United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Amendment No. 2 to Form 10-K)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission File Number 0-11771
SJNB Financial Corp.
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(Exact name of registrant as specified in its charter)
California 77-0058227
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE NORTH MARKET STREET, SAN JOSE, CALIFORNIA 95113
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 947-7562
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting common equity held by non-affiliates of
the registrant, based on a market value of $38.56 per share (the closing price
of the Common Stock, as of February 28, 2001) was $120,605,000.
Number of shares of common stock outstanding as of February 28, 2001: 3,791,951
shares
Documents incorporated by reference:
Portions of the registrant's definitive proxy statement for the registrant's
2001 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A) are
incorporated by reference into Part III of this Report.
Explanatory Note: The undersigned registrant hereby amends its Amendment No. 1
to Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 2000 to include Exhibits 10(m), 10(o) and 23, which were
inadvertently omitted from that filing.
Part II
Item 8: Financial Statements and Supplementary Data
The following section includes the Company's Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets-December 31, 2000 and 1999
Consolidated Statements of Income for the Years Ended December 31,2000,
1999 and 1998
Consolidated Statements of Shareholders' Equity and Comprehensive
Income for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998
Notes to consolidated Financial Statements
Independent Auditors' Report
The Board of Directors
SJNB Financial Corp.:
We have audited the accompanying consolidated balance sheets of SJNB Financial
Corp. and subsidiary (the Company) as of December 31, 2000 and 1999, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SJNB Financial Corp.
and subsidiary as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
San Francisco, California
January 17, 2001
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SJNB Financial Corp. and subsidiary
Consolidated Balance Sheets
December 31, 2000 and 1999
(in thousands)
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Assets 2000 1999
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Cash and due from banks $20,831 $18,938
Interest-bearing deposits in other banks 599 2,042
Federal funds sold 7,240 7,000
Money market investments 38,475 5,651
Investment securities:
Available for sale (includes securities subject to repurchase agreements
Fair value: $10,024 at December 31, 2000 and $13,147 at December 31, 1999)
1190,878
Held to maturity (Fair value: $18,646 at December 31, 2000
and $20,708 at December 31,1999) 18,627 22,196
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Total investment securities 128,787 113,074
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Loans and leases 463,314 403,318
Allowance for loan and lease losses (7,393) (6,412)
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Loans and leases, net 455,921 396,906
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Premises and equipment, net 5,444 5,564
Accrued interest receivable 3,968 3,202
Intangibles, net of accumulated amortization of $3,059 at December 31, 2000
and $2,620 at December 31, 1999. 2,952 3,617
Other assets 23,560 12,087
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Total $687,777 $568,081
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Liabilities and Shareholders' Equity
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Deposits:
Non interest-bearing $130,130 $94,687
Interest-bearing 455,213 379,046
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Total deposits 585,343 473,733
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Federal Home Loan Bank advances 20,326 22,503
Other borrowings 11,713 11,022
Accrued interest payable 2,412 1,720
Other liabilities 4,400 5,884
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Total liabilities 624,194 514,862
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Shareholders' equity:
Preferred stock, no par value, 5,000 shares authorized;
none issued or outstanding in 2000 or 1999. ---- ----
Common stock, no par value; 20,000 shares authorized ;
3,747 and 3,593 shares issued and outstanding
in 2000 and 1999 respectively. 22,845 20,769
Retained earnings 40,221 33,942
Accumulated other comprehensive income (losses) 517 (1,492)
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Total shareholders' equity 63,583 53,219
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Commitments and contingencies ---- ----
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Total $687,777 $568,081
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<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
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SJNB Financial Corp. and subsidiary
Consolidated Statements of Income
Years ended December 31, 2000, 1999 and 1998
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(in thousands, except per share amounts) 2000 1999 1998
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Interest income:
Interest and fees on loans and leases $44,942 $35,826 $31,252
Interest on money market investments 2,358 1,536 1,750
Interest on time deposits 73 107 169
Interest and dividends on investment securities available for sale 6,820 4,638 4,753
Interest and dividends on investment securities held to maturity 1,073 1,200 1,165
Other interest and investment income (expense) 10 (50) (9)
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Total interest income 55,276 43,257 39,080
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Interest expense:
Deposits:
Interest-bearing demand 2,244 2,189 2,158
Money market and savings 6,481 3,938 3,931
Certificates of deposit of $100 or more 7,490 4,992 4,073
Certificates of deposit of less than $100 3,237 2,627 1,604
Federal Home Loan Bank advances 1,331 1,361 1,398
Other borrowings 867 585 313
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Total interest expense 21,650 15,692 13,477
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Net interest income 33,626 27,565 25,603
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Provision for loan and lease losses 725 862 436
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Net interest income after provision for
loan and lease losses 32,901 26,703 25,167
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Other income:
Service charges on deposits 1,067 1,044 950
Other operating income 599 737 724
Increase in cash surrender value of life insurance 542 218 ----
Net (loss) gain on sale of securities available for sale (602) (133) 150
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Total other income 1,606 1,866 1,824
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Other expenses:
Salaries and benefits 9,642 9,180 8,048
Occupancy 1,504 1,454 1,310
Merger related costs, nonrecurring 3,424 487 ----
Other 5,786 5,430 5,104
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Total other expenses 20,356 16,551 14,462
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Income before income taxes 14,151 12,018 12,529
Income taxes 5,527 4,901 5,040
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Net income $8,624 $7,117 $7,489
============================================================================================================================
Basic earnings per share $2.35 $2.04 $2.06
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Diluted earnings per share $2.24 $1.91 $1.92
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Average common shares outstanding 3,665 3,491 3,635
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Average common share equivalents outstanding 3,854 3,722 3,902
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<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
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SJNB Financial Corp. and subsidiary
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years ended December 31, 2000, 1999 and 1998
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Accumulated Total
Other Share-
Common Retained Comprehensive holders'
(in thousands, except per share amounts) Shares Stock Earnings Income (Losses) Equity
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Balances, December 31, 1997 3,640 $23,505 $23,353 $(94) $46,764
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Net income for the year ---- ---- 7,489 ---- 7,489
Change in net unrealized gain/loss on securities:
Unrealized gains arising during the year, net of taxes ---- ---- ---- 329 329
Reclassification adjustment for losses included in
income, net of taxes ---- ---- ---- 47 47
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Comprehensive income 7,865
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Stock options exercised 41 572 ---- ---- 572
Common stock repurchase (103) (3,562) (180) ---- (3,742)
Issuance of common stock for Epic Funding Corp. 12 501 ---- ---- 501
Tax benefit from stock options exercised ---- 445 ---- ---- 445
Cash dividends ($0.56 per share) ---- ---- (1,666) ---- (1,666)
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Balances, December 31, 1998 3,590 21,461 28,996 282 50,739
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Net income for the year ---- ---- 7,117 ---- 7,117
Other comprehensive income-Unrealized loss
on securities held for sale, net ---- ---- ---- (1,774) (1,774)
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Comprehensive income 5,343
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Common stock issued 60 1,800 ---- ---- 1,800
Stock options exercised 93 849 ---- ---- 849
Common stock repurchase (150) (3,389) (522) ---- (3,911)
Tax benefit from stock options exercised ---- 48 ---- ---- 48
Cash dividends ($0.56 per share) ---- ---- (1,649) ---- (1,649)
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Balances, December 31, 1999 3,593 20,769 33,942 (1,492) 53,219
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Net income for the year ---- ---- 8,624 ---- 8,624
Other comprehensive income-Unrealized gain
on securities held for sale, net ---- ---- ---- 2,009 2,009
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Comprehensive income 10,633
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Stock options exercised 154 1,557 ---- ---- 1,557
Tax benefit from stock options exercised ---- 519 ---- ---- 519
Cash dividends ($0.64 per share) ---- ---- (2,345) ---- (2,345)
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Balances, December 31, 2000 3,747 $22,845 $40,221 $517 $63,583
=============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
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SJNB Financial Corp. and subsidiary
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
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(dollars in thousands) 2000 1999 1998
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Cash flows from operating activities:
Net income $8,624 $7,117 $7,489
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses 725 862 436
Depreciation and amortization 844 1,279 790
Amortization of intangibles 439 456 457
Deferred tax benefit 1,199 361 57
Loss (gain) on sale of securities available for sale 602 133 (150)
Net gain (loss) on sale of leased assets ----- 35 (12)
Amortization of (discount) premium on investment securities, net (185) 10 (49)
Decrease (increase) in intangible assets 226 (45) (50)
Increase in accrued interest receivable and other assets (5,304) (3,561) (393)
(Decrease) increase in accrued interest payable and other liabilities (618) (24) 1,702
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Net cash provided by operating activities 6,552 6,623 10,277
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Cash flows from investing activities:
Proceeds from sale or maturities of securities available for sale 38,636 23,423 58,974
Maturities of securities held to maturity 3,757 6,725 11,355
Purchase of securities available for sale (54,926) (53,991) (40,071)
Purchase of securities to be held to maturity (150) (5,868) (6,703)
Net increase in loans and leases (59,898) (64,996) (43,070)
Capital expenditures (723) (3,381) (908)
Purchase of life insurance policies (9,070) ----- (3,953)
Cash used to acquire Epic Funding Corp. ----- ----- (206)
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Net cash used in investing activities (82,374) (98,088) (24,582)
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Cash flow from financing activities:
Net increase in deposits 111,610 67,867 44,466
Decrease in Federal Home Loan Bank borrowings (2,177) (169) (287)
Increase (decrease) in other borrowings 691 3,997 (11,000)
Cash dividends (2,345) (1,649) (1,666)
Common stock repurchased ----- (3,911) (3,742)
Common stock issued ----- 1,800 -----
Proceeds from stock options exercised 1,557 849 572
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Net cash provided by financing activities 109,336 68,784 28,343
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Net increase (decrease) in cash and equivalents 33,514 (22,681) 14,038
Cash and equivalents at beginning of year 33,631 56,312 42,274
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Cash and equivalents at end of year $67,145 $33,631 $56,312
====================================================================================================================================
Other cash flow information:
Interest paid $20,958 $15,268 $13,450
Income taxes paid 5,832 5,544 4,016
==================================================================================================
Noncash transactions:
Purchase of Epic Funding Corp.:
Leases ----- ----- $149
Other assets ----- ----- 789
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Total assets acquired ----- ----- 938
Cash paid and expenses incurred ----- ----- (206)
Liabilities assumed:
Other liabilities ----- ----- 231
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Total liabilities assumed ----- ----- 231
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Common stock issued, net of registration costs ----- ----- $501
====================================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies
SJNB Financial Corp. ("Company") is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. The Company was incorporated under
the laws of the State of California on April 18, 1983. Its principal office is
located at One North Market Street, San Jose, California, 95113.
The Company owns 100% of the issued and outstanding common shares of San Jose
National Bank (referred to herein as "SJNB" or "the Bank"). The Bank was
incorporated on November 23, 1981 and commenced business in San Jose, California
on June 10, 1982. Its main office is located at One North Market Street, San
Jose, California, 95113. SJNB engages in the general commercial banking business
with special emphasis on the banking needs of the business and professional
communities in San Jose and the surrounding areas. The Financial Services
Division is located at 95 South Market, San Jose, California, 95113, where it
engages in the factoring of accounts receivable. The Bank's wholly-owned
subsidiary, Epic Funding Corp. is located in Danville, California where it
shares an office with the Bank's Danville branch. Epic Funding Corp. is
primarily in the business of originating equipment lease financing throughout
the United States, but primarily in the State of California.
Dollars and share amounts are in thousands in these footnotes, except per share
amounts or as otherwise noted.
The accounting policies of SJNB Financial Corp. and San Jose National Bank
(collectively, the "Company") are in accordance with generally accepted
accounting principles and conform to general practices within the banking
industry.
a. Consolidation
The consolidated financial statements include the accounts of SJNB. All material
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
b. Investment Securities
The Company accounts for its investment securities as follows:
Available for sale-Investment securities that are acquired without the intent to
hold until maturity are classified as available for sale. Such securities are
carried at market value. Market value adjustments are reported as a separate
component of other comprehensive income included in shareholders' equity until
realized.
Held to maturity-Investment securities purchased with the intent and ability to
hold them until maturity are classified as held to maturity. Such securities are
carried at cost, adjusted for accretion of discounts and amortization of
premiums.
Investment securities purchased are recorded as of their trade date. Accretion
of discounts and amortization of premiums arising at acquisition are included in
income using methods approximating the interest method. Gains or losses on sales
of securities, if any, are determined based on the specific identification
method. The carrying values of individual investment securities are reduced, if
necessary, through write-downs to reflect other than temporary impairments in
value.
In connection with the Company's adoption of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities as described in note 1(f) below,
the Company elected to reclassify all of its "Held to maturity" investments to
"available for sale" as of January 1, 2001. The impact of this will be to
account for the unrealized gain or loss in the held to maturity securities as an
additional component of other comprehensive income included in shareholders'
equity until realized. The amount of the net unrealized gain in the held to
maturity classification was $19 as of December 31, 2000.
c. Loans and Leases and Allowance for Loan and Lease Losses
Loans and leases generally are stated at the principal amount outstanding.
Interest on loans is credited to income on a simple interest basis. Unearned
revenue on direct financing leases is accreted over the lives of the leases in
decreasing amounts to provide a constant rate of return on the net investment in
the leases. Loan origination fees and direct origination costs, including
initial direct cost of lease origination are deferred and amortized to income by
a method approximating the level yield method over the estimated lives of the
underlying loans. The accrual of interest on loans and leases is discontinued
and any accrued and unpaid interest is reversed when, in the opinion of
management, there is significant doubt as to the collectibility of interest or
principal or when the payment of principal or interest is ninety days past due,
unless the loan is well-secured and in the process of collection.
The allowance for loan and lease losses is a valuation allowance maintained to
provide for future loan losses through charges to current operating expense. The
allowance is based upon a continuing review of loans and leases by management
which includes consideration of changes in the character of the loan and lease
portfolio, current and anticipated economic conditions, past lending experience
and such other factors which, in management's judgment, deserve recognition in
estimating potential loan losses. In addition, regulatory examiners may require
the Company to recognize additions to the allowance based on their judgments
about information available to them at the time of their examinations.
Impaired loans are those in which, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan or lease agreement, including scheduled
interest payments. The Company measures such loans and leases based on the
present value of future cash flows discounted at the loan's or lease's effective
interest rate, or at the loan's or lease's market value or the fair value of the
collateral if the loan is secured. If the measurement of the impaired loan or
lease is less than the recorded investment, impairment is recognized by creating
or adjusting an existing allocation of the allowance for loan and lease losses.
d. Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are charged to expense over the
estimated useful lives of the assets on a straight-line basis as follows:
Buildings 30 years
Furniture and equipment 3-10 years
Improvements 7-15 years
e. Intangibles
Goodwill is amortized using the straight-line method over 15 years. Core deposit
intangibles are amortized using an accelerated method over ten years.
On a periodic basis, the Company reviews its intangible assets for events or
changes in circumstances that may indicate that the carrying amount of the
assets may not be recoverable. Should such a change indicate that the value of
such intangibles may be impaired, an evaluation of the recoverability would be
performed, using undiscounted cash flows, prior to any writedown of the assets.
f. Derivative Instruments and Hedging Activities
Interest rate instruments are entered into in conjunction with the Bank's
asset/liability management. As these contracts are entered into only after
meeting the accounting criteria for a hedge, and as long as they continue to
meet such criteria, changes in market value are deferred and the net settlements
are accrued as adjustments to interest income. The Bank currently has
outstanding a callable interest rate swap for $10 million it issued
simultaneously with a $10 million ten-year callable synthetic floating rate
certificate of deposit and a three-year $20 million prime/fixed interest rate
swap, which are accounted for as hedges.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date. In June 2000, the FASB issued SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS No. 133. SFAS No. 138 addresses a limited
number of issues causing implementation difficulties for entities which are
required to apply SFAS No. 133. SFAS No. 137 deferred the effective date to the
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
adopted SFAS No. 133, as amended on January 1, 2001 and there was no effect. As
noted above the Bank currently has outstanding $30 million in derivative
instruments as defined by SFAS No. 133. These derivative instruments will
qualify as cash flow or fair market hedges in accordance with the Statement.
g. Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences of differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Under the asset and liability method, deferred tax assets are recognized for
deductible temporary differences and operating loss and tax credit
carryforwards, and then a valuation allowance is established to reduce that
deferred tax asset if it is "more likely than not" that the related tax benefits
will not be realized.
h. Stock-based Compensation
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company only grants stock
options at fair market value. SFAS No. 123, Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. The Company has elected to remain on its current method of accounting as
described above, and has adopted the disclosure requirements of SFAS No. 123.
i. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
net income per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year plus shares
issuable assuming exercise of all employee stock options, except where
anti-dilutive.
j. Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes new rules for the reporting and display
of comprehensive income and its components. Comprehensive income is a part of an
enterprises financial performance and, as described in SFAS No. 130, includes
net income and other comprehensive income such as revenues, expenses, gains and
losses not included in net income. The adoption of this statement had no impact
on net income or shareholders' equity. SFAS No. 130 requires the Company's net
unrealized gains or losses on available-for-sale securities to be included in
other comprehensive income. Comprehensive income is included in the statement of
shareholders' equity for the periods presented.
k. Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, fed funds sold and money market investments.
l. Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent asset and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
m. Impairment of Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by an
entity are reviewed for impairment whenever events or changes indicate that the
carrying amount of an asset may not be recoverable. The Company has not
identified any long-lived assets or identifiable intangibles which were
impaired.
n. Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under this approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, was issued in September 2000 and replaces the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. The Company did not have any
significant transactions in which these Statements had any impact on its
consolidated financial statements.
o. Segments of an Enterprise and Related Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires certain information about the operating segments of the
Company. The objective of requiring disclosures about segments of an enterprise
and related information is to provide information about the different types of
business activities in which an enterprise engages and the different economic
environments in which it operates to help users of financial statements better
understand its performance, better assess its prospects for future cash flows
and make more informed judgments about the enterprise as a whole. The Company
has determined it has three segments: general commercial banking, leases, and
factoring/asset based financing. Neither leasing nor factoring/asset based
financing meet the required thresholds for disagregation and therefore the
disclosures and related information about such segments has not been included in
the consolidated financial statements. At such time that these segments meet the
required thresholds, such disclosures and other information will be included.
p. Reclassification
Certain 1999 and 1998 amounts have been reclassified to conform to the 2000
presentation.
NOTE 2 - Acquisitions
On January 5, 2000, the Company acquired all of the outstanding shares of common
stock of Saratoga Bancorp, the parent company of Saratoga National Bank,
pursuant to an exchange of the Company's common stock for all common stock of
Saratoga Bancorp. Saratoga National Bank, headquartered in Saratoga, California,
operated three branches and as of the acquisition date had $142 million
(unaudited) in assets and $103 million (unaudited) in deposits. Saratoga's San
Jose office, which was located near SJNB's San Jose office, was consolidated
into SJNB's San Jose office in January 2000. The shareholders of Saratoga
received 0.70 shares of the Company's common stock for each outstanding share of
Saratoga common stock. Based on the closing price of the Company's stock on
January 5, 2000 of $29.125, the transaction was valued at approximately $34.2
million, excluding the value of any unexercised options, and each Saratoga
shareholder received SJNB common stock valued at $20.39 per share for each share
of Saratoga common stock. The merger has been accounted for as a pooling of
interests.
On May 22, 1998, SJNB acquired all of the stock of a private company, Epic
Funding Corporation (Epic), pursuant to a definitive agreement dated April 13,
1998. In connection with the acquisition, which was structured as a tax-free
reorganization and accounted for as a purchase transaction for accounting
purposes, SJNB issued 12.2 shares of its common stock and paid $110 to Epic's
sole shareholder in exchange for all of Epic's outstanding stock. The total
purchase price was $611, while Epic's fair value of net assets was $28; goodwill
amounted to $759 including certain expenses of the transaction. Epic provides
direct and vendor lease programs to manufacturers and equipment users throughout
California and across parts of the United States. Epic is a wholly owned
subsidiary of the Bank. Epic's office is located in Danville, California,
together with a small de novo branch of the Bank at the same facility which
opened July 1, 1998.
NOTE 3 - Cash and Due from Banks
The Federal Reserve requires the Bank to maintain average reserve balances for
certain deposit balances. Required reserves at December 31, 2000 were $746 and
there were no required reserves in 1999.
NOTE 4 - Investment Securities
Investment securities as of December 31, 2000 and 1999 are summarized as
follows:
(dollars in thousands) December 31, 2000
- --------------------------------------------------------------------------------------------------------------
Unrealized Fair
-------------------------------
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
Available for sale:
U.S. Treasury $1,496 $31 ----- $1,527
U. S. Government Agencies 33,444 295 $(90) 33,649
Mortgage Backed 56,120 1,567 (120) 57,567
State and municipal 5,208 109 (4) 5,313
Trust preferred 9,050 32 (607) 8,475
Asset-backed 3,607 29 (7) 3,629
- --------------------------------------------------------------------------------------------------------------
Total available for sale 108,925 2,063 (828) 110,160
- --------------------------------------------------------------------------------------------------------------
Held to Maturity:
U.S. Government agencies 500 1 ----- 501
State and municipal (nontaxable) 16,395 159 (141) 16,413
- --------------------------------------------------------------------------------------------------------------
Total held to maturity 16,895 160 (141) 16,914
Federal Reserve Bank/Federal Home Loan Bank Stock 1,732 ----- ----- 1,732
- --------------------------------------------------------------------------------------------------------------
Total 18,627 160 (141) 18,646
- --------------------------------------------------------------------------------------------------------------
Total investment securities portfolio $127,552 $2,223 $(969) $128,806
==============================================================================================================
December 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized Fair
-------------------------------
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
Available for sale:
U.S. Treasury $2,496 $3 ----- $2,499
U. S. Government Agencies 37,337 8 $(732) 36,613
Mortgage Backed 38,560 ----- (564) 37,996
Asset-backed 2,000 ----- (22) 1,978
Trust Preferred 7,062 ----- (479) 6,583
Mutual funds 5,646 ----- (437) 5,209
- ----------------------------------------------------------------------------------------------------------------------------
Total available for sale 93,101 11 (2,234) 90,878
- ----------------------------------------------------------------------------------------------------------------------------
Held to Maturity:
U.S. Government agencies 499 3 ----- 502
State and municipal (nontaxable) 17,828 8 (1,512) 16,324
Mortgage Backed 657 13 ----- 670
- ----------------------------------------------------------------------------------------------------------------------------
Total held to maturity 18,984 24 (1,512) 17,496
Federal Reserve Bank/Federal Home Loan Bank Stock 3,212 ----- ----- 3,212
- ----------------------------------------------------------------------------------------------------------------------------
Total 22,196 24 (1,512) 20,708
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities portfolio $115,297 $35 $(3,746) $111,586
============================================================================================================================
As of December 31, 2000 and 1999 investment securities with carrying values of
approximately $54.9 million and $36.9 million, respectively, were pledged as
collateral for deposits of public funds and other purposes. Investments in the
Federal Reserve Bank and Federal Home Loan Bank stock is carried at cost, which
is approximately equal to their market value.
Mutual funds consist of several funds invested in U. S. Government securities
and government issued adjustable rate mortgages (ARMS).
The following tables provide the scheduled maturities of the Company's
investment securities portfolio as of December 31, 2000:
Maturity of investment securities portfolio
(dollars in thousands)
Amortized Fair
Securities available for sale Cost Value
-----------------------------
Due in one year or less $1,998 $2,029
Due after one year through five years 42,050 42,928
Due after five years through ten years 18,090 18,204
Due after ten years 46,787 46,999
-----------------------------
Total 108,925 110,160
-----------------------------
Securities held to maturity
Due in one year or less 915 918
Due after one year through five years 2,067 2,092
Due after five years through ten years 1,483 1,498
Due after ten years 12,430 12,406
-----------------------------
Total 16,895 16,914
-----------------------------
Non-maturity investments
Held to maturity - FRB/FHLB Stock 1,732 1,732
-----------------------------
Total 1,732 1,732
-----------------------------
Total Investment securities $127,553 $128,806
=============================
Interest and dividend income earned on investment securities for the years ended
December 31, 2000, 1999 and 1998 are as follows:
Interest and dividend income
Interest and dividend income
(dollars in thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury $99 $146 $378
U.S. Government agencies 2,147 2,964 3,736
State and municipal (nontaxable) 29 ---- ----
State and municipal (taxable) 115 ---- ----
Mortgage Backed 3,257 851 301
Asset-backed 376 72 ----
Trust preferred 645 300 ----
Mutual funds 152 305 338
Securities held to maturity:
U.S. Treasury ---- 78 97
U.S. Government agencies 34 116 260
State and municipal (nontaxable) 849 757 518
Mortgage Backed 26 89 146
Federal Reserve Bank/Federal Home Loan Bank Stock 164 160 144
- -----------------------------------------------------------------------------------------------------------------------
Interest and dividend income $7,893 $5,838 $5,918
=======================================================================================================================
NOTE 5 - Loans
A summary of loans as of December 31, 2000, 1999 and 1998 is as follows:
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Commercial and other $140,108 $123,873 $110,604
SBA 53,371 49,949 37,019
Leasing 37,450 20,837 5,618
Factoring and asset-based 13,476 9,901 7,393
Real estate construction 54,667 48,410 51,963
Real estate term 147,110 139,103 113,461
Consumer 18,262 12,448 10,839
Unearned fee income (1,130) (1,203) (954)
- ----------------------------------------------------------------------------------------------------------------------------
Total loan and lease portfolio 463,314 403,318 335,943
Less allowance for loan or lease losses (7,393) (6,412) (5,494)
- ----------------------------------------------------------------------------------------------------------------------------
Loans and leases, net $455,921 $396,906 $330,449
============================================================================================================================
Concentrations of credit risk arise when a number of customers are engaged in
similar business activities, or activities in the same geographic region, or
have similar features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic conditions. Although
the Company has a diversified loan and lease portfolio, a substantial portion of
its customers' ability to honor contracts is reliant upon the economic stability
of the Santa Clara Valley, which in some degree relies on the stability of high
technology companies in its "Silicon Valley." Loans and leases are generally
made on the basis of a secure repayment source, which is based on a detailed
cash flow analysis; however, collateral is generally a secondary source for loan
qualification.
Approximately 32% of the Company's loan and lease portfolio is made up of real
estate term loans. This category of real estate loans includes loans on
income-bearing or owner-occupied commercial properties and land loans. In
addition, approximately 12% of the loan and lease portfolio is made up of real
estate construction loans. These loans consist of approximately 30% residential
and 70% commercial. Included in consumer loans are prime equity loans of $8.1
million or representing approximately 1.7% of the total loan portfolio. Included
in the commercial category are mortgage warehouse loans, loans to real estate
developers for short-term investment purposes and loans to nondevelopers for
real estate investment purposes that amount to approximately 9% of the total
loan portfolio. Included in the SBA category are real estate piggy back loans
that amount to approximately 2% of the total loan portfolio. In the aggregate,
approximately 55% of the loan portfolio is directly related to real estate or
real estate interests. Approximately 30% of the total loan portfolio is
commercial loans; however, no particular industry represents a significant
portion of such loans.
The following is an analysis of the allowance for loan and lease losses for the
years ended December 31, 2000, 1999 and 1998:
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $6,412 $5,494 $5,071
Provision for loan or lease losses 725 861 436
Charge-offs (411) (165) (299)
Recoveries 667 222 286
- ----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $7,393 $6,412 $5,494
============================================================================================================================
At December 31, 2000 and 1999, impaired loans totaled $421 and $1.4 million with
a corresponding valuation allowance of $284 and $224, respectively. For the
years ended December 31, 2000 and 1999, the average recorded investment in
impaired loans was approximately $828 and $475, respectively. The Company
recognized $72, $41 and $60 of interest on impaired loans (during the portion of
the year they were impaired), of which $72, $40 and $8 related to impaired loans
for which interest income is recognized on the cash basis, for the years ended
December 31, 2000, 1999 and 1998, respectively.
The balance of nonaccrual loans as of December 31, 2000 and 1999 was
approximately $421 and $1.4 million, respectively. The effect on interest income
had these loans been performing in accordance with contractual terms was $62 in
2000, $132 in 1999, and $22 in 1998. Income actually recognized on these loans
was $16 in 2000, $112 in 1999 and $21 in 1998.
The Company has made loans to executive officers, directors and their affiliates
in the ordinary course of business. An analysis of activity with respect to such
loans during the years ended December 31, 2000, 1999 and 1998 is as follows:
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $2,741 $1,749 $1,223
New loans disbursed 21 2,717 1,340
Repayments of loans (2,189) (1,725) (814)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $573 $2,741 $1,749
============================================================================================================================
As of December 31, 2000, loans of approximately $12 million were pledged as
collateral for the Federal Reserve Discount Window.
NOTE 6 - Premises and Equipment
A summary of premises and equipment as of December 31, 2000 and 1999 is as
follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Land $1,777 $1,777
Buildings and improvements 4,138 4,351
Furniture and equipment 2,623 3,447
- --------------------------------------------------------------------------------
Premises and equipment 8,538 9,575
Less accumulated depreciation and amortization (3,094) (4,011)
- --------------------------------------------------------------------------------
Premises and equipment, net $5,444 $5,564
================================================================================
NOTE 7 - Time Deposits
As of December 31, 2000 and 1999, the Bank had $135 million and $105 million,
respectively, in time deposits in denominations of $100 or more. Interest
expense for these deposits was $7.5 million and $5.0 million in 2000 and 1999,
respectively. Time deposits in denominations of $100 or more which mature in
greater than one year were $8.8 million as of December 31, 2000.
On December 4, 1998 the Bank raised $10 million through the placement of a
ten-year synthetic floating rate certificate of deposit. The instrument consists
of two linked transactions, a callable interest rate swap and callable fixed
rate certificate of deposit. Under the swap agreement the Bank pays LIBOR plus
five basis points and receives 6% for a period of ten years. The swap is
callable after one year by the issuer. Simultaneously, the Bank issued a
callable 6% fixed rate 10-year certificate of deposit. The certificate of
deposit does not have any early redemption clauses, other than by death of the
holder. Effectively, the Bank's rate of interest on the combined transaction is
LIBOR plus five basis points.
NOTE 8 - Borrowings
Federal funds purchased and securities sold under agreements to repurchase and
information relating to these borrowings are summarized below as of and for the
years ended December 31:
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Federal funds purchased
Balance at December 31, ----- $500 $5,000
Weighted average interest rate at year end ----- 5.50% 5.50%
Maximum amount outstanding at any month end $9,000 $22,000 $5,000
Average outstanding balance $577 $1,801 $380
Weighted average interest rate paid 7.00% 5.54% 6.40%
Securities sold under agreements to repurchase
Balance at December 31, $9,645 $10,497 -----
Weighted average interest rate at year end 7.01% 5.80% -----
Maximum amount outstanding at any month end $10,497 $15,559 $12,000
Average outstanding balance $10,017 $7,421 $3,762
Weighted average interest rate paid 6.65% 5.61% 5.59%
Any securities used under securities sold under agreements to repurchase are
under the control of the Bank. Securities subject to the agreement to repurchase
represent securities held by the Bank in its securities available for sale
portfolio with a total amortized cost of $9.9 million and a market value of
$10.0 million as of December 31, 2000.
The Company's bank subsidiary has informal arrangements with various
correspondents providing short-term credit for liquidity requirements; such
informal lines aggregated $22 million at December 31, 2000.
The Company had borrowings from the Federal Home Loan Bank bearing interest
ranging from 5.67% to 7.59% as of December 31, 2000 and 5.82% to 6.74% as of
December 31, 1999. The borrowings are secured by U. S. Government Agency
securities and are due as follows as of December 31, 2000 and 1999:
Year 2000 1999
- ---------------- ------------------ -----------------
2001 $9,076 $9,096
2002 723 735
2003 2,616 2,639
2005 6,892 6,933
2010 246 274
2011 773 826
- ---------------- ------------------ -----------------
Total $20,326 $20,503
================ ================== =================
NOTE 9 - Accumulated Other Comprehensive Income
Accumulated other comprehensive income is as follows for the years ended
December 31, 2000, 1999, and 1998:
2000 1999 1998
- --------------------------------------------------------------- -------------- --------------- --------------
Realized (losses) gains on securities available for sale, net $(602) $(133) $150
Unrealized appreciation (loss) of securities held for sale, 2,611 (1,641) 226
net
- --------------------------------------------------------------- -------------- --------------- --------------
Other comprehensive income (loss) $2,009 $(1,774) $376
=============================================================== ============== =============== ==============
NOTE 10 - Earnings per Share
The reconciliation of the numerators and denominators of the basic and diluted
earnings per share (EPS) computations are as follows:
(in thousands, Net Per Share
except per share amounts) Income Shares Amounts
- ----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000
Net income and basic EPS $8,624 3,665 $2.35
====================
Effect of stock option dilutive shares 189
- ---------------------------------------------------------------------------------------------------------
Diluted earnings per share $8,624 3,854 $2.24
============================================================================================================================
For the year ended December 31, 1999
Net income and basic EPS $7,117 3,491 $2.04
====================
Effect of stock option dilutive shares 231
- ---------------------------------------------------------------------------------------------------------
Diluted earnings per share $7,117 3,722 $1.91
============================================================================================================================
For the year ended December 31, 1998
Net income and basic EPS $7,489 3,635 $2.06
====================
Effect of stock option dilutive shares 267
- ---------------------------------------------------------------------------------------------------------
Diluted earnings per share $7,489 3,902 $1.92
============================================================================================================================
NOTE 11 - Income Taxes
Income tax expense for the years ended December 31, 2000, 1999 and 1998 consists
of the following:
(dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Current:
Federal $5,065 $3,980 $3,899
State 1,661 1,282 1,198
- --------------------------------------------------------------------------------
Total current 6,726 5,262 5,097
- --------------------------------------------------------------------------------
Deferred:
Federal (910) (266) (48)
State (289) (95) (9)
- --------------------------------------------------------------------------------
Total deferred (1,199) (361) (57)
- --------------------------------------------------------------------------------
Income taxes $5,527 $4,901 $5,040
================================================================================
Total income tax expense differed from the amount computed by applying the U. S.
federal income tax rate of 34% in the years ended December 31, 2000, 1999 and
1998 to income before income taxes as a result of the following:
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Computed "expected " tax expense $4,811 $4,085 $4,259
California franchise tax, net of federal income tax 905 783 785
Amortization of intangible assets 130 136 136
Federal tax-exempt investment income (266) (239) (151)
Other (53) 136 11
- ----------------------------------------------------------------------------------------------------------------------------
Income taxes $5,527 $4,901 $5,040
============================================================================================================================
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2000 and
1999, are presented below:
(dollars in thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Provision for loan or lease losses $2,414 $2,193
Purchase accounting adjustments 65 95
Foreclosure income 43 43
State taxes 527 426
Deferred compensation 1,275 353
Securities available for sale ---- 936
- -----------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 4,324 4,046
- -----------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization 32 43
Leases 2 2
Securities available for sale 345 ----
Other 152 126
- -----------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 531 171
- -----------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $3,793 $3,875
=============================================================================================================================
Amounts for the current year are based upon estimates and assumptions as of the
date of this report and could vary significantly from amounts shown on the tax
returns as filed. Accordingly, the variances from the amounts previously
reported for 1999 are primarily as a result of adjustments to conform to tax
returns as filed.
Deferred tax assets related to purchase accounting adjustments include the tax
effect of fair market value adjustments of the assets and liabilities of
businesses acquired. The Company believes that the net deferred tax asset is
realizable through sufficient taxable income within the carryback periods and
the current year's taxable income.
NOTE 12 - Detail of Other Expense
Other expense for the years ended December 31, 2000, 1999 and 1998 consists of
the following:
(dollars in thousands) 2000 1999 1998
- -----------------------------------------------------------------------------------------------
Data processing $747 $676 $741
Directors and shareholders 660 673 469
Legal and professional fees 641 701 520
Client services 613 585 495
Amortization of core deposit intangibles and goodwill 439 455 457
Net cost of other real estate owned ---- (47) 7
Other 2,686 2,387 2,415
- -----------------------------------------------------------------------------------------------
Total $5,786 $5,430 $5,104
===============================================================================================
NOTE 13 - Stock Option Plan
During 1996, the shareholders of the Company approved the 1996 Stock Option Plan
(the "Plan"), which replaced two then existing stock option plans. The 1996
Stock Option Plan is described below. In accordance with APB 15, no compensation
cost has been recognized for the Plan. Had compensation cost for the Plan been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would have been adjusted to the pro forma amounts for options granted
for the years 2000, 1999 and 1998 indicated below:
(dollars in thousands, except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Net income:
As reported $8,624 $7,117 $7,489
Pro forma 7,841 6,261 6,432
- ----------------------------------------------------------------------------------------------------------------------------
Net income per share:
Basic, as reported $2.35 $2.04 $2.06
Basic, pro forma 2.14 1.79 1.77
- ----------------------------------------------------------------------------------------------------------------------------
Diluted, as reported $2.24 $1.91 $1.92
Diluted, pro forma 2.03 1.68 1.65
The above amounts include the impact on net income and net income per share for
options granted during the years 1995 through 2000; such amounts would have been
substantially different if options granted prior to 1995 had been included in
the computation.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the following years:
Assumptions: 2000 1999 1998
- -------------------------------------------- ------------------- ---------------
Dividend yield 2.2% 2.0% 1.8%
Volatility 31.2% 46.7% 50.0%
Risk free interest rate 6.2% 5.4% 5.0%
Expected lives (years) 4.9 7.2 6.4
The 1996 Stock Option Plan provides that either incentive stock options or
nonstatutory stock options may be granted to certain key employees or directors
to purchase authorized, but unissued, Common Stock of the Company. Shares may be
purchased at a price not less than the fair market value of such stock on the
date of the grant. Generally, stock options become exercisable 40% one year
after the date of grant and 20% in each of the following three years. They
expire no later than ten years after the date of the grant. The Plan provides
that outside directors will automatically receive a nonstatutory option covering
five thousand shares annually at an exercise price equal to 100% of the market
price of the Common Stock on the date of grant. The 1996 Stock Option Plan
replaced the previous two plans which had similar provisions. If options granted
under the prior plans expire without being exercised, the corresponding common
shares shall become available for awards under the Plan. During 2000, no shares
became available under this provision. The number of shares available for future
grants of options under the 1996 Stock Option Plan was 169 as of December 31,
2000.
Activity under the stock plans is as follows:
Weighted
Number Average
of Exercise
Options Shares Price
- ----------------------------------------------------------------------------
Balances, December 31, 1997 527,157 $12.03
Granted 428,950 30.09
Cancelled (198,230) 35.25
Exercised (41,233) 13.87
- ----------------------------------------------------------------------------
Balances, December 31, 1998 716,644 16.31
Granted 158,170 27.93
Cancelled (32,632) 25.51
Exercised (90,965) 9.34
- ----------------------------------------------------------------------------
Balances, December 31, 1999 751,217 19.21
- ----------------------------------------------------------------------------
Granted 93,186 30.17
Cancelled (26,258) 26.25
Exercised (155,978) 10.12
- ----------------------------------------------------------------------------
Balances, December 31, 2000 662,167 $22.62
============================================================================
The weighted-average fair value of options granted during 2000, 1999 and 1998
was $9.05, $12.34 and $12.30, respectively.
The following table summarizes options outstanding and exercisable at December
31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------------------------
Number Weighted Number Weighted
Range of Outstanding Average Exercisable Average
Exercise as of Remaining Exercise as of Exercise
Prices December 31, 2000 Life Price December 31, 2000 Price
- ----------------------------------------------------------------------------------------------------------------------------
$5.38- $6.43 66,650 3.14 $5.94 66,650 $5.94
6.90- 9.31 8,810 3.86 7.68 8,810 7.68
11.50- 14.31 49,010 4.63 9.56 49,010 9.56
16.38- 19.94 59,920 5.51 16.98 59,120 16.94
22.69- 24.88 36,542 7.28 22.95 34,408 22.91
25.00- 26.56 66,250 6.64 25.38 46,500 25.22
26.69- 26.69 156,360 7.81 26.69 91,648 26.69
27.19- 27.50 49,452 8.26 27.33 19,420 27.33
27.63- 27.63 55,400 8.19 27.63 22,160 27.63
27.79- 36.06 113,773 9.36 30.32 9,668 30.56
- ----------------------------------------------------------------------------------------------------------------------------
$5.38- $36.06 662,167 7.03 $22.62 407,394 $19.10
============================================================================================================================
Options exercisable as of December 31, 1999 were 453,799 and had a weighted
average exercise price of $14.31. Options exercisable as of December 31, 1998
were 370,025 and had a weighted average exercise price of $9.38.
NOTE 14 - Commitments and Contingent Liabilities
In the normal course of business, there are outstanding commitments, such as
commitments to extend credit, which are not reflected in the consolidated
financial statements. These commitments involve, to varying degrees, credit risk
in excess of the amount recognized as either an asset or liability in the
consolidated balance sheet. The Company controls the credit risk through its
credit approval process. The same credit policies are used when entering into
such commitments. Management does not anticipate any loss from such commitments.
Amounts committed to extend credit under normal lending agreements aggregated
approximately $201 million and $164 million for undisbursed variable loan
commitments and approximately $13 million and $5.6 million for commitments under
unused standby letters of credit and other guarantees at December 31, 2000 and
1999, respectively.
The Bank utilizes various financial instruments with off balance sheet risk to
reduce its exposure to fluctuations in interest rates. These financial
instruments involve, to varying degrees, credit and interest rate risk in excess
of the amount recognized as either an asset or liability in the statement of
financial position.
The credit risk is the possibility that a loss may occur because a party to a
transaction fails to perform according to the terms of the contract. Interest
rate risk is the possibility that future changes in market prices will cause a
financial instrument to be less valuable or more onerous. The Bank attempts to
control the credit risk arising from these instruments through its credit
approval process and through the use of risk control limits and monitoring
procedures. Interest rate risk is managed by various asset and liability methods
including the utilization of interest rate hedging vehicles.
During 2000 the Company executed supplemental compensation agreements providing
nonqualified defined benefit retirement income for the directors and certain
executive officers of the Company. In connection with establishing these
agreements, the Company also purchased single premium life insurance policies
for each participant. Generally, the defined benefit for retirement was 50%
vested at the date of the agreements and 10% for each year thereafter. For those
directors for which mandatory retirement (age 70) was within five years, vesting
was in equal periods until retirement. The agreements provide that each director
will receive $22.5 annually (adjusted annually by 2%) over their lifetime
commencing on the third anniversary subsequent to their retirement. The range of
defined lifetime benefit for the participating executives is $72.5 to $182
(adjusted annually by 2%); retirement is at age 65. If an executive shall
voluntarily resign prior to being 100% vested, the executive shall forfeit all
rights and benefits under the agreement. At the participant's death, 80% of the
difference between the insurance life benefit and the then cash surrender value,
will be paid to the participant's heirs. The total amount accrued for these
agreements was $215 during 2000.
The Company also assumed a nonqualified defined contribution retirement plan for
the benefit of the directors and certain executive officers of Saratoga. In
connection with this plan, Saratoga purchased single premium life insurance
policies for each participant. At the time of the acquisition of Saratoga the
estimated net present value of the lifetime benefit of each participant was
accrued by the Company in the amount of $1.4 million. During 1999, the total
amount expensed for this plan was $231.
The cash surrender value of life insurance purchased under these plans totaled
approximately $15 million as of December 31, 2000. Of this amount, $9.3 million
related to the Company's plan and $5.7 million related to the Saratoga plan.
The Company is obligated under its lease agreements for 95 South Market Street,
San Jose, 50 Oak Court, Danville and 15405 Los Gatos Boulevard, Los Gatos under
noncancelable operating leases through September 2004, June 2004, and March
2003, respectively. The leases are subject to periodic adjustments based on
changes in the CPI. The following table shows future minimum payments under the
leases as of December 31, 2000:
Years Ending December 31,
- ------------------------------------------ ------------------
(in thousands)
2001 $405
2002 409
2003 342
2004 220
- ------------------------------------------ ------------------
Total minimum lease payments $1,376
========================================== ==================
Total minimum lease payments to be received under noncancelable operating
subleases at December 31, 2001 were approximately $712; these payments are not
reflected in the above table. Total rent expense was $434, $583, and $520 for
the years ended December 31, 2000, 1999 and 1998, respectively.
There is ordinary routine litigation incidental to the business pending against
the Company but, in the opinion of management, liabilities (if any) arising from
such claims will not have a material effect upon the consolidated financial
statements of the Company.
NOTE 15 - Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of estimated fair values for the Company's financial instruments.
Fair value estimates, methods and assumptions, set forth below for the Company's
financial instruments, are made solely to comply with the requirements of SFAS
No. 107 and should be read in conjunction with the consolidated financial
statements and notes thereto in this Annual Report.
Fair values are based on estimates or calculations at the transaction level
using present value techniques in instances where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial instruments, the fair value calculations attempt to incorporate the
effect of current market conditions at a specific time. Fair valuations are
management's estimates of the values, and they are often calculated based on
current pricing policy, the economic and competitive environment, the
characteristics of the financial instruments, and other such factors. These
calculations are subjective in nature, involve uncertainties and matters of
significant judgment and do not include tax ramifications; therefore, the
results cannot be determined with precision, substantiated by comparison to
independent markets and may not be realized in an actual sale or immediate
settlement of the instruments. The fair valuations have not been updated since
year end; therefore, the valuations may have changed significantly since that
point in time.
The Company has not included certain material items in its disclosure, such as
the value of the long-term relationships with the Company's deposit customers,
since these intangibles are not financial instruments. There may be inherent
weaknesses in any calculation technique, and changes in the underlying
assumptions used, including discount rates and estimates of future cash flows,
could significantly affect the results. For all these reasons, the aggregation
of the fair value calculations presented herein do not represent, and should not
be construed to represent, the underlying value of the Company.
The following table presents a summary of the Company's financial instruments,
as defined by SFAS No. 107 as of December 31, 2000 and 1999:
Fair Value of Financial Instruments
(dollars in thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Financial assets Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------------------
Cash and due from banks (including federal funds sold) $28,670 $28,674 $27,980 $27,980
Money market investments 38,475 38,486 5,651 5,655
Investment securities 128,787 128,806 113,074 111,586
Loans and leases, net 455,921 463,883 396,906 397,476
Accrued interest receivable 3,968 3,968 3,202 3,202
Financial liabilities
- -----------------------------------------------------------------------------------------------------------------------------
Deposits 585,343 585,982 473,733 474,250
Federal funds purchased, securities sold under
repurchase agreements, FHLB advances and other borrowings 32,039 33,219 33,525 34,633
Off balance sheet Financial Instruments
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate swap contract purchased ---- 501 ---- ----
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments, not previously discussed above, are described
below:
Financial instruments with fair value approximate to carrying value - The
carrying value of cash and due from banks, money market investments, accrued
interest receivable, non-interest-bearing demand accounts, interest-bearing
demand, money market and savings deposit accounts, accrued interest receivable
and expense approximates fair value due to the short-term nature of these
financial instruments.
Investment securities - The estimated fair values of securities by type are
based on quoted market prices when available.
Loans and leases - The carrying amount of loans and leases is net of unearned
fee income and the reserve for loan and lease losses. The fair valuation
calculation process differentiates loans and leases based on their financial
characteristics, such as product classification, loan category, pricing features
and remaining maturity. Prepayment estimates are evaluated by product and
respective interest rate. Discount rates presented in the paragraphs below have
a wide range due to the Company's mix of fixed and variable rate products.
The fair value of loans and leases is calculated by discounting contractual cash
flows using discount rates that reflect the Company's current pricing for loans
and leases with similar characteristics and remaining maturity. Most of the
discount rates applied to these loans were between 8.2% and 10.6% at December
31, 2000.
Additionally, the allowance for loan and lease losses was applied against the
estimated fair value of loans and leases to recognize future defaults of
contractual cash flows.
Fair value for nonperforming loans and leases is based on discounting estimated
cash flows using a rate commensurate with the risk associated with the estimated
cash flows, or underlying collateral values, where appropriate.
Deposits - The fair value of certificates of deposit and other time deposits is
calculated based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for like deposits with
similar remaining maturities.
Other borrowings - A reasonable estimate of the fair value of federal funds
purchased is the carrying amount because of the relatively short period of time
between the origination of the instrument and its expected maturity.
The fair value of the Company's securities sold under repurchase agreements is
calculated based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for such instruments with
similar remaining maturities.
Commitment to extend credit - The majority of the Company's commitments to
extend credit carry variable and current market interest rates if converted to
loans or leases. Because these commitments are generally unassignable by either
the Company or the borrower, they only have value to the Company and the
borrower. The estimated fair value approximates the recorded deferred fee
amounts and is excluded from the table.
Derivative financial instruments - The fair value of the derivative financial
instruments generally reflects the estimated amounts the Company would receive
based upon dealer quotes, to terminate such agreements at the reporting date.
NOTE 16 - SJNB Financial Corp.
(Parent Company Only)
The following are the financial statements of SJNB Financial Corp. (parent
company only):
- --------------------------------------------------------------------------------
Balance Sheets
December 31, 2000 and 1999
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Assets
Cash and equivalents $1,085 $1,847
Real estate loans ---- 123
Investment in the Bank 61,686 50,898
Other assets 812 351
- --------------------------------------------------------------------------------
Total assets $63,583 $53,219
================================================================================
Liabilities and Shareholders' Equity
Total liabilities-Accounts payable ---- ----
- --------------------------------------------------------------------------------
Common stock $22,845 $20,769
Retained earnings 40,221 33,942
Accumulated other comprehensive income (losses) 517 (1,492)
- --------------------------------------------------------------------------------
Total shareholders' equity 63,583 53,219
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $63,583 $53,219
================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
Statements of Income
Years Ended December 31, 2000, 1999 and 1998
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Cash dividend received from Bank $500 $4,979 $4,470
Interest income and fees on loans 60 30 79
Other expense (314) (280) (222)
- ----------------------------------------------------------------------------------------------------------------------------
Income before taxes 246 4,729 4,327
Income tax benefit 101 97 58
- ----------------------------------------------------------------------------------------------------------------------------
Income before undistributed income of the Bank 347 4,826 4,385
Equity in undistributed income of the Bank 8,277 2,291 3,104
- ----------------------------------------------------------------------------------------------------------------------------
Net income $8,624 $7,117 $7,489
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998
(dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $8,624 $7,117 $7,489
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Increase in other assets (444) (439) (609)
(Decrease) increase in other liabilities ---- (98) 631
Equity in undistributed income of the Bank (8,277) (2,291) (3,104)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (97) 4,289 4,407
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in loans, net 123 413 124
Cash dividend (2,345) (1,649) (1,666)
Common stock repurchased ---- (3,911) (3,742)
Stock options exercised 1,557 2,649 572
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (665) (2,498) (4,712)
- ----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and equivalents (762) 1,791 (305)
Cash and equivalents at beginning of year 1,847 56 361
- ----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $1,085 $1,847 $56
============================================================================================================================
Noncash transaction:
Contribution of stock used in the acquisition of
Epic Funding Corp. ---- ---- $501
=================================================
NOTE 17 - Regulatory Matters
The Federal Reserve Board, the Comptroller of the Currency and the FDIC have
issued substantially similar risk-based and leverage capital guidelines
applicable to United States banking organizations. In addition, those regulatory
agencies may from time to time require that a banking organization maintain
capital above the minimum levels, whether because of its financial condition or
actual or anticipated growth.
The Federal Reserve Board risk-based guidelines define a two-tier capital
framework. Tier 1 capital consists of common and qualifying preferred
shareholders' equity, less certain intangibles and other adjustments. Tier 2
capital consists of subordinated and other qualifying debt, and the allowance
for loan and lease losses up to 1.25% of risk weighted assets. The total of Tier
1 and Tier 2 capital, less investments in unconsolidated subsidiaries,
represents qualifying total capital, at least 50% of which must consist of Tier
1 capital. Risk-based capital ratios are calculated by dividing Tier 1 and total
capital by risk-weighted assets. Assets and off balance sheet exposures are
assigned to one of four categories of risk-weights, based primarily on relative
credit risk. The minimum Tier 1 risk-based capital ratio is 4% and the minimum
total risk-based capital ratio is 8%. The leverage capital ratio is determined
by dividing Tier 1 capital by adjusted average total assets. Although the stated
minimum leverage capital ratio is 3%, most banking organizations are required to
maintain leverage capital ratios of at least 100 to 200 basis points above the
3%.
The table below summarizes the Tier 1 and total risk-based capital ratios and
leverage capital ratios of the Company and the Bank as of December 31:
Risk-based and Leverage Capital Ratios
(dollars in thousands)
2000 1999
-----------------------------------------------------------------
Company-Risk-based Amount Ratio Amount Ratio
- ------------------
-----------------------------------------------------------------
Tier 1 capital $60,115 11.04% $50,371 11.08%
Tier 1 capital minimum requirement 21,779 4.00 18,177 4.00
-----------------------------------------------------------------
Excess $38,336 7.04% $32,194 7.08%
=================================================================
Total capital $66,928 12.29% $56,060 12.34%
Total capital minimum requirement 43,559 8.00 36,354 8.00
-----------------------------------------------------------------
Excess $23,369 4.29% $19,706 4.34%
=================================================================
Risk-adjusted assets $544,485 $454,429
=================== ================
Company-Leverage
Tier 1 capital $60,115 8.94% $50,371 8.88%
Minimum leverage ratio requirement 26,902 4.00 22,685 4.00
-----------------------------------------------------------------
Excess $33,213 4.94% $27,686 4.88%
=================================================================
Average total assets $672,555 $567,130
=================== ================
Bank-Risk-based
Tier 1 capital $58,217 10.75% $48,050 10.57%
Tier 1 capital minimum requirement 21,667 4.00 18,180 4.00
-----------------------------------------------------------------
Excess $36,550 6.75% $29,870 6.57%
=================================================================
Total capital $64,995 12.00% $53,740 11.82%
Total capital minimum requirement 43,334 8.00 36,360 8.00
-----------------------------------------------------------------
Excess $21,661 4.00% $17,380 3.82%
=================================================================
Risk-adjusted assets $541,671 $454,503
=================== ================
Bank-Leverage
Tier 1 capital $58,217 8.66% $48,050 8.47%
Minimum leverage ratio requirement 26,879 4.00 22,679 4.00
-----------------------------------------------------------------
Excess $31,338 4.66% $25,371 4.47%
=================================================================
Average total assets $671,976 $566,978
=================== ================
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
among other things, identifies five capital categories for insured depository
institutions (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized) and requires the
respective Federal regulatory agencies to implement systems for "prompt
corrective action" for insured depository institutions that do not meet minimum
capital requirements within such categories. FDICIA imposes progressively more
restrictive constraints on operations, management and capital distributions,
depending on the category in which an institution is classified. Failure to meet
the capital guidelines could also subject a banking institution to capital
raising requirements. An "undercapitalized" bank must develop a capital
restoration plan and its parent holding company must guarantee the bank's
compliance with the plan. The liability of the parent holding company under any
such guarantee is limited to the lesser of 5% of the bank's assets at the time
it became "undercapitalized" or the amount needed to comply with the plan.
Furthermore, in the event of the bankruptcy of the parent holding company, such
guarantee would take priority over the parent's general unsecured creditors.
The various regulatory agencies have adopted substantially similar regulations
that define the five capital categories identified by FDICIA, using the total
risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the
relevant capital measures. Such regulations establish various degrees of
corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4%, or 3% in some cases. Under these guidelines, the
Company and the Bank were considered well capitalized at December 31, 2000 and
1999.
Banking agencies consider concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation is made as part of the institution's regular safety and soundness
examination. Banking agencies also consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off balance sheet position) in evaluating
a bank's capital adequacy. Banking agencies have adopted a methodology for
evaluating interest rate risk. After gaining experience with this measurement
process, such banking agencies may propose further regulations to establish an
explicit risk-based capital charge for interest rate risk.
The ability of the Company to pay dividends largely depends upon the dividends
paid to it by the Bank. There are legal limitations on the ability of the Bank
to provide funds to the Company in the form of loans, advances or dividends.
Under national banking law, without the prior approval of the Comptroller of the
Currency, the Bank may not declare dividends in any calendar year that exceed
the Bank's net profits for that year, as defined by statute, combined with its
net retained profits, as defined, for the preceding two years. As of December
31, 2000, the Bank may initiate dividend payments without prior regulatory
approval of up to $16 million.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. All Financial Statements
See Index to Financial Statements on 1 hereof.
(a) 2. Financial statement schedules required. None. (Information included
in Financial Statements).
(a) 3. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number
(2)a. Agreement and Plan of Merger by and among the Registrant,
Saratoga Bancorp and Saratoga National Bank, dated as of August 27,
1999, is hereby incorporated by reference to Exhibit 2.1 of the
Registrant's Registration Statement on Form S-4 as filed on October
14, 1999, under Registration No. 333-89013.
(3)(i). The Registrant's restated Articles of Incorporation are hereby
incorporated by reference from Exhibit (3) (i) of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999.
(3)(ii). The Registrant's Restated Bylaws as of February 23, 2000 are
hereby incorporated by reference to Exhibit 3 (ii) of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)a. The Registrant's 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8, as filed on September 4, 1992,
under Registration No. 33-51740.
*(10)b. Amendment No. 1 to the 1992 Employee Stock Option Plan is
hereby incorporated by reference to Exhibit (10) b. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
*(10) c. The form of Incentive Stock Option Agreement being utilized
under the 1992 Employee Stock Option Plan is hereby incorporated by
reference from Exhibit 4.2 of the Registrant's Registration Statement
on Form S-8, as filed on September 4, 1992, under Registration No.
33-51740.
*(10)d. The form of Stock Option Agreement being utilized under the
1992 Employee Stock Option Plan is hereby incorporated by reference
from Exhibit 4.3 of the Registrant's Registration Statement on Form
S-8, as filed on September 4, 1992, under Registration No. 33-51740.
*(10)e. The Registrant's Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit 99.1 of the Registrant's Form S-8
filed June 15, 1999, under Registration No. 333-80683
*(10)f. The form of Nonstatutory Stock Option Agreement for outside
Directors being utilized under the Amended 1996 Stock Option Plan is
hereby incorporated by reference to Exhibit (10) f. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
*(10)g. The form of Nonstatutory Stock Option Agreement for Employees
being utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) g. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)h. The form of Incentive Stock Option Agreement being utilized
under the Amended 1996 Stock Option Plan is hereby incorporated by
reference to Exhibit (10) h. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
*(10)i. The Saratoga Bancorp 1982 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) i. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)j. The Saratoga Bancorp 1994 Stock Option Plan (Amended) is
hereby incorporated by reference to Exhibit (10) j. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)k. Forms of Incentive Stock Option Agreement, Non-Statutory
Stock Option Agreement and Non-Statutory Stock Option Agreement for
Outside Directors is hereby incorporated by reference to Exhibit (10)
k. of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)l. Agreement between James R. Kenny and SJNB Financial Corp. and
San Jose National Bank dated March 27, 1996 is hereby incorporated by
reference to Exhibit (10) m. of the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
*(10)m. Amendment No. 1 To Employment Agreement between James R.
Kenny and SJNB Financial Corp. and San Jose National Bank dated
October 6, 2000.
*(10)n. Agreement between Eugene E. Blakeslee and SJNB Financial
Corp. and San Jose National Bank dated March 27, 1996 is hereby
incorporated by reference to Exhibit (10) n. of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1996.
*(10)o. Amendment No. 1 To Employment Agreement between Eugene E.
Blakeslee and SJNB Financial Corp. and San Jose National Bank dated
October 6, 2000.
(10)p. Sublease dated April 5, 1982, for premises at 95 South Market
Street, San Jose, CA is hereby incorporated by reference to Exhibit
(10) n. of the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994.
(10)q. Sublease by and between McWhorter's Stationary and San Jose
National Bank, dated July 6, 1995, and as amended August 11, 1995, and
September 21, 1995, for premises at 95 South Market Street, San Jose,
CA is hereby incorporated by reference to Exhibit (10) o. of the
Registrant's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1995.
(10)r. Agreement of Purchase and Sale dated July 27, 1988 for 12000
Saratoga-Sunnyvale Road, Saratoga, CA is hereby incorporated by
reference to Exhibit (10) p. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)s. Form of Director Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Robert G. Egan,
John F. Lynch III and V. Ronald Mancuso, respectively, is hereby
incorporated by reference to Exhibit (10) q. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)t. Form of Director Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Robert G. Egan, John F. Lynch III and V. Ronald
Mancuso, respectively, is hereby incorporated by reference to Exhibit
(10) r. of the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
*(10)u. Form of Director Surrogate Supplemental Compensation
Agreement dated September 24, 1998 between Saratoga National Bank and
Victor E. Aboukhater and William D. Kron, respectively, is hereby
incorporated by reference to Exhibit (10) s. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)v. Form of Director Surrogate Life Insurance Endorsement Method
Split Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Victor E. Aboukhater and William D. Kron,
respectively, is hereby incorporated by reference to Exhibit (10) t.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)w. Form of Officer Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Earl Lanna, Mary
Rourke, Sandra Swenson, Barbara Resop and Cathe Franklin,
respectively, is hereby incorporated by reference to Exhibit (10) u.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)x. Form of Officer Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Earl Lanna, Mary Rourke, Sandra Swenson, Barbara
Resop and Cathe Franklin, respectively, is hereby incorporated by
reference to Exhibit (10) v. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)y. Richard L. Mount Executive Supplemental Compensation
Agreement dated September 24, 1998 is hereby incorporated by reference
to Exhibit (10) w. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
*(10)z. Richard L. Mount Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 is hereby incorporated
by reference to Exhibit (10) x. of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
*(10)aa. Richard L. Mount Executive Benefits Agreement dated June 18,
1999 is hereby incorporated by reference to Exhibit (10) y. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)ab. Form of Executive Supplemental Compensation Agreement dated
June 1, 2000 between San Jose National Bank and James R. Kenny, Eugene
E. Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith Doering
Nielsen, respectively, is hereby incorporated by reference to Exhibit
(10) z. of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.
*(10)ac. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and James R. Kenny,
Eugene E. Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith
Doering Nielsen, respectively, is hereby incorporated by reference to
Exhibit (10) aa. of the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000.
*(10)ad. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and each of Ray S.
Akamine, Robert A. Archer, Albert V. Bruno, Rod Diridon, Sr., F. Jack
Gorry, Arthur K. Lund, Richard L. Mount, Louis Oneal, Diane Rubino,
and Gary S. Vandeweghe and Douglas L. Shen, D.D.S. is hereby
incorporated by reference to Exhibit (10) ab. of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
*(10)ae. Form of Director Supplemental Compensation Agreement dated
June 1, 2000 between San Jose National Bank and Ray S. Akamine, Robert
A. Archer, Albert V. Bruno, Rod Diridon, Sr., Robert G. Egan, F. Jack
Gorry, Arthur K. Lund, V. Ronald Mancuso, D.D.S., Richard L. Mount,
Louis Oneal, Diane Rubino, and Gary S. Vandeweghe and Douglas L. Shen,
D.D.S.., respectively, is hereby incorporated by reference to Exhibit
(10) ae. of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.
22 Subsidiary of the Registrant is hereby incorporated by reference to
Exhibit 22 of the Registrant's Annual R eport on Form 10-K for the
year ended December 31, 2000.
23 Consent of KPMG LLP
* Indicates management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 24, 2001 SJNB Financial Corp.
By: S/J.R. Kenny By: S/E.E. Blakeslee
-------------------------- -------------------------------
James R. Kenny Eugene E. Blakeslee
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
S/J.R. Kenny
- -----------------------------------------
James R. Kenny
President, Chief Executive Officer
and Director
(Principal Executive Officer)
April 24, 2001
S/E.E. Blakeslee
- -----------------------------------------
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer
April 24, 2001
S/V. E. Aboukhater
- -----------------------------------------
Victor E. Aboukhater, Director
April 24, 2001
S/R.S. Akamine
- -----------------------------------------
Ray S. Akamine, Director
April 24, 2001
S/R.A. Archer
- -----------------------------------------
Robert A. Archer
Chairman and Director
April 24, 2001
S/A.V. Bruno
- -----------------------------------------
Albert V. Bruno, Director
April 24, 2001
S/R. Diridon, Sr.
- -----------------------------------------
Rod Diridon, Sr., Director
April 24, 2001
S/R. G. Egan
- -----------------------------------------
Robert G. Egan, Director
April 24, 2001
S/F.J. Gorry
- -----------------------------------------
F. Jack Gorry, Director
April 24, 2001
S/W. D. Kron
- -----------------------------------------
William D. Kron, Director
April 24, 2001
S/A.K. Lund
- -----------------------------------------
Arthur K. Lund, Director
April 24, 2001
S/V. R. Mancuso, D.D.S.
- -----------------------------------------
V. Ronald Mancuso, D.D.S., Director
April 24, 2001
S/R. L. Mount
- -----------------------------------------
Richard L. Mount, Director
April 24, 2001
S/L. Oneal
- -----------------------------------------
Louis Oneal, Director
April 24, 2001
S/D. Rubino
- -----------------------------------------
Diane Rubino, Director
April 24, 2001
S/D.L. Shen
- -----------------------------------------
Douglas L. Shen, Director
April 24, 2001
S/G.S. Vandeweghe
- -----------------------------------------
Gary S. Vandeweghe, Director
April 24, 2001
SJNB Financial Corp.
Form 10-K
Exhibits
December 31, 2000
The following exhibits are filed as part of this report:
(2)a. Agreement and Plan of Merger by and among the Registrant,
Saratoga Bancorp and Saratoga National Bank, dated as of August 27,
1999, is hereby incorporated by reference to Exhibit 2.1 of the
Registrant's Registration Statement on Form S-4 as filed on October
14, 1999, under Registration No. 333-89013.
(3)(i). The Registrant's restated Articles of Incorporation are
hereby incorporated by reference from Exhibit (3) (i) of the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1999.
(3)(ii). The Registrant's Restated Bylaws as of February 23, 2000 are
hereby incorporated by reference to Exhibit 3 (ii) of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)a. The Registrant's 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8, as filed on September 4, 1992,
under Registration No. 33-51740.
*(10)b. Amendment No. 1 to the 1992 Employee Stock Option Plan is
hereby incorporated by reference to Exhibit (10) b. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
*(10)c. The form of Incentive Stock Option Agreement being utilized
under the 1992 Employee Stock Option Plan is hereby incorporated by
reference from Exhibit 4.2 of the Registrant's Registration Statement
on Form S-8, as filed on September 4, 1992, under Registration No.
33-51740.
*(10)d. The form of Stock Option Agreement being utilized under the
1992 Employee Stock Option Plan is hereby incorporated by reference
from Exhibit 4.3 of the Registrant's Registration Statement on Form
S-8, as filed on September 4, 1992, under Registration No. 33-51740.
*(10)e. The Registrant's Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit 99.1 of the Registrant's Form S-8
filed June 15, 1999, under Registration No. 333-80683
*(10)f. The form of Nonstatutory Stock Option Agreement for outside
Directors being utilized under the Amended 1996 Stock Option Plan is
hereby incorporated by reference to Exhibit (10) f. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
*(10)g. The form of Nonstatutory Stock Option Agreement for Employees
being utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) g. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
*(10)h. The form of Incentive Stock Option Agreement being utilized
under the Amended 1996 Stock Option Plan is hereby incorporated by
reference to Exhibit (10) h. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
*(10)i. The Saratoga Bancorp 1982 Stock Option Plan is hereby
incorporated by reference to Exhibit (10) i. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)j. The Saratoga Bancorp 1994 Stock Option Plan (Amended) is
hereby incorporated by reference to Exhibit (10) j. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)k. Forms of Incentive Stock Option Agreement, Non-Statutory
Stock Option Agreement and Non-Statutory Stock Option Agreement for
Outside Directors is hereby incorporated by reference to Exhibit (10)
k. of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)l. Agreement between James R. Kenny and SJNB Financial Corp. and
San Jose National Bank dated March 27, 1996 is hereby incorporated by
reference to Exhibit (10) m. of the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
*(10)m. Amendment No. 1 To Employment Agreement between James R.
Kenny and SJNB Financial Corp. and San Jose National Bank dated
October 6, 2000.
*(10)n. Agreement between Eugene E. Blakeslee and SJNB Financial
Corp. and San Jose National Bank dated March 27, 1996 is hereby
incorporated by reference to Exhibit (10) n. of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1996.
*(10)o. Amendment No. 1 To Employment Agreement between Eugene E.
Blakeslee and SJNB Financial Corp. and San Jose National Bank dated
October 6, 2000.
(10)p. Sublease dated April 5, 1982, for premises at 95 South Market
Street, San Jose, CA is hereby incorporated by reference to Exhibit
(10) n. of the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994.
(10)q. Sublease by and between McWhorter's Stationary and San Jose
National Bank, dated July 6, 1995, and as amended August 11, 1995, and
September 21, 1995, for premises at 95 South Market Street, San Jose,
CA is hereby incorporated by reference to Exhibit (10) o. of the
Registrant's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1995.
(10)r. Agreement of Purchase and Sale dated July 27, 1988 for 12000
Saratoga-Sunnyvale Road, Saratoga, CA is hereby incorporated by
reference to Exhibit (10) p. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)s. Form of Director Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Robert G. Egan,
John F. Lynch III and V. Ronald Mancuso, respectively, is hereby
incorporated by reference to Exhibit (10) q. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)t. Form of Director Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Robert G. Egan, John F. Lynch III and V. Ronald
Mancuso, respectively, is hereby incorporated by reference to Exhibit
(10) r. of the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.
*(10)u. Form of Director Surrogate Supplemental Compensation
Agreement dated September 24, 1998 between Saratoga National Bank and
Victor E. Aboukhater and William D. Kron, respectively, is hereby
incorporated by reference to Exhibit (10) s. of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
*(10)v. Form of Director Surrogate Life Insurance Endorsement Method
Split Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Victor E. Aboukhater and William D. Kron,
respectively, is hereby incorporated by reference to Exhibit (10) t.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)w. Form of Officer Supplemental Compensation Agreement dated
September 24, 1998 between Saratoga National Bank and Earl Lanna, Mary
Rourke, Sandra Swenson, Barbara Resop and Cathe Franklin,
respectively, is hereby incorporated by reference to Exhibit (10) u.
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
*(10)x. Form of Officer Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 between Saratoga
National Bank and Earl Lanna, Mary Rourke, Sandra Swenson, Barbara
Resop and Cathe Franklin, respectively, is hereby incorporated by
reference to Exhibit (10) v. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
*(10)y. Richard L. Mount Executive Supplemental Compensation
Agreement dated September 24, 1998 is hereby incorporated by reference
to Exhibit (10) w. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
*(10)z. Richard L. Mount Life Insurance Endorsement Method Split
Dollar Plan Agreement dated September 24, 1998 is hereby incorporated
by reference to Exhibit (10) x. of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
*(10)aa. Richard L. Mount Executive Benefits Agreement dated June 18,
1999 is hereby incorporated by reference to Exhibit (10) y. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
*(10)ab. Form of Executive Supplemental Compensation Agreement dated
June 1, 2000 between San Jose National Bank and James R. Kenny, Eugene
E. Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith Doering
Nielsen, respectively, is hereby incorporated by reference to Exhibit
(10) z. of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.
*(10)ac. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and James R. Kenny,
Eugene E. Blakeslee, Frederic A. Charpiot, Margo Culcasi and Judith
Doering Nielsen, respectively, is hereby incorporated by reference to
Exhibit (10) aa. of the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000.
*(10)ad. Form of Endorsement Method Split Dollar Plan Agreement dated
August 1, 2000 between San Jose National Bank and each of Ray S.
Akamine, Robert A. Archer, Albert V. Bruno, Rod Diridon, Sr., F. Jack
Gorry, Arthur K. Lund, Richard L. Mount, Louis Oneal, Diane Rubino,
and Gary S. Vandeweghe and Douglas L. Shen, D.D.S. is hereby
incorporated by reference to Exhibit (10) ab. of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
*(10)ae. Form of Director Supplemental Compensation Agreement dated
June 1, 2000 between San Jose National Bank and Ray S. Akamine, Robert
A. Archer, Albert V. Bruno, Rod Diridon, Sr., Robert G. Egan, F. Jack
Gorry, Arthur K. Lund, V. Ronald Mancuso, D.D.S., Richard L. Mount,
Louis Oneal, Diane Rubino, and Gary S. Vandeweghe and Douglas L. Shen,
D.D.S.., respectively, is hereby incorporated by reference to Exhibit
(10) ae. of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.
22 Subsidiary of the Registrant is hereby incorporated by reference to
Exhibit 22 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000.
23 Consent of KPMG LLP
* Indicates management contract or compensation plan or arrangement.