<PAGE>
UNITED STATES 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 AND
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission file number 0-25034
GREATER BAY BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0387041
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2860 WEST BAYSHORE ROAD, PALO ALTO, CALIFORNIA 94303
(Address of principal executive offices) (Zip Code)
(415) 813-8200
(Registrant's telephone number, including area code)
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 ___
---
Outstanding shares of Common Stock, no par value, as of April 29, 1998:
4,089,539
This report contains a total of 31 pages.
<PAGE>
GREATER BAY BANCORP
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Interim Consolidated Financial Statements
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997................. 3
Consolidated Statements of Income
for the Three Months Ended
March 31, 1998 and 1997.............................. 4
Consolidated Statements of Comprehensive Income
March 31, 1998 and 1997.............................. 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997........... 6
Notes to Interim Consolidated Financial
Statements........................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................... 28
Signatures........................................... 30
</TABLE>
2
<PAGE>
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Dollars in thousands) (unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 65,009 $ 44,755
Federal funds sold 47,100 59,000
Other short term securities 92,245 90,512
--------------------------
Cash and cash equivalents 204,354 194,267
Investment securities:
Available for sale (amortized cost $189,135 and $156,356 at
March 31, 1998 and December 31, 1997, respectively) 189,813 156,947
Held to maturity (market value $38,852 and $45,246 at
March 31, 1998 and December 31, 1997, respectively) 38,055 44,461
Other securities 2,162 2,118
--------------------------
Investment securities 230,030 203,526
Loans:
Commercial 330,547 324,535
Real estate construction and land 117,864 109,671
Real estate term 201,751 179,458
Consumer and other 62,787 64,854
Deferred loan fees and discounts (2,817) (2,654)
--------------------------
Total loans, net of deferred fees 710,132 675,864
Allowance for loan losses (15,250) (15,208)
--------------------------
Total loans, net 694,882 660,656
Property, premises and equipment 7,826 7,588
Interest receivable and other assets 47,194 26,385
--------------------------
Total assets $1,184,286 $1,092,422
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, noninterest-bearing $ 195,069 $ 204,464
MMDA, NOW and savings 600,309 564,840
Time certificates, $100,000 and over 163,140 171,642
Other time certificates 37,987 32,432
--------------------------
Total deposits 996,505 973,378
Other borrowings 71,900 19,480
Subordinated debt 3,000 3,000
Other liabilities 22,390 9,968
Company obligated mandatorily redeemable cumulative trust preferred
securities of subsidiary trust holding solely junior subordinated debentures 20,000 20,000
--------------------------
Total liabilities 1,113,795 1,025,826
--------------------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value: 4,000,000 shares authorized;
none issued - -
Common stock, no par value: 24,000,000 shares authorized;
8,146,658 and 8,056,182 shares issued and outstanding as of
March 31, 1998 and December 31, 1997, respectively* 44,916 44,218
Accumulated other comprehensive income 392 338
Retained earnings 25,183 22,040
--------------------------
Total shareholders' equity 70,491 66,596
--------------------------
Total liabilities and shareholders' equity $1,184,286 $1,092,422
==========================
</TABLE>
* Restated to reflect 2-for-1 stock split as of April 30, 1998.
See notes to consolidated financial statements.
3
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1998 1997*
(Dollars in thousands, except per share amounts) (unaudited) (unaudited)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest on loans $17,186 $13,070
Interest on investment securities:
Taxable 4,398 2,818
Tax - exempt 314 213
----------------------------------
Total interest on investment securities 4,712 3,031
Other interest income 756 430
----------------------------------
Total interest income 22,654 16,531
----------------------------------
INTEREST EXPENSE
Interest on deposits 7,965 5,907
Interest on long term borrowings 574 86
Interest on other borrowings 749 206
----------------------------------
Total interest expense 9,288 6,199
----------------------------------
Net interest income 13,366 10,332
Provision for loan losses 866 1,993
----------------------------------
Net interest income after provision for loan losses 12,500 8,339
----------------------------------
OTHER INCOME
Trust fees 550 454
Warrant income 498 -
Service charges and other fees 385 318
Gain on sale of SBA loans 244 144
Gain (loss) on investments, net 8 (51)
Other income (274) 182
----------------------------------
Total other income 1,411 1,047
----------------------------------
OPERATING EXPENSES
Compensation and benefits 4,683 4,544
Occupancy and equipment 1,189 1,172
Contribution to GBB Foundation 701 -
Telephone, postage and supplies 415 286
Legal and other professional fees 312 277
Marketing and promotion 275 247
Client services 142 82
Directors' fees 115 111
FDIC insurance and regulatory assessments 82 50
Insurance 63 53
Other real estate owned 3 2
Legal settlement recovery - (1,700)
Other 520 128
----------------------------------
Total 2,628 (464)
----------------------------------
Total operating expenses 8,500 5,252
----------------------------------
Net income before provision for income taxes 5,411 4,134
Provision for income taxes 1,765 1,588
----------------------------------
Net income $ 3,646 $ 2,546
============== ==============
Net income per share - basic** $ 0.45 $ 0.32
============== ==============
Net income per share - diluted** $ 0.40 $ 0.30
============== ==============
</TABLE>
* Restated on an historical basis to reflect the merger with Peninsula Bank of
Commerce on a pooling of interests basis.
** Restated to reflect 2-for-1 stock split as of April 30, 1998.
See notes to consolidated financial statements.
4
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
1998 1997*
(Dollars in thousands, except per share amounts) (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $3,646 $2,546
Other comprehensive income:
Unrealized holding gains arising during period (net
of taxes of $34 and $32 for 1998 and
1997, respectively) 49 46
Reclassification adjustment for gains (losses)
included in net income (net of taxes of $3 and
$(21) for 1998 and 1997, respectively) 5 (30)
-----------------------------------------
Other comprehensive income 54 16
-----------------------------------------
Comprehensive income $3,700 $2,562
=========================================
</TABLE>
* Restated on an historical basis to reflect the merger with Peninsula Bank of
Commerce on a pooling of interests basis.
See notes to consolidated financial statements.
5
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1998 1997*
(Dollars in thousands) (unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows -operating activities
Net income $3,646 $ 2,546
Reconcilement of net income to net cash from operations:
Provision for loan losses 866 1,993
Depreciation and amortization 583 376
Deferred income taxes (17) (735)
(Gain) loss on sale of investment, net (8) 51
Changes in:
Accrued interest receivable and other assets (2,607) (3,286)
Accrued interest payable and other liabilities 12,422 (231)
Deferred loan fees and discounts, net 163 193
--------------------------------------
Operating cash flows, net 15,048 907
--------------------------------------
CASH FLOWS -INVESTING ACTIVITIES
Maturities and partial paydowns on of investment securities:
Held to maturity 6,407 6,268
Available for sale 21,643 12,926
Purchase of investment securities:
Held to maturity - (745)
Available for sale (56,881) (5,530)
Other securities (44) (94)
Proceeds from sale of available for sale securities 2,308 1,950
Loans, net (35,360) (48,477)
Purchase of property, premises and equipment (654) (314)
Purchase of insurance policies (18,122) -
--------------------------------------
Investing cash flows, net (80,703) (34,016)
--------------------------------------
CASH FLOWS -FINANCING ACTIVITIES
Net change in deposits 23,127 19,235
Net change in other borrowings - short-term (7,580) (197)
Proceeds on other borrowings - long term 60,000 -
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures issued - 20,000
Proceeds from sale of stock 698 796
Cash dividends (503) -
--------------------------------------
Financing cash flows, net 75,742 39,834
--------------------------------------
Net change in cash and cash equivalents 10,087 6,725
Cash and cash equivalents at beginning of period 194,267 168,881
--------------------------------------
Cash and cash equivalents at end of period $204,354 $175,606
======================================
Cash flows -supplemental disclosures
Cash paid during the period for:
Interest $ 9,140 $ 6,263
=====================================
Income taxes $ 1,820 $ -
=====================================
Non-cash transactions:
Additions to other real estate owned $ 105 $137
=======================================
</TABLE>
* Restated on an historical basis to reflect the merger with Peninsula Bank of
Commerce on a pooling of interests basis.
See notes to consolidated financial statements.
6
<PAGE>
Notes To Consolidated Financial Statements
As of March 31, 1998 and December 31, 1997 and of the
Three Months Ended March 31, 1998 and 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The results of operations for the quarter ended March 31, 1998 are not
necessarily indicative of the results expected for any subsequent quarter or for
the entire year ended December 31, 1998. The financial statements should be
read in conjunction with the consolidated financial statements, and the notes
there to, included in the 1997 annual report to shareholders.
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Greater Bay and
its wholly owned subsidiaries, MPB, CNB, PBC and the Trust. All significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior years' consolidated financial
statements to conform to the current presentation. The accounting and reporting
policies of the Company conform to generally accepted accounting principles and
the prevailing practices within the banking industry.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of certain revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). This statement requires companies to classify items
of other comprehensive income by their nature in the financial statement and
display the accumulated other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. As of March 31, 1998 and December 31, 1997, the only
component of accumulated other comprehensive income was unrealized gains on
securities available for sale. The changes to the balances of accumulated other
comprehensive income is as follows:
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
(Dollars in thousands) Income
- ---------------------------------------------------------------------------------------------------
<S> <C>
Balance - as of December 31, 1997 $ 338
Current period change 54
--------------
Balance - as of March 31, 1998 $ 392
==============
</TABLE>
Per Share Data
Net income per share are stated in accordance with SFAS No. 128 "Earnings per
Share". Basic net income per share is computed by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during the year. Diluted net income per share is computed by
dividing diluted net income available to common shareholders by the weighted
average number of common shares and common equivalent shares outstanding
including dilutive stock options. The computation of common stock equivalent
shares is based on the weighted average market price of the Company's common
stock throughout the period. All years presented include the effect of the 2-
for-1 stock split declared on March 24,1998 and effect shareholders of record on
April 30, 1998 (see Note 15).
The following table provides a reconciliation of the numerators and
denominators of the basic and
7
<PAGE>
Notes To Consolidated Financial Statements
As of March 31, 1998 and December 31, 1997 and of the
Three Months Ended March 31, 1998 and 1997
diluted net income per share computations for the three months ended March 31,
1998 and 1997:
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
-----------------------------------------
Average
Income Shares* Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 3,646
Basic net income per share:
Income available to common shareholders 3,646 8,107,046 $ 0.45
Effect of dilutive securities:
Stock options - 898,304 -
--------------------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 3,646 9,005,350 $ 0.40
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
-----------------------------------------
Average
Income Shares* Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 2,546
Basic net income per share:
Income available to common shareholders 2,546 7,853,488 $ 0.32
Effect of dilutive securities:
Stock options - 545,440 -
--------------------------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 2,546 8,398,928 $ 0.30
--------------------------------------------------------
</TABLE>
* Restated to reflect 2-for-1 split effective April 30, 1998.
There were no options that were considered anti-dilutive whereby the
options' exercise price was greater than the average market price of the common
shares, during the periods ended March 31, 1998 and 1997.
Weighted average shares outstanding and all per share amounts included in
the consolidated financial statements and notes thereto are based upon the
increased number of shares giving retroactive effect to the 1997 merger with PBC
at a 0.9655 conversion ratio.
8
<PAGE>
Notes To Consolidated Financial Statements
As of March 31, 1998 and December 31, 1997 and of the
Three Months Ended March 31, 1998 and 1997
NOTE 2 -- MERGER
On May 8, 1998, the Company and Pacific Rim Bancorporation ("PRB"), the holding
company of Golden Gate Bank ("Golden Gate"), completed a merger between the two
companies. The terms of the agreement provide for PRB shareholders to receive
950,748 shares of Greater Bay Bancorp stock, as adjusted for the 2-for-1 stock
split, in a tax-free exchange to be accounted for as a "pooling-of-interests."
Following the transaction, the shareholders of PRB will own approximately 10.5%
of the combined company. Golden Gate's office is located in the San Francisco
financial district.
The following sets forth the combined financial position and results of
operations of the Company and PRB as of and for the three months ended March 31,
1998:
<TABLE>
<CAPTION>
As of
(Dollars in thousands) March 31, 1998
------------------------------------------------------------------------
<S> <C>
Assets:
Greater Bay Bancorp $ 1,184,286
Pacific Rim Bancorporation 120,209
--------------
Combined $ 1,304,495
==============
Liabilities:
Greater Bay Bancorp $ 1,113,795
Pacific Rim Bancorporation 110,437
--------------
Combined $ 1,224,232
==============
Shareholders' equity:
Greater Bay Bancorp $ 70,491
Pacific Rim Bancorporation 9,772
--------------
Combined $ 80,263
==============
Net interest income:
Greater Bay Bancorp $ 13,366
Pacific Rim Bancorporation 1,285
--------------
Combined $ 14,651
==============
Provision for loan losses:
Greater Bay Bancorp $ 866
Pacific Rim Bancorporation 70
--------------
Combined $ 936
==============
Net income:
Greater Bay Bancorp $ 3,646
Pacific Rim Bancorporation 60
--------------
Combined $ 3,706
==============
</TABLE>
The combined basic net income per share and diluted net income per share
would have been $0.41 and $0.37 for the three months ended March 31, 1998.
Excluding nonrecurring items, Pacific Rim Bancorportion's net income would have
been $225,000 for the three months ended March 31, 1998. Accordingly, the
proforma combined net income per share and diluted net income per share would
have
9
<PAGE>
Notes To Consolidated Financial Statements
As of March 31, 1998 and December 31, 1997 and of the
Three Months Ended March 31, 1998 and 1997
been $0.43 and $0.39 for the three months ended March 31, 1998. There were
no significant transactions between the Company and PRB. All intercompany
transactions have been eliminated.
NOTE 3 -- BORROWINGS
The Company's borrowings are detailed as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Other borrowings:
Short term borrowings:
Securities sold under agreements
to repurchase (short term) $ 11,900 $ 19,480
-------------- -------------
Total short term borrowings 11,900 19,480
Other long term borrowings:
Securities sold under agreements
to repurchase (long term) 50,000 -
FHLB advances 10,000 -
-------------- -------------
Total other long term borrowings 60,000 -
-------------- -------------
Total other borrowings $ 71,900 $ 19,480
============== =============
Subordinated notes, due September
15, 2005 3,000 3,000
-------------- -------------
Total subordinated debt $ 3,000 $ 3,000
============== =============
</TABLE>
During the three month period ended March 31, 1998 and the twelve
month period ended December 31, 1997, the average balance of securities sold
under short term agreements to repurchase were $23,346,000 and $5,278,000,
respectively, and the average interest rates during those periods were 5.65% and
5.71%, respectively. Securities sold under short term agreements to repurchase
generally mature within 90 days of dates of purchase. The weighted average term
to maturity of these borrowings was 46 days and 30 days as of March 31, 1998 and
December 31, 1997, respectively.
During the three month period ended March 31, 1998 and the twelve month
period ended December 31, 1997, the average balance of federal funds purchases
was $547,000 and $1,523,000, respectively, and the average interest rates during
those periods were 5.25% and 5.32%, respectively. These purchases were primarily
between the Banks.
The Company has sold securities under long term agreements to repurchase
which mature in the year 2003. The counterparties to these agreements have put
options which give them the right to demand early repayment. As of March 31,
1998, $30.0 million of these borrowings are subject to early repayment beginning
in 1999 and $20.0 million are subject to early repayment beginning in 2000.
The FHLB advance will mature in the year 2003. The advance is
collateralized by securities pledged to the FHLB. Under the terms of the
advance, the FHLB has a put option which gives it the right to demand early
repayment beginning in 2000.
The subordinated notes which will mature on September 15, 2005, were
offered to members of the Board of Directors, bank officers and other accredited
investors within the definition of Rule 501 under the Securities Act of 1933, as
amended. The notes bear an interest rate of 11.5%. The notes are redeemable by
the Company any time after September 30, 1998 at a premium ranging from 0% to
5%. The notes qualify as Tier 2 capital for the Company.
10
<PAGE>
Notes To Consolidated Financial Statements
As of March 31, 1998 and December 31, 1997 and of the
Three Months Ended March 31, 1998 and 1997
NOTE 4 -- STOCK SPLIT
On March 24, 1998 the Company announced a 2-for-1 stock split of its common
stock. This split will be effective for shareholders of record as of April 30,
1998 with a payment date of May 15, 1998. All share and per share information
has been retroactively restated to reflect this split.
11
<PAGE>
Item 2 -- Management's Discussion and Analysis of Results of Operations
And Financial Condition
Greater Bay Bancorp ("Greater Bay," on a parent-only basis, and the "Company,"
on a consolidated basis) was formed as the result of the merger in November 1996
between Cupertino National Bancorp, the holding company for Cupertino National
Bank ("CNB"), and Mid-Peninsula Bancorp, the holding company for Mid-Peninsula
Bank ("MPB"). In December 1997, the Company completed a merger with Peninsula
Bank of Commerce ("PBC"), whereby PBC joined CNB and MPB as the third wholly
owned banking subsidiary of Greater Bay (collectively, the "Banks"). Both
mergers were accounted for as pooling of interests. All of the financial
information for the Company for the periods prior to the mergers has been
restated to reflect the pooling of interests, as if they occurred at the
beginning of the earliest reporting period presented.
The following discussion and analysis is intended to provide greater
details of the results of operations and financial condition of the Company. The
following discussion should be read in conjunction with the information under
"Financial Highlights" and the Company's consolidated financial data included
elsewhere herein. Certain statements under this caption constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which involve risks and uncertainties. The Company's actual results may
differ significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include but are not
limited to economic conditions, competition in the geographic and business areas
in which the Company conducts its operations, fluctuation in interest rates,
credit quality and government regulation.
OVERVIEW
The Company reported net income of $3.6 million in the first quarter of 1998, a
43.2% increase over the net income of $2.5 million for the same period in 1997.
Basic net income per share was $0.45 for the first quarter of 1998, as compared
to $0.32 for the same period in 1997, while diluted net income per share was
$0.40 and $0.30 for the quarters ended March 31, 1998 and 1997, respectively.
The annualized return on average assets and return on average shareholders'
equity were 1.32% and 21.90% for the first quarter of 1998, compared with 1.24%
and 17.43% for the same period in 1997.
The increase in 1998 net income was the result of significant loan and
deposit growth, which resulted in increased net interest income, and increases
in trust fees, depositors' service fees and other fee income. Operating expense
increases required to service and support the Company's growth partially offset
the increase in revenues.
During the first quarter of 1998 the Greater Bay's Board of Directors
established the Greater Bay Bancorp Foundation (the "Foundation"). The
Foundation was formed to provide a vehicle through which the Company, its
officers and directors can provide support to the communities in which it does
business. The Foundation will focus its support on initiatives related to
education, health and economic growth. To fund the Foundation, the Company
contributed appreciated warrants, which had an unrealized gain of $701,000. The
Company recorded a contribution deduction for the fair market value of the
warrants contributed and also recorded warrant income of $701,000 ($498,000 net
of related employee incentive). For income tax purposes, the Company is not
required to recognize the warrant income, however it is allowed to deduct the
fair market value of the contributed warrants. This results in the Company
recognizing a tax benefit of $288,000. The timing and amount of income derived
from the appreciation of these warrants typically depend upon factors beyond the
control of the Company, and cannot be predicted with any degree of accuracy and
are likely to vary materially from period to period. The increase related to the
unrealized appreciation on the warrants and related tax benefits was partially
offset by a $484,000 writedown on equity securities in accordance with APB 18.
Net income in the first quarter of 1997 included a $1.7 million ($1.1
million net of tax) insurance recovery related to a litigation settlement charge
incurred in 1995.
The provision for loan losses in the three months ended March 31, 1998
was $866,000 compared to $2.0 million for the same period in 1997. Inspite of
the decline in provision for loan losses from the first quarter of 1997 as
compared to the first quarter of 1998, the Company increased its loan loss
reserve to 2.15% of total loans at March 31, 1998 as compared to 1.86% of total
loans at March 31, 1997 as a result of addition provisions taken during the
final three quarters of 1997.
12
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased 29.3% to $13.4 million in the first quarter of
1998 from $10.3 million in the same period in 1997 primarily due to the $269.3
million, or 34.4% increase in average interest-earning assets which is partially
offset by a 16 basis point decrease in the Company's interest rate spread from
4.57% to 4.41%. The interest rate spread for these periods was reduced by the
low spread earned on PBC's Special Deposit (discussed in Note 7 to the Financial
Statements). The average investment and deposit balances related to the Special
Deposit during these periods were $91.6 million and $95.8 million, respectively,
on which the Company earned spreads of approximately 2.25%. Excluding PBC's
Special Deposit, the interest rate spread would have been 4.61% and 4.91%,
respectively. Net interest income decreased 0.7% in the quarter ended March 31,
1998 from the prior quarter primarily due to the 16 basis point decrease in the
Company's interest rate spread.
The following table presents, for the period indicated, condensed
average balance sheet information for the Company, together with interest income
and yields earned on average interest-earning assets and interest expense and
rates paid on average interest-bearing liabilities. Average balances are average
daily balances:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 December 31, 1997
------------------ ------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold $ 57,450 $ 756 5.34% $ 56,730 $ 774 5.41%
Other short term investments 91,635 1,227 5.43% 91,431 1,259 5.46%
Investment securities:
Taxable 192,944 3,171 6.67% 152,671 2,518 6.54%
Tax-exempt (1) 25,217 314 5.05% 21,884 279 5.06%
Loans (2), (3) 684,693 17,186 10.18% 662,775 17,179 10.28%
---------------------- ----------------------
Total interest-earning assets 1,051,939 22,654 8.73% 985,491 22,009 8.86%
---------------------- ----------------------
Noninterest-earning assets 64,262 54,926
---------------------- ----------------------
Total assets $1,116,201 22,654 $1,040,417 22,009
====================== ======================
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and savings $ 597,286 5,431 3.69% $ 571,705 5,354 3.72%
Time deposits over $100,000 157,833 2,040 5.24% 157,350 2,068 5.21%
Other time deposits 37,447 494 5.35% 36,922 521 5.60%
---------------------- ----------------------
Total interest-bearing deposits 792,566 7,965 4.08% 765,977 7,943 4.11%
Other borrowings 56,004 749 5.42% 2,223 30 5.35%
Subordinated debt 3,000 86 11.66% 3,000 86 11.41%
TPS 20,000 488 9.90% 20,000 488 9.68%
---------------------- ----------------------
Total interest-bearing liabilities 871,570 9,288 4.32% 791,200 8,547 4.29%
Noninterest bearing deposits 168,836 169,330
Other noninterest-bearing liabilities 8,302 19,219
Shareholders' equity 67,493 60,668
---------------------- ----------------------
Total shareholders' equity and liabilities $1,116,201 9,288 $ 1,040,417 8,547
====================== ======================
Net interest income $ 13,366 $13,462
======== =======
Interest rate spread 4.41% 4.57%
Contribution of interest free funds 0.74% 0.85%
Net yield on interest-earning assets (4) 5.15% 5.42%
<CAPTION>
Three Months Ended
March 31, 1998
------------------
Average
Average Yield/
(Dollars in thousands) Balance Interest Rate
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold $ 33,362 $ 430 5.23%
Other short term investments 95,872 1,238 5.24%
Investment securities:
Taxable 104,480 1,580 6.13%
Tax-exempt (1) 16,710 213 5.17%
Loans (2), (3) 532,183 13,070 9.96%
----------------------
Total interest-earning assets 782,607 16,531 8.57%
Noninterest-earning assets 48,911
----------------------
Total assets $ 831,518 16,531
======================
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and savings $ 474,643 4,140 3.54%
Time deposits over $100,000 91,014 1,143 5.09%
Other time deposits 45,621 624 5.55%
----------------------
Total interest-bearing deposits 611,278 5,907 3.92%
Other borrowings 14,909 206 5.60%
Subordinated debt 3,000 86 11.66%
TPS - - 0.00%
----------------------
Total interest-bearing liabilities 629,187 6,199 4.00%
Noninterest bearing deposits 133,201
Other noninterest-bearing liabilities 9,875
Shareholders' equity 59,255
----------------------
Total shareholders' equity and liabilities $ 831,518 6,199
======================
Net interest income $ 10,332
========
Interest rate spread 4.57%
Contribution of interest free funds 0.78%
Net yield on interest-earning assets (4) 5.35%
</TABLE>
(1) The tax equivalent yields earned on the tax exempt securities are 7.40%,
7.41% and 7.59% at for the quarters ended March 31, 1998, December 31, 1997 and
March 31, 1997, respectively, using the federal statuary rate of 34%.
(2) Nonaccrual loans are included in the average balance; however, only
collected interest is included in the interest column.
(3) Interest income includes loan fees of $810,000, $867,000 and $556,000 for
the quarters ended March 31, 1998, December 31, 1997 and March 31, 1997,
respectively.
(4) Net yield on interest-earning assets during the period equals (a) the
difference between interest income on interest-earning assets and the interest
expense on interest-bearing liabilities, divided by (b) average interest-earning
assets for the period.
The most significant impact on the Company's net interest income
between periods is derived from the interaction of changes in the volume of and
rate earned or paid on interest-earning assets and interest-bearing liabilities.
The volume of interest-earning asset dollars in loans and investments, compared
to the volume of interest-bearing liabilities represented by deposits and
borrowings, combined with the spread, produces the changes in the net interest
income between period. The table below sets
13
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
forth, for the periods indicated, a summary of the changes in average asset and
liability balances (volume) and changes in average interest rates (rate):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 Three Months Ended March 31, 1998
Compared with December 31, 1997 Compared with March 31, 1997
favorable /(unfavorable) favorable /(unfavorable)
(Dollars in thousands)(1) Volume Rate Net Volume Rate Net
- ---------------------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON INTEREST-EARNING ASSETS
Federal funds sold $ 2 $ (20) $ (18) $ 317 $ 9 $ 326
Other short term investments (5) (27) (32) (56) 45 (11)
Investment securities:
Taxable 610 43 653 1,443 148 1,591
Tax-exempt 35 - 35 106 (5) 101
Loans 266 (259) 7 3,822 294 4,116
------------------------------------ -------------------------------
Total interest income 908 (263) 645 5,632 491 6,123
------------------------------------ -------------------------------
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits:
MMDA, NOW and savings (133) 56 (77) (1,109) (182) (1,291)
Time deposits over $100,000 10 18 28 (863) (34) (897)
Other time deposits (4) 31 27 109 21 130
Total interest-bearing deposits
Other borrowings (719) - (719) (550) 7 (543)
Subordinated debt - - - - - -
TPS - - - (488) - (488)
------------------------------------ -------------------------------
Total interest expense (846) 105 (741) (2,901) (188) (3,089)
------------------------------------ -------------------------------
Net increase (decrease) in
net interest income $ 62 $ (158) $ (96) $ 2,731 $ 303 $ 3,034
==================================== ===============================
</TABLE>
(1) Changes in interest income and expense which are not attributable
specifically to either volume or rate, are allocated proportionately
between both variances. Nonaccrual loans are included in average loans
Interest income in the quarter ended March 31, 1998 increased 37.0% to
$22.7 million from $16.5 million in the same period in 1997. This was primarily
due to the significant increase in loans, the Company's highest yielding
interest-earning asset. Loan volume increases were the result of the strong
economic conditions in the Company's market areas, as well as the addition of
experienced relationship managers and significant business development efforts
of the Company's relationship managers. The increase was enhanced by an increase
in the yield earned on average interest-earning assets. Average interest-earning
assets increased $269.3 million, or 34.4% to $1,051.9 million at the first
quarter of 1998, compared to $782.64 million for the same period in 1997, and
average loans increased $152.5 million, or 28.7% to $684.7 million, for the
first quarter of 1998.
The average yield on interest-earning assets increased 16 basis points
to 8.73% in the first quarter of 1998 from 8.57% in the same period of 1997
primarily due to the increase on the yields on loans. Average yields on loans
increased 22 basis points to 10.18% in the three months ended March 31, 1998
from 9.96% for the same period in 1997.
Interest expense in the first quarter of 1998 increased 49.8% to $9.3
million from $6.2 million for the same period in 1997. This increase was due to
greater volumes of interest-bearing liabilities coupled with slightly higher
interest rates paid on interest-bearing liabilities. Average interest-bearing
liabilities increased 38.5% to $871.6 million in the first quarter of 1998 from
$629.2 million in the same period for 1997 due to the efforts of the Banks'
relationship managers in generating core deposits from their client
relationships and the deposits derived from the activities of the Greater Bay
Trust Company and the Venture Banking Group.
During the first quarter of 1998, average noninterest-bearing deposits
increased to $168.8 million from $133.2 million in the same period in 1997.
Average noninterest-bearing deposits comprised 17.6% of total deposits for the
first quarter of 1998, compared to 17.9% for the same period in 1997.
As a result of the foregoing, the Company's interest rate spread
declined to 4.41% in the first quarter of 1998 from 4.57% in the same period in
1997, and the net yield on interest-earning assets declined to 5.15% from 5.35%.
14
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
Interest income increased 2.9% to $22.6 million for the first quarter
of 1998, as compared to $22.0 million for the previous quarter, as a result of
the combined effects of increases in average interest-earning assets and the
decline in yields earned on such assets. Average interest-earning assets
increased 6.7% in the first quarter of 1998 from $985.5 million for the previous
quarter. The increase in interest income for the first quarter of 1998, as
compared to the prior quarter, was primarily the result of an increase in the
average taxable investment securities which grew 26.4% from the prior quarter.
The impact of increases in average balances on loans was offset by a decrease in
the yield earned on those loans. The yield on the higher volume of average
interest-earning assets declined 13 basis points to 8.73% the first quarter of
1998 from 8.86% in the last quarter of 1997, primarily as a result of decreases
in market rates of interest.
Interest expense in the first quarter of 1998 increased 8.7% to $9.3
million from $8.5 million in the prior quarter. The increase is primarily the
result of increased average other borrowing, which rose to $56.0 million for the
first quarter of 1998, as compared to $2.2 million for the prior quarter. As a
result of increases in market rates of interest, the average rate paid on
average interest-bearing liabilities increased 3 basis points to 4.32% in the
first quarter of 1998 from 4.29% in the prior quarter. Corresponding to the
growth in average interest-earning assets, average interest-bearing liabilities
increased 10.2% to $871.6 million in the first quarter of 1998 from $629.2
million for the same period in 1997.
As a result of the foregoing, the Company's interest rate spread
declined to 4.41% in the first quarter of 1998 compared to 4.57% in the prior
quarter and the net yield on interest-earning assets declined to 5.15% from
5.42%.
Certain client service expenses were incurred by the Company with
respect to its noninterest-bearing liabilities. These expenses include
messenger services, check supplies and other related items and are included in
operating expenses. Had they been included, the impact of these expenses on the
Company's net yield on interest-earning assets would have been as follows for
each of the periods presented.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Average noninterest bearing demand deposits $168,836 $133,201
Client service expenses 142 82
Client service expenses, annualized 0.34% 0.25%
IMPACT ON NET YIELD ON INTEREST-EARNING
ASSETS:
Net yield on interest-earning assets 5.15% 5.35%
Impact of client service expense (0.05)% (0.04)%
---------------------------
Adjusted net yield on interest-earning assets (1) 5.10% 5.31%
---------------------------
</TABLE>
(1) Noninterest-bearing liabilities are included in cost of funds calculations
to determine adjusted net yield of spread
The impact on the net yield on interest-earning assets is determined
by offsetting net interest income by the cost of client service expense, which
reduces the yield on interest-earning assets.
Provision for Loan Losses
The provision for loan losses creates an allowance for future loan losses. The
loan loss provision for each year is dependent on many factors, including loan
growth, net charge-offs, changes in the composition of the loan portfolio,
delinquencies, management's assessment of the quality of the loan portfolio, the
value of the underlying collateral on problem loans and the general economic
conditions in the Company's market area. The Company performs a monthly
assessment of the risk inherent in its loan portfolio, as well as a detailed
review of each asset determined to have identified weaknesses. Based in this
analysis, which includes reviewing historical loss trends, current economic
conditions, industry concentrations and specific reviews of assets classified
with identified weaknesses, the Company makes a provision for potential loan
15
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
losses. Specific allocations are made for loans where the probability of a loss
can be defined and reasonably determined, while the balance of the provisions
for loan losses are based on historical data, delinquency trends, economic
conditions in the Company's market area and industry averages. Annual
fluctuations in the provision for loan losses result from management's
assessment of the adequacy of the allowance for loan losses, and ultimate loan
losses may vary from current estimates.
The provision for loan losses in the three months ended March 31, 1998
was $866,000 compared to $2.0 million for the same period in 1997.
Notwithstanding the substantial increase in loans outstanding, nonperforming
loans, comprised of nonaccrual loans and accruing loans past due 90 days or
more, decreased to $3.0 million at March 31, 1998, from $4.4 million at March
31, 1997. Simultaneously, the Company's ratio of loan loss reserve to total
loans increased to 2.15% at March 31, 1998 compared to 1.86% at March 31, 1997.
For further information on nonperforming and classified loans and the
allowance for loan losses, see - "Nonperforming and Classified Assets" herein.
Other Income
Total other income increased to $1.4 million in the first quarter of 1998,
compared to $1.0 million in the same period in 1997. The following table sets
forth information by category of other income for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Trust fees $ 550 $ 454
Warrant income 498 -
Service charges and other fees 385 318
Gain on sale of SBA loans 244 144
Gain (loss) on investments, net 8 (51)
Other (274) 182
------------------------
Total $1,411 $1,047
========================
</TABLE>
The increase in other income in 1998 was primarily the result of
$498,000 in warrant income which resulted from the sale of stock acquired from
clients in connection with financing activities in 1998, as well as a $100,000
increase in the gain on sale of Small Business Administration ("SBA") loans and
a $96,000 increase in trust fees. These increases were partially offset by a
$484,000 writedown on equity securities in accordance with APB 18, which was
recorded during the first quarter of 1998 and is included in other. The
increase in the gain on sale of SBA loans was due to an increase in the
origination and subsequent sale of SBA loans. The increase in trust fee was due
to significant growth in assets under management by Greater Bay Trust Company as
trust assets increased to $576.3 million at the end of the first quarter of
1998, compared to $428.4 million at March 31, 1997.
Operating Expenses
The following table represents the major components of operating expenses for
the periods indicated:
16
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Compensation and benefits $4,683 $ 4,131
Occupancy and equipment 1,189 1,172
Telephone, postage and supplies 415 286
Legal and other fees 312 277
Marketing and promotion 275 247
Directors' fees 115 111
FDIC insurance and regulatory assessments 82 50
Expenses on other real estate owned 3 2
Other 725 236
----------------------------
Total operating expenses, excluding nonrecurring costs 7,799 6,512
Nonrecurring costs 701 (1,287)
----------------------------
Total operating expenses $8,500 $ 5,225
============================
Efficiency ratio 57.52% 45.92%
Efficiency ratio, excluding nonrecurring items 54.62% 57.23%
Total operating expenses to average assets* 3.09% 2.53%
Total operating expenses to average assets, excluding
nonrecurring costs* 2.79% 3.15%
</TABLE>
*Annualized
Operating expenses totaled $8.5 million for the first quarter of 1998,
compared to $5.2 million for the same period in 1997. The ratio of operating
expenses to average assets in March 31, 1998 and 1997 was 3.09% and 2.53%,
respectively. Nonrecurring costs for the first quarter of 1998 included a
$701,000 donation to the GBB Foundation, as previously discussed. Nonrecurring
costs in 1997 included a $1.7 million legal settlement recovery. Excluding these
items, operating expense to average assets would have been 2.79% in the first
quarter of 1998 and 3.15% in 1997.
The efficiency ratio is computed by dividing total operating expenses by
net interest income and other income. An increase in the efficiency ratio
indicates that more resources are being utilized to generate the same volume of
income while a decrease would indicate a more efficient allocation of resources.
The Company's efficiency ratio for 1998 was 57.52%, compared to 45.92% in 1997.
Excluding nonrecurring items, the Company's efficiency ratios were 54.62% and
57.23% in 1998 and 1997, respectively. The improvement in the Company's
efficiency ratio, net of nonrecurring, for the first quarter of 1998 as compared
to the same period in 1997, excluding nonrecurring costs, was principally due to
the investment in infrastructure in 1995 and prior, which has allowed the
Company to grow its revenue base without comparable increases in operating
expenses.
Compensation and benefits expenses increased in the three months ended
March 31, 1998 to $4.7 million compared to $4.1 million in 1997. The increase in
compensation and benefits is due primarily to the additions in personnel made to
accommodate the growth of the Company.
Federal Deposit Insurance Corporation ("FDIC") deposit insurance and Office
of the Comptroller of the Currency ("OCC") regulatory assessments increased to
$82,000 in 1998, compared to $50,000 in 1997. Deposit level increases of 29.2%
from 1997 to 1998 were the primary reason for the increase in FDIC deposit
insurance premiums.
The increase in other operating expenses was related to the growth in the
Company's loans, deposits and trust assets. As indicated by the declining
efficiency ratio and ratio of total operating expenses to average assets from
1997 to 1998, the Company has been able to achieve increasing economies of scale
subsequent to the November 1996 merger between Cupertino National Bancorp and
Mid-Peninsula Bancorp and the December 1997 merger between Greater Bay Bancorp
and Peninsula Bank
17
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
of Commerce. From March 31, 1997 to March 31, 1998, average assets increased
34.2%, while operating expenses increased only 18.3% during this period,
excluding nonrecurring costs.
Income Taxes
The Company's effective income tax rate for the quarter ended March 31, 1998 was
32.6%, compared to 38.4% for the same period in 1997. The effective tax rate in
1998 was decreased by 5.3% due to the favorable tax treatment of the donation
made to the GBB Foundation, as previously discussed, as well as the tax-exempt
income on municipal securities. The effective rate in 1997 was lower than the
statutory rate due to tax-exempt income on municipal securities.
FINANCIAL CONDITION
Total assets increased 33.6% (annualized) to $1.2 billion at March 31, 1998,
compared to $1.1 billion at December 31, 1997. The increases in 1998 were
primarily due to increases in the Company's loan portfolio funded by long term
borrowings as well as growth in deposits. Included in total assets at March 31,
1998 and December 31, 1997 were the invested proceeds of a Special Deposit of
$88.8 million and $88.1 million, respectively. This deposit was received in
late 1996 and management anticipates that this deposit will be withdrawn at some
point in 1998.
Loans
Total loans, net of deferred fees, increased 20.3% (annualized) to $710.1
million at March 31, 1998, compared to $675.8 million at December 31, 1997. The
increases in loan volumes in 1998 were primarily due to the strong economy in
the Company's market areas coupled with the business development efforts by the
Company's relationship managers.
The Company's loan portfolio is concentrated in commercial (primarily
manufacturing, service and technology) and real estate lending, with the balance
in consumer loans. While no specific industry concentration is considered
significant, the Company's lending operations are located in a market area that
is dependent on the technology and real estate industries and supporting service
companies. Thus, the Company's borrowers could be adversely impacted by a
downturn in these sectors of the economy, which could reduce the demand for
loans and adversely impact the borrowers' abilities to repay their loans, while
also decreasing the Company's net interest margin.
The following table presents the composition of the Company's loan
portfolio at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-----------------------------------------
(Dollars in thousands) Amount % Amount %
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $330,547 47.6% $324,535 49.1%
Real estate construction and land 117,864 17.0 109,671 16.6
Real estate term 201,751 29.0 179,458 27.2
Consumer and other 62,787 9.0 64,854 9.8
-----------------------------------------
Total loans, gross 712,949 102.6 678,518 102.7
Deferred fees and discounts, net (2,817) -0.4 (2,654) -0.4
-----------------------------------------
Total loans, net of deferred fees 710,132 102.2 675,864 102.3
Allowance for loan losses (15,250) -2.2 (15,208) -2.3
-----------------------------------------
Total loans $694,882 100.0% $660,656 100.0%
=========================================
</TABLE>
18
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
Nonperforming and Classified Assets
Management generally places loans on nonaccrual when they become 90 days past
due, unless they are well secured and in the process of collection. When a loan
is placed on nonaccrual status, any interest previously accrued but not
collected is generally reversed from income. Loans are charged-off when
management determines that collection has become unlikely. Restructured loans
are those where the Banks have granted a concession on the interest paid or
original repayment terms due to financial difficulties of the borrower. Other
real estate owned ("OREO") consists of real property acquired through
foreclosure on the related collateral underlying defaulted loans.
The following table sets forth information regarding nonperforming assets
at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Nonperforming loans
Nonaccrual loans $3,024 $2,843
Accruing loans past due 90 days or more - -
Restructured loans - -
-------------------------
Total nonperforming loans 3,024 2,843
Other real estate owned 445 340
-------------------------
Total nonperforming assets $3,469 $3,183
-------------------------
Nonperforming assets to total loans
and other real estate owned 0.49% 0.47%
</TABLE>
At March 31, 1998, the Company had $3.0 million in nonaccrual loans.
Interest income forgone on nonperforming loans outstanding at period end totaled
$96,000 and $79,000 for the quarter ended March 31, 1998 and 1997, respectively.
Interest income recognized on nonperforming for the quarters ended March 31,
1998 and March 31, 1997 were $39,000 and $43,000, respectively.
The Company records OREO at the lower of carrying value or fair value less
estimated costs to sell. Estimated losses that result from the on going periodic
valuation of these properties are charged to earnings through a provision for
losses on foreclosed property in the period in which they are identified. At
March 31, 1998, OREO consisted of three properties acquired through foreclosure
with a carrying value of $445,000.
The policy of the Company is to review each loan in the portfolio to
identify problem credits. There are three classifications for problem loans:
"substandard," "doubtful" and "loss." Substandard loans have one or more defined
weakness and are characterized by the distinct possibility that the Banks will
sustain some loss if the deficiencies are not corrected. Doubtful loans have the
weaknesses of substandard loans, with the additional characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values questionable; and there is a high
possibility of loss of some portion of the principal balance. A loan classified
"loss" is considered uncollectible and its continuance as an asset is not
warranted.
19
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
The following table sets forth the classified assets at the dates
indicated:
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Substandard $ 7,757 $14,302
Doubtful 1,092 1,377
Loss - -
Other real estate owned 445 340
-------------------------
Classified assets $ 9,294 $16,019
=========================
Classified assets to total loans and other 1.31% 2.37%
real estate owned
Allowance for loan losses to total classified 164.08% 94.94%
assets
</TABLE>
With the exception of these classified loans, management was not aware of
any loans as of March 31, 1998 where the known credit problems of the borrower
would cause management to have serious doubts as to the ability of such
borrowers to comply with their present loan repayment terms and which would
result in such loans being included in nonperforming or classified asset tables
at some future date. Management cannot, however, predict the extent to which
economic conditions in the Company's market areas may worsen or the full impact
such an environment may have on the Company's loan portfolio. Accordingly, there
can be no assurance that other loans will not become 90 days or more past due,
be placed on nonaccrual, become restructured loans, or other real estate owned
in the future.
The Company has an active credit administration function which includes, in
addition to internal reviews, the regular use of an outside loan review firm to
review the quality of the loan portfolio. Senior management, the officer's loan
committee and the director's loan committee review credit quality issues on a
regular basis.
Allowance For Loan Losses
The allowance for loan losses is established through a provision for loan losses
based on management's evaluation of risk inherent in the Company's loan
portfolio and economic conditions in the Company's market areas. See -
"Provision for Loan Losses" herein. The allowance is increased by provisions
charged against earnings and reduced by net loan charge-offs. Loans are
charged-off when they are deemed to be uncollectible; recoveries are generally
recorded only when cash payments are received.
The following table sets forth information concerning the Company's
allowance for loan losses at the dates and for the periods indicated:
20
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
<TABLE>
<CAPTION>
At and for the periods ended
March 31, December 31,
---------------------------------
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Period end loans outstanding $712,949 $678,518
Average loans outstanding: $684,693 $596,229
Allowance for loan losses:
Balance at beginning of period $ 15,208 $ 8,690
Charge-offs:
Commercial (734) (801)
Real estate construction and land - (243)
Real estate term (2) -
Consumer and other (119) (86)
---------------------------------
Total charge-offs (855) (1,130)
---------------------------------
Recoveries:
Commercial 22 51
Real estate construction and land - -
Real estate term - -
Consumer and other 9 5
---------------------------------
Total recoveries 31 56
---------------------------------
Net charge-offs (824) (1,074)
Provision charged to income (1) 866 7,592
---------------------------------
Balance at end of period $ 15,250 $ 15,208
=================================
Net charge-offs to average loans outstanding 0.49% 0.18%
during the period, annualized
Allowance as a percentage of average loans outstanding 2.23% 2.55%
Allowance as a percentage of period end loans outstanding 2.15% 2.25%
Allowance as a percentage of non-performing loans 504.30% 534.92%
</TABLE>
(1) Includes $1.4 million in 1997 to conform practices for the Bank's reserve
methodologies, which is included in mergers and related nonrecurring costs.
Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, and the existing and prospective economic conditions when
determining the adequacy of the allowance for loan losses. Although management
believes that the allowance for loan losses is adequate to provide for both
potential losses and estimated inherent losses in the portfolio, future
provisions will be subject to continuing evaluations of the inherent risk in the
portfolio and if the economy declines or asset quality deteriorates, additional
provisions could be required.
Liquidity and Cash Flow
The objective of liquidity management is to maintain each Bank's ability to meet
the day-to-day cash flow requirements of its clients who either wish to withdraw
funds or require funds to meet their credit needs. The Company must manage its
liquidity position to allow the Banks to meet the needs of their clients while
maintaining an appropriate balance between assets and liabilities to meet the
return on investment expectations of its shareholders. The Company monitors the
sources and uses of funds on a daily basis to maintain an acceptable liquidity
position. In addition to liquidity from core deposits and repayments and
maturities of loans and investments, the Banks utilize brokered deposit lines,
sell securities under agreements to repurchase and borrow overnight federal
funds. In the first quarter of 1997, the Company issued $20.0 million in Trust
Preferred Securities ("TPS") to enhance its regulatory capital base, while also
providing added liquidity.
21
<PAGE>
Management's Discussion And Analysis of Results of Operation
And financial Condition
Net cash provided by operating activities, consisting of primarily net
interest income, totaled $15.0 million for the first quarter of 1998 and
$907,000 for the same period in 1997. Cash used for investing activities totaled
$80.7 million in first quarter of 1998 and $34.0 million in the same period in
1997. The funds used for investing activities primarily represent increases in
loans and investment for each year reported.
For the quarter ended March 31, 1998, net cash provided by financing
activities was $75.7 million. Historically, the primary financing activity of
the Company has been deposits and borrowings. Deposits increased $23.1 million
for the quarter ended March 31, 1998 and other borrowings increased $52.4
million for the same period. For the three months ended March 31, 1997, net cash
provided by financing activities was $39.8 million. Deposits increased $19.2
million, while other borrowings were relatively unchanged. During that period
there were also proceeds from the issuance of TPS of $20.0 million.
Greater Bay is a company separate and apart from the Banks. It must
provide for its own liquidity. Substantially all of Greater Bay's revenues are
obtained from management fees, interest received and dividends declared and paid
by the Banks. Management of Greater Bay believes that such restrictions will not
have an impact on the ability of Greater Bay to meet its ongoing cash
obligations. As of March 31, 1998, Greater Bay did not have any material
commitments for capital expenditures. There are statutory and regulatory
provisions that could limit the ability of the Banks to pay dividends to Greater
Bay.
Capital Resources
Shareholders' equity at March 31, 1998 increased to $70.5 million from $66.6
million at December 31, 1997. During the first quarter of 1998 and the twelve
months ended December 31, 1997, Greater Bay paid aggregate cash dividends of
$0.075 and $0.30 per share, as adjusted for the 2-for-1 stock split effective
April 30, 1998. In 1997, prior to the completion of its merger with the Company,
PBC declared a cash dividend of $3.20 per share.
The Company has provided a substantial portion of its capital
requirements through the retention of earnings. In the first quarter of 1997,
the Company increased its capital base by issuing $20.0 million of TPS, which,
subject to certain limitations, qualify as Tier 1 capital.
A banking organization's total qualifying capital includes two
components, core capital (Tier 1 capital) and supplementary capital (Tier 2
capital). Core capital, which must comprise at least half of total capital,
includes common shareholders' equity, qualifying perpetual preferred stock,
trust preferred stock and minority interests, less goodwill. Supplementary
capital includes the allowance for loan losses (subject to certain limitations),
other perpetual preferred stock, trust preferred securities, certain other
capital instruments, and term subordinated debt. The Company's major capital
components are shareholders' equity trust preferred securities in core capital,
and the allowance for loan losses and subordinated debt in supplementary
capital.
At March 31, 1998, the minimum risk-based capital requirements to be
considered adequately capitalized are 4.0% for core capital and 8.0% for total
capital. Federal banking regulators have also adopted leverage capital
guidelines to supplement risk-based measures. The leverage ratio is determined
by dividing Tier 1 capital as defined under the risk-based guidelines by average
total assets (not risk-adjusted) for the preceding quarter. The minimum leverage
ratio is 3.0%, although certain banking organizations are expected to exceed
that amount by 1.0% or more, depending on their circumstances.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act
of 1991, the Federal Reserve, the OCC and the FDIC have adopted regulations
setting forth a five-tier system for measuring the capital adequacy of the
financial institutions they supervise. The capital levels of the Company at
March 31, 1998 and the requirements to qualify for well capitalized and
adequately capitalized status under these regulations are as follows:
22
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
As of March 31, 1998 Actual Adequacy Purposes Action Provisions
------------------- ---------------------- ----------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------- ---------------------- ----------------------------
<S> <C> <C> <C>
Total Capital (To Risk Weighted Assets):
GREATER BAY BANCORP $ 103,561 12.19% $ 67,942 8.00% N/A
Mid-Peninsula Bank 36,078 11.00 26,240 8.00 $ 32,800 10.00%
Cupertino National Bank 43,775 10.82 32,378 8.00 40,473 10.00
Peninsula Bank of Commerce 15,965 13.43 9,511 8.00 11,888 10.00
Tier 1 Capital (To Risk Weighted Assets):
GREATER BAY BANCORP $ 89,887 10.58% $ 33,971 4.00% N/A
Mid-Peninsula Bank 31,975 9.75 13,120 4.00 $ 19,680 6.00%
Cupertino National Bank 35,684 8.81 16,189 4.00 24,284 6.00
Peninsula Bank of Commerce 14,477 12.18 4,755 4.00 7,133 6.00
Tier 1 Capital (To Average Assets):
GREATER BAY BANCORP $ 89,887 8.05% $ 44,648 4.00% N/A
Mid-Peninsula Bank 31,975 7.98 12,016 3.00 $ 20,027 5.00%
Cupertino National Bank 35,664 7.16 19,918 4.00 24,897 5.00
Peninsula Bank of Commerce 14,477 6.83 8,473 4.00 10,591 5.00
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
As of March 31, 1998 Actual Adequacy Purposes Action Provisions
------------------- ---------------------- ---------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------- ---------------------- ---------------------------
<S> <C> <C> <C>
Total Capital (To Risk Weighted Assets):
GREATER BAY BANCORP $ 99,434 12.32% $ 64,671 8.00% N/A
Mid-Peninsula Bank 34,727 11.88 23,416 8.00 $ 29,269 10.00%
Cupertino National Bank 40,201 10.03 32,118 8.00 40,147 10.00
Peninsula Bank of Commerce 15,252 14.33 8,525 8.00 10,657 10.00
Tier 1 Capital (To Risk Weighted Assets):
GREATER BAY BANCORP $ 86,258 10.69 $ 32,335 4.00% N/A
Mid-Peninsula Bank 31,064 10.63 11,708 4.00 $ 17,562 6.00%
Cupertino National Bank 32,126 8.02 16,059 4.00 24,088 6.00
Peninsula Bank of Commerce 13,917 13.08 4,263 4.00 6,394 6.00
Tier 1 Capital (To Average Assets):
GREATER BAY BANCORP $ 86,258 8.29% $ 41,756 4.00% N/A
Mid-Peninsula Bank 31,064 8.54 10,935 3.00 $ 18,225 5.00%
Cupertino National Bank 32,126 7.08 18,189 4.00 22,737 5.00
Peninsula Bank of Commerce 13,917 6.65 8,401 4.00 10,501 5.00
</TABLE>
At March 31, 1998, the Company's risk-based capital ratios were 10.58%
for Tier 1 risk-based capital and 12.91% for total risk-based capital, compared
to 10.69% and 12.32% respectively, as of December 31, 1997. The Company's
leverage ratio was 8.05% at March 31, 1998, compared to 8.29% at December 31,
1997. These ratios all exceeded the well-capitalized guidelines shown above.
In addition, at March 31, 1998, each of the Banks had levels of
capital which exceeded the well-capitalized guidelines. For additional
information on the capital levels and capital ratios of the Company and each of
the Banks, see Note 13 of Notes to Consolidated Financial Statements.
The Company anticipates that the economic and business conditions in
its market areas will continue to expand in 1998, resulting in continued growth
in earnings and deposits. To support this continuing growth or future
acquisition opportunities, it may be necessary for the Company to raise
additional capital through the sale of either debt or equity securities in order
for the Company and each of the Banks to remain well-capitalized under
applicable regulations.
<PAGE>
Management's Discussion And Analysis of Results of Operation
And Financial Condition
Quantitative and Qualitative Disclosures About Market Risk
The Company's financial performance is impacted by, among other factors,
interest rate risk and credit risk. The Company utilizes no derivatives to
mitigate its credit risk, relying instead on loan review and an adequate loan
loss reserve (see - "Allowance for Loan Losses" herein).
Interest rate risk is the risk of loss in value due to changes in
interest rates. This risk is addressed by the Company's Asset Liability
Management Committee ("ALCO"), which includes senior management representatives.
The ALCO monitors and considers methods of managing interest rate risk by
monitoring changes in the market value of portfolio equity ("MVPE") and net
interest income under various interest rate scenarios. The ALCO attempts to
manage the various components of the Company's balance sheet to minimize the
impact of sudden and sustained changes in interest rates on MVPE and net
interest income.
The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in MVPE in the event of hypothetical changes in interest rates
and interest liabilities. If potential changes to MVPE and net interest income
resulting from hypothetical interest rate swings are not within the limits
established by the Board, the Board may direct management to adjust its asset
and liability mix to bring interest rate risk within Board-approved limits.
In order to reduce the exposure to interest rate fluctuations, the
Company has developed strategies to manage its liquidity, lengthen the effective
maturities of certain interest-earning assets, and shorten the effective
maturities of certain interest-bearing liabilities. The Company has focused its
investment activities on securities with generally medium-term (5 years to 7
years) maturities or average lives. The Company has utilized short-term
borrowings and deposit marketing programs to adjust the term to repricing of its
liabilities.
Interest rate sensitivity analysis is used to measure the Company's
interest rate risk by computing estimated changes in MVPE of its cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. MVPE represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet items. This
analysis assesses the risk of loss in market rate sensitive instruments in the
event of sudden and sustained increases and decreases in market interest rates
of 100 basis points. All market rate sensitive instruments presented in this
table are classified as either held to maturity or available for sale. The
Company has no trading securities. The following table presents the Company's
projected change in MVPE for the these rate shock levels as of March 31:
<TABLE>
<CAPTION>
Change in Projected Change
-------------------------
Interest Rates MVPE Dollars Percentage
-------------------------------------------------------------------
<S> <C> <C> <C>
100 basis point rise $82,963 $ 4,612 6.00%
Base scenario 78,351 - 0.00%
100 basis point decline 73,790 (4,611) (6.00)%
</TABLE>
The preceding table indicates that, at March 31, 1998, in the event of
a sudden and sustained increase or decrease in prevailing market interest rates,
the Company's MVPE would be expected to decrease. However, the foregoing
analysis does not attribute additional value to the Company's noninterest-
bearing deposit balances, which have a significantly higher market value during
periods of increasing interest rates.
MVPE is calculated based on the net present value of estimated cash
flows utilizing market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources.
Computation of forecasted effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposits decay, and should not be relied
upon as indicative of actual future results. Further, the computations do not
contemplate any actions the ALCO could undertake in response to changes in
interest rates.
24
<PAGE>
Management's Discussion And Analysis of Results of Operation
And financial Condition
Certain shortcomings are inherent in the method of analysis presented
in the computation of MVPE. Actual values may differ from those projections
presented should market conditions vary from assumptions used in the calculation
of the MVPE. Certain assets, such as adjustable-rate loans, which represent one
of the Company's loan products, have features which restrict changes in interest
rate on short-term basis and over the life of the assets. In addition, the
proportion of adjustable-rate loans in the Company's portfolio could decrease in
future periods if market interest rates remain at or decrease below current
levels due to refinance activity. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in the MVPE. Finally, the ability of many borrowers to repay
their adjustable-rate mortgage loans may decrease in the event of significant
interest rate increases.
Interest Rate Risk Management
Interest rate risk management is a function of the repricing characteristics of
the Company's portfolio of assets and liabilities. Interest rate risk
management focuses on the maturity structure of assets and liabilities and their
repricing characteristics during periods of changes in market interest rates.
Effective interest rate risk management seeks to ensure that both assets and
liabilities respond to changes in interest rates within an acceptable time
frame, thereby minimizing the effect of interest rate movements on net interest
income. Interest rate sensitivity is measured as the difference between the
volumes of assets and liabilities in the Company's current portfolio that are
subject to repricing at various time horizons: one day or immediate, two days to
six months, seven to twelve months, one to three years, four to five years, over
five years and on a cumulative basis. The differences are known as interest
sensitivity gaps.
The following table shows interest sensitivity gaps for different
intervals as of March 31, 1998.
<TABLE>
<CAPTION>
Immediate 2 Days To 7 Months to 1 Year 4 Years More than Total Rate
(Dollars in thousands) or One Day 6 Months 12 Months to 3 Years to 5 Years 5 Years Sensitive
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ - $ - $ - $ - $ - $ - $ -
Short term investments 47,100 92,245 - - - - 139,345
Investment securities - 23,961 19,391 52,787 30,455 101,274 227,868
Other securities - 2,162 - - - - 2,162
Loans 568,526 26,676 21,487 53,892 22,794 19,574 712,949
Loan losses/unearned fees - - - - - - -
Other assets - - - - - - -
------------------------------------------------------------------------------------------------
Total assets $615,626 $145,044 $40,878 $106,679 $53,249 $120,848 $1,082,324
------------------------------------------------------------------------------------------------
Liabilities and Equity
Deposits:
DDA $ - $ - $ - $ - $ - $ - $ -
NOW, MMDA, and
savings 600,309 - - - - - 600,309
Time deposits - 174,632 20,552 5,383 560 - 201,127
Other borrowings - 11,900 - - 60,000 - 71,900
Subordinated debt - - - - - 3,000 3,000
Trust preferred securities - - - - - 20,000 20,000
Other liabilities - - - - - - -
Shareholders' equity - - - - - - -
Total liabilities and
------------------------------------------------------------------------------------------------
equity $600,309 $186,532 $20,552 $ 5,383 $60,560 $ 23,000 $ 896,336
------------------------------------------------------------------------------------------------
Gap $ 15,317 $(41,488) $20,326 $101,296 $(7,311) $ 97,848 $ 185,988
Cumulative Gap $ 15,317 $(26,171) $(5,845) $ 95,451 $88,140 $185,988 $ 185,988
Cumulative Gap/total assets 1.29% -2.21% -0.49% 8.06% 7.44% 15.70% 15.70%
<CAPTION>
Non-Rate
(Dollars in thousands) Sensitive Total
- ---------------------------------------------------------------
Assets
Cash and due from banks $ 65,009 $ 65,009
Short term investments - 139,345
Investment securities - 227,868
Other securities - 2,162
Loans - 712,949
Loan losses/unearned fees (18,067) (18,067)
Other assets 55,020 55,020
------------------------------
Total assets $ 101,962 $1,184,286
------------------------------
Liabilities and Equity
Deposits:
DDA $ 195,069 $ 195,069
NOW, MMDA, and
savings - 600,309
Time deposits - 201,127
Other borrowings - 71,900
Subordinated debt - 3,000
Trust preferred securities - 20,000
Other liabilities 22,390 22,390
Shareholders' equity 70,491 70,491
Total liabilities and
------------------------------
equity $ 287,950 $1,184,286
------------------------------
Gap $(185,988) -
Cumulative Gap $ - -
Cumulative Gap/total assets - -
</TABLE>
The foregoing table indicates that the Company had a one year negative
gap of $5.8 million, or 0.49% of total assets, at March 31, 1998. In theory,
this would indicate that at March 31, 1998, $5.8 million more in liabilities
than assets would reprice if there was a change in interest rates over the next
365 days. Thus, if interest rates were to increase, the gap would tend to result
in a lower net interest margin. However, changes in the mix of earning assets or
supporting liabilities can either increase or decrease the
25
<PAGE>
Management's Discussion And Analysis of Results of Operations
And Financial Condition
net interest margin without affecting interest rate sensitivity. In addition,
the interest rate spread between an asset and its supporting liability can vary
significantly while the timing of repricing of both the asset and its supporting
liability can remain the same, thus impacting net interest income. This
characteristic is referred to as a basis risk and, generally, relates to the
repricing characteristics of short-term funding sources such as certificates of
deposit.
The impact of fluctuations in interest rates on the Company's projected
next twelve month net interest income and net income has been evaluated through
an interest rate shock simulation modeling analysis that includes various
assumptions regarding the repricing relationship of assets and liabilities, as
well as the anticipated changes in loan and deposit volumes over differing rate
environments. As of March 31, 1998, the analysis indicates that the Company's
net interest income would increase a maximum of 19.8% if rates rose 200 basis
points immediately and would decrease a maximum of 19.8% if rates declined 200
basis points immediately. In addition, the results indicate that notwithstanding
the Company's gap position, which would indicate that the net interest margin
increases when rates rise, the Company's net interest margin increases during
rising rate periods due to the basis risk imbedded in the Company's interest-
bearing liabilities.
In addition, while this analysis indicates the probable impact of
interest rate movements on the Company's net interest income, it does not take
into consideration other factors that would impact this analysis. These factors
would include but not be limited to management and ALCOs actions to mitigate the
impact to the Company and the impact of the Company's credit risk profile during
periods of significant interest rate movements. Varying interest rate
environments can create unexpected changes in prepayment levels of assets and
liabilities which are not reflected in the interest sensitivity analysis table.
These prepayments may have significant effects on the Company's net interest
margin. Because of these factors and others, an interest sensitivity gap report
may not provide a complete assessment of the Company's exposure to changes in
interest rates.
Common Stock Price and Dividend History
The Company's stock is traded on the Nasdaq National Market ("Nasdaq") under the
symbol "GBBK". The Company's common stock was listed on Nasdaq on September 9,
1996. Prior to September 9, 1996, the Company's common stock was not listed on
any exchange nor was it quoted by Nasdaq. It was, however, listed with the
National Quotation Service and on the Over The Counter Bulletin Board. Hoefer &
Arnett, Incorporated and Van Kasper & Company acted as the primary market makers
and facilitated trades in the Company's common stock. Based on information
provided to the Company from Hoefer & Arnett, the range of high and low bid
quotations for the Common Stock for the first three quarters of 1996 are set
forth below. Such quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual transactions.
Quotations subsequent to September 30, 1996 reflect the high and low sales
prices for the Company's common stock as reported by Nasdaq.
26
<PAGE>
Managment's Discussion And Analysis of Results of Operations
And Financial Condition
<TABLE>
<CAPTION>
Cash dividends
For the period indicated(1) High Low declared (2)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 25.59 $ 24.95 $ 0.095
First Quarter
1997
Fourth Quarter $ 26.75 $ 21.00 $ 0.075
Third Quarter 22.25 15.94 0.075
Second Quarter 15.75 12.44 0.075
First Quarter 13.82 11.88 0.075
1996
Fourth Quarter $ 12.19 $ 10.57 $ 0.075
Third Quarter 10.50 9.00 0.075
Second Quarter 11.07 8.88 0.075
First Quarter 9.38 8.25 0.075
</TABLE>
(1) Restated to reflect the 2-for-1 stock split as of April 30, 1998.
(2) Includes only those dividends declared by Greater
Bay, and excludes those dividends paid by Cupertino
National Bancorp prior to the 1996 merger and by
PBC prior to the 1997 merger. In 1996, Cupertino
National Bancorp declared and paid dividends of
$0.10 to its shareholders. PBC declared dividends
of $3.20 and $1.35 per share, in 1997 and 1996,
respectively, to its shareholders. On a
consolidated basis, the Company has declared
dividends of $0.52 and $0.30 per share in 1997 and
1996, respectively.
The Company estimates it has approximately 2,200 shareholders as of March 31,
1998.
27
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - ITEM 3, ITEM 5
Not applicable
ITEM 4 - NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this Report.
(a) Exhibits
EXHIBIT
NO. EXHIBIT
- ------- -------
2 Agreement and plan of reorganization by and among Greater Bay Bancorp,
Pacific Rim Bancorporation and the Leo K.W. Lum PRB Revocable Trust
dated February 24, 1998.+++
3.1 Articles of Incorporation of Greater Bay Bancorp, as amended.+++
3.2 Bylaws of Greater Bay Bancorp, as amended. +++
4.1 Junior Subordinated Indenture dated as of March 31, 1997 between
Greater Bay Bancorp and Wilmington Trust Company, as Trustee. ++
4.2 Officers' Certificate and Company Order, dated March 31, 1997.++
4.3 (Reserved.)
4.4 Certificate of Trust of GBB Capital I.+
4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997.+
4.6 Amended and Restated Trust Agreement of GBB Capital I, among Greater
Bay Bancorp, Wilmington Trust Company and the Administrative Trustees
named therein dated as of March 31, 1997.++
4.7 Trust Preferred Certificate of GBB Capital I.++
4.8 Common Securities Certificate of GBB Capital I.++
4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington
Trust Company, dated as of March 31, 1997.++
4.10 Agreement as to Expenses and Liabilities, dated as of March 31,
1997.++
4.11 Form of Subordinated Debentures; incorporated herein by reference from
Exhibit 1 of Cupertino National Bancorp's Form 8-K (File No. 0-18015),
filed with the Commission on October 25, 1995.
4.12 Supplemental Debenture Agreement of Cupertino National Bancorp
dated as of November 22, 1996.+
4.13 Supplemental Debenture Agreement dated November 27, 1996 between
Cupertino National Bancorp and Mid-Peninsula Bancorp.+
4.14 Supplemental Debenture Agreement, dated as of March 27, 1997.++
10.1 Employment Agreement with David L. Kalkbrenner, dated March 3, 1992;
incorporated herein by reference from Exhibit 10.15 to Mid-Peninsula
Bancorp's Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 0-25034), filed with the Commission on March 30, 1995.*
10.1.1 Amendment No. 1 to Employment Agreement with David L.
Kalkbrenner, dated March 27, 1998.*
10.2 Employment, Severance and Retirement Benefits Agreement with
Steven C. Smith dated July 31, 1995.*+
28
<PAGE>
10.2.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with Steven C. Smith, dated March 27, 1998.*+++
10.3 Employment, Severance and Retirement Benefits Agreement with
David R. Hood dated July 31, 1995.*+
10.3.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with David R. Hood, dated March 27, 1998.*
10.4 Greater Bay Bancorp 1996 Stock Option Plan, as amended; incorporated
herein by reference from Exhibit 99.1 to Greater Bay Bancorps's
Registration Statement on Form S-8 (Registration No. 333-47747), filed
with the Commission on March 11, 1998.*
10.5 Greater Bay Bancorp 401(k) Profit Sharing Plan.*+++
10.6 Greater Bay Bancorp Employee Stock Purchase Plan; incorporated herein
by reference from Greater Bay Bancorp's Proxy Statement for Annual
Meeting of Shareholders (File No. 000-25034), filed with the
Commission on May 13, 1997.*
10.6.1 Amendment to Greater Bay Bancorp Employee Stock Purchase Plan.*+++
10.7 Greater Bay Bancorp Change of Control Pay Plan I.*+++
10.8 Greater Bay Bancorp Change of Control Pay Plan II.*+++
10.9 Greater Bay Bancorp Termination and Layoff Plan I. *+++
10.10 Greater Bay Bancorp Termination and Layoff Plan II. *+++
10.11 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan.*+++
10.12 Form of Indemnification Agreement between Greater Bay Bancorp and
with directors and certain executive officers.+
11 Statements re Computation of Earnings Per Share.
27 Financial Data Schedule.
_______
* Represents executive compensation plans and arrangements of Greater
Bay Bancorp.
+ Incorporated by reference from Greater Bay Bancorp's Registration
Statement on Form S-1 (Registration No. 33-22783) filed with the
Commission on March 5, 1997.
++ Incorporated by reference from Greater Bay Bancorp's current report on
Form 8-K (File No. 000-25034) dated June 5, 1997.
+++ Incorporated by reference from Greater Bay Bancorp's current report on
for 10-K (File No. 000-25034) dated March 31, 1998.
_______
(b) Reports on Form 8-K for the quarter covered by this report.
On January 7, 1998, as amended February 5, 1998, the Company filed a
form 8-K reporting the completion of the merger pursuant to an Agreement and
Plan of Reorganization by among Greater Bay Bancorp ("GBB"), GBB Acquisition
Corp., a wholly-owned subsidiary of GBB ("Newco") and Peninsula Bank of Commerce
("PBC") dated September 5, 1997.
29
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GREATER BAY BANCORP
(REGISTRANT)
BY:
/S/ STEVEN C. SMITH
- -------------------
STEVEN C. SMITH
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER AND
CHIEF FINANCIAL OFFICER
DATE: MAY 4, 1998
30
<PAGE>
Exhibit 11
Greater Bay Bancorp Form 10-Q
Statements Re Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Dollars and shares in thousands, except per share amounts) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to common shareholders $ 3,646 $ 2,546
Weighted average common shares outstanding 8,107,046 7,853,488
-------------------------------
Basic earnings per share $ 0.45 $ 0.32
===============================
DILUTED EARNINGS PER SHARE:
Income available to common shareholders $ 3,646 $ 2,546
Weighted average common shares outstanding 8,107,046 7,853,488
Effect of dilutive securities 898,304 545,440
-------------------------------
Weighted average common and common equivalent shares
outstanding 9,005,350 8,398,928
-------------------------------
Diluted earnings per share $ 0.40 $ 0.30
===============================
</TABLE>
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 65,009
<INT-BEARING-DEPOSITS> 378
<FED-FUNDS-SOLD> 47,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 189,813
<INVESTMENTS-CARRYING> 38,055
<INVESTMENTS-MARKET> 38,852
<LOANS> 694,882
<ALLOWANCE> (15,250)
<TOTAL-ASSETS> 1,184,286
<DEPOSITS> 996,505
<SHORT-TERM> 11,900
<LIABILITIES-OTHER> 22,390
<LONG-TERM> 83,000
0
0
<COMMON> 44,916
<OTHER-SE> 25,183
<TOTAL-LIABILITIES-AND-EQUITY> 1,184,286
<INTEREST-LOAN> 17,186
<INTEREST-INVEST> 4,712
<INTEREST-OTHER> 756
<INTEREST-TOTAL> 22,654
<INTEREST-DEPOSIT> 7,965
<INTEREST-EXPENSE> 9,288
<INTEREST-INCOME-NET> 13,366
<LOAN-LOSSES> 866
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 8,500
<INCOME-PRETAX> 5,411
<INCOME-PRE-EXTRAORDINARY> 5,411
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,646
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 5.15
<LOANS-NON> 3,024
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,208
<CHARGE-OFFS> (855)
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 15,250
<ALLOWANCE-DOMESTIC> 15,250
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
