<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, 1999
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)
(650) 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 23, 1999:
9,767,572
<PAGE>
GREATER BAY BANCORP
INDEX
<TABLE>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998.................... 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 1999 and 1998................................. 4
Consolidated Statements of Comprehensive Income
for the Three Months Ended
March 31, 1999 and 1998................................. 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998.............. 6
Notes to Consolidated Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 15
Item 3. Quantitative and Qualitative Disclosures About Market
Risks................................................... 27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 33
Signatures.............................................. 34
</TABLE>
2
<PAGE>
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Dollars in thousands) (unaudited) 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 68,185 $ 59,975
Federal funds sold 90,400 43,600
Other short term securities 67,209 77,576
-------------------------------------
Cash and cash equivalents 225,794 181,151
Investment securities:
Available for sale, at fair value 262,954 255,483
Held to maturity, at amortized cost (fair value $84,793 and $81,717 at
March 31, 1999 and December 31, 1998, respectively) 84,859 81,157
Other securities 5,701 5,654
-------------------------------------
Investment securities 353,514 342,294
Loans:
Commercial 560,913 455,077
Real estate construction and land 177,939 173,857
Real estate term 320,637 299,111
Consumer and other 89,418 81,089
Deferred loan fees and discounts (4,358) (3,343)
-------------------------------------
Total loans, net of deferred fees 1,144,549 1,005,791
Allowance for loan losses (21,915) (21,304)
-------------------------------------
Total loans, net 1,122,634 984,487
Property, premises and equipment 12,620 10,961
Interest receivable and other assets 66,734 63,972
-------------------------------------
Total assets $ 1,781,296 $ 1,582,865
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, noninterest-bearing $ 280,747 $ 268,448
MMDA, NOW and savings 931,256 854,392
Time certificates, $100,000 and over 275,639 168,075
Other time certificates 51,435 51,577
-------------------------------------
Total deposits 1,539,077 1,342,492
Other borrowings 70,135 72,585
Subordinated debt - 3,000
Company obligated mandatorily redeemable cumulative trust preferred
securities of subsidiary trust holding solely junior subordinated debentures 50,000 50,000
Other liabilities 23,827 22,112
-------------------------------------
Total liabilities 1,683,039 1,490,189
-------------------------------------
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;
9,736,602 and 9,612,142 shares issued and outstanding as of
March 31, 1999 and December 31, 1998, respectively 58,496 57,283
Accumulated other comprehensive income (loss) 387 (96)
Retained earnings 39,374 35,489
-------------------------------------
Total shareholders' equity 98,257 92,676
-------------------------------------
Total liabilities and shareholders' equity $ 1,781,296 $ 1,582,865
=====================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GREATER BAY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
(Dollars in thousands, except per share amounts) (unaudited) 1999 1998*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest on loans $ 24,670 $ 19,396
Interest on investment securities:
Taxable 4,404 3,364
Tax - exempt 726 316
----------------------------------
Total interest on investment securities 5,130 3,680
Other interest income 1,541 2,484
----------------------------------
Total interest income 31,341 25,560
----------------------------------
INTEREST EXPENSE
Interest on deposits 10,892 8,749
Interest on long term borrowings 1,983 874
Interest on other borrowings 106 809
----------------------------------
Total interest expense 12,981 10,432
----------------------------------
Net interest income 18,360 15,128
Provision for loan losses 861 996
----------------------------------
Net interest income after provision for loan losses 17,499 14,132
----------------------------------
OTHER INCOME
Trust fees 721 550
Service charges and other fees 352 420
Gain on sale of SBA loans 284 244
Gain on sale of investments, - 8
net
Other income (loss) 573 (193)
----------------------------------
Total, recurring 1,930 1,029
Warrant income 4 497
----------------------------------
Total other income 1,934 1,526
----------------------------------
OPERATING EXPENSES
Compensation and benefits 6,380 5,426
Occupancy and equipment 2,072 1,389
Telephone, postage and supplies 534 451
Legal and other professional fees 489 385
Marketing and promotion 346 122
Client services 252 151
FDIC insurance and regulatory assessments 92 89
Insurance 57 79
Other real estate owned 21 23
Contribution to the GBB Foundation - 701
Other 792 967
----------------------------------
Total operating expenses 11,035 9,783
----------------------------------
Income before provision for income taxes and extraordinary items 8,398 5,875
Provision for income taxes 3,252 1,896
----------------------------------
Net income before extraordinary items 5,146 3,979
Extraordinary items (88) -
----------------------------------
Net income $ 5,058 $ 3,979
==================================
Net income per share - basic** $ 0.52 $ 0.43
==================================
Net income per share - diluted** $ 0.49 $ 0.39
==================================
</TABLE>
* Restated on an historical basis to reflect the merger with Pacific Rim
Bancorporation ("PRB") and Pacific Business Funding Corporation on a pooling
of interests basis.
** Restated to reflect 2-for-1 stock split declared for shareholders of record
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,
------------------------------------
(Dollars in thousands) (unaudited) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 5,058 $ 3,979
------------------------------------
Other comprehensive income:
Unrealized gains on
securities:
Unrealized holding gains arising during period (net of taxes
of $(278) and $78 for the three months ended March 31, (398) 111
1999 and 1998,
respectively)
Less: reclassification adjustment for gains included in
net income (net of taxes of $0 and $3 for the
three months ended March 31, 1999 and 1998, respectively) - 5
------------------------------------
Net change (398) 106
Cash flow hedge:
Net derivative gains arising during period (net of taxes of
$586 for the three months ended March 31, 1999) 838 -
Less: reclassification adjustment for swap settlements
included in net income (net of taxes of $(30) for the three
months ended March 31, 1998) (43) -
------------------------------------
Net change 881 -
------------------------------------
Other comprehensive income 483 106
------------------------------------
Comprehensive income $ 5,541 $ 4,085
====================================
</TABLE>
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,
-----------------------------------------
(Dollars in thousands) (unaudited) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES
Net income $ 5,058 $ 3,979
Reconcilement of net income to net cash from operations:
Provision for loan losses 861 996
Depreciation and amortization 1,015 640
Deferred income taxes (251) (17)
(Gain) loss on sale of investments, net - 44
Changes in:
Accrued interest receivable and other assets (1,260) (2,115)
Accrued interest payable and other liabilities 3,215 12,284
Deferred loan fees and discounts, net 1,015 169
------------- -------------
Operating cash flows, net 9,653 15,980
------------- -------------
CASH FLOWS - INVESTING ACTIVITIES
Maturities and partial paydowns on of investment securities:
Held to maturity 2,221 6,407
Available for sale 16,487 25,145
Purchase of investment securities:
Held to maturity (5,905) -
Available for sale (43,600) (59,381)
Other securities (47) (44)
Proceeds from sale of available for sale securities 18,595 2,308
Loans, net (140,023) (32,419)
Proceeds from sale of other real estate owned 345 -
Purchase of property, premises and equipment (2,320) (654)
Purchase of insurance policies (1,935) (18,122)
------------- -------------
Investing cash flows, net (156,182) (76,760)
------------- -------------
CASH FLOWS - FINANCING ACTIVITIES
Net change in deposits 196,585 35,335
Net change in other borrowings - short term (2,451) (7,213)
Proceeds from other borrowings - long term - 60,000
Principal repayment - long term borrowings (3,000) -
Proceeds from sale of common stock 1,213 698
Cash dividends (1,175) (1,027)
------------- -------------
Financing cash flows, net 191,172 87,793
------------- -------------
Net change in cash and cash equivalents 44,643 27,013
Cash and cash equivalents at beginning of period 181,151 231,549
------------- -------------
Cash and cash equivalents at end of period $ 225,794 $ 258,562
============= =============
CASH FLOWS - SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 13,388 $ 10,274
Income taxes $ 400 $ 1,830
Non-cash transactions:
Additions to other real estate owned $ - $ 105
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The results of operations for the quarter ended March 31, 1999 are not
necessarily indicative of the results expected for any subsequent quarter or for
the entire year ended December 31, 1999. The financial statements should be
read in conjunction with the consolidated financial statements, and the notes
thereto, included in the Annual Report on Form 10-K for the year ended December
31, 1998.
CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Greater
Bay Bancorp ("Greater Bay" on a parent-only basis, and the "Company" on a
consolidated basis) and its wholly owned subsidiaries, Mid-Peninsula Bank
("MPB"), Cupertino National Bank ("CNB"), Peninsula Bank of Commerce ("PBC"),
Golden Gate Bank ("Golden Gate"), GBB Capital I and GBB Capital II and its
operating divisions Greater Bay Bank Santa Clara Valley Commercial Banking
Group, Greater Bay Corporate Finance Group, Greater Bay Bank Contra Costa
Banking Office, Greater Bay International Banking Division, Greater Bay Trust
Company, Pacific Business Funding and Venture Banking Group. 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". This statement requires companies to classify items of
other comprehensive income by their nature in the financial statements and
display the accumulated other comprehensive income separately from retained
earnings in the equity section of the balance sheet. The changes to the
balances of accumulated other comprehensive income are as follows:
<TABLE>
<CAPTION>
Accumulated
Unrealized Gains Cash Flow Other Comprehensive
(Dollars in thousands) on Securities Hedges Income (Loss)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - as of December 31, 1998 $ 581 $ (677) $ (96)
Current period change (398) 881 483
--------------------------------------------------------
Balance - as of March 31, 1999 $ 183 $ 204 $ 387
========================================================
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
PER SHARE DATA
Net income per share is stated in accordance with SFAS No. 128
"Earnings per Share". Basic net income per share is computed by dividing net
income by the weighted average number of common shares outstanding during the
year. Diluted net income per share is computed by dividing net income by the
weighted average number of common shares plus common equivalent shares
outstanding including dilutive stock options. All years presented include the
effect of the 2-for-1 stock split effective as of April 30, 1998.
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted net income per share computations for the
three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
For the three months ended March 31, 1999 For the three months ended March 31, 1998
----------------------------------------- -----------------------------------------
Average Average
Income Shares Per Share Income Shares Per Share
(Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 5,058 $ 3,979
Basic net income per share:
Income available to common shareholders 5,058 9,688,000 $ 0.52 3,979 9,356,000 $ 0.43
Effect of dilutive securities:
Stock options - 588,000 - - 898,000 -
--------------------------------------- -------------------------------------
Diluted net income per share:
Income available to common shareholders
and assumed conversions $ 5,058 10,276,000 $ 0.49 $ 3,979 10,254,000 $ 0.39
--------------------------------------- -------------------------------------
</TABLE>
There were options to purchase 475,125 shares that were considered
anti-dilutive whereby the options' exercise price was greater than the average
market price of the common shares, during the three months ended March 31, 1999.
There were no options that were considered anti-dilutive during the three months
ended March 31, 1998.
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 1998 mergers with
PRB and PBFC at a total of 950,748 and 298,000 shares, respectively.
SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131".) SFAS No. 131
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position but did affect the disclosure of segment information.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 2-MERGERS
On January 26, 1999 Greater Bay and Bay Area Bancshares ("BA Bancshares"),
the holding company of Bay Area Bank ("BAB"), signed a definitive agreement for
a merger between the two companies. The terms of the agreement provide for BA
Bancshares shareholders to receive approximately 1,393,000 shares of Greater Bay
stock subject to certain adjustments, in a tax-free exchange to be accounted for
as a pooling-of-interest. Following the transaction, the shareholders of BA
Bancshares will own approximately 12.7% of the combined company. The transaction
is expected to be completed in May 1999. BAB's office is located in Redwood
City, California.
In all mergers, certain reclassifications were made to conform to the
Company's financial presentation. The results of operations previously reported
by the separate enterprises for the periods before the merger was consummated
and that are included in the current combined amounts presented in the
accompanying consolidated financial statements are summarized below.
The following table sets forth the composition of the operations of the
Company and BAB for the period indicated.
<TABLE>
<CAPTION>
As of
(Dollars in thousands) March 31, 1999
- ------------------------------------------------------
<S> <C>
Net interest income:
Greater Bay Bancorp $ 18,360
Bay Area Bancshares 2,180
---------
Combined $ 20,540
=========
Provision for loan losses:
Greater Bay Bancorp $ 861
Bay Area Bancshares 60
---------
Combined $ 921
=========
Net income:
Greater Bay Bancorp $ 5,058
Bay Area Bancshares 645
---------
Combined $ 5,703
=========
</TABLE>
There were no significant transactions between the Company and BAB prior to
the merger. All intercompany transactions have been eliminated.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 3--BORROWINGS
Other borrowings are detailed as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Other borrowings:
Short term borrowings:
Short term notes payable $ 135 $ 135
--------------------------
Total short term borrowings 135 135
--------------------------
Long term borrowings:
Securities sold under agreements
to repurchase 50,000 50,000
FHLB advances 20,000 20,000
Promissory notes - 2,450
--------------------------
Total other long term borrowings 70,000 72,450
--------------------------
Total other borrowings $ 70,135 $ 72,585
==========================
Subordinated notes, due September 15, 2005 $ - $ 3,000
==========================
Total subordinated debt $ - $ 3,000
==========================
</TABLE>
During the three months ended March 31, 1998, the average balance of
securities sold under short term agreements to repurchase was $23.3 million and
the average interest rate during that period was 5.65%. No such borrowings were
outstanding during the three months ended March 31, 1999. Securities sold under
short term agreements to repurchase generally mature within 90 days of dates of
purchase.
During the three months ended March 31, 1998, the average balance of
federal funds purchased was $547,000 and the average interest rate during that
period was 5.25%. There were no such balances outstanding during the three
months ended March 31, 1999.
The Company has sold securities under long term agreements to repurchase
which mature in the year 2003 and have an average interest rate of 5.21%. The
counterparties to these agreements have put options which give them the right to
demand early repayment. As of December 31, 1998, $40.0 million of these
borrowings are subject to early repayment beginning in 1999 and $10.0 million
are subject to early repayment beginning in 2000.
The FHLB advances will mature in the year 2003 and have an average interest
rate of 5.13%. The advances are collateralized by securities pledge to the FHLB.
Under the terms of the advances, the FHLB has a put option which gives it the
right to demand early repayment beginning in 1999.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
The promissory notes, which bear an interest rate of 13.76% and will mature
April 15, 2000, were offered to PBFC's officers along with other accredited
investors within the definition of Rule 501 under the Securities Act of 1933, as
amended. These notes were redeemed by the Company in January 1999.
On March 15, 1999 the Company redeemed the $3.0 million in subordinated
debt issued in 1995. The Company paid a premium of $150,000 ($88,000 net of tax)
on the payoff of the debt. The premium was recorded, net of taxes, as an
extraordinary item in March 1999.
NOTE 4--ACTIVIY OF BUSINESS SEGMENTS
In 1998 the Company adopted SFAS No. 131. The prior year's segment
information has been restated to present the Company's two reportable segments,
community banking and trust operations.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." Segment data includes
intersegment revenue, as well as charges allocating all corporate-headquarters
costs to each of its operating segments. The Company evaluates the performances
of its segments and allocates resources to them based on net interest income,
other income, net income before income taxes, total assets and deposits.
The Company is organized primarily along community banking and trust
divisions. Ten of the divisions have been aggregated into the "community
banking" segment. Community banking provides a range of commercial banking
services to small and medium-sized businesses, real estate developers, property
managers, business executives, professional and other individuals. The trust
division has been shown as the "trust operations" segment. The Company's
business is conducted principally in the U.S.; foreign operations are not
material.
The following table shows each segment's key operating results and
financial position for the three month ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------------------------- ----------------------------
Community Trust Community Trust
(Dollars in thousands) Banking Operations Banking Operations
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income (1) $ 19,186 $ 57 $ 15,488 $ 177
Other income 1,131 725 960 562
Operating expenses, excluding merger and
other related nonrecurring costs 10,778 719 9,596 558
Net income before income taxes (1) 8,677 64 5,856 181
Total assets 1,760,071 - 1,311,541 -
Deposits 1,493,600 45,477 1,051,133 55,298
Assets under management - 630,840 - 578,290
</TABLE>
(1) Includes intercompany earnings allocation charge which is eliminated in
consolidation.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF MARCH 31, 1999 AND 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 5--CASH DIVIDEND
The Company declared a cash dividend of $0.12 cents per share payable on
April 15, 1999 to shareholders of record as of March 31, 1999.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
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 former holding company for
Cupertino National Bank ("CNB"), and Mid-Peninsula Bancorp, the former holding
company for Mid-Peninsula Bank ("MPB"). In December 1997 the Company completed
a merger with Peninsula Bank of Commerce ("PBC"), whereby PBC became the third
wholly owned banking subsidiary of Greater Bay. In May 1998, the Company
completed a merger with Pacific Rim Bancorporation ("PRB"), the holding company
for Golden Gate Bank ("Golden Gate"), whereby Golden Gate became the fourth
wholly owned banking subsidiary of Greater Bay. In August 1998, the Company
completed a merger with Pacific Business Funding Corporation ("PBFC"), which now
operates as an operating division of CNB and conducts business under the name
Pacific Business Funding. All mergers were accounted for as a 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.
CNB, MPB, PBC and Golden Gate are referred to collectively herein as the
"Banks." The financial information includes the results of the Company's
operating divisions, Greater Bay Bank Santa Clara Valley Commercial Banking
Group, Greater Bay Corporate Finance Group, Greater Bay Bank Contra Costa
Banking Office, Greater Bay International Banking Division, Greater Bay Trust
Company, Pacific Business Funding and Venture Banking Group.
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
"Selected Financial Information" and the Company's consolidated financial data
included elsewhere in this document. 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.
RESULTS OF OPERATIONS
The Company reported net income of $5.1 million for the first quarter of
1999, a 27.1% increase over the first quarter of 1998 net income of $4.0
million. Basic net income per share was $0.52 for the first quarter of 1999, as
compared to $0.43 for the first quarter of 1998. Diluted net income per share
was $0.49 and $0.39 for the first quarter of 1999 and 1998, respectively. The
return on average assets and return on average shareholders' equity were 1.23%
and 21.40% for the first quarter of 1999, compared with 1.30% and 20.84% for the
first quarter in 1998, respectively.
The Company's operating results included extraordinary items of $150,000
($88,000 net of tax) for the first quarter of 1999 related to the early
retirement of $3.0 million of subordinated debt of the Company. The following
table summarizes net income, net income per share and key financial ratios
before and after extraordinary items for the three months ended March 31, 1999:
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Before After
extraordinary extraordinary
(Dollars in thousands, except per share amounts) items items
---------------- ----------------
<S> <C> <C>
Net income $ 5,146 $ 5,058
Net income per share:
Basic $ 0.53 $ 0.52
Diluted $ 0.50 $ 0.49
Return on average assets 1.25% 1.23%
Return on average shareholders' equity 21.78% 21.40%
</TABLE>
The increase in first quarter 1999 net income as compared to the same
period in 1998 was principally the result of significant growth in loans and
deposits. This growth, partially offset by a decline in interest rate spreads,
resulted in a $3.2 million increase in net interest income. Operating expenses
increased by $2.0 million, excluding the contribution to the Greater Bay Bancorp
Foundation (the "Foundation") discussed below. Operating expense increases
reflect additional efforts required to service and support the Company's growth.
Net income for the three months ended March 31, 1999 and 1998 included
$4,000 and $497,000, respectively, in warrant income resulting from the warrants
received from clients of the Banks. During 1998, the Company donated
appreciated warrants to the Foundation. The contribution of the warrants
triggered recognition of warrant income of $497,000, net of related employee
incentives, and a donation expense of $701,000. The Company recognized a tax
benefit of $288,000 from these transactions. The 1999 increase in other income
relates to a 1998 write-down on equity securities in accordance with APB 18 of
$484,000. This increase was partially offset by a decrease in Warrant income.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NET INTEREST INCOME
Net interest income increased 21.4% to $18.4 million for the first quarter
of 1999 from $15.1 million for the first quarter of 1998. This increase was
primarily due to the $378.4 million, or 32.5%, increase in average interest-
earning assets which was partially offset by a 45 basis point decrease in the
Company's net yield on interest earning assets.
The following table presents, for the quarters 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, 1999 December 31, 1998
------------------------ ----------------------
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 $ 58,143 $ 682 4.76% $ 67,083 $ 870 5.15%
Other short term investments 68,743 859 5.07% 86,477 1,313 6.02%
Investment securities:
Taxable 277,956 4,404 6.43% 337,761 4,880 5.73%
Tax-exempt (1) 61,210 726 4.81% 57,473 697 4.81%
Loans (2), (3) 1,075,401 24,670 9.30% 905,675 22,229 9.74%
------------ ----------- ----------- ---------
Total interest-earning assets 1,541,453 31,341 8.25% 1,454,468 29,989 8.18%
Noninterest-earning assets 125,716 124,040
------------ ----------- ----------- ---------
Total assets $ 1,667,169 31,341 $ 1,578,508 29,989
============ ----------- =========
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and savings $ 865,779 7,311 3.42% $ 843,004 7,208 3.39%
Time deposits, over $100,000 254,090 2,944 4.70% 187,629 2,337 4.94%
Other time deposits 51,282 637 5.04% 50,665 632 4.95%
------------ ----------- ----------- ---------
Total interest-bearing deposits 1,171,151 10,892 3.77% 1,081,298 10,177 3.73%
Other borrowings 70,980 1,018 5.82% 80,181 1,143 5.66%
Subordinated debt 2,443 71 11.79% 3,000 86 11.37%
Trust Preferred Securities 50,000 1,000 8.11% 51,998 1,089 8.31%
------------ ----------- ----------- ---------
Total interest-bearing liabilities 1,294,574 12,981 4.07% 1,216,476 12,495 4.08%
Noninterest bearing deposits 253,689 252,506
Other noninterest-bearing liabilities 23,066 18,902
Shareholders' equity 95,840 90,624
------------ ----------- ----------- ---------
Total shareholders' equity and liabilities $ 1,667,169 12,981 $ 1,578,508 12,495
============ ----------- =========== ---------
Net interest income $ 18,360 $ 17,494
=========== =========
Interest rate spread 4.18% 4.11%
Contribution of interest free funds 0.65% 0.67%
Net yield on interest-earning assets (4) 4.83% 4.77%
<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 $ 77,598 $ 1,026 5.36%
Other short term investments 102,475 1,765 6.99%
Investment securities:
Taxable 205,360 3,364 6.64%
Tax-exempt (1) 25,217 316 5.08%
Loans (2), (3) 752,381 19,089 10.29%
----------- -----------
Total interest-earning assets 1,163,031 25,560 8.91%
Noninterest-earning assets 77,476
----------- -----------
Total assets $ 1,240,507 25,560
=========== -----------
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and savings $ 672,855 $ 6,196 3.73%
Time deposits, over $100,000 171,183 2,192 5.19%
Other time deposits 46,323 603 5.28%
----------- ----------
Total interest-bearing deposits 890,361 8,991 4.10%
Other borrowings 56,004 867 6.28%
Subordinated debt 3,000 86 11.63%
Trust Preferred Securities 20,000 488 9.90%
----------- ----------
Total interest-bearing liabilities 969,365 10,432 4.36%
Noninterest bearing deposits 178,238
Other noninterest-bearing liabilities 15,479
Shareholders' equity 77,425
----------- -----------
Total shareholders' equity and liabilities $ 1,240,507 10,432
----------- -----------
Net interest income $ 15,128
===========
Interest rate spread 4.55%
Contribution of interest free funds 0.73%
Net yield on interest-earning assets (4) 5.28%
</TABLE>
(1) The tax equivalent yields earned on the tax exempt securities are 6.96%,
6.96% and 7.35% for the quarters ended March 31, 1999, December 31, 1998 and
March 31, 1998, respectively, using the federal statuary rate of 34%.
(2) Nonaccrual loans are excluded in the average balance.
(3) Interest income includes loan fees of $890,000, $800,000 and $810,000 for
the quarters ended March 31, 1999, December 31, 1998 and March 31, 1998,
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.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 periods. The table below sets forth, for the quarters 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, 1999 Three Months Ended March 31, 1999
Compared with December 31, 1998 Compared with March 31, 1998
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 $ (120) $ (68) $ (188) $ (237) $ (107) $ (344)
Other short term investments (256) (198) (454) (494) (412) (906)
Investment securities:
Taxable (977) 501 (476) 1,156 (116) 1,040
Tax-exempt 30 (1) 29 428 (18) 410
Loans 3,556 (1,115) 2,441 7,587 (2,006) 5,581
------------------------------------ -----------------------------------
Total interest income 2,233 (881) 1,352 8,440 (2,659) 5,781
------------------------------------ -----------------------------------
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits:
MMDA, NOW and savings (77) (26) (103) (1,671) 556 (1,115)
Time deposits over $100,000 (733) 126 (607) (981) 229 (752)
Other time deposits (2) (3) (5) (63) 29 (34)
------------------------------------ -------------------------------------
Total interest-bearing deposits (812) 97 (715) (2,715) 814 (1,901)
Other borrowings 152 (27) 125 (220) 69 (151)
Subordinated debt 18 (3) 15 16 (1) 15
TPS 55 34 89 (616) 104 (512)
------------------------------------ -------------------------------------
Total interest expense (587) 101 (486) (3,536) 987 (2,549)
------------------------------------ -------------------------------------
Net increase (decrease) in net interest income $ 1,646 $ (780) $ 866 $ 4,905 $ (1,673) $ 3,232
==================================== =====================================
</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 excluded in average loans.
Interest income for the first quarter of 1999 increased 22.6% to $31.3
million from $25.6 million for the first quarter of 1998. This was primarily due
to the significant increase in loans, the Company's highest yielding interest-
earning asset, and investment securities. Loan volume increases were the result
of the continuing economic improvement in the Company's market areas, as well as
the addition of experienced relationship managers and significant business
development efforts by the Company's relationship managers. The increase was
partially offset by a decline in the yield earned on average interest-earning
assets. Average interest-earning assets increased $378.4 million, or 32.5%, to
$1.5 billion for the first quarter of 1999, compared to $1.2 million for the
first quarter of 1998. Of this total increase, average loans increased $324.0
million, or 42.9%, to $1.1 billion, or 69.8% of average interest-earning assets,
for the first quarter of 1999 from $752.4 million, or 64.7% of average interest-
earning assets for the first quarter of 1998. Investment securities, Federal
funds sold and other short-term securities, increased 13.5% to $466.1 million,
or 30.2% of average interest-earning assets for the first quarter of 1999, from
$410.7 million, or 35.3% of average interest-earning assets for the first
quarter of 1998.
The average yield on interest-earning assets declined 66 basis points to
8.25% for the first quarter of 1999 from 8.91% for the first quarter of 1998
primarily due to a decline in the average yield on loans. The average yield on
loans declined 99 basis points to 9.30% for the first quarter of 1999 from
10.29% for the first quarter of 1998 primarily due to declines in market
interest rates and increased competition for quality borrowers in the Company's
market area.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Interest expense for the first quarter of 1999 increased 24.4% to $13.0
million from $10.4 million for the first quarter of 1998. This increase was due
to greater volumes of interest-bearing liabilities offset by lower interest
rates paid on interest-bearing liabilities. Average interest-bearing liabilities
increased 33.5% to $1.3 billion for the first quarter of 1999 from $969.4
million for the first quarter of 1998 due primarily to the efforts of the Banks'
relationship managers in generating core deposits from their client
relationships.
During the first quarter of 1999, average noninterest-bearing deposits
increased to $253.7 million from $178.2 million for the first quarter of 1998.
Due to that increase, noninterest-bearing deposits comprised 17.8% of total
deposits at March 31, 1999, compared to 16.7% at March 31, 1998.
As a result of the foregoing, the Company's interest rate spread declined
to 4.18% for the first quarter of 1999 from 4.55% for the first quarter of 1998,
and the net yield on interest-earning assets declined for the first quarter of
1999 to 4.83% from 5.28% for the first quarter 1998.
PBC holds $89.6 million in one demand deposit account (the "Special
Deposit"). The Special Deposit represents the proposed settlement of a class
action lawsuit not involving the Company. Due to the uncertainty of the time
the Special Deposit will remain with PBC, management has invested a significant
portion of the funds from this deposit in agency securities with maturities of
less than 90 days. The Company's net yield on interest earning assets was
reduced by the Special Deposit. The average deposit balances related to the
Special Deposit during the the first quarter of 1999 and 1998 were $89.9 million
and $91.6 million, respectively, on which the Company earned a spread of 1.76%.
Excluding the Special Deposit, the first quarter 1999 and 1998 net yield on
interest earning assets would have been 5.02% and 5.53%, respectively. Excluding
the Special Deposit, the first quarter 1999 and 1998 interest rate spread would
have been 4.32% and 4.73%, respectively.
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 in interest expense, the impact of these
expenses on the Company's net yield on interest-earning assets would have been
as follows for each of the quarters presented.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average noninterest bearing demand deposits $ 253,689 $ 178,238
Client service expenses 252 151
Client service expenses, annualized 0.40% 0.34%
IMPACT ON NET YIELD ON INTEREST-EARNING ASSETS:
Net yield on interest-earning assets 4.83% 5.28%
Impact of client service expense (0.07)% (0.05)%
-----------------------------------------
Adjusted net yield on interest-earning assets (1) 4.76% 5.22%
=========================================
</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. The cost for client service
expense reflects the Company's efforts to control its interest expense.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 on 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 loan losses.
Specific allocations are made for loans where the probability of a loss can be
defined and reasonably determined. The balance of the provision for loan losses
is 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 for the first quarter of 1999 was $861,000,
compared to $996,000 for the first quarter of 1998. Although loans outstanding
have increased substantially, nonperforming loans, comprised of nonaccrual
loans, restructured loans, and accruing loans past due 90 days or more, declined
from $4.2 million, or 0.54% of loans outstanding, at March 31, 1998, to $3.3
million or 0.29% of loans outstanding at March 31, 1999.
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 $1.9 million for the first quarter of 1999
compared to $1.5 million for the first quarter of 1998. The following table sets
forth information by category of other income for the quarters indicated.
<TABLE>
<CAPTION>
At and for the three month periods ended
March 31, December 31, September 30, June 30, March 31,
----------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust fees $ 721 $ 664 $ 642 $ 617 $ 550
Service charges and other fees 352 357 361 349 420
Gain on sale of SBA loans 284 282 290 221 244
Gain on sale of investments, net - 320 4 42 8
Other 573 560 230 342 (193)
----------------------------------------------------------------------------
Total, recurring 1,930 2,183 1,527 1,571 1,029
Warrant income 4 314 134 - 497
----------------------------------------------------------------------------
Total $ 1,934 $ 2,497 $ 1,661 $ 1,571 $ 1,526
============================================================================
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The increase in other income for the first quarter of 1999 as compared to
the same period in 1998 was primarily the result of a $171,000 increase in trust
fees, and a $40,000 increase in the gain on sale of SBA loans. The increase in
trust fees was due to significant growth in assets under management by Greater
Bay Trust Company. Trust assets increased to $630.8 million at March 31, 1999,
compared to $576.3 million at March 31, 1998. The increase in the gain on sale
of SBA loans was due to an increase in the origination and subsequent sale of
SBA loans.
Other other income for the first quarter of 1998 included a $484,000
writedown on equity securities in accordance with APB 18. Excluding the write-
down on equity securities, other income would have been $291,000 for the first
quarter of 1998.
Other income in 1998 included warrant income of $497,000, net of related
employee incentives. The Company occasionally receives warrants to acquire
common stock from companies that are in the start-up or development phase. The
timing and amount of income derived from the exercise and sale of client
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.
OPERATING EXPENSES
The following table sets forth the major components of operating expenses
for the quarters indicated.
<TABLE>
<CAPTION>
At and for the three month periods ended
March 31, December 31, September 30, June 30, March 31,
-----------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Compensation and benefits $ 6,380 $ 5,807 $ 5,753 $ 5,729 $ 5,426
Occupancy and equipment 2,072 1,751 1,542 1,535 1,389
Telephone, postage and supplies 534 510 429 392 451
Professional services and legal costs 489 432 403 377 385
Marketing and promotion 346 825 368 335 122
Client services 252 140 122 131 151
Directors' fees 121 146 133 142 151
FDIC insurance and regulatory assessments 92 84 88 77 89
Expenses on other real estate owned 21 (6) 43 (8) 23
Contribution to GBB Foundation - 448 192 - 701
Other 728 977 810 562 895
------------------------------------------------------------------------
Total operating expenses, excluding merger costs $ 11,035 $ 11,114 $ 9,883 $ 9,272 $ 9,783
Merger costs - - 537 1,974 -
------------------------------------------------------------------------
Total operating expenses $ 11,035 $ 11,114 $ 10,420 $ 11,246 $ 9,783
------------------------------------------------------------------------
Efficiency ratio 54.39% 55.60% 56.12% 64.30% 58.74%
Efficiency ratio, before merger costs 54.39% 55.60% 53.22% 53.02% 58.74%
Total operating expenses to average assets* 2.68% 2.79% 2.77% 3.28% 3.20%
Total operating expenses to average assets, before
merger costs* 2.68% 2.79% 2.63% 2.70% 3.20%
</TABLE>
*Annualized
Operating expenses totaled $11.0 million for the first quarter of 1999,
compared to $9.8 million for the first quarter of 1998. The ratio of operating
expenses to average assets was 2.68% for the first quarter of 1999 and 3.20% for
the first quarter of 1998.
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
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
(or greater) volume of income while a decrease would indicate a more efficient
allocation of resources. The Company's efficiency ratio for the first quarter of
1999 was 54.39%, compared to 58.74% for the first quarter of 1998.
As indicated by the improvements in the efficiency ratio and ratio of total
operating expenses to average assets, the Company has been able to achieve
increasing economies of scale. For the first quarter of 1999, average assets
increased 34.4% from the first quarter of 1998, while operating expenses,
excluding nonrecurring cost, increased only 12.8%.
Compensation and benefits expenses increased for the first quarter of 1999
to $6.4 million, compared to $5.4 million for the first quarter of 1998. The
increase in compensation and benefits is due primarily to the addition of
personnel in the first quarter of 1999 to accommodate the growth of the Company.
The increase in occupancy and equipment; telephone, postage, and supplies;
professional services and legal costs; marketing and promotion; and client
service expense was related to the growth in the Company's loans, deposits and
assets.
INCOME TAXES
The Company's effective income tax rate for the first quarter of 1999 was
38.7%, compared to 32.3% in the first quarter of 1998. The effective rates were
lower than the statutory rate of 41.2% due to tax-exempt income on municipal
securities, and were partially offset by the impact of merger and other related
nonrecurring costs.
For the first quarter of 1998, the Company was able to reduce its effective
tax rate through the donation of appreciated warrants to the Foundation, as
discussed above.
FINANCIAL CONDITION
Total assets increased 12.5% to $1.8 billion at March 31, 1999, compared to
$1.6 billion at December 31, 1998. The increase in the first quarter of 1999 was
primarily due to increases in the Company's loan portfolio funded by growth in
deposits.
LOANS
Total gross loans increased 56.0%, on an annualized basis, to $1.1 billion
at March 31, 1999, compared to $1.0 billion at December 31, 1998. The increases
in the loan volume in the first quarter of 1999 was primarily due to an
improving economy in the Company's market areas coupled with the business
development efforts of 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. This could, in turn, reduce the
demand for loans and adversely impact the borrowers' abilities to repay their
loans, while also decreasing the Company's net interest margin.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table presents the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------------------------------------------
(Dollars in thousands) Amount % Amount %
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 560,913 50.0% $ 455,077 46.2%
Real estate construction and land 177,939 15.8 173,857 17.7
Real estate term 320,637 28.6 299,111 30.4
Consumer and other 89,418 8.0 81,089 8.2
--------------------------------------------------------
Total loans, gross 1,148,907 102.4 1,009,134 102.5
Deferred fees and discounts, net (4,358) -0.4 (3,343) -0.3
--------------------------------------------------------
Total loans, net of deferred fees 1,144,549 102.0 1,005,791 102.2
Allowance for loan losses (21,915) -2.0 (21,304) -2.2
--------------------------------------------------------
Total loans, net $ 1,122,634 100.0% $ 984,487 100.0%
--------------------------------------------------------
</TABLE>
NONPERFORMING AND CLASSIFIED ASSETS
Management generally places loans on nonaccrual status 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.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table sets forth information regarding nonperforming assets
at the dates indicated.
<TABLE>
<CAPTION>
At and for the three month periods ended
March 31, December 31, September 30, June 30, March 31,
-----------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperfroming loans
Nonaccrual loans $ 2,847 $ 1,858 $ 2,919 $ 3,758 $ 3,152
Accruing loans past due 90 days or more - - - 75 108
Restructured loans 482 327 377 531 903
----------------------------------------------------------------------------
Total nonperforming loans 3,329 2,185 3,296 4,364 4,163
Other real estate owned 620 966 905 1,001 1,001
----------------------------------------------------------------------------
Total nonperforming assets $ 3,949 $ 3,151 $ 4,201 $ 5,365 $ 5,164
----------------------------------------------------------------------------
Nonperforming assets to total loans
and other real estate owned 0.34% 0.31% 0.49% 0.65% 0.66%
</TABLE>
At March 31, 1999, the Company had $2.8 million in nonaccrual loans.
Interest income foregone on nonaccrual loans outstanding totaled $64,000 and
$96,000 for the three months ended March 31, 1999 and 1998, 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 ongoing 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, 1999, OREO acquired through foreclosure had a carrying value of
$620,000, compared to $1.1 million at December 31, 1998.
The Company had $482,000 and $327,000 of restructured loans as of March 31,
1999 and December 31, 1998, respectively. There were no principal reduction
concessions allowed on restructured loans during the first quarter of 1999 or
1998. Interest income from restructured loans totaled $9,000 and $4,000 for the
three months ended March 31, 1999 and 1998. Foregone interest income, which
totaled $8,000 and $3,000 for the three months ended March 31, 1999 and 1998,
respectively, would have been recorded as interest income if the loans had
accrued interest in accordance with their original terms prior to the
restructurings.
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
as "loss" is considered uncollectible and its continuance as an asset is not
warranted.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table sets forth the classified assets at the dates
indicated.
<TABLE>
<CAPTION>
At and for the three month periods ended
March 31, December 31, September 30, June 30, March 31,
-------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Substandard $ 15,284 $ 12,515 $ 12,807 $ 9,068 $ 9,138
Doubtful 877 1,046 1,129 1,041 1,092
Loss - - - - 47
Other real estate owned 620 966 905 1,001 1001
-------------------------------------------------------------------------
Classified assets $ 16,781 $ 14,527 $ 14,841 $ 11,110 $ 11,278
-------------------------------------------------------------------------
Classified assets to total loans and other real 1.47% 1.44% 1.72% 1.35% 1.44%
estate owned
Allowance for loan losses to total classified assets 130.59% 146.65% 133.82% 161.88% 146.88%
</TABLE>
With the exception of these classified assets, management was not aware of
any loans outstanding as of March 31, 1999 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
that 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.
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.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table sets forth information concerning the Company's
allowance for loan losses at the dates and for the quarters indicated.
<TABLE>
<CAPTION>
At and for the three month periods ended
March 31, December 31, September 30, June 30, March 31,
-------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998 1998 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period end loans outstanding $ 1,144,549 $ 1,005,791 $ 859,519 $ 819,736 $ 782,948
Average loans outstanding $ 1,072,348 $ 908,767 $ 827,644 $ 798,591 $ 758,003
Allowance for loan losses:
Balance at beginning of period $ 21,304 $ 19,861 $ 17,985 $ 16,565 $ 16,394
Charge-offs:
Commercial (224) (51) (14) - (734)
Real estate construction and land - - - (4) -
Real estate term - - - - (2)
Consumer and other (39) (453) (27) (13) (120)
-------------------------------------------------------------------------
Total charge-offs (263) (504) (41) (17) (856)
-------------------------------------------------------------------------
Recoveries:
Commercial - - 13 19 22
Real estate construction and land - - - - -
Real estate term - - - - -
Consumer and other 13 46 - 1 9
-------------------------------------------------------------------------
Total recoveries 13 46 13 20 31
-------------------------------------------------------------------------
Net charge-offs (250) (458) (28) 3 (825)
Provision charged to income (1) 861 1,901 1,904 1,417 996
-------------------------------------------------------------------------
Balance at end of period $ 21,915 $ 21,304 $ 19,861 $ 17,985 $ 16,565
-------------------------------------------------------------------------
Quarterly net charge-offs to average loans
outstanding during the period, annualized 0.09% 0.20% 0.01% 0.00% 0.44%
Year to date net charge-offs to average loans
outstanding during the period, annualized 0.09% 0.21% 0.20% 0.30% 0.44%
Allowance as a percentage of average loans
outstanding 2.04% 2.34% 2.40% 2.25% 2.19%
Allowance as a percentage of period end loans
outstanding 1.91% 2.12% 2.31% 2.19% 2.12%
Allowance as a percentage of non-performing loans 658.31% 975.01% 602.58% 412.12% 397.91%
</TABLE>
_______________________
(1) Includes $113,000 in the third quarter of 1998 and $70,000 in the second
quarter of 1998 to conform practices to the Company'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.
At March 31, 1999, the allowance for credit losses was $21.9 million,
consisting of a $13.4 million allocated allowance and a $8.5 million unallocated
allowance. The unallocated allowance is composed of two elements. The first
element consists of an amount up to 20% of the allocated allowance which
recognizes the model and estimation risk associated with the allocated
allowances. The second element is based upon management's evaluation of various
conditions, the effects of which are not directly measured in determining the
allocated allowance. The evaluation of the inherent loss regarding these
conditions involves a higher degree of uncertainty because they are not
identified with specific problem credits or portfolio segments. The conditions
evaluated in connection with the unallocated allowance include the following
conditions that existed March 31, 1999:
. Specific industry conditions within portfolio segments, particularly
involving the high technology sector and the impact of foreign economic
forces upon that sector;
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
. Seasoning of the loan portfolio and growth in loan volumes;
. The strength and duration of the current business cycle and existing
general economic and business conditions affecting our key lending
areas;
. Credit quality trends, including trends in nonperforming loans expected
to result from changes in existing conditions; and
. The results of bank regulatory examinations and the findings of our
internal credit examiners.
The Officers' Loan Committee reviews these conditions quarterly in
discussion with our senior relationship managers. If any of these conditions is
evidenced by a specifically identifiable problem credit or portfolio segment as
of the evaluation date, management's estimate of the effect of this condition
may be reflected as an allocated allowance applicable to this credit or
portfolio segment. Where any of these conditions is not evidenced by a
specifically identifiable problem credit or portfolio segment as of the
evaluation date, management's evaluation of the probable loss concerning this
condition is reflected in the unallocated allowance.
The allowance for credit losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount actually observed for these losses
can vary significantly from the estimated amounts. Our methodology includes
several features that are intended to reduce the differences between estimated
and actual losses. The historical loss analysis, which reviews the losses over
1, 3 and 5 year periods, and evaluations of the current business cycle and
economic conditions are used to establish the loan loss factors for problem
graded loans which are designed to be self-correcting by taking into account our
recent loss experience. Similarly, by basing the pass graded loan loss factors
on historical loss experience, the methodology is designed to take our recent
loss experience into account. Loan loss factors are adjusted quarterly based
upon the level of net charge-offs expected by management in the next twelve
months. Furthermore, our methodology permits adjustments to any loss factor
used in the computation of the formula allowance in the event that, in
management's judgement, significant factors that affect the collectibility of
the portfolio as the evaluation date are not reflected in the loss factors. By
assessing the probable estimated losses inherent in the loan portfolio on a
quarterly basis, we are able to adjust specific and inherent loss estimates
based upon any more recent information that has become available.
The Company recorded provisions in 1999 to bring the allowance for credit
losses to a level deemed appropriate by management based upon management's
application of the loan loss allowance methodology discussed above. In
particular, in the assessment as of March 31, 1999, management focused on
factors affecting elements of the high technology sector and the impact of
foreign economic forces upon that sector, including seasoning of the loan
portfolio coupled with growth in loan volumes and the strength and duration of
the current business cycle coupled with existing general economic and business
conditions affecting our key lending areas.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 1997 the Company issued $20.0 million in Trust
Preferred Securities ("TPS") to enhance its regulatory capital base, while also
providing added liquidity. In 1998, the Company completed a second offering of
TPS in an aggregate amount of $30.0 million. Greater Bay invested $15.0 million
of the net proceeds in the Banks to increase their capital level. The Company
intends to use the remaining net proceeds for general corporate purposes or to
provide additional capital to the Banks, as it is needed. Under applicable
regulatory guidelines, $32.6 million of the TPS qualifies as Tier 1 capital, and
the remaining portion qualifies as Tier 2 capital. As the Company's
shareholders' equity increases, the amount of the additional TPS that will count
as Tier 1 capital will increase.
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 on its investments and dividends
declared and paid by the Banks. There are statutory and regulatory provisions
that could limit the ability of the Banks to pay dividends to Greater Bay. At
March 31, 1999, the Banks had approximately $27.7 million in the aggregate
available to be paid as dividends to Greater Bay. 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, 1999, 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.
Net cash provided by operating activities, consisting primarily of net
income, totaled $9.7 million for the first quarter of 1999 and $15.9 million for
the first quarter 1998. Cash used for investing activities totaled $156.2
million for the first quarter of 1999 and $76.8 million for the first quarter
1998. The funds used for investing activities primarily represent increases in
loans and investment securities for each year reported.
For the three months ended March 31, 1999, net cash provided by financing
activities was $191.2 million, compared to $87.8 million for the first quarter
of 1998. Historically, the primary financing activity of the Company has been
through deposits. For the first quarter 1999 and 1998, deposit gathering
activities generated cash of $196.6 million and $35.3 million, respectively.
This represents a total of 102.8% and 40.2% of the financing cash flows for the
first quarter of 1999 and 1998, respectively.
CAPITAL RESOURCES
Shareholders' equity at March 31, 1999 increased to $98.3 million from
$92.7 million at December 31, 1998. Greater Bay paid dividends of $0.12 and
$0.38 per share during the three months ended March 31, 1999 and the twelve
months ended December 31, 1998, respectively. In 1998, PBFC made a
distribution of $227,000 to its shareholders.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company has provided a substantial portion of its capital requirements
through the retention of earnings. The Company supplemented its capital base by
issuing $30.0 million of TPS in 1998 and $20.0 million of TPS in 1997, 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
securities 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 and TPS in core capital, and the allowance for loan losses
and subordinated debt in supplementary capital.
At March 31, 1999, the minimum risk-based capital requirements to be
considered adequately capitalized were 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.
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, 1999
and the two highest levels recognized under these regulations are as follows.
These ratios all exceeded the well-capitalized guidelines shown below.
<TABLE>
<CAPTION>
Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Ratio Capital Ratio
----- ------------- -------------
<S> <C> <C> <C>
Company 7.81% 9.23% 11.72%
Well-capitalized 5.00% 6.00% 10.00%
Adequately capitalized 4.00% 4.00% 8.00%
</TABLE>
In addition, at March 31, 1999, each of the Banks had levels of capital
that exceeded the well-capitalized guidelines.
The Company anticipates that the economic and business conditions in its
market areas will continue to expand in 1999, 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.
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).
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 net portfolio values ("NPV") 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 NPV 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 NPV in the event of hypothetical changes in interest rates
and interest liabilities. If potential changes to NPV 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 (7 years to 10
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 NPV 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. NPV 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. The following table presents the Company's projected change
in NPV for these rate shock levels as of March 31, 1999. 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.
<TABLE>
<CAPTION>
(Dollars in thousands)
Change in Projected Change
-------------------------
Interest Rates MVPE Dollars Percentage
- ------------------------------------------------------------------
<S> <C> <C> <C>
100 basis point rise $ 174,380 $ 7,135 4.3%
Base scenario 167,245 - -
100 basis point decline 160,295 6,950 (4.2)%
</TABLE>
The preceding table indicates that at March 31, 1999, in the event of a
sudden and sustained decrease in prevailing market interest rates, the Company's
NPV would be expected to decrease.
NPV 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.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. Actual values may differ from those projections
presented should market conditions vary from assumptions used in the calculation
of the NPV. 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 a 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 refinancing 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 NPV. 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, 1999.
<TABLE>
<CAPTION>
Immediate or 2 Days to 6 7 Months to 1 Year to 3 More than
One Day Months 12 Months Years 6 Years
------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and Due $ 9,388 $ - $ - $ - $ -
Federal Funds Sold 90,400 - - - -
Investment Securities - 135,198 38,710 79,747 23,416
Loans 674,155 303,858 38,347 49,072 27,495
Allowance for Loan Losses/Unearned Fees - - - - -
Other Assets - - - - -
------------------------------------------------------------------------
Total Assets $ 773,943 $ 439,056 $ 77,057 $ 128,819 $ 50,911
========================================================================
Liabilities and Equity
Deposits $ 931,256 $ 285,944 $ 33,084 $ 7,429 $ 617
Other Borrowings - - 134 - 70,000
Trust Preferred Securities 30,000 - - - -
Other Liabilities - - - - -
Shareholders Equity - - - - -
-----------------------------------------------------------------------
Total Liab/Equity $ 961,256 $ 285,944 $ 33,218 $ 7,429 $ 70,617
=======================================================================
Gap $ (187,313) $ 153,112 $ 43,839 $ 121,390 $ (19,706)
Cumulative Gap $ (187,313) $ (34,201) $ 9,638 $ 131,028 $ 111,322
Cumulative Gap/Total Assets -10.5% -1.9% 0.5% 7.4% 6.2%
<CAPTION>
More than Total Rate Non-Rate
6 Years Sensitive Sensitive Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and Due $ - $ 9,388 $ 58,797 $ 68,185
Federal Funds Sold - 90,400 - 90,400
Investment Securities 137,951 415,022 5,701 420,723
Loans 47,212 1,140,139 8,768 1,148,907
Allowance for Loan Losses/Unearned Fees - - (26,273) (26,273)
Other Assets - - 79,354 79,354
---------------------------------------------------------
Total Assets $ 185,163 $ 1,654,949 $ 126,347 $ 1,781,296
=========================================================
Liabilities and Equity
Deposits $ - $ 1,258,330 $ 280,747 $ 1,539,077
Other Borrowings - 70,134 - 70,134
Trust Preferred Securities 20,000 50,000 - 50,000
Other Liabilities - - 23,828 23,828
Shareholders Equity - - 98,257 98,257
--------------------------------------------------------
Total Liab/Equity $ 20,000 $ 1,378,464 $ 402,832 $ 1,781,296
========================================================
Gap
Cumulative Gap $ 165,163 $ 276,485 $ (276,485) $ -
Cumulative Gap/Total Assets $ 276,485 $ 552,970 $ - $ -
15.5% 31.0% - -
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The foregoing table indicates that the Company had a one year gap of $131
million, or 7.4% of total assets, at March 31, 1999. In theory, this would
indicate that at March 31, 1999, $131 million more in assets than liabilities
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
higher net interest margin. However, changes in the mix of earning assets or
supporting liabilities can either increase or decrease the 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 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, 1999, the analysis indicates that the Company's
net interest income would increase a maximum of 23.0% if rates rose 200 basis
points immediately and would decrease a maximum of 23.2% 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 management's and ALCO's 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.
YEAR 2000 COMPLIANCE
STATE OF READINESS
The Company has undertaken a major project to ensure that its internal
operating systems will be fully capable of processing year 2000 transactions.
This project is overseen by the Greater Bay Year 2000 Project Team (the "Year
2000 Project Team"), which reports monthly progress to the Company's Board of
Directors.
The Company is determining the potential impact of the year 2000 on the
ability of the Company's computerized information systems to accurately process
information that may be date-sensitive. Any of the Company's programs that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures. The Company utilizes a number of computer
programs across its entire operation.
The initial phase of the project was to assess and identify all internal
business processes requiring modification and to develop comprehensive
renovation plans as needed. This phase was largely completed in mid-1998. The
second phase was to execute those renovation plans and begin testing systems by
simulating year 2000 data conditions. This phase was largely completed in 1998.
Testing and implementation is planned to be completed during the first half of
1999.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company relies upon third-party software vendors and service providers
for substantially all of its electronic data processing and does not operate any
proprietary programs which are critical to the Company's operations. Thus, the
focus of the Company is to monitor the progress of its primary software
providers towards compliance with year 2000 issues and prepare to test actual
data of the Company in simulated processing of future sensitive dates.
As well as evaluating its own internal operating systems, the Company has
also initiated discussions with its major customers and suppliers as to their
ability to meet year 2000 requirements. The Year 2000 Project Team previously
has identified and sought information from significant third party suppliers
regarding their year 2000 compliance. Suppliers providing system
interdependencies also have been identified, and testing with such suppliers
also will occur during this phase of the project. The Year 2000 Project Team
continues to work with all targeted suppliers to determine their year 2000
status. As of this time, the Year 2000 Project Team has not identified any
significant issues with the identified suppliers.
The Company also has identified customers who have a material relationship
with the Company and requested such customers to complete a year 2000 survey,
which will be used by the Company to assess the overall risk to the Company
resulting from such customers' year 2000 compliance.
COSTS TO ADDRESS THE YEAR 2000 ISSUE
The Company has budgeted an anticipated total expenditure of $300,000 in
1999 to ensure that its systems are ready for processing information in the year
2000. The Company estimates that it has incurred out-of-pocket expenses of
approximately $118,000 and $146,000 in the three months ended March 31, 1999 and
the year ended December 31, 1998 in connection with year 2000 issues. In
addition, the Company has incurred certain costs relating to reallocation of
internal resources to address year 2000 issues. The Company expects that the
cost of remedial action for its noncompliant year 2000 systems will not be
material.
Greater Bay completed the Awareness and Assessment Phases, as defined by
the FFIEC, for its computer systems and bank facilities in 1998 and continues
to update its assessment as needed. We have identified our mission-critical
systems, assessed the state of Year 2000 compliance of those systems and
implemented a plan to repair or replace non-compliant systems. The Company
currently believes that costs of addressing year 2000 issues will not have a
material adverse impact on the Company's financial position. However, if the
Company and third parties upon which it relies are unable to address this
issue in a timely manner, it could result in a material financial risk to the
Company. In order to assure that this does not occur, the Company plans to
devote all resources required to resolve any significant year 2000 issues in
a timely manner.
RISKS PRESENTED BY THE YEAR 2000 ISSUE
As the Company continues to assess the year 2000 issue, it may identify
systems that present a year 2000 risk. In addition, if any third-party software
vendors and service providers upon whom the Company relies fail to appropriately
address their year 2000 issues, such failure could have a material adverse
effect on the Company's business, financial condition and operating results.
Should the Company and/or its significant suppliers fail to timely
identify, address and correct material year 2000 issues, such failure could have
a material adverse impact on the Company's ability to operate. The range of
adverse impacts may include the requirement to pay significant overtime to
manually process certain transactions and added costs to process certain banking
activity through a centralized administrative function. In addition, if
corrections made by such suppliers to address year 2000 issues are incompatible
with the Company's systems, the year 2000 issue could have a material adverse
impact on the Company's operations.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Despite the Company's activities in regards to the year 2000 issue, there
can be no assurance that partial or total systems interruptions or the costs
necessary to update hardware and software would not have a material adverse
effect upon the Company's business, financial condition, results of operations
and business prospects.
CONTINGENCY PLANS
The Year 2000 Project Team currently is in the process of developing
contingency plans for year 2000 readiness. The Company has engaged a third party
company, which specializes in developing contingency plans for financial
institutions for year 2000, to assist the Company in analyzing the impact of
year 2000 on its business. This business impact analysis was completed in 1998
and the Company's contingency plans for year 2000 readiness currently are
substantially complete. There can be no assurance, however, that such
contingency plans will be successful.
RECENT EVENTS
On April 30, 1999 the Company and Bay Commercial Services, the parent of
Bay Bank of Commerce, signed a definitive agreement for a merger between the two
companies. The agreement provides for Bay Commercial Services shareholders to
receive approximately 1,322,000 shares of Greater Bay stock subject to the
approval of Bay Commercial Services shareholders and certain adjustments based
on movements in the Company's stock price, in a tax-free exchange to be
accounted for as a pooling-of-interests. Following the transaction, the
shareholders of Bay Commercial Services will own approximately 11.9% of the
combined company. The transaction is expected to be completed in the fourth
quarter of 1999 subject to regulatory approvals. As of December 31, 1998, Bay
Commercial Services had $144.0 million in assets, $123.0 million in deposits,
and $12.0 million in shareholders' equity. Bay Bank of Commerce has banking
offices in San Leandro, San Ramon and Hayward, California. The combined Company,
on a pro-forma basis after giving effect to the merger of Bay Area Bancshares
and Bay Commercial Services, would have had total assets of approximately $2.1
billion and equity of over $125.0 million at March 31, 1999.
The transaction is anticipated to be accretive to the Company's core
earnings (excluding one-time merger costs) in 1999 based on anticipated
reductions in operating expenses and revenue enhancements resulting from an
expanded product line, increased lending capacity and an increased market
awareness that can be utilized by Bay Commercial Services. Management believes
that significant opportunities exist to enhance the spectrum of financial
services offered to both existing and future clients of Bay Commercial Services
while also increasing market penetration in the East Bay market areas.
RECENT ACCOUNTING DEVELOPMENTS
In April 1999, the Financial Accounting Standards Board ("FASB") reached
tentative conclusions on the future of the pooling-of-interests method of
accounting for business combinations. These tentative decisions include the
decision that the pooling-of-interests method of accounting will no longer be an
acceptable method to account for business combinations between independent
parties and that there should be a single method of accounting for all business
combinations, and that method is the purchase method.
The FASB agreed that the purchase method should be applied prospectively to
business combination transactions that are initiated after the final standard is
issued. The FASB has indicated that it expects an exposure draft to be issued
during the third quarter of 1999 and expects a final standard will be issued and
become effective in the fourth quarter of 2000.
A portion of the Company's business strategy is to pursue acquisition
opportunities so as to expand its market presence and maintain growth levels. A
change in the accounting for business combinations could have a negative impact
on the Company's ability to realize those business strategies.
32
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- NOT APPLICABLE
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
The Exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this Report.
(a) Exhibits
EXHIBIT
NO. EXHIBITS
- ------- --------
10.1 Employment Agreement with David L. Kalkbrenner, dated as of January 1,
1999.
10.8.2 Amendment No. 1 to Greater Bay Bancorp Change in Control Pay Plan II.
10.10.2 Amendment No. 1 to Greater Bay Bancorp Termination and Layoff Pay Plan
II.
11 Statement re Computation of Earnings Per Share.
27 Financial Data Schedule.
99.1 Press Release issued on February 25, 1999.
99.2 Press Release issued on April 13, 1999.
- --------
(b) Reports on Form 8-K for the quarter covered by this report.
During the quarter ended March 31, 1999, the Company filed the following
report on Form 8-K: report dated February 4, 1999 filing press releases related
to fourth quarter 1998 dividend declaration, year-end earnings and Bay Area
Bancshares merger.
33
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
AS AMENDED, THE REGISTRANT HAS 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, 1999
34
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of January 1, 1999 by and
between GREATER BAY BANCORP ("Employer"), a California corporation and DAVID L.
KALKBRENNER ("Employee").
RECITALS
--------
WHEREAS, Employer is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended, and subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System ("FRB");
WHEREAS, Employer is the sole shareholder and owner of 100% of the
outstanding capital voting stock of various subsidiary banking corporations
chartered under California and federal banking laws (collectively, the
"Subsidiary Banks");
WHEREAS, the Subsidiary Banks are subject to the supervision and
regulation, as applicable, of the California Department of Financial
Institutions ("CDFI"), Federal Deposit Insurance Corporation ("FDIC"), FRB and
the Office of the Comptroller of the Currency ("OCC");
WHEREAS, Employer and Employee desire to terminate that certain employment
agreement with Employee dated March 3, 1992 and as amended by amendment dated
March 27, 1998, and enter into a new employment agreement for the purposes of
engaging the services of Employee by reason of his experience, training and
ability in the commercial banking industry and to delineate the rights,
obligations and responsibilities of the Employer and Employee; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Employer and Employee agree as follows:
AGREEMENT
---------
1. Termination of Existing Agreement/Term of Employment. Employer and
----------------------------------------------------
Employee acknowledge and agree that the existing employment agreement between
Employer's banking subsidiary, Mid-Peninsula Bank and its predecessor parent
bank holding company, Mid-Peninsula Bancorp (subsequently re-named Greater Bay
Bancorp), and Employee dated March 3, 1992 and amendment no. 1 thereto dated
March 27, 1998, is hereby terminated effective with the date of this Agreement.
Employer hereby employs Employee and Employee hereby accepts employment with
Employer, upon the terms and conditions hereinafter set forth, for a period of
five (5) years from the date hereof.
2. Duties and Obligations of Employee. Employee shall serve as the
----------------------------------
President and Chief Executive Officer of Employer and shall perform the
customary duties of such office as may from time to time be reasonably requested
of him by the Board of Directors of Employer, in addition to the following:
<PAGE>
-2-
<PAGE>
(a) Voting as a member of the Board of Directors of Employer and the
Subsidiary Banks and such committees thereof as the Board of Directors of
Employer shall designate;
(b) Participating in community affairs which are beneficial to the
Employer and the Subsidiary Banks;
(c) Maintaining a good relationship with Employer's shareholders and
the Boards of Directors of Employer and the Subsidiary Banks;
(d) Maintaining a good relationship with regulatory agencies and
governmental authorities having jurisdiction over Employer and the Subsidiary
Banks;
(f) Providing leadership in planning and implementing the conduct of
business and the affairs of the Employer and the Subsidiary Banks;
(g) Hiring and firing of all employees other than executive officers
of the Employer, subject at all times to the policies and directives set by the
Employer's Board of Directors.
3. Devotion to Employer's Business.
-------------------------------
(a) Employee shall devote his full business time, ability, and
attention to the business of Employer during the term of this Agreement and
shall not during the term of this Agreement engage in any other business
activities, duties, or pursuits whatsoever, or directly or indirectly render any
services of a business, commercial, or professional nature to any other person
or organization, whether for compensation or otherwise, without the prior
written consent of Employer's Board of Directors. However, the expenditure of
reasonable amounts of time for educational, charitable, or professional
activities shall not be deemed a breach of this Agreement if those activities do
not materially interfere with the services required of Employee under this
Agreement. Nothing in this Agreement shall be interpreted to prohibit Employee
from making passive personal investments. However, Employee shall not directly
or indirectly acquire, hold, or retain any interest in any business competing
with or similar in nature to the business of Employer. Employer acknowledges
that Employee currently serves as a member of the Board of Directors of Thoits
Insurance Services, Inc. and hereby consents to such service by Employee.
(b) Employee agrees to conduct himself at all times with due regard to
public conventions and morals. Employee further agrees not to do or commit any
act that will reasonably tend to shock or offend the community and have a
material adverse effect upon Employer.
<PAGE>
(c) Employee hereby represents and agrees that the services to be
performed under the terms of this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character that gives them a peculiar value, the
loss of which cannot be reasonably or adequately compensated in damages in an
action at law. Employee therefore expressly agrees that Employer, in addition to
any other rights or remedies that Employer may possess, shall be entitled to
injunctive and other equitable relief to prevent or remedy a breach of this
Agreement by Employee.
4. Noncompetition by Employee. Employee shall not, during the term of
---------------------------
this Agreement, directly or indirectly, either as an employee, employer,
consultant, agent, principal, stockholder, officer, director, or in any other
individual or representative capacity, engage or participate in any competitive
banking or financial services business without the prior written consent of
Employer.
5. Indemnification.
---------------
(a) Employee shall indemnify and hold Employer harmless from all
liability for loss, damage, or injury to persons or property resulting from the
gross negligence or intentional misconduct of the Employee.
(b) To the extent permitted by law, Employer shall indemnify Employee
if he was or is a party or is threatened to be made a party in any action
brought by a third party against Employee (whether or not Employer is joined as
a party defendant) against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with said action if
Employee acted in good faith and in a manner Employee reasonably believed to be
in the best interest of Employer (and with respect to a criminal proceeding if
Employee had no reasonable cause to believe his conduct was unlawful), provided
that the alleged conduct of Employee arose out of and was within the course and
scope of his employment as an officer or employee of Employer.
6. Disclosure of Information. Employee shall not, either before or after
-------------------------
termination of this Agreement, without the prior written consent of Employer's
Board of Directors or except as required by law to comply with legal process
including, without limitation, by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process, disclose to anyone any financial information, trade or business
secrets, customer lists, computer software or other information not otherwise
publicly available concerning the business or operations of Employer and/or one
or all of the Subsidiary Banks. Employee further recognizes and acknowledges
that any financial information concerning any customers of Employer or the
Subsidiary Banks, as it may exist from time to time, is strictly confidential
and is a valuable, special and unique asset of Employer's business. Employee
shall not, either before or after termination of this Agreement, without such
consent or except as required by law, disclose to anyone said financial
information or any part thereof, for any reason or purpose whatsoever. In the
event Employee is required by law to disclose such information described in this
paragraph 6, Employee will provide Employer and its respective counsel with
immediate notice of such request so that they may consider seeking a protective
order. If in the absence of a protective order or the receipt of a waiver
hereunder Employee is nonetheless, in the written opinion of
<PAGE>
knowledgeable counsel, compelled to disclose any of such information to any
tribunal or any other party or else stand liable for contempt or suffer other
material censure or material penalty, then Employee may disclose (on an "as
needed" basis only) such information to such tribunal or other party without
liability hereunder. This paragraph 6 shall survive the expiration or
termination of this Agreement.
7. Written, Printed or Electronic Material. All written, printed or
---------------------------------------
electronic material, notebooks and records including, without limitation,
computer disks used by Employee in performing duties for Employer, other than
Employee's personal notes and diaries, are and shall remain the sole property of
Employer. Upon termination of employment, Employee shall promptly return all
such material (including all copies, extracts and summaries thereof) to
Employer. This paragraph 7 shall survive expiration or termination of this
Agreement.
8. Surety Bond. Employee agrees that he will furnish all information and
-----------
take any other steps necessary from time to time to enable Employer to obtain or
maintain a fidelity bond conditional on the rendering of a true account by
Employee of all monies, goods, or other property which may come into the
custody, charge, or possession of Employee during the term of his employment.
The surety company issuing the bond and the amount of the bond must be
acceptable to Employer. All premiums on the bond shall be paid by Employer.
Employer shall have no obligation to pay severance benefits to Employee in
accordance with paragraph 16 (d) of this Agreement in the event that the
Employee's employment is terminated in connection with the Employee's failure to
qualify for a surety bond at any time during the term of this Agreement and such
failure to qualify results from an occurrence described in paragraph 16(a) (5),
(6) or (7, to the extent of an Employee breach).
9. Base Salary. In consideration for the services to be performed
-----------
hereunder, Employee shall receive a salary at the rate of Three Hundred Sixty
Thousand Dollars ($360,000) per annum, payable in substantially equal
installments during the term of this Agreement of approximately Fifteen Thousand
Dollars ($15,000.00) on the first and fifteenth days of each month, subject to
applicable adjustments for withholding taxes and prorations for any partial
employment period. Employee shall receive such annual adjustments in salary, if
any, as may be determined by Employer's Board of Directors, in its sole
discretion.
-5-
<PAGE>
10. Salary Continuation During Disability. If Employee for any reason
-------------------------------------
(except as expressly provided below) becomes temporarily or permanently disabled
so that he is unable to perform the duties under this Agreement, Employer agrees
to pay Employee the base salary otherwise payable to Employee pursuant to
paragraph 9 of this Agreement, reduced by the amounts received by Employee from
state disability insurance, or worker's compensation or other similar insurance
benefits through policies provided by Employer, for a period of one (1) year
from the date of disability.
For purposes of this paragraph 10, "disability" shall be defined as
provided in Employer's disability insurance program. Notwithstanding anything
herein to the contrary, Employer shall have no obligation to make payments for a
disability resulting from the deliberate, intentional actions of Employee, such
as, but not limited to, attempted suicide or chemical dependence of Employee.
11. Incentive Compensation. The Executive Committee of the Board of
----------------------
Directors of Employer will determine the amount, if any, of pre-tax net profit
of Employer available for allocation and distribution as incentive compensation
pursuant to the executive incentive compensation program (the "Program"). Pre-
tax net profit for purposes of the determination is defined as actual pre-tax
net profit before allocation of any incentive compensation.
Distribution of any incentive compensation pursuant to the Program shall be
made only to employees of Employer eligible to participate in the Program and
who are employed by Employer at the time of any such distribution. Any such
distribution of incentive compensation shall be prorated for any partial year in
accordance with the terms of the Program.
12. Stock Options. Employer has previously granted stock options to the
-------------
Employee and the Employer may, but is not obligated to, grant additional stock
options to the Employee in the future. Any such grants shall be evidenced by a
Stock Option Agreement entered into between Employer and Employee and a copy of
each such Stock Option Agreement shall be attached to this Agreement as an
exhibit. Notwithstanding any contrary provision of any such Stock Option
Agreement or any related Stock Option Plan of Employer, no rights of employment
shall be conferred upon Employee or result from any such Stock Option Agreement
or Stock Option Plan of Employer. Any employment rights and corresponding
duties of Employee pursuant to his employment by Employer shall be limited to
and interpreted solely in accordance with the terms and provisions of this
Agreement.
13. Other Benefits. Employee shall be entitled to those employee benefits
--------------
adopted by Employer for all employees of Employer, subject to applicable
qualification requirements and regulatory approval requirements, if any.
Employee shall be further entitled to the
-6-
<PAGE>
following additional benefits which shall supplement or replace, to the extent
duplicative of any part or all of the general employee benefits, the benefits
otherwise provided to Employee:
(a) Vacation. Employee shall be entitled to five (5) weeks annual
--------
vacation leave at his then existing rate of full salary each year during the
term of this Agreement. Employee may be absent from his employment for vacation
as long as such leave is reasonable and does not jeopardize his responsibilities
and duties specified in this Agreement. The length of vacation should not exceed
two (2) weeks without the approval of Employer's Executive Committee of the
Board of Directors. Vacation time will accrue in accordance with Employer's
personnel policies.
-7-
<PAGE>
(b) Automobile Allowance and Insurance. Employer shall pay to
----------------------------------
Employee an automobile allowance of Twelve Thousand Dollars ($12,000) per year
during the term of this Agreement, payable at the rate of One Thousand Dollars
($1,000) per month. Employee shall acquire or otherwise make available for his
business and personal use an automobile, suitable to his position, and (i)
maintain it in good condition and repair; (ii) maintain public liability
insurance and property damage insurance policies with insurer(s) acceptable to
Employer and such coverages in such amounts as may be acceptable to Employer
from time to time; and (iii) such policies shall name Employer as an additional
insured, subject to the requirement that Employee's allowance described above
shall be increased in an amount equal to the additional premium expense, if any,
resulting from Employer being named as an additional insured. Employer may, in
its sole discretion, elect to provide and pay for such insurance policies in
lieu of Employee maintaining such policies.
(c) Personal Insurance. Employer shall provide during the term of
------------------
this Agreement at Employer's sole cost, policies of universal life insurance in
the amount of Five Hundred Thousand Dollars ($500,000) and group life, health
(including medical, dental and hospitalization), accident and disability
insurance coverage for Employee and his dependents through a policy or policies
provided by insurer(s) selected by Employer in its sole discretion.
(d) Supplemental Compensation. Employer shall provide as soon as
-------------------------
practicable, but not later than March 31, 1999 unless extended by written
consent of Employee, an agreement satisfactory to Employee providing
supplemental compensation benefits to Employee payable upon retirement or as
otherwise set forth in such agreement. Employee agrees to waive any rights
under his existing Salary Continuation Agreement between Employer's banking
subsidiary, Mid-Peninsula Bank, and Employee dated April 26, 1995, as a
condition to the effectiveness of such supplemental compensation benefits
agreement.
14. Annual Physical Examination. Employer shall pay or reimburse Employee
---------------------------
for the cost of an annual physical examination conducted by a California
licensed physician selected by Employee and reasonably acceptable to Employer.
Employee shall report the general substance of the physician's overall
evaluation of Employee's physical condition to the Employer's Executive
Committee of the Board of Directors of Employer as soon as reasonably
practicable following Employee's receipt of such information from the physician.
<PAGE>
15. Business Expenses. Employee shall be reimbursed for all ordinary and
-----------------
necessary expenses incurred by Employee in connection with his employment.
Employee shall also be reimbursed for expenses incurred in activities associated
with promoting the business of Employer, including expenses for club
memberships, entertainment, travel and other expenses for attendance at
conventions and education programs, and similar items. Employer will pay for
or will reimburse Employee for such expenses upon presentation by Employee from
time to time of receipts or other appropriate evidence of such expenditures.
Any club memberships shall be approved in advance of purchase by the Employer's
Executive Committee of the Board of Directors (the "Executive Committee").
During the term of this Agreement, Employee shall have an option to purchase any
club memberships from the Employer if the Executive Committee decides to
terminate any such membership. Upon termination of employment, the Employee
shall have an option to purchase any club memberships from the Employer during
the six (6) month period following such termination. Any purchase by Employee
from Employer of a club membership, either during the term of this Agreement or
upon termination of employment, shall be at the same purchase price paid by the
Employer to acquire each club membership, unless otherwise agreed by the
Executive Committee.
16. Termination of Agreement.
------------------------
(a) Automatic Termination. This Agreement shall terminate
---------------------
automatically without further act of the parties and immediately upon the
occurrence of any one of the following events, subject to either party's right,
without any obligation whatsoever, to waive an event reasonably susceptible of
waiver, and the obligation of Employer to pay the amounts which would otherwise
be payable to Employee under this Agreement through the end of the month in
which the event occurs, except that only in the event of termination based upon
subparagraphs (1), (4) or (7, to the extent of Employer's breach) below shall
Employee be entitled to receive severance payments pursuant to paragraph 16 (d)
of this Agreement:
(1) The occurrence of circumstances that make it impossible or
impractical for Employer to conduct or continue its
business.
(2) The death of Employee.
(3) The loss by Employee of legal capacity.
(4) The loss by Employer of legal capacity to contract.
(5) Employee's deliberate violation of (i) any state or federal
banking or securities laws, or the Bylaws, rules, policies
or resolutions of the Employer, or (ii) the rules or
regulations of the CDFI, FDIC, FRB or OCC, or other
regulatory agency or governmental authority having
jurisdiction over the Employer and/or the Subsidiary Banks,
which has a material adverse effect upon the Employer and/or
the Subsidiary Banks.
(6) Employee's conviction of any felony which has a material
adverse effect upon Employer.
<PAGE>
(7) Either party breaches the terms or provisions of this
Agreement and such breach has a material adverse effect upon
the non-breaching party.
-10-
<PAGE>
(b) Termination by Employer. Employer may, at its election and in its
-----------------------
sole discretion, terminate this Agreement for any reason, or for no reason, by
giving not less than thirty (30) days' prior written notice of termination to
Employee, without prejudice to any other remedy to which Employer may be
entitled either at law, in equity or under this Agreement. Upon such
termination, Employee shall be entitled to receive any employment benefits which
shall have accrued prior to such termination and the severance pay specified in
paragraph 16 (d) below.
(c) Termination by Employee. This Agreement may be terminated by
-----------------------
Employee for any reason, or no reason, by giving not less than thirty (30) days'
prior written notice of termination to Employer. Upon such termination, all
rights and obligations accruing to Employee under this Agreement shall cease,
except that such termination shall not prejudice Employee's rights regarding
employment benefits which shall have accrued prior to such termination and any
other remedy which Employee may have at law, in equity or under this Agreement,
which remedy accrued prior to such termination.
(d) Severance Pay - Termination by Employer. In the event of
---------------------------------------
termination by Employer pursuant to paragraph 16 (b) or automatic termination
based upon paragraph 16 (a) (1), (4) or (7, to the extent of Employer's breach)
of this Agreement, Employee shall be entitled to receive severance pay at
Employee's rate of salary immediately preceding such termination equal to
thirty-six (36) months' salary (in addition to incentive compensation or bonus
payments due Employee, if any), payable in substantially equal monthly
installments on the first and fifteenth days of each month for a period of
thirty-six (36) months. Notwithstanding the foregoing, in the event of a
"change in control" as defined in subparagraph (e) below, Employee shall not be
entitled to severance pay pursuant to this subparagraph (d) and any rights of
Employee to severance pay shall be limited to such rights as are specified in
subparagraph (e) below. Employee acknowledges and agrees that severance pay
pursuant to this subparagraph (d) is in lieu of all damages, payments and
liabilities on account of the early termination of this Agreement and the sole
and exclusive remedy for Employee terminated at the will of Employer pursuant to
paragraph 16(b) or pursuant to certain provisions of paragraph 16 (a) described
herein.
(e) Severance Pay - Change in Control. In the event of a "change in
---------------------------------
control" as defined herein and within a period of three (3) years following
consummation of such a change in control (i) Employee's employment is
terminated; or (ii) any adverse change occurs in the nature and scope of
Employee's position, responsibilities, duties, salary, benefits or location of
employment; or (iii) any event occurs which reasonably constitutes a demotion,
significant diminution or constructive termination (by resignation or otherwise)
of Employee's employment, Employee shall be entitled to receive severance pay in
addition to any bonus or incentive compensation payments due Employee. Any such
severance pay due Employee shall be in an amount equal to two and ninety-nine
one hundredths (2.99) times Employee's average annual compensation for the five
(5) years immediately preceding the change in control. Employee's average
annual compensation shall be determined by the product of the average of the
aggregate compensation paid by Employer to Employee which was includable in
Employee's gross income for federal income tax purposes for the five (5) tax
years ending immediately prior to the change in control divided by five (5). If
Employee was employed by Employer for fewer than five (5) years immediately
preceding the change in control,
<PAGE>
Employee's average annual compensation shall be determined by the product of the
aggregate compensation paid to Employee by Employer and includable in Employee's
gross income for federal income tax purposes for the years less than such five
(5) year period that Employee was employed by Employer preceding the change in
control divided by the aggregate number of such years less than the five (5)
year period.
In addition to the change in control severance payment rights of
Employee described above and notwithstanding any other provisions of this
Agreement, Employee shall be entitled to receive the severance payments
specified in this paragraph 16 (e) in the event that Employee voluntarily
terminates his employment with Employer or its successor effective on a date
within the thirty (30) day period immediately after the expiration of the sixth
month following a change in control. Employee shall deliver written notice to
Employer of his intention to terminate employment specifying the effective date
within such thirty (30) day period described above, which notice must be
received by Employer not less than twenty (20) days prior to the expiration of
the sixth month following such a change in control.
If all or any portion of the amounts payable to the Employee under
this Agreement, either alone or together with other payments which the Employee
has the right to receive from the Employer, constitute "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), that are subject to the excise tax imposed by
Section 4999 of the Code (or similar tax and/or assessment), the Employer (and
its successor) shall increase the amounts payable under this Agreement to the
extent necessary to afford the Employee substantially the same economic benefit
under this Agreement as the Employee would have received had no such excise tax
been imposed on the payments due the Employee under this Agreement. The
determination of the amount of any such excise taxes shall be made initially by
the independent accounting firm employed by the Employer immediately prior to
the occurrence of the event constituting a change in control.
If, at a later date, it is determined (pursuant to final regulations
or published rulings of the Internal Revenue Service, final judgment of a court
of competent jurisdiction, or otherwise) that the amount of excise taxes payable
to the Employee is greater than the amount initially so determined, then the
Employer (or its successor) shall pay to the Employee an amount equal to the sum
of such additional excise taxes and any interest, fines and penalties resulting
from such underpayment, plus an amount necessary to reimburse the Employee
substantially for any income, excise or other taxes payable by the Employee with
respect to such amounts.
-12-
<PAGE>
Any such severance shall be payable in substantially equal monthly
installments on the first and fifteenth days of each month for a period of
thirty-six (36) months. Such severance payments, if any, shall be in lieu of all
damages, payments and liabilities on account of the events described above for
which such severance payments, if any, may be due Employee and any severance
payment rights of Employee under paragraph 16 (d) of this Agreement. This
subparagraph (e) shall be binding upon and inure to the benefit of the parties
and any successors or assigns of Employer or any "person" as defined herein.
-13-
<PAGE>
Notwithstanding the foregoing, Employee shall not be entitled to
receive nor shall Employer, its successors, assigns or any "person" as defined
herein be obligated to pay severance payments pursuant to this subparagraph (e)
in the event of an occurrence described in paragraph 16 (a)(5), (6) or (7, to
the extent of an Employee breach), or in the event Employee terminates
employment in accordance with paragraph 16 (c) and the termination is not a
result of or based upon the occurrence of any event described in paragraph 16
(e)(ii) or (iii) above or a voluntary termination within the thirty (30) day
period immediately after the expiration of the sixth month following a change in
control as described above.
17. Change in Control Definition. The term "change in control"
-----------------------------
shall mean the first to occur of any of the following events with respect to the
Employer:
(a) Any "person" (as such term is used in sections 13 and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
becomes the beneficial owner (as that term is used in section 13(d) of the
Exchange Act), directly or indirectly, of twenty-five percent (25%) or more of
the Employer's capital stock entitled to vote in the election of directors,
other than a group of two or more persons not (i) acting in concert for the
purpose of acquiring, holding or disposing of such stock or (ii) otherwise
required to file any form or report with any governmental agency or regulatory
authority having jurisdiction over the Employer which requires the reporting of
any change in control;
(b) During any period of not more than two (2) consecutive years, not
including any period prior to the date of this Agreement, individuals who, at
the beginning of such period, constitute the Board of Directors of the Employer,
and any new director (other than a director designated by a person who has
entered into an agreement with the Employer to effect a transaction described in
paragraph 17 (a), (c), (d) or (e) of this subparagraph 1.4) whose appointment to
the Board of Directors or nomination for election to the Board of Directors was
approved by a vote of at least three-fourths (3/4ths) of the directors then
still in office, either were directors at the beginning of such period or whose
appointment or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(c) The effective date of any consolidation or merger of the Employer
(after all requisite shareholder, applicable regulatory and other approvals and
consents have been obtained), other than a consolidation or merger of the
Employer in which the holders of the voting capital stock of the Employer
immediately prior to the consolidation or merger hold more than fifty percent
(50%) of the voting capital stock of the surviving entity immediately after the
consolidation or merger;
(d) The shareholders of the Employer approve any plan or proposal for
the liquidation or dissolution of the Employer; or
(e) The shareholders of the Employer approve the sale or transfer of
substantially all of the Employer's assets to parties that are not within a
"controlled group of corporations" (as that term is defined in section 1563 of
the Code) in which the Employer is a member.
18. Notices. Any notices to be given hereunder by either party to the
-------
other shall be in writing and may be transmitted by personal delivery or by U.S.
mail, registered or certified,
-14-
<PAGE>
postage prepaid with return receipt requested. Mailed notices shall be addressed
to the parties at the addresses listed as follows:
Employer: Principal place of business
Employee: Principal place of business as shown in Employer's Personnel
Records and Employee's personal file.
Each party may change the address for receipt of notices by written notice in
accordance with this paragraph 18. Notices delivered personally shall be deemed
communicated as of the date of actual receipt; mailed notices shall be deemed
communicated as of three (3) days after the date of mailing.
-15-
<PAGE>
19. Arbitration. All claims, disputes and other matters in question
-----------
arising out of or relating to this Agreement or the breach or interpretation
thereof, other than those matters which are to be determined by the Employer in
its sole and absolute discretion, shall be resolved by binding arbitration
before a representative member, selected by the mutual agreement of the parties,
of the Judicial Arbitration and Mediation Services, Inc., San Francisco,
California ("JAMS"), in accordance with the rules and procedures of JAMS then in
effect. In the event JAMS is unable or unwilling to conduct such arbitration,
or has discontinued its business, the parties agree that a representative
member, selected by the mutual agreement of the parties, of the American
Arbitration Association, San Francisco, California ("AAA"), shall conduct such
binding arbitration in accordance with the rules and procedures of the AAA then
in effect. Notice of the demand for arbitration shall be filed in writing with
the other party to this Agreement and with JAMS (or AAA, if necessary). In no
event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter
in question would be barred by the applicable statute of limitations. Any award
rendered by JAMS or AAA shall be final and binding upon the parties, and as
applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns, and may be entered in any court having
jurisdiction thereof. The obligation of the parties to arbitrate pursuant to
this clause shall be specifically enforceable in accordance with, and shall be
conducted consistently with, the provisions of Title 9 of Part 3 of the
California Code of Civil Procedure. Any arbitration hereunder shall be
conducted in Palo Alto, California, unless otherwise agreed to by the parties.
20. Attorneys' Fees and Costs. In the event of litigation, arbitration or
-------------------------
any other action or proceeding between the parties to interpret or enforce this
Agreement or any part thereof or otherwise arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover its costs related
to any such action or proceeding and its reasonable fees of attorneys,
accountants and expert witnesses incurred by such party in connection with any
such action or proceeding. The prevailing party shall be deemed to be the party
which obtains substantially the relief sought by final resolution, compromise or
settlement, or as may otherwise be determined by order of a court of competent
jurisdiction in the event of litigation, an award or decision of one or more
arbitrators in the event of arbitration, or a decision of a comparable official
in the event of any other action or proceeding. Every obligation to indemnify
under this Agreement includes the obligation to pay reasonable fees of
attorneys, accountants and expert witnesses incurred by the indemnified party in
connection with matters subject to indemnification.
21. Entire Agreement. This Agreement supersedes any and all other
----------------
agreements, either oral or in writing, between the parties with respect to the
employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to
-16-
<PAGE>
the employment of Employee by Employer. Each party to this Agreement
acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
22. Modifications. Any modification of this Agreement will be effective
-------------
only if it is in writing and signed by a party or its authorized representative.
23. Waiver. The failure of either party to insist on strict compliance
------
with any of the terms, provisions, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of any term, provision, covenant,
or condition, individually or in the aggregate, unless such waiver is in
writing, nor shall any waiver or relinquishment of any right or power at any one
time or times be deemed a waiver or relinquishment of that right or power for
all or any other times.
24. Partial Invalidity. If any provision in this Agreement is held by a
------------------
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
25. Interpretation. This Agreement shall be construed without regard to
--------------
the party responsible for the preparation of the Agreement and shall be deemed
to have been prepared jointly by the parties. Any ambiguity or uncertainty
existing in this Agreement shall not be interpreted against either party, but
according to the application of other rules of contract interpretation, if an
ambiguity or uncertainty exists.
-17-
<PAGE>
26. Governing Law and Venue. The laws of the State of California, other
-----------------------
than those laws denominated choice of law rules, shall govern the validity,
construction and effect of this Agreement. Any action which in any way involves
the rights, duties and obligations of the parties hereunder shall be brought in
the courts of the State of California and venue for any action or proceeding
shall be in Santa Clara County or in the United States District Court for the
Northern District of California, and the parties hereby submit to the personal
jurisdiction of said courts.
27. Payments Due Deceased Employee. If Employee dies prior to the
------------------------------
expiration of the term of his employment, any payments that may be due Employee
from Employer under this Agreement as of the date of death shall be paid to
Employee's executors, administrators, heirs, personal representatives,
successors, or assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
EMPLOYER: EMPLOYEE:
GREATER BAY BANCORP
By: /s/ Duncan L. Matteson /s/ David L. Kalkbrenner
---------------------- ------------------------
Duncan L. Matteson David L. Kalkbrenner
Co-Chairman of the Board
By: /s/ John M. Gatto
-----------------
John M. Gatto
Co-Chairman of the Board
-18-
<PAGE>
EXHIBIT 10.8.2
AMENDMENT NO. 1
CHANGE IN CONTROL PAY PLAN II
This Amendment No. 1 to the Greater Bay Bancorp (the "Company") Change in
Control Pay Plan II (the "Plan") is effective as of March 23, 1999.
RECITALS:
--------
A. The Board of Directors adopted the Plan to provide benefits to certain
key executives of the Company in the event of a Change in Control (as defined in
the Plan). At the effective date of the Plan (January 1, 1998), only the
Company's Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and Chief Lending Officer were identified as Eligible Employees under
the Plan.
B. As a result of promotions within the Company, the Board of Directors
has determined to amend the definition of Eligible Employees to cover other key
executives and to provide benefits to such executives under the Plan.
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended as follows:
1. Section 3.11 of the Plan is hereby amended to read in its entirety as
follows:
Eligible Employees means an Employee who is a key executive of the Company
------------------
and who is eligible to participate in the Plan. The only Employees who are
deemed "Eligible Employees" for purposes of the Plan are the Chief Executive
Officer ("CEO"), Chief Operating Officer ("COO"), Chief Financial Officer
("CFO"), Chief Lending Officer ("CLO") and the other executive officers of the
Company (the "Executive Officers").
2. Section 5.1(c) of the Plan is hereby amended to read in its entirety as
follows:
CLO and Executive Officers. A Participant who is the CLO or an Executive
--------------------------
Officer shall be entitled to receive a Base Benefit equal to eighteen (18)
months of Pay and an Added Benefit of two (2) weeks of Pay for each full Year of
Service, provided, however, that the total Base Benefit and Added Benefit
payable to such Participant shall not exceed two (2) years of Pay.
3. Section 8.2 is hereby deleted.
4. Except as specifically amended hereby, the terms of the Plan shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amendment No. 1 on
behalf of the Company as of the date first above written.
GREATER BAY BANCORP
By: /s/ David L. Kalkbrenner
------------------------
David L. Kalkbrenner
President and Chief Executive Officer
<PAGE>
EXHIBIT 10.10.2
AMENDMENT NO. 1
TERMINATION & LAYOFF PAY PLAN II
This Amendment No. 1 to the Greater Bay Bancorp (the "Company") Termination
& Layoff Pay Plan II (the "Plan") is effective as of March 23, 1999.
RECITALS:
--------
A. The Board of Directors adopted the Plan to provide benefits to certain
key executives of the Company in the event of a Termination or Layoff (as
defined in the Plan). At the effective date of the Plan (January 1, 1998), only
the Company's Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and Chief Lending Officer were identified as Eligible Employees under
the Plan.
B. As a result of promotions within the Company, the Board of Directors
has determined to amend the definition of Eligible Employees to cover other key
executives and to provide benefits to such executives under the Plan.
NOW, THEREFORE, in consideration of the foregoing, the Plan is hereby
amended as follows:
1. Section 3.9 of the Plan is hereby amended to read in its entirety as
follows:
Eligible Employees means an Employee who is a key executive of the Company
------------------
and who is eligible to participate in the Plan. The only Employees who are
deemed "Eligible Employees" for purposes of the Plan are the Chief Executive
Officer ("CEO"), Chief Operating Officer ("COO"), Chief Financial Officer
("CFO"), Chief Lending Officer ("CLO") and the other executive officers of the
Company (the "Executive Officers").
2. Section 5.1(c) of the Plan is hereby amended to read in its entirety as
follows:
CLO and Executive Officers. A Participant who is the CLO or an Executive
--------------------------
Officer shall be entitled to receive a Base Benefit equal to eighteen (18)
months of Pay.
3. Section 8.2 is hereby deleted.
4. Except as specifically amended hereby, the terms of the Plan shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amendment No. 1 on
behalf of the Company as of the date first above written.
GREATER BAY BANCORP
By: /s/ David L. Kalkbrenner
------------------------
David L. Kalkbrenner
President and Chief Executive Officer
<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) 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Income available to common shareholders $ 5,058 $ 3,979
Weighted average common shares outstanding 9,688,000 9,356,000
--------------------------------
Basic earnings per share $ 0.52 $ 0.43
================================
DILUTED EARNINGS PER SHARE:
Income available to common shareholders $ 5,058 $ 3,979
Weighted average common shares outstanding 9,688,000 9,356,000
Effect of dilutive securities 588,000 898,000
--------------------------------
Weighted average common and common
equivalent shares outstanding 10,276,000 10,254,000
--------------------------------
Diluted earnings per share $ 0.49 $ 0.39
================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GREATER BAY
BANCORP 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 68,185
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 90,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 262,954
<INVESTMENTS-CARRYING> 84,859
<INVESTMENTS-MARKET> 84,793
<LOANS> 1,144,549
<ALLOWANCE> (21,915)
<TOTAL-ASSETS> 1,781,296
<DEPOSITS> 1,539,077
<SHORT-TERM> 0
<LIABILITIES-OTHER> 93,962
<LONG-TERM> 50,000
0
0
<COMMON> 58,496
<OTHER-SE> 39,761
<TOTAL-LIABILITIES-AND-EQUITY> 1,781,296
<INTEREST-LOAN> 24,670
<INTEREST-INVEST> 5,130
<INTEREST-OTHER> 1,541
<INTEREST-TOTAL> 31,341
<INTEREST-DEPOSIT> 10,892
<INTEREST-EXPENSE> 12,981
<INTEREST-INCOME-NET> 18,360
<LOAN-LOSSES> 861
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,035
<INCOME-PRETAX> 8,398
<INCOME-PRE-EXTRAORDINARY> 5,146
<EXTRAORDINARY> (88)
<CHANGES> 0
<NET-INCOME> 5,058
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 4.83
<LOANS-NON> 2,847
<LOANS-PAST> 0
<LOANS-TROUBLED> 482
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,304
<CHARGE-OFFS> (263)
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 21,915
<ALLOWANCE-DOMESTIC> 21,915
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
For Immediate Release For Information Contact:
- --------------------- ------------------------
February 25, 1999 David L. Kalkbrenner, President & CEO
Greater Bay Bancorp (650) 614-5767
Steven C. Smith, EVP, COO & CFO
Greater Bay Bancorp (650) 813-8222
GREATER BAY BANCORP DECLARES 26%
INCREASE IN FIRST QUARTER DIVIDEND
PALO ALTO, California -- Greater Bay Bancorp (NASDAQ: GBBK), a $1.6 billion in
assets financial services holding company, has declared a twelve cent ($.12) per
share cash dividend for the first quarter of 1999.
The cash dividend will be payable on April 15, 1999, to shareholders of record
as of March 31, 1999. This dividend represents a 26% increase over the company's
previous quarterly dividend of nine and one half cents ($.095) per share.
"We are very pleased to announce an increased cash dividend for the first
quarter of 1999," stated David L. Kalkbrenner, President and Chief Executive
Officer of Greater Bay Bancorp. "The company's continuing solid earnings
performance and strong capital ratios allow us to reward our valued shareholders
for their continued support and confidence."
Greater Bay Bancorp and its financial services subsidiaries, Cupertino National
Bank, Mid-Peninsula Bank, Peninsula Bank of Commerce and Golden Gate Bank, along
with its operating divisions, Greater Bay Bank Santa Clara Valley Commercial
Banking Group, Greater Bay Corporate Finance Group, Greater Bay Bank Contra
Costa Business Banking
(continued)
<PAGE>
Office, Greater Bay International Banking Division, Greater Bay Trust Company,
Pacific Business Funding and Venture Banking Group, serve clients throughout
Silicon Valley, the San Francisco Peninsula and the Contra Costa Tri-Valley
Region, with offices located in San Jose, Cupertino, Santa Clara, Palo Alto,
Redwood City, San Mateo, Millbrae, San Bruno, San Francisco and Walnut Creek.
This document may contain forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected. For a discussion of factors that could cause actual results to
differ, please see the publicly available Securities and Exchange Commission
filings of Greater Bay Bancorp, including the Annual Report on Form 10-K for the
year ended December 31, 1998, and particularly the discussion of risk factors
within such documents.
"WE INVEST IN RELATIONSHIPS"
# # #
<PAGE>
Exhibit 99.2
For Information Contact
- -----------------------
At Greater Bay Bancorp At Financial Relations Board
David L. Kalkbrenner Lise Needham (general information)
President and CEO Stephanie Mishra (analyst contact)
(650) 614-5767 (415) 986-1591
Steven C. Smith
EVP, COO and CFO
(650) 813-8222
FOR IMMEDIATE RELEASE
---------------------
GREATER BAY BANCORP ANNOUNCES
29% INCREASE IN CORE EARNINGS
PALO ALTO, CA, April 13, 1999 -- Greater Bay Bancorp (Nasdaq: GBBK), a $1.8
billion in assets financial services holding company, today announced results
for the first quarter ended March 31, 1999. Core earnings for the first quarter
increased 29% to $5.1 million or $0.50 per diluted share, compared to earnings
of $4.0 million or $0.39 per diluted share for the first quarter of 1998.
Including the one-time extraordinary charge related to the early retirement of
subordinated debt, first quarter 1999 net earnings were $5.0 million or $0.49
per diluted share.
At March 31, 1999, Greater Bay Bancorp's total assets were $1.8 billion, an
increase of 35% or approximately $460 million from March 31, 1998. Total loans
grew to $1.1 billion, an increase of $362 million or 46% compared to total loans
at March 31, 1998. Total deposits increased to $1.5 billion at quarter end, a
$433 million or 39% increase since March 31, 1998.
For the first quarter 1999, Greater Bay Bancorp's return on average equity and
average assets before the one-time extraordinary charge were 21.78% and 1.25%,
respectively, compared to 20.84% and 1.30%, respectively, for the first quarter
of 1998.
Mr. David L. Kalkbrenner, President and Chief Executive Officer, stated, "This
has been a great quarter for Greater Bay Bancorp. Our Super-Community Banking
strategy is clearly working. Greater Bay's earnings remain strong, our loan
growth is rapid and we continue to achieve superior asset quality." Mr.
Kalkbrenner continued, "We are also focusing our efforts on diversifying our
revenue stream while seeking ways to improve our competitive edge."
Mr. Kalkbrenner added, "During the quarter, we signed a definitive merger
agreement, which is expected to close in May 1999, with Bay Area Bancshares. We
also announced the grand opening of the Greater Bay Bank Santa Clara Valley
Commercial Banking Group. These developments further demonstrate our continued
commitment to increasing market share within the communities we serve."
<PAGE>
GREATER BAY BANCORP ANNOUNCES 29% INCREASE IN CORE EARNINGS
APRIL 13, 1999
PAGE 2
Operating results for the three months ended March 31, 1999, include
approximately $118,000 excluding internal staff time, related to the correction
of the year 2000 "millennium bug" which impacts all companies. The company has
budgeted an anticipated total expenditure of $300,000 in fiscal 1999 to address
the year 2000 issues.
Reflecting the high quality of its expanding loan portfolio, Greater Bay
Bancorp's ratio of non-performing assets to total assets was 0.22% at March 31,
1999, compared to 0.39% at March 31, 1998. In addition, the allowance for loan
losses represented 1.91% of total loans and 554.95% of total non-performing
assets at March 31, 1999, compared to 2.12% and 320.78% at March 31, 1998.
During the quarter, the Company's trust fees, depositor services fees, gain on
sale of SBA loans, and loan and international banking fees were $1.7 million, up
23% from $1.4 million in the first quarter of 1998.
Greater Bay Bancorp's capital ratios continue to be above the well-capitalized
guidelines established by the bank regulatory agencies.
Greater Bay Bancorp and its financial service subsidiaries, Cupertino National
Bank, Mid-Peninsula Bank, Peninsula Bank of Commerce and Golden Gate Bank, along
with its operating divisions, Greater Bay Bank Santa Clara Commercial Banking
Group, Greater Bay Corporate Finance Group, Greater Bay Bank Contra Costa
Regional Banking Office, Greater Bay International Banking Division, Greater Bay
Trust Company, Pacific Business Funding and Venture Banking Group, serve clients
throughout Silicon Valley, the San Francisco Peninsula and the Contra Costa Tri
Valley Region, with offices located in San Jose, Cupertino, Santa Clara, Palo
Alto, Redwood City, San Mateo, Millbrae, San Bruno, San Francisco and Walnut
Creek.
SAFE HARBOR
This document may contain forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected. For a discussion of factors that could cause actual results to
differ, please see the Company's publicly available Securities and Exchange
Commission filings, including its Annual Report on Form
10-K for the year ended December 31, 1998, and particularly the discussion of
risk factors within that document.
For investor information on Greater Bay Bancorp at no charge, call our automated
shareholder information line at 1-800-679-2606 or via fax, dial 1-800-PRO-INFO
and enter code GBBK. For international access, dial 1-732-544-2850.
- FINANCIAL TABLES FOLLOW -
<PAGE>
Greater Bay Creater Bay Bancrop Announces 29% Increase In Core Earnings
April 13, 1999
Page 3
GREATER BAY BANCORP
MARCH 31, 1999 - FINANCIAL SUMMARY
($ in 000's, except share and per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY CONSOLIDATED FINANCIAL CONDITION DATA:
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
1999 1998 1998 1998 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and Due From Banks $ 68,185 $ 59,975 $ 55,399 $ 70,010 $ 71,152
Investments 511,123 463,470 574,636 558,335 426,098
Loans:
Commercial 560,913 455,077 388,094 372,930 367,384
Construction 177,939 173,857 153,378 139,850 121,446
Real Estate 320,637 299,111 245,340 227,652 217,845
Consumer and Other 89,418 81,089 75,673 81,750 79,177
Deferred Loan Fees, Net (4,358) (3,343) (2,966) (2,446) (2,904)
----------- ----------- ----------- ----------- -----------
Total Loans 1,144,549 1,005,791 859,519 819,736 782,948
Allowance for Loan Losses (21,915) (21,304) (19,861) (17,985) (16,565)
----------- ----------- ----------- ----------- -----------
Total Loans, Net 1,122,634 984,487 839,658 801,751 766,383
Other Assets 79,354 74,933 65,690 56,773 58,092
----------- ----------- ----------- ----------- -----------
Total Assets $ 1,781,296 $ 1,582,865 $ 1,535,383 $ 1,486,869 $ 1,321,725
=========== =========== =========== =========== ===========
Deposits:
Demand, Non-Interest Bearing $ 280,747 $ 268,448 $ 237,596 $ 263,121 $ 208,277
NOW, MMDA and Savings 931,256 854,392 802,220 809,594 676,730
Time Certificates, $100,000 and over 275,639 168,075 198,286 180,891 175,381
Other Time Certificates 51,435 51,577 49,830 31,009 46,043
----------- ----------- ----------- ----------- -----------
Total Deposits 1,539,077 1,342,492 1,287,932 1,284,615 1,106,431
----------- ----------- ----------- ----------- -----------
Other Borrowings 69,788 73,734 89,735 82,275 85,142
Other Liabilities 24,174 20,963 15,764 14,556 26,857
----------- ----------- ----------- ----------- -----------
Total Liabilities 1,633,039 1,437,189 1,393,431 1,381,446 1,218,430
----------- ----------- ----------- ----------- -----------
Long-term Subordinated Debt - 3,000 3,000 3,000 3,000
Trust Preferred Securities 50,000 50,000 50,000 20,000 20,000
Stockholders' Equity 98,257 92,676 88,952 82,423 80,295
----------- ----------- ----------- ----------- -----------
Regulatory Capital 148,257 145,676 141,952 105,423 103,295
----------- ----------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 1,781,296 $ 1,582,865 $ 1,535,383 $ 1,486,869 $ 1,321,725
=========== =========== =========== =========== ===========
Average Quarterly Total Loans, excluding Nonaccrual $ 1,075,401 $ 905,675 $ 824,356 $ 794,786 $ 752,381
Average Quarterly Investments $ 466,052 $ 548,793 $ 585,654 $ 475,082 $ 410,650
Average Quarterly Interest Bearing Liabilities $ 1,298,993 $ 1,216,476 $ 1,148,268 $ 1,015,659 $ 969,365
Average Quarterly Assets $ 1,667,169 $ 1,578,508 $ 1,489,844 $ 1,375,328 $ 1,240,507
Average Quarterly Equity $ 95,840 $ 90,624 $ 86,577 $ 80,667 $ 77,425
Regulatory Capital
Tier I or Leverage Capital $ 130,279 $ 123,287 $ 115,951 $ 102,025 $ 99,755
Total Capital $ 165,354 $ 161,103 $ 154,597 $ 120,281 $ 117,031
Nonperforming Assets
Nonaccrual Loans $ 2,847 $ 1,858 $ 2,919 $ 3,758 $ 3,152
Loans 90 Days Past Due & Accruing - - - 75 108
Restructured Loans 482 327 377 531 903
OREO 620 966 905 1,001 1,001
----------- ----------- ----------- ----------- -----------
Total Nonperforming Assets $ 3,949 $ 3,151 $ 4,201 $ 5,365 $ 5,164
=========== =========== =========== =========== ===========
Greater Bay Trust Company Assets $ 630,840 $ 649,336 $ 581,437 $ 636,362 $ 576,290
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY CONSOLIDATED FINANCIAL CONDITION RATIOS:
Mar 31 Dec 31 Sept 30 Jun 30 Mar 31
1999 1998 1998 1998 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loan to Deposit Ratio 74.37% 74.92% 66.74% 63.81% 70.76%
Ratio of Allowance for Loan Losses to:
Total Loans 1.91% 2.12% 2.31% 2.19% 2.12%
Total Nonperforming Assets 554.95% 676.10% 472.77% 335.24% 320.78%
Total Nonperforming Assets to Total Assets 0.22% 0.20% 0.27% 0.36% 0.39%
Ratio of Quarterly Net Charge-offs to Average Loans,
annualized 0.10% 0.22% 0.02% 0.01% 0.01%
Ratio of YTD Net Charge-offs to Average Loans ,
annualized 0.10% 0.21% 0.20% 0.30% 0.61%
Earning Assets to Total Assets 93.03% 92.92% 93.41% 92.59% 91.46%
Earning Assets to Interest-Bearing Liabilities 120.25% 122.48% 120.21% 122.19% 120.12%
Capital Ratios:
Leverage 7.81% 7.81% 7.78% 7.42% 8.04%
Tier 1 Risk Based Capital 9.23% 9.90% 10.99% 10.08% 10.57%
Total Risk Based Capital 11.72% 12.94% 14.65% 11.88% 12.41%
Risk Weighted Assets $ 1,411,340 $ 1,245,336 $ 1,055,323 $ 1,012,545 $ 943,348
Book Value Per Share $ 10.09 $ 9.64 $ 9.28 $ 8.69 $ 8.55
Total Shares Outstanding 9,736,602 9,612,141 9,584,634 9,489,134 9,395,764
</TABLE>
Note: Prior periods have been restated to reflect the mergers between Greater
Bay Bancorp, Pacific Rim Bancorporation and Pacific Business Funding
Corporation, on a pooling-of-interests basis.
- --------------------------------------------------------------------------------
Greater Bay Creater Bay Bancrop Announces 29% Increase In Core Earnings
April 13, 1999
Page 4
<PAGE>
GREATER BAY BANCORP
MARCH 31, 1999 - FINANCIAL SUMMARY
($ in 000's, except share and per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY CONSOLIDATED OPERATING DATA:
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
1999 1998 1998 1998 1998
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Interest Income $ 31,341 $ 29,969 $ 29,861 $ 27,510 $ 25,560
Interest Expense 12,981 12,495 12,953 11,592 10,432
---------- --------- --------- --------- ---------
Net Interest Income before Provision for Loan Losses 18,360 17,494 16,908 15,918 15,128
Provision for Loan Losses 861 1,901 1,791 1,347 996
---------- --------- --------- --------- ---------
Net Interest Income after Provision for Loan Losses 17,499 15,593 15,117 14,571 14,132
Other Income:
Trust Fees 721 664 642 617 550
Depositor Service Fees 352 357 361 349 420
Loan and International Banking Fees 309 176 165 190 146
Gain on Sale of SBA Loans 284 282 290 221 244
Gain/(loss) on Investments - 320 4 42 8
Other Income (1) 264 384 65 152 (339)
---------- --------- --------- --------- ---------
1,930 2,183 1,527 1,571 1,029
Nonrecurring - Warrant Income 4 314 134 - 497
---------- --------- --------- --------- ---------
Other Income 1,934 2,497 1,661 1,571 1,526
Operating Expenses:
Compensation and Benefits 6,380 5,807 5,753 5,729 5,426
Occupancy and Equipment 2,072 1,751 1,542 1,535 1,389
Professional Services & Legal 489 432 403 377 385
Client Services 252 140 122 131 151
FDIC Insurance and Assessments 92 84 88 77 89
Other Real Estate, Net 21 (6) 43 (8) 24
Other Expenses 1,729 2,458 1,740 1,431 1,618
---------- --------- --------- --------- ---------
11,035 10,666 9,691 9,272 9,082
Nonrecurring Expenses (2) - 448 192 - 701
---------- --------- --------- --------- ---------
Total Operating Expenses 11,035 11,114 9,883 9,272 9,783
---------- --------- --------- --------- ---------
Income before Income Taxes, Merger and Other Related
Nonrecurring Costs and Extraordinary Items 8,398 6,976 6,895 6,870 5,875
Income Tax Expense 3,252 1,993 2,141 2,334 1,896
---------- --------- --------- --------- ---------
Income before Merger and Other Related Nonrecurring Costs
and Extraordinary Items 5,146 4,983 4,754 4,536 3,979
Merger and Other Related Nonrecurring Costs, net of tax - - 360 1,314 -
---------- --------- --------- --------- ---------
Income before Extraordinary Items 5,146 4,983 4,394 3,222 3,979
Extraordinary Items, net of tax (3) (88) - - - -
---------- --------- --------- --------- ---------
Net Income $ 5,058 4,983 $ 4,394 $ 3,222 $ 3,979
========== ========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY CONSOLIDATED OPERATING RATIOS:
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
1999 1998 1998 1998 1998
------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Per Share (Before Merger and Other Related
Nonrecurring Costs and Extraordinary Items) (4) (5)
Basic $ 0.53 0.52 $ 0.50 $ 0.48 $ 0.43
Diluted $ 0.50 0.48 $ 0.47 $ 0.44 $ 0.39
Net Income Per Share (4) (5)
Basic $ 0.52 0.52 $ 0.46 $ 0.34 $ 0.43
Diluted $ 0.49 0.48 $ 0.43 $ 0.31 $ 0.39
Weighted Average Common Shares Outstanding (5) 9,688,000 9,595,000 9,525,000 9,460,000 9,356,000
Weighted Average Common & Common Equivalent
Shares Outstanding (5) 10,276,000 10,306,000 10,223,000 10,254,000 10,254,000
Return on Quarterly Average Assets, annualized (6) 1.25% 1.25% 1.27% 1.32% 1.30%
Return on Quarterly Average Equity, annualized (6) 21.78% 21.82% 21.79% 22.55% 20.84%
Net Interest Margin - Average Earning Assets 4.83% 4.77% 4.76% 5.03% 5.28%
Operating Expense Ratio (Before Merger and Other Related
Nonrecurring Costs and Extraordinary Items) 2.68% 2.68% 2.58% 2.70% 2.97%
Efficiency Ratio (Before Merger and Other Related
Nonrecurring Costs and Extraordinary Items) 54.39% 54.21% 52.57% 53.02% 56.21%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Q1 and Q3 of 1998 includes a $700,000 and $100,000 write-down of an equity
investment in accordance with APB 18, respectively.
(2) Q1, Q3 and Q4 of 1998 nonrecurring expenses are comprised of $701,000,
$192,000 and $448,000 in donations to the GBB Foundation, respectively.
(3) Includes $88,000 loss on early retirement of subordinated debt.
(4) Net income per share for prior periods have been restated as required by the
adoption of SFAS No. 128. In accordance with the newly adopted accounting
standard, Net income Per Share is now presented on a Basic and Diluted
basis.
(5) Restated to reflect the 2-for-1 stock split declared for shareholders of
record as of April 30, 1998.
(6) Before Merger and Other Related Nonrecurring Costs and Extraordinary Items
of $88,000, net of tax, in Q1 1999, $360,000, net of tax, in Q3 of 1998, and
$1.31 million, net of tax, in Q2 of 1998.
Note: Prior periods have been restated to reflect the mergers between Greater
Bay Bancorp, Pacific Rim Bancorporation and Pacific Business Funding
Corporation, on a pooling-of-interests basis.
- --------------------------------------------------------------------------------
Greater Bay Greater Bay Bancorp Announces 29% Increase In Core Earnings
April 13, 1999
Page 5
GREATER BAY BANCORP
MARCH 31, 1999 - FINANCIAL SUMMARY
($ in 000's, except shar data)
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SELECTED YEAR TO DATE CONSOLIDATED OPERATING DATA:
MARCH 31, MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
Interest Income $ 31,341 $ 25,560
Interest Expense 12,981 10,432
-------- --------
Net Interest Income Before Provision for Loan Losses 18,360 15,128
Provision for Loan Losses 861 996
-------- --------
Net Interest Income After Provision for Loan Losses 17,499 14,132
Other Income (1) 1,930 1,029
Nonrecurring - Warrant Income 4 497
-------- --------
Total Other Income 1,934 1,526
Operating Expenses 11,035 9,082
Other Expenses - nonrecurring (2) - 701
-------- --------
Total Operating Expenses 11,035 9,783
-------- --------
Income Before Income Taxes and Extraordinary Items 8,398 5,875
Income Tax Expense 3,252 1,896
-------- --------
Income Before Extraordinary Items 5,146 3,979
Extraordinary Items (3) (88) -
-------- --------
Net Income $ 5,058 $ 3,979
-------- --------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
SELECTED YEAR TO DATE CONSOLIDATED OPERATING RATIOS:
MARCH 31, MARCH 31,
1999 1998
---------- -----------
<S> <C> <C>
Income Per Share (Before Extraordinary Items) (4) (5)
Basic $ 0.53 $ 0.43
Diluted $ 0.50 $ 0.39
Net Income Per Share (4) (5)
Basic $ 0.52 $ 0.43
Diluted $ 0.49 $ 0.39
Weighted Average Common Shares Outstanding (5) 9,688,000 9,356,000
Weighted Average Common & Common Equivalent Shares Outstanding (5) 10,276,000 10,254,000
Return on Average Assets, annualized (6) 1.25% 1.30%
Return on Average Equity, annualized (6) 21.78% 20.84%
Net Interest Margin - Average Earning Assets 4.83% 5.28%
Operating Expense Ratio (Before Extraordinary Items) 2.68% 2.87%
Efficiency Ratio (Before Extraordinary Items) 54.39% 56.21%
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Q1 of 1998 includes a $700,000 write-down of an equity investment in
accordance with APB 18.
(2) Q1 of 1998 nonrecurring expenses are comprised of a $701,000 donation to
the GBB Foundation.
(3) Includes $88,000 loss on early retirement of subordinated debt.
(4) Net income per share for prior periods have been restated as required by
the adoption of SFAS No. 128. In accordance with the newly adopted
accounting standard, Net income per share is now presented on a Basic and
Diluted basis.
(5) Restated to reflect the 2-for-1 stock split declared for shareholders of
record as of April 30, 1998.
(6) Before Extraordinary Items of $88,000, net of
tax in Q1 of 1999.
Note: Prior periods have been restated to reflect the mergers between Greater
Bay Bancorp, Pacific Rim Bancorporation and Pacific Business Funding
Corporation, on a pooling-of-interests basis.
- --------------------------------------------------------------------------------
