beginning after June 15, 2000. The Company
expects to adopt this Statement on January 1, 2001. Management
believes the Statement should 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 ("SJNB" or the "Bank"), and the Bank's subsidiary, Epic Funding
Corp. ("Epic"). The Company and the Bank are headquartered in San Jose,
California and Epic is headquartered in Danville, 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, 2000 and 1999 and the
liquidity and financial condition of the Company, SJNB and Epic as of September
30, 2000 and December 31, 1999.
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 Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. 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; a potential
declining health of the economy, either nationally or regionally; the
deterioration of credit quality, which could cause an increase in the provision
for loan and lease losses; changes in the regulatory environment; changes in
business conditions, particularly in Santa Clara County real estate and
technology industries; certain operational risks involving data processing
systems or fraud; volatility of rate sensitive deposits; asset/liability
matching risks and liquidity risks; 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, 1999 and Quarterly Report on Form 10-Q for the quarter ended June
30, 2000. See also the discussion of other risk factors discussed elsewhere in
this Report.
Current Developments
On January 5, 2000, the Company acquired Saratoga Bancorp, the parent company of
Saratoga National Bank, pursuant to a merger of Saratoga Bancorp with and into
the Company. See Note C of Notes to Unaudited Condensed Consolidated Financial
Statements.
Selected Financial Data
The following presents selected financial data and ratios as of and for the
quarter and nine months ended September 30, 2000 and 1999:
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA AND RATIOS
-----------------------------------------------------------------------------------------------------------------------------
For the quarters For the Nine months
SELECTED ANNUALIZED OPERATING RATIOS ended September 30, ended September 30,
--------------------------------------------------------------
EXCLUDING MERGER RELATED COSTS, NET OF TAX: 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on average equity 19.50% 15.77% 18.93% 14.94%
Return on average tangible equity 21.55 18.04 21.04 17.16
Return on average assets 1.70 1.42 1.68 1.43
Net (recoveries) chargeoffs to average loans and leases (0.30) (0.08) (0.07) (0.07)
Average equity to average assets 8.72 9.02 8.87 9.60
Average tangible equity to average tangible assets 8.25 8.40 8.37 8.92
PER SHARE DATA:
Net income per share - basic $0.75 $0.57 $1.55 $1.62
Net income per share - diluted 0.72 0.53 1.48 1.50
Excluding merger related costs, net of tax
Net income per share - basic 0.75 0.57 2.14 1.62
Net income per share - diluted 0.72 0.53 2.04 1.50
Net income per share - diluted (1) 0.74 0.56 2.13 1.60
Dividends per share 0.16 0.14 0.48 0.42
=============================================================================================================================
At September 30, At December 31, At September 30,
SHAREHOLDERS' EQUITY 2000 1999 1999
------------------------------------------------------------------------------------------------------------------------
Shareholders' equity per share $15.89 $14.81 $14.47
Tangible equity per share 15.00 13.81 13.40
SELECTED FINANCIAL POSITION RATIOS:
-----------------------------------------------------------------------------------------------------------------------
Leverage capital ratio 8.68% 8.88% 8.53%
Total risk based capital ratio 11.90 12.34 11.79
Nonperforming loans and leases to total loans and leases 0.22 0.54 0.33
Nonperforming assets to total assets 0.15 0.38 0.22
Allowance for loan and lease losses to total loans 1.65 1.59 1.58
Allowance for loan and lease losses
to nonperforming loans and leases 753.00 296.00 485.00
Allowance for loan and lease losses
to nonperforming assets 753.00 296.00 485.00
=======================================================================================================================
<FN>
(1) Excludes after-tax effect of goodwill and core deposit intangible amortization.
</FN>
</TABLE>
Summary of Financial Results
The Company reported net income of $2,769 or $0.72 per share - diluted for the
quarter ended September 30, 2000. This compares with net income of $1,984 or
$0.53 per share - diluted for the third quarter of 1999. The increase in net
income compared to the quarter ended September 30, 1999 was primarily the result
of the increase in net interest income, offset somewhat, by an increase in other
expense. See the specific sections below for details regarding these changes.
The Company reported net income of $5,661 or $1.48 per share - diluted for the
nine months ended September 30, 2000. After excluding merger related costs, net
of tax, net income was $7,809 or $2.04 per share - diluted. This compares with
net income of $5,638 or $1.50 per share - diluted for the nine months of 1999.
The increase in operating net income (which is net income excluding the merger
related costs, net of tax) compared to the nine months ended September 30, 1999
was primarily the result of the increase in net interest income, offset
somewhat, by an increase in the loan loss provision, increase in net security
losses (other income) and an increase in other expense. See the specific
sections below for details regarding these changes.
<PAGE>
Net Interest Income
Net interest income for the quarter ended September 30, 2000, increased $1.4
million as compared to the same quarter a year ago. The Bank's average earning
assets for the same period increased by $77 million, as the result of growth in
the Bank's investment securities and money market investments of $30 million and
in the loan and lease portfolio of $47 million. In addition, the net interest
margin increased from 5.63% in the quarter ended September 30, 1999 compared to
5.83% for the quarter ended September 30, 2000.
The increase in the net interest margin was the result of interest rate
increases during 1999 and 2000. During the third quarter of 1999 the prime rate
averaged 8.15% while in the third quarter of 2000 it averaged 9.50% while cost
of interest-bearing liabilities increased from 4.14% in 1999 to 4.92% in 2000.
Net interest income for the nine months ended September 30, 2000, increased $4.7
million as compared to the nine months ended September 30, 1999. The Bank's
average earning assets for the same period increased by $85 million, as the
result of growth in the Bank's investment securities and money market
investments of $31 million and in the loan and lease portfolio of $54 million.
In addition, the net interest margin increased from 5.65% in the nine months
ended September 30, 1999 compared to 5.91% for the nine months ended September
30, 2000.
The increase in the net interest margin was primarily the result of interest
rate increases during 1999 and 2000. During the first nine months of 1999 the
prime rate averaged 7.87% while in the first nine months of 2000 it averaged
9.15% while cost of interest-bearing liabilities increased from 4.06% in 1999 to
4.70% in 2000.
Due to the nature of the Company's lending markets, in which loans are generally
tied to the Prime Rate, it is believed an increase in interest rates should
positively affect the Company's future earnings, while a decline in interest
rates would have a negative impact. Should interest rates decline in the future,
management believes that net interest income could be negatively impacted and it
is not feasible to provide an accurate measure of such a change because of the
many factors (many of which are uncontrollable) influencing the result.
Economic conditions in Northern California have remained relatively strong in
2000, although there are indications that this economic strength could be
threatened by increasing inflationary pressures, the continued tightness of the
skilled labor force in Santa Clara County and the potential for the real estate
market to slow down. During the last nine months the domestic equity markets
have shown an increase in volatility, affecting all companies, but more
significantly the high technology companies. The impact of this volatility is
not certain at this time but could affect the equity wealth factor of those who
have investments in such companies, the future infusion of venture capital and
the ability of such companies to raise capital in public markets. These factors
could have a serious effect on economic conditions of Santa Clara County. In
addition, the competitive environment within the Bank's marketplace continues to
be aggressive and the competition among banks for additional loans, leases and
deposits has caused more competitive pricing.
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, 2000 and
1999.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, RATES AND YIELDS
Fully Taxable Equivalent
(dollars in thousands)
Quarter ended September 30,
-----------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Assets Balance Interest Yield (1) Balance Interest Yield (1)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans and leases, net (2) $422,147 $11,459 10.80% $375,235 $9,335 9.87%
Securities available for sale:
Taxable (3) 111,997 1,860 6.61 84,818 1,313 6.14
Nontaxable (4) 625 15 9.55 ---- ---- ----
Securities held to maturity:
Taxable (5) 2,220 46 8.24 5,774 100 6.87
Nontaxable (6) 17,411 340 7.77 17,802 337 7.51
Money market investments 35,720 602 6.70 28,425 368 5.14
Interest-bearing due from banks 1,142 15 6.62 1,874 26 5.50
Interest rate hedging instruments ---- 5 ---- ---- (14) ----
-------------------------------------------------------------------------- --------------------------
Total interest-earning assets 591,262 14,342 9.65 513,928 11,465 8.85
-------------------------------------------------------------------------- --------------------------
Allowance for loan and lease losses (6,856) (5,850)
Cash and non-interest bearing due from banks 24,642 22,096
Other assets 35,184 19,572
Core deposit intangibles and
goodwill, net 3,343 3,772
------------------------------------------------------------- -------------
Total Assets $647,575 $553,518
============================================================= =============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $78,426 564 2.86 $80,670 542 2.67
Money market and savings 152,706 1,643 4.28 122,037 1,062 3.45
Certificates of deposit:
Less than $100 57,064 843 5.88 53,798 709 5.23
$100 or more 138,846 2,074 5.94 104,561 1,273 4.83
-------------------------------------------------------------------------- --------------------------
Total certificates of deposits 195,910 2,917 5.92 158,359 1,982 4.97
-------------------------------------------------------------------------- --------------------------
Other borrowings 32,304 557 6.86 38,723 582 5.96
-------------------------------------------------------------------------- --------------------------
Total interest-bearing liabilities 459,346 5,681 4.92 399,789 4,168 4.14
-------------------------------------------------------------------------- --------------------------
Noninterest-bearing demand deposits 123,199 96,520
Accrued interest payable and
other liabilities 8,547 7,279
------------------------------------------------------------- -------------
Total liabilities 591,092 503,588
------------------------------------------------------------- -------------
Shareholders' equity 56,483 49,930
------------------------------------------------------------- -------------
Total Liabilities and Shareholders' $647,575 $553,518
equity
=============================================================------------- =============-------------
Net interest income and margin (7) $8,661 5.83% $7,297 5.63%
================================================ ========================= ==========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $401 for 2000, and $520 for 1999. Nonperforming
loans and leases have been included in average loan and lease balances.
(3) Includes dividend income of $75 received in 1999.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($6 in 2000). (5) Includes dividend income of $36 received in 2000 and $41
in 1999. (6) Adjusted to a fully taxable equivalent basis using the federal
statutory rate ($136 in 2000 and $135 in 1999). (7) The net interest margin
represents the fully taxable equivalent net interest income as a percentage of
average
earning assets
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, RATES AND YIELDS
Fully Taxable Equivalent
(dollars in thousands) Nine months ended September 30,
-----------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Assets Balance Interest Yield (1) Balance Interest Yield (1)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and leases, net (2) $413,725 $33,062 10.67% $359,765 $26,157 9.72%
Securities available for sale:
Taxable (3) 100,193 4,939 6.58 73,479 3,304 6.01
Nontaxable (4) 499 35 9.37 ---- ---- ----
Securities held to maturity:
Taxable (5) 3,140 186 7.91 7,079 353 6.67
Nontaxable (6) 17,691 1,078 8.14 15,700 910 7.75
Money market investments 35,318 1,675 6.34 28,839 1,072 4.97
Interest-bearing due from banks 1,625 66 5.43 1,818 80 5.88
Interest rate hedging instruments ---- 5 ---- ---- (34) ----
-------------------------------------------------------------------------- --------------------------
Total interest-earning assets 572,191 41,046 9.58 486,680 31,842 8.75
-------------------------------------------------------------------------- --------------------------
Allowance for loan and lease losses (6,560) (5,718)
Cash and non-interest bearing due from banks 23,954 22,237
Other assets 28,117 18,731
Core deposit intangibles and
goodwill, net 3,440 3,874
------------------------------------------------------------- -------------
Total Assets $621,142 $525,804
============================================================= =============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $80,652 1,685 2.79 $81,333 1,632 2.68
Money market and savings 149,522 4,646 4.15 111,649 2,721 3.26
Certificates of deposit:
Less than $100 55,661 2,406 5.77 48,113 1,904 5.29
$100 or more 128,222 5,365 5.59 98,648 3,630 4.92
-------------------------------------------------------------------------- --------------------------
Total certificates of deposits 183,883 7,771 5.65 146,761 5,534 5.04
-------------------------------------------------------------------------- --------------------------
Other borrowings 33,133 1,641 6.62 31,056 1,383 5.95
-------------------------------------------------------------------------- --------------------------
Total interest-bearing liabilities 447,190 15,743 4.70 370,799 11,270 4.06
-------------------------------------------------------------------------- --------------------------
Noninterest-bearing demand deposits 111,167 96,833
Accrued interest payable and
other liabilities 7,672 7,718
------------------------------------------------------------- -------------
Total liabilities 566,029 475,350
------------------------------------------------------------- -------------
Shareholders' equity 55,113 50,454
------------------------------------------------------------- -------------
Total Liabilities and Shareholders' $621,142 $525,804
equity
=============================================================------------- =============-------------
Net interest income and margin (7) $25,303 5.91% $20,572 5.65%
================================================ ========================= ==========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $1,624 for 2000, and $1,541 for 1999. Nonperforming
loans and leases have been included in average loan and lease balances.
(3) Includes dividend income of $152 and $228 received in 2000 and 1999,
respectively.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($14 in 2000).
(5) Includes dividend income of $135 received in 2000 and $113 in 1999.
(6) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($431 in 2000 and $364 in 1999).
(7) The net interest margin represents the fully taxable equivalent net
interest income as apercentage of average earning assets.
</FN>
</TABLE>
<PAGE>
Provision for Loan and Lease Losses
The level of the allowance for loan and lease losses and the related provision
reflect management's judgment as to the inherent risk of loss associated with
the loan and lease portfolios as of September 30, 2000 and 1999 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 loan
and lease losses in the three months ended September 30, 2000 as compared to an
addition of $150 for the third quarter of 1999. An addition of $525 to the
allowance for loan lease losses was made in the nine months ended September 30,
2000 as compared to an addition of $316 for the nine months ended September 30,
1999. See "Loan and Lease Portfolio."
Other Income
The following table sets forth the components of other income for the three and
nine month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
OTHER INCOME
(dollars in thousands)
Quarter ended September 30, Nine months ended September 30,
------------------------------------------------------------------------------------
2000 1999 2000 1999
Amount Percent Amount Percent Amount Percent Amount Percent
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposits $261 44.77% $297 63.46% $826 82.60% $761 48.88%
Other operating income 322 55.23 222 47.44 761 76.10 847 54.40
Net loss on securities available for ----- ----- (51) (10.90) (587) (58.70) (51) (3.28)
sale
-----------------------------------------------------------------------------------------------------------------------------
Total $583 100.00% $468 100.00% $1,000 100.00% $1,557 100.00%
=============================================================================================================================
</TABLE>
The decrease in the service charges on deposits of $36 for the three months
ended September 30, 2000, as compared to the three months ended September 30,
1999, is due mainly to a change in the method of assessing certain service
charges on deposit accounts in 1999. During 2000 the customers impacted by this
change have begun to alter their banking procedures to minimize the service
charge and therefore causing the reduction in the third quarter of 2000. The
increase in other operating income of $100 for the three months ended September
30, 2000 compared to the three months ended September 30, 1999 is mainly due to
the impact of the estimated increase in cash surrender value of life insurance
purchased in connection with a supplemental retirement plan for executive
officers and directors.
The decrease in other operating income of $86 for the nine months ended
September 30, 2000, as compared to the nine months ended September 30, 1999, is
due to two offsetting items. During 1999 a specific reserve of $255 was reversed
relating to an acquired SBA loan which was paid in full. During the nine months
ended September 30, 2000 income in the amount of $188 has been recognized for
the increase in the cash surrender value of life insurance purchased.
Other Expenses
The following schedule summarizes the major categories of expense as a
percentage of average assets on an annualized basis for the three and nine
months ended September 30, 2000:
<PAGE>
<TABLE>
<CAPTION>
OTHER EXPENSES AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands)
Quarter ended September 30, Nine months ended September 30,
----------------------------------------------------------------------------------------
2000 1999 2000 1999
Amount Percent (1) Amount Percent (1) Amount Percent (1) Amount Percent (1)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $2,487 1.54% $2,365 1.71% $7,130 1.53% $6,768 1.72%
Occupancy 257 0.16 209 0.15 615 0.13 618 0.16
Legal and professional fees 197 0.12 317 0.23 537 0.12 646 0.16
Data processing 184 0.11 172 0.12 531 0.11 513 0.13
Furniture and equipment 174 0.11 166 0.12 510 0.11 462 0.12
Directors' & shareholders' 164 0.10 157 0.11 509 0.11 473 0.12
Business promotion 159 0.10 104 0.08 422 0.09 305 0.08
Client services paid by Bank 147 0.09 145 0.10 468 0.10 457 0.12
Amortization of core deposit
intangibles and goodwill 110 0.07 114 0.08 329 0.07 342 0.09
Merger costs ----- ----- ----- ----- 3,424 0.73 ----- -----
Other 544 0.34 447 0.32 1,514 0.32 1,424 0.36
-----------------------------------------------------------------------------------------------------------------------------
Total $4,423 2.73% $4,196 3.03% $15,989 3.43% $12,008 3.04%
=============================================================================================================================
<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, 2000 and 1999.
</FN>
</TABLE>
Total other expenses for the third quarter of 2000 increased $227 from the same
period a year ago, primarily as a result of a net increase in salary and
benefits of $122. The third quarter 1999 expense includes the operations of
Saratoga Bancorp prior to its merger with SJNB Financial Corp. on January 5,
2000. Subsequent to the merger management estimates that the combined savings in
salaries and benefits on a quarterly basis was approximately $150. After taking
into consideration the impact of these savings, salaries and benefits increased
approximately $255. This is mainly due to increased incentives accruals and
salary increases necessitated by the competitive environment for personnel and
supplemental retirement programs instituted by Saratoga in 1999 and by SJNB in
2000.
Total other expenses for the nine months of 2000 increased $4.0 million from the
same period a year ago, primarily as a result of nonrecurring merger costs of
$3.4 million, in addition to increased incentive accruals and salary increases
necessitated by the competitive environment for personnel and supplemental
compensations programs instituted by Saratoga in 1999 and by SJNB in 2000.
As a percent of average assets, excluding nonrecurring merger costs, actual
expenses were 2.73% and 2.70% in the third quarter 2000 and the nine months
ended September 30, 2000, respectively, as compared to 3.03% and 3.04% in the
third quarter of 1999 and the nine months ended June 30, 1999. This is mainly
due to the combination of SJNB and Saratoga National Bank on January 5, 2000.
Income Tax Provision
The effective tax rate for the nine months ended September 30, 2000 was 39% and
for year ended December 31, 1999 it was 41%. The rate is impacted by several
items, the most significant of which are the amortization of intangibles, tax
exempt income, the California Franchise tax, the California Franchise Tax
Enterprise Tax Zone Credit and the impact of the Bank's investment in Low Income
Housing Tax Credit funds.
Financial Condition and Earning Assets
Consolidated assets increased to $650 million at September 30, 2000 compared to
$568 million at December 31, 1999. The increase related primarily to an increase
in cash, investment securities, money market investments, loans and other
assets, all of which was funded by an increase in deposits of $76 million. See
"Funding."
Federal Funds Sold and Money Market Investments
Federal funds sold and money market investments were $19.9 million at September
30, 2000 as compared to $12.7 million at December 31, 1999. This increase
resulted primarily from the increase in the Bank's deposits. See "Funding."
Securities
The following table shows the composition of the securities portfolio at
September 30, 2000 and December 31, 1999. 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.
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO
(dollars in thousands)
September 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------------------------------
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 $1,496 $12 $1,508 $2,496 $3 $2,499
U. S. Government Agencies 43,208 (137) 43,071 37,337 (724) 36,613
State and municipal 5,213 (66) 5,147 ---- ---- ----
Mortgage-backed 56,043 (230) 55,813 38,560 (564) 37,996
Asset-backed 7,609 21 7,630 2,000 (22) 1,978
Trust-preferred 9,048 (692) 8,356 7,062 (479) 6,583
Mutual funds ---- ---- ---- 5,646 (437) 5,209
---------------------------------------------------------------------------------------------------------------------------
Total available for sale 122,617 (1,092) 121,525 93,101 (2,223) 90,878
---------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U. S. Government Agencies 500 2 502 499 3 502
State and municipal (nontaxable) 16,988 (743) 16,245 17,828 (1,504) 16,324
Mortgage-backed ---- ---- ---- 657 13 670
---------------------------------------------------------------------------------------------------------------------------
Total held to maturity 17,488 (741) 16,747 18,984 (1,488 ) 17,496
Federal Home Loan Bank stock 1,051 ---- 1,051 2,563 ---- 2,563
Federal Reserve Bank stock 664 ---- 664 649 ---- 649
---------------------------------------------------------------------------------------------------------------------------
Total 19,203 (741) 18,462 22,196 (1,488 ) 20,708
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Total investment securities portfolio $141,820 $(1,833) $139,987 $115,297 $(3,711) $111,586
===========================================================================================================================
</TABLE>
Unrealized losses generally result from the impact of current market rates being
greater than those rates in effect at the time the Bank purchased the
securities. The unrealized loss on securities available for sale as of September
30, 2000 was $1.1 million as compared to an unrealized loss of $2.2 million as
of December 31, 1999. The decrease in unrealized losses is partially due to the
inverse shape of the yield curve in addition to the recognition of $587 in
losses taken in the second quarter of 2000. The losses were taken to restructure
the portfolio to take advantage of the interest rate environment at that time.
The Bank's weighted average maturity of the available for sale portfolio was
approximately 5.0 years as of September 30, 2000, and 6.7 years at December 31,
1999. Management estimates that for each 1% change in interest rates, the value
of the Company's available for sale securities will change by approximately
3.0%.
The unrealized loss on securities held to maturity was $741 as of September 30,
2000, as compared to an unrealized loss of $1.5 million as of December 31, 1999.
The decrease in the unrealized loss from December 31, 1999 to September 30, 2000
was due, in part, to the reduction in interest rates in addition to the
appreciation in value of the state and municipal securities. This appreciation
in the state and municipal securities is due to several reasons, the most
significant is the impact of the inverted yield curve (where rates on longer
term instruments are less than those of shorter duration) and a heavy demand for
California and its subdivisions issues which make up the most significant
portion of the state and municipal security portfolio. The Bank's weighted
average maturity of the held to maturity investment portfolio was approximately
8.91 years as of September 30, 2000, while at December 31, 1999 it was 10.4
years. Management estimates that for each 1% change in interest rates, the value
of the Company's securities held to maturity will change by approximately 5.9%.
The maturities and yields of the investment portfolio at September 30, 2000 are
shown below:
<TABLE>
<CAPTION>
MATURITY AND YIELDS OF INVESTMENT SECURITIES
----------------------------------------------------------------------------------------------------
At September 30, 2000
(dollars in thousands)
Available for Sale Held to Maturity
--------------------------------------------------------------------------------------------
FTE FTE
Amortized Estimated Average Amortized Estimated Average
Cost Fair Value Yield (1) Cost Fair Value Yield (1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury:
After 1 year within 5 years $1,496 $1,508 6.25%
----------------------------------------------
Totals 1,496 1,508 6.25
----------------------------------------------
U.S. Government Agencies:
Within 1 year 9,686 9,728 5.97 $500 $502 6.78%
After 1 year within 5 years 30,523 30,470 6.37 ----- ----- -----
After 5 years within 10 years 2,999 2,873 6.13 ----- ----- -----
--------------------------------------------------------------------------------------------
Totals 43,208 43,071 6.26 500 502 6.78
--------------------------------------------------------------------------------------------
State and municipal:
Within 1 year ----- ----- ----- 1,015 1,024 7.66
After 1 year within 5 years 2,112 2,113 6.76 2,002 2,022 7.52
After 5 years within 10 years 1,981 1,937 7.23 1,544 1,502 7.69
After 10 years 1,120 1,097 7.34 12,427 11,696 7.92
--------------------------------------------------------------------------------------------
Totals 5,213 5,147 4.32 16,988 16,245 7.84
--------------------------------------------------------------------------------------------
Mortgage backed:
Within 1 year 758 757 7.04
After 1 year within 5 years 3,594 3,482 5.85
After 5 years within 10 years 6,599 6,493 6.46
After 10 years 10,513 10,452 6.85
----------------------------------------------
Totals 21,464 21,184 6.57
----------------------------------------------
CMO's:
Within 1 year 8,229 8,241 6.71
After 1 year within 5 years 25,072 25,108 6.72
After 5 years within 10 years 1,278 1,280 6.81
----------------------------------------------
Totals 34,579 34,629 6.72
----------------------------------------------
Asset backed:
Within 1 year 3,989 4,000 6.71
After 1 year within 5 years 3,620 3,630 7.43
----------------------------------------------
Totals 7,609 7,630 7.05
----------------------------------------------
Trust-preferred:
Within 1 year 1,993 1,990 7.00
After 10 years 7,055 6,366 7.91
----------------------------------------------
Totals 9,048 8,356 7.71
----------------------------------------------
Other:
----------------------------------------------
Non-maturity equity ----- ----- ----- 1,715 1,715 6.00
--------------- ----------------------------------------------
-----------------------------------------------------------------------------
Total investment securities 122,617 $121,525 6.52% $19,203 $18,462 7.64%
=============================================================================
Net unrealized loss on
securities available for sale (1,092)
---------------
Total investment securities,
net carrying value $121,525
<FN>
===============
(1) Fully taxable equivalent.
</FN>
</TABLE>
<PAGE>
Loan and Lease Portfolio
The following table provides a breakdown of the Company's consolidated loans and
leases by type of borrower:
<TABLE>
<CAPTION>
LOAN AND LEASE PORTFOLIO
(dollars in thousands)
September 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Loans Amount Loans
-----------------------------------------------------------------------------------------------------------------------------
--------------------- ----------------------
<S> <C> <C> <C> <C>
Commercial and other $123,391 28.4% $123,873 30.7%
SBA 54,038 12.5 49,949 12.4
Leasing 37,779 8.7 20,837 5.2
Factoring/Asset based 10,903 2.5 9,901 2.5
Real estate construction 44,331 10.2 48,410 12.0
Real estate term 147,541 34.0 139,103 34.5
Consumer 17,095 3.9 12,448 3.1
Unearned fee income (1,183) (0.3) (1,203) (0.3)
-----------------------------------------------------------------------------------------------------------------------------
Total loans and leases $433,895 100.0% $403,318 100.0%
=============================================================================================================================
</TABLE>
Consolidated loans and leases increased to $434 million at September 30, 2000,
from $403 million at December 31, 1999 or approximately a 7.7% growth rate for
the nine months. The growth was primarily due to increases in SBA lending,
leasing volumes, real estate term and consumer. 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. Competition for commercial and other loans remains highly competitive
within the Bank's marketing area. Growth in SBA, leasing and real estate term,
which are primarily transactional lending with competitive industry pricing,
relate to the Bank's ability to penetrate the market. The growth in consumer
relates to the development of a competitive product associated with the Bank's
on-line banking program.
Approximately 50% of the loan and lease portfolio is directly related to real
estate or real estate interests, including real estate construction loans, real
estate term, mortgage warehouse lines (0.6%, included in the Commercial and
other category), real estate equity lines (1.5%, included in the Consumer
category), loans to real estate developers for short-term investment purposes
(2.9%) and loans for real estate investment purposes made to non-developers
(.6%). The latter two types of loans are included in the Commercial and other
category. Approximately 28% of the loan and lease 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 construction and real estate term loans at September 30,
2000. Approximately 77% of the commercial, SBA 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 and leases but can have a
negative impact when rates decline.
<TABLE>
<CAPTION>
COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE SENSISTIVITY
(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
2000 or less years years rates rates
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and other $123,391 $80,654 $32,647 $10,090 $25,863 $97,528
SBA 54,038 2,893 10,655 40,490 2,404 51,634
Real estate construction 44,331 40,406 ---- 3,925 9,286 35,046
Real estate-other 147,541 14,284 40,051 93,206 46,378 101,162
</TABLE>
The Company utilizes a method of assigning a minimum and maximum loss ratio to
each grade of loan or lease within each category of borrower (commercial, real
estate term, real estate construction, factoring/asset-based lending, consumer,
SBA, etc.) and leases. Loans and leases are graded on a ranking system based on
management's assessment of the loan or lease'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 and
leases. 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 and
lease is evaluated on the basis of whether or not it is impaired. For impaired
loans and leases, 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 and lease 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 loan and lease losses was
approximately $7.2 million at September 30, 2000, or 1.65% of total loans and
leases outstanding on such date.
The allowance for loan and lease losses is a general reserve available against
the total loan and lease portfolio and off-balance sheet credit exposure. While
management uses available information to recognize losses on loans and leases,
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 loan and lease 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 loan and lease
losses:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN AND LEASE LOSSES
(dollars in thousands)
Quarter ended Nine months ended Year ended
September 30, September 30, December 31,
-------------------------------------------------------------
2000 1999 2000 1999 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of the period $6,703 $5,764 $6,412 $5,494 $5,494
Charge-offs by loan or lease category:
Commercial 6 108
---- ---- ----
SBA 17 17 18
---- ----
Real estate-construction 376 ----
---- ---- ----
Real estate term 4
---- ---- ---- ----
Consumer 5 1 15 21 35
-----------------------------------------------------------------------------------------------------------------------------
Total charge-offs 22 1 408 27 165
-----------------------------------------------------------------------------------------------------------------------------
Recoveries by loan or lease category:
Commercial 108 75 129 145 150
SBA 1 3 5
---- ----
Real estate-construction 120 1 379 3 4
Real estate term 4
---- ---- ---- ----
Consumer 110 2 132 58 59
-----------------------------------------------------------------------------------------------------------------------------
Total recoveries 338 79 640 209 222
-----------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (316) (78) (232) (182) (57)
-----------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 150 150 525 316 861
-----------------------------------------------------------------------------------------------------------------------------
Balance, end of the period $7,169 $5,992 $7,169 $5,992 $6,412
=============================================================================================================================
Ratios:
Net (recoveries) charge-offs to average loans and leases, (.30%) (.08%) (.07%) (.07%) (.02%)
annualized
Allowance to total loans and leases at the end of the period 1.65 1.58 1.65 1.58 1.59
Allowance to nonperforming loans and leases at end of the 753.00 485.00 753.00 485.00 296.00
period
=============================================================================================================================
</TABLE>
During the third quarter of 2000, the Bank wrote-off $22 in loans and had
recoveries of $338 for a total net recovery of $316. During the third quarter of
1999, the Bank wrote-off $1 in loans and had recoveries of $79 for a total of
$78 in net recoveries. For the nine months ended September 30, 2000, the Company
had total charge-offs of $408 compared to $27 for the nine months ended
September 30, 1999. Recoveries for the nine months ended September 30, 2000 were
$640 as compared to $209 for the same period in the prior year. The allowance
for loan and lease losses was 753% of nonperforming loans and leases at
September 30, 2000 compared to 296% at December 31, 1999. The increase in the
percentage of allowance for loan and lease losses to nonperforming loans and
leases was due to the reduction in nonperforming loans and an increase in the
allowance for loan and lease losses. See "Nonperforming Loans and Leases."
Nonperforming Loans and Leases
Nonperforming loans and leases consist of loans and leases for which the accrual
of interest has been suspended, restructured loans and leases and other loans
and leases with principal or interest contractually past due 90 days or more and
still accruing. At September 30, 2000, there was approximately $943 in loans and
leases for which the accrual of interest had been suspended and $9 of loans and
leases with principal or interest contractually past due 90 days or more and
still accruing for a total of $952 of nonperforming loans and leases. At
December 31, 1999 there was approximately $2,148 in loans for which the accrual
of interest had been suspended plus $15 with principal or interest contractually
past due 90 days or more and still accruing for a total of $2,163 in
nonperforming loans and leases.
As of September 30, 2000, nonperforming loans and leases consisted of two loans
and two leases. The two loans amount to $80 and one is secured by real estate
and one has an SBA guarantee. The leases in the amount of $663 are for printing
presses and together with a vendor's holdback management believes the collateral
has sufficient value to recover any potential loss. Management does not consider
the loss exposure on these loans and leases to be significant at September 30,
2000.
Management conducts an ongoing evaluation and review of the loan and lease
portfolio in order to identify potential nonperforming loans and leases.
Management considers loans and leases which are classified for regulatory
purposes, and loans and leases 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 credit information about which management
is aware 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, 2000, management has not identified any significant loans or
leases not mentioned 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 and leases 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, declines in securities markets
and acts of nature could have an adverse effect on the ability of borrowers to
repay outstanding loans and leases and the value of real estate and other
collateral securing such loans and leases.
The Bank is committed on a letter of credit in the amount of $650, which relates
to a real estate loan, which was written off during the first quarter of 2000.
The letter of credit supports the necessary required infrastructure relating to
the real estate project. It is estimated that 80% of such infrastructure has
been completed. The estimated exposure for this letter of credit has been
specifically identified in the Bank's allowance for loan and lease losses.
Other Assets
Other assets increased approximately $13 million to $25 million at September 30,
2000 from the December 31, 1999 amount of $12. The increase is primarily due to
the purchase of approximately $10 million in life insurance policies on key
executives and directors of the Company and the investment in a low income
housing tax credit investment fund of $1.0 million.
Funding
The following table provides a breakdown of deposits by category as of the dates
indicated:
<TABLE>
<CAPTION>
DEPOSIT CATEGORIES
(dollars in thousands)
September 30, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Deposits Amount Deposits
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand $126,824 23.1% $94,687 20.0%
Interest-bearing demand 78,184 14.2 78,523 16.6
Money market and savings 148,207 27.0 140,871 29.8
Certificates of deposit:
Less than $100 56,832 10.4 54,172 11.4
$100 or more 138,592 25.3 105,480 22.3
-----------------------------------------------------------------------------------------------------------------------------
Total $548,639 100.0% $473,733 100.0%
=============================================================================================================================
</TABLE>
Deposits as of September 30, 2000 were $549 million compared to $474 million at
December 31, 1999. The source of deposit growth was from all areas, except
interest-bearing demand deposits and represented the dynamic economic
environment of Silicon Valley, including a strong real estate market, venture
capital fundings, and the continued strength of the initial public offering
market.
Management believes that non-interest bearing deposits could decrease as a
percent of the total, in part, due to competitive pressures and changes in the
deposit products being utilized by the Bank's customers, which has caused a
shift to higher-yielding interest-bearing products. See "Capital and
Liquidity-Liquidity."
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 income is negatively impacted in the short
term by a decline in interest rates. Conversely, an increase in interest rates
should have a short-term positive impact on net interest income.
As of July 7, 2000, the Bank entered into a three-year interest rate swap, as a
partial hedge against its prime rate variable loan portfolio, where the Bank
will receive 9.6% and pay the daily average prime rate. The Bank believes this
will be accounted for as a cash flow hedge under FAS No. 133, as amended.
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 Bank'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.
The table below summarizes the various capital ratios of the Company and the
Bank at September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
Risk-based and Leverage Capital Ratios
(dollars in thousands)
September 30, 2000 December 31, 1999
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Company-Risk-based Amount Ratio Amount Ratio
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $56,205 10.65% $50,371 11.08%
Tier 1 capital minimum requirement 21,109 4.00 18,177 4.00
-------------------------------------------------------------------------------
Excess $35,096 6.65% $32,194 7.08%
===============================================================================
Total capital $62,809 11.90% $56,060 12.34%
Total capital minimum requirement 42,218 8.00 36,354 8.00
-------------------------------------------------------------------------------
Excess $20,591 3.90% $19,706 4.34%
===============================================================================
-------------------------------------------------------------------------------
Risk-adjusted assets $527,730 $454,429
==================== ====================
Company-Leverage
Tier 1 capital $56,205 8.68% $50,371 8.88%
Minimum leverage ratio requirement 25,903 4.00 22,685 4.00
-------------------------------------------------------------------------------
Excess $30,302 4.68% $27,686 4.88%
===============================================================================
-------------------------------------------------------------------------------
Average total assets $647,575 $567,130
==================== ====================
Bank-Risk-based
Tier 1 capital $54,904 10.47% $48,050 10.57%
Tier 1 capital minimum requirement 20,974 4.00 18,180 4.00
-------------------------------------------------------------------------------
Excess $33,930 6.47% $29,870 6.57%
===============================================================================
Total capital $61,466 11.72% $53,740 11.82%
Total capital minimum requirement 41,948 8.00 36,360 8.00
-------------------------------------------------------------------------------
Excess $19,519 3.72% $17,380 3.82%
===============================================================================
-------------------------------------------------------------------------------
Risk-adjusted assets $524,347 $454,503
==================== ====================
Bank-Leverage
Tier 1 capital $54,904 8.48% $48,050 8.47%
Minimum leverage ratio requirement 25,911 4.00 22,679 4.00
-------------------------------------------------------------------------------
Excess $28,993 4.48% $25,371 4.47%
===============================================================================
-------------------------------------------------------------------------------
Average total assets $647,777 $566,978
==================== ====================
</TABLE>
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan and lease 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 and lease demand, capital expenditures, and prevailing and
anticipated economic conditions. SJNB's business is generated primarily through
customer referrals and employee business development efforts; however SJNB 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 and other short-term investments,
short-term securities held to maturity, and securities available for sale less
short-term borrowings. At September 30, 2000, consolidated net liquid assets
totaled $135 million or 21% of consolidated total assets as compared to $93
million or 16% of consolidated total assets at December 31, 1999. In addition to
the liquid asset portfolio, SJNB also has available $27 million in informal
lines of credit with three major commercial banks, a collateralized repurchase
agreement with a maximum limit of $30 million, the guaranteed portion of the SBA
loan portfolio of approximately $32 million, and a credit facility with the
Federal Reserve Bank based on loans secured by real estate for approximately
$7.3 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 25% and 22% of total deposits on September 30, 2000 and December 31, 1999,
respectively.
Liquidity is also affected by portfolio maturities and the effect of interest
rate fluctuations on the marketability of both assets and liabilities. The loan
and lease portfolio consists primarily of floating rate, short-term loans. On
September 30, 2000, approximately 28% of total consolidated assets had
maturities less than one year and 67% of total consolidated loans and leases had
floating rates tied to the prime rate or similar indexes. The short-term nature
of the loan and lease portfolio, and loan and lease 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
2000.
The Company's liquidity is maintained by cash flows stemming from dividends and
management fees from the Bank and the exercise of stock options issued to the
Bank's employees and directors. The amount of dividends from the Bank is subject
to certain regulatory restrictions. Subject to said restrictions, at December
31, 1999, up to $8.9 million could have been paid to the parent Company by the
Bank without regulatory approval. Dividends of $3.8 million were paid to the
parent company during 1999.
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
1999 or the first nine months of 2000.
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 and leases 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, 2000 was asset-sensitive
on a short-term basis, 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, 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Summary of Financial Results - Net Interest
Income."
Commencing in the third quarter of 1999, the Federal Open Market Committee
("FOMC") began a process of increasing interest rates to offset the possible
increase in inflation and to slow down consumer spending. Through September 30,
2000, the FOMC had increased interest rates 175 basis points. During this period
the Bank has experienced an increase in its net interest margin. The effect of
possible interest rate changes is not precisely determinable due to the many
factors influencing the Bank's net interest margin, including repricing of
deposits, a change in mix of the loan, lease and deposit portfolios and other
borrowings, changes in relative volumes, the speed in which fixed rate loans and
leases are repriced, discretionary investment activities and other factors.
Although, there is a positive change in the Bank's net interest margin, during
this period the Bank also experienced significant growth in its higher cost
funding sources, such as money market savings and certificates of deposits. The
growth in these deposits and a larger proportional investment of funds in
investment securities had the impact of offsetting a portion of the increase in
the net interest margin.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank is a party to any material pending legal
proceeding, nor is their property the subject of any material pending legal
proceeding, except ordinary routine legal proceedings arising in the ordinary
course of the Bank's business and incidental to its business, none of which are
expected to have a material adverse impact upon the Company's or the Bank's
business, financial position or results of operations.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
(2)a. Agreement and Plan of Merger by and among the Registrant, Saratoga
Bancorp and Saratoga National Bank, dated as of August 27, 1999, is
hereby incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 as filed on October 14, 1999, under
Registration No. 333-89013.
(3)(i). The Registrant's restated Articles of Incorporation are hereby
incorporated by reference from Exhibit (3) (i) of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999.
(3)(ii). The Registrant's Restated Bylaws as of February 23, 2000 are hereby
incorporated by reference to Exhibit 3 (ii) of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
*(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) b. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(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 Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit 99.1 of the Registrant's Form S-8
filed June 15, 1999, under Registration No. 333-80683 *(10) f. The
form of Nonstatutory Stock Option Agreement for outside Directors
being utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) f. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)g. The form of Nonstatutory Stock Option Agreement for Employees being
utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) g. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)h. The form of Incentive Stock Option Agreement being utilized under the
Amended 1996 Stock Option Plan is hereby incorporated by reference to
Exhibit (10) h. of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
*(10)i. The Saratoga Bancorp 1982 Stock Option Plan is hereby incorporated by
reference to Exhibit (10) i. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)j . The Saratoga Bancorp 1994 Stock Option Plan (Amended) is hereby
incorporated by reference to Exhibit (10) i. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)k. Forms of Incentive Stock Option Agreement, Non-Statutory Stock Option
Agreement and Non-Statutory Stock Option Agreement for Outside
Directors is hereby incorporated by reference to Exhibit (10) i. of
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)l. 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 Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
*(10)m. Amendment No. 1 To Employment Agreement between James R. Kenny and
SJNB Financial Corp. and San Jose National Bank dated October 6, 2000.
*(10)n. 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 Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
*(10)o. Amendment No. 1 To Employment Agreement between Eugene E.
Blakeslee and SJNB Financial Corp. and San Jose National Bank dated
October 6, 2000.
(10) p. 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) q . 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) r. Agreement of Purchase and Sale dated July 27, 1988 for 12000
Saratoga-Sunnyvale Road, Saratoga, CA is hereby incorporated by
reference to Exhibit (10) i. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)s. Form of Director Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Robert G. Egan,
John F. Lynch III and V. Ronald Mancuso, respectively, is hereby
incorporated by reference to Exhibit (10) i. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)t. Form of Director Life Insurance Endorsement Method Split Dollar
Plan Agreement dated September 24, 1998 between Saratoga National Bank
and Robert G. Egan, John F. Lynch III and V. Ronald Mancuso,
respectively, is hereby incorporated by reference to Exhibit (10) i.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)u. Form of Director Surrogate Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Victor E.
Aboukhater and William D. Kron, respectively, is hereby incorporated
by reference to Exhibit (10) i. of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
*(10)v. Form of Director Surrogate Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Victor E. Aboukhater and William D. Kron,
respectively, is hereby incorporated by reference to Exhibit (10) i.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)w. Form of Officer Supplemental Compensation Agreement dated September
24, 1998 between Saratoga National Bank and Earl Lanna, Mary Rourke,
Sandra Swenson, Barbara Resop and Cathe Franklin, respectively, is
hereby incorporated by reference to Exhibit (10) i. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)x. Form of Officer Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 between Saratoga National Bank and
Earl Lanna, Mary Rourke, Sandra Swenson, Barbara Resop and Cathe
Franklin, respectively, is hereby incorporated by reference to Exhibit
(10) i. of the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
*(10)y. Richard L. Mount Executive Supplemental Compensation Agreement dated
September 24, 1998 is hereby incorporated by reference to Exhibit (10)
i. of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)z. Richard L. Mount Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 is hereby incorporated by reference
to Exhibit (10) i. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
*(10)aa. Richard L. Mount Executive Benefits Agreement dated June 18, 1999
is hereby incorporated by reference to Exhibit (10) i. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)ab. Form of Executive Supplemental Compensation Agreement dated June
1, 2000 between San Jose National Bank and James R. Kenny, Eugene E.
Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith Doering
Nielsen, respectively, is hereby incorporated by reference to Exhibit
(10) z. of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.
*(10)ac. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and James R. Kenny,
Eugene E. Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith
Doering Nielsen, respectively, is hereby incorporated by reference to
Exhibit (10) aa. of the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000.
*(10)ad. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and Ray S. Akamine,
Robert A. Archer, Albert V. Bruno, Rod Diridon, Sr., F. Jack Gorry,
Arthur K. Lund, Richard L. Mount, Louis Oneal, Diane Rubino, and Gary
S. Vandeweghe and Douglas L. Shen, D.D.S., respectively, is hereby
incorporated by reference to Exhibit (10) ab. of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
*(10)ae. Form of Director Supplemental Compensation Agreement dated June
1, 2000 between San Jose National Bank and Ray S. Akamine, Robert A.
Archer, Albert V. Bruno, Rod Diridon, Sr., Robert G. Egan, F. Jack
Gorry, Arthur K. Lund, V. Ronald Mancuso, D.D.S., Richard L. Mount,
Louis Oneal, Diane Rubino, and Gary S. Vandeweghe and Douglas L. Shen,
D.D.S.
* Indicates management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
None
<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 6, 2000 /s/James R. Kenny
---------------------------------------
James R. Kenny
President and
Chief Executive Officer
Date: November 6, 2000 /s/Eugene E. Blakeslee
The following exhibits are filed as part of this report:
(2)a. Agreement and Plan of Merger by and among the Registrant, Saratoga
Bancorp and Saratoga National Bank, dated as of August 27, 1999, is
hereby incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 as filed on October 14, 1999, under
Registration No. 333-89013.
---------------------------------------
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer (Chief Accounting Officer)
<PAGE>
SJNB Financial Corp.
Form 10-Q
Exhibits
September 30, 2000
The following exhibits are filed as part of this report:
(2)a. Agreement and Plan of Merger by and among the Registrant, Saratoga
Bancorp and Saratoga National Bank, dated as of August 27, 1999, is
hereby incorporated by reference to Exhibit 2.1 of the Registrant's
Registration Statement on Form S-4 as filed on October 14, 1999, under
Registration No. 333-89013.
(3)(i). The Registrant's restated Articles of Incorporation are hereby
incorporated by reference from Exhibit (3) (i) of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999.
(3)(ii). The Registrant's Restated Bylaws as of February 23, 2000 are hereby
incorporated by reference to Exhibit 3 (ii) of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
*(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) b. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(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 Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit 99.1 of the Registrant's Form S-8
filed June 15, 1999, under Registration No. 333-80683 *(10) f. The
form of Nonstatutory Stock Option Agreement for outside Directors
being utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) f. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)g. The form of Nonstatutory Stock Option Agreement for Employees being
utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) g. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)h. The form of Incentive Stock Option Agreement being utilized under the
Amended 1996 Stock Option Plan is hereby incorporated by reference to
Exhibit (10) h. of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
*(10)i. The Saratoga Bancorp 1982 Stock Option Plan is hereby incorporated by
reference to Exhibit (10) i. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)j . The Saratoga Bancorp 1994 Stock Option Plan (Amended) is hereby
incorporated by reference to Exhibit (10) i. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)k. Forms of Incentive Stock Option Agreement, Non-Statutory Stock Option
Agreement and Non-Statutory Stock Option Agreement for Outside
Directors is hereby incorporated by reference to Exhibit (10) i. of
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)l. 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 Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
*(10)m. Amendment No. 1 To Employment Agreement between James R. Kenny and
SJNB Financial Corp. and San Jose National Bank dated October 6, 2000.
*(10)n. 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 Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
*(10)o. Amendment No. 1 To Employment Agreement between Eugene E.
Blakeslee and SJNB Financial Corp. and San Jose National Bank dated
October 6, 2000.
(10) p. 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) q . 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) r. Agreement of Purchase and Sale dated July 27, 1988 for 12000
Saratoga-Sunnyvale Road, Saratoga, CA is hereby incorporated by
reference to Exhibit (10) i. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)s. Form of Director Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Robert G. Egan,
John F. Lynch III and V. Ronald Mancuso, respectively, is hereby
incorporated by reference to Exhibit (10) i. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)t. Form of Director Life Insurance Endorsement Method Split Dollar
Plan Agreement dated September 24, 1998 between Saratoga National Bank
and Robert G. Egan, John F. Lynch III and V. Ronald Mancuso,
respectively, is hereby incorporated by reference to Exhibit (10) i.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)u. Form of Director Surrogate Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Victor E.
Aboukhater and William D. Kron, respectively, is hereby incorporated
by reference to Exhibit (10) i. of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
*(10)v. Form of Director Surrogate Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Victor E. Aboukhater and William D. Kron,
respectively, is hereby incorporated by reference to Exhibit (10) i.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)w. Form of Officer Supplemental Compensation Agreement dated September
24, 1998 between Saratoga National Bank and Earl Lanna, Mary Rourke,
Sandra Swenson, Barbara Resop and Cathe Franklin, respectively, is
hereby incorporated by reference to Exhibit (10) i. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)x. Form of Officer Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 between Saratoga National Bank and
Earl Lanna, Mary Rourke, Sandra Swenson, Barbara Resop and Cathe
Franklin, respectively, is hereby incorporated by reference to Exhibit
(10) i. of the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
*(10)y. Richard L. Mount Executive Supplemental Compensation Agreement dated
September 24, 1998 is hereby incorporated by reference to Exhibit (10)
i. of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)z. Richard L. Mount Life Insurance Endorsement Method Split Dollar Plan
Agreement dated September 24, 1998 is hereby incorporated by reference
to Exhibit (10) i. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
*(10)aa. Richard L. Mount Executive Benefits Agreement dated June 18, 1999
is hereby incorporated by reference to Exhibit (10) i. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)ab. Form of Executive Supplemental Compensation Agreement dated June
1, 2000 between San Jose National Bank and James R. Kenny, Eugene E.
Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith Doering
Nielsen, respectively, is hereby incorporated by reference to Exhibit
(10) z. of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.
*(10)ac. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and James R. Kenny,
Eugene E. Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith
Doering Nielsen, respectively, is hereby incorporated by reference to
Exhibit (10) aa. of the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000.
*(10)ad. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and Ray S. Akamine,
Robert A. Archer, Albert V. Bruno, Rod Diridon, Sr., F. Jack Gorry,
Arthur K. Lund, Richard L. Mount, Louis Oneal, Diane Rubino, and Gary
S. Vandeweghe and Douglas L. Shen, D.D.S., respectively, is hereby
incorporated by reference to Exhibit (10) ab. of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
*(10)ae. Form of Director Supplemental Compensation Agreement dated June
1, 2000 between San Jose National Bank and Ray S. Akamine, Robert A.
Archer, Albert V. Bruno, Rod Diridon, Sr., Robert G. Egan, F. Jack
Gorry, Arthur K. Lund, V. Ronald Mancuso, D.D.S., Richard L. Mount,
Louis Oneal, Diane Rubino, and Gary S. Vandeweghe and Douglas L. Shen,
D.D.S.
* Indicates management contract or compensation plan or arrangement.
