UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 0-11771
SJNB FINANCIAL CORP.
(Exact name of small business issuer as specified in its charter)
California 77-0058227
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE NORTH MARKET STREET, SAN JOSE, CALIFORNIA 95113
(Address of principal executive offices) (Zip Code)
(408) 947-7562
(Issuer's telephone number, including area code)
Not Applicable
(Former name, address and former fiscal year, if changed, since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
2,392,274 shares of common stock outstanding as of October 27, 1995
Transitional Small Business Disclosure Format;
Yes No X
PART I - FINANCIAL INFORMATION
Page
Item 1. - FINANCIAL STATEMENTS
SJNB FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 7-26
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 27
Item 2. CHANGES IN SECURITIES 27
Item 3. DEFAULTS UPON SENIOR SECURITIES 27
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
Item 5. OTHER INFORMATION 27
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 27-29
SIGNATURES 30
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(dollars in thousands)
(Unaudited)
Assets September 30, December 31,
1995 1994
- - ---------------------------------------------------------------------------------------------------------
Cash and due from banks $13,326 $14,591
Money market investments 2,000 -----
Investment securities:
Held to maturity (Market value: $15,032 at September 30, 1995
and $13,392 at December 31, 1994) 14,858 13,859
Available for sale 42,135 18,706
Loans 152,854 144,399
Loans available for sale 11,394 5,008
Allowance for possible loan losses (3,686) (3,311)
- - ---------------------------------------------------------------------------------------------------------
Loans, net 160,562 146,096
- - ---------------------------------------------------------------------------------------------------------
Premises and equipment, net 3,395 3,022
Other real estate owned 1,045 1,495
Accrued interest receivable and other assets 2,837 3,267
Intangibles, net of accumulated amortization of $586 and $166 4,905 4,913
=========================================================================================================
Total $245,063 $205,949
=========================================================================================================
Liabilities and Shareholders' Equity
- - ---------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $48,891 $54,003
Interest-bearing 146,084 126,285
- - ---------------------------------------------------------------------------------------------------------
Total deposits 194,975 180,287
- - ---------------------------------------------------------------------------------------------------------
Other short-term borrowings 20,938 -----
Accrued interest payable and other liabilities 3,457 2,220
- - ---------------------------------------------------------------------------------------------------------
Total liabilities 219,370 182,507
- - ---------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value; authorized, 20,000,000 shares; issued and
outstanding, 2,384,715 shares at September 30,
1995 and 2,362,550 shares at December 31, 1994 19,481 19,421
Retained earnings 6,222 4,278
Net unrealized loss on securities available for sale (10) (257)
- - ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 25,693 23,442
- - ---------------------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
=========================================================================================================
Total $245,063 $205,949
=========================================================================================================
See accompanying Notes to Unaudited Consolidated Financial Statements.
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)
Quarter ended Nine months ended
September 30, September 30,
-----------------------------------------------------
1995 1994 1995 1994
- - --------------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $4,524 $2,683 $13,364 $7,497
Interest on investment securities held to maturity 219 99 631 289
Interest and dividends on investment securities available for sale 609 135 1,201 325
Interest on money market investments 113 45 212 145
Other interest and investment income 6 12 (19) 95
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest income 5,471 2,974 15,389 8,351
- - --------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest expense on interest-bearing deposits:
Certificates of deposit over $100 643 274 1,577 711
Other 1,265 448 3,155 1,197
- - --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,908 722 4,732 1,908
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,563 2,252 10,657 6,443
- - --------------------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 180 100 890 400
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 3,383 2,152 9,767 6,043
- - --------------------------------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposits 140 85 426 250
Other operating income 139 53 337 166
Net loss on securities available for sale (73) (43) (80)
----
Gain on sale of SBA loans 75
---- ---- ----
- - --------------------------------------------------------------------------------------------------------------------------------
Total other income 278 65 720 411
- - --------------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 1,091 808 3,212 2,343
Occupancy 177 130 560 378
Other 957 543 2,835 1,698
- - --------------------------------------------------------------------------------------------------------------------------------
Total other expenses 2,225 1,481 6,607 4,419
- - --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,436 736 3,880 2,035
Income taxes 629 295 1,721 814
================================================================================================================================
Net income $807 $441 $2,159 $1,221
================================================================================================================================
Net income per share $0.32 $0.26 $0.87 $0.71
================================================================================================================================
Weighted average number of shares outstanding 2,508 1,718 2,493 1,718
================================================================================================================================
See accompanying Notes to Unaudited Consolidated Financial Statements.
SJNB FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Nine months
ended
September 30,
----------------------------
1995 1994
- - ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $2,159 $1,221
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 890 400
Depreciation and amortization 315 217
Amortization on intangibles 420 ----
Net loss on securities available for sale 43 9
Net loss on sale of other real estate owned 22 ----
Increase in loans available for sale, net (6,385) (1,667)
Amortization of (discount) premium on investment securities, net (114) 28
Increase in accrued interest receivable and other assets (146) (689)
Increase in accrued interest payable and other liabilities 1,880 598
- - ------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (916) 117
- - ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of securities available for sale 13,162 2,376
Maturities of securities held to maturity 425 2,240
Purchase of securities available for sale (36,144) (6,333)
Purchase of securities held to maturity (1,388) (1,321)
Amounts due from liquidation of money market fund ---- (1,150)
Proceeds from the sale of other real estate owned 1,377 ----
Loans, net (9,920) (6,743)
Capital expenditures (689) (205)
- - ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (33,177) (11,136)
- - ------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Deposits, net 14,687 15,555
Other short-term borrowings 20,295 (1,400)
Cash dividends (215) (130)
Capitalized acquisition costs ---- (282)
Common stock repurchased (145) ----
Proceeds from stock options exercised 206 1
- - ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 34,828 13,744
- - ------------------------------------------------------------------------------------------------------------------
Net increase in cash and equivalents 735 2,725
Cash and equivalents at beginning of year 14,591 11,052
==================================================================================================================
Cash and equivalents at end of period $15,326 $13,777
==================================================================================================================
Other cash flow information:
Interest paid $4,398 $1,936
============================
Income taxes paid $965 $730
==================================================================================================================
Noncash transactions:
Transfer of loans to other real estate owned $950 $1,012
Unrealized gain (loss) on securities available for sale, net of tax 247 (162)
==================================================================================================================
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
SJNB FINANCIAL CORP. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Note A Unaudited Condensed Consolidated Financial Statements
The unaudited consolidated financial statements of SJNB Financial
Corp. (the "Company") and its subsidiary, San Jose National Bank, are
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. In the opinion of management, all adjustments necessary for a
fair presentation of the financial position, results of operations
and cash flows for the periods have been included and are normal and
recurring. The results of operations and cash flows are not
necessarily indicative of those expected for the full fiscal year.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report to Shareholders
for the year ended December 31, 1994.
On January 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" (FAS No. 114), as amended by FAS No.118.
FAS No. 114 requires entities to measure certain impaired loans based
on the present value of future cash flows discounted at the loan's
effective interest rate, or at the loan's market value or the fair
value of collateral if the loan is secured. The adoption of FAS Nos.
114 and 118 did not have a material effect on the Company's financial
statements.
Note B Net Deferred Tax Asset
As of September 30, 1995 the net deferred tax asset was approximately
$376 which is included in the category "Accrued interest receivable
and other assets" of the Company's condensed consolidated balance
sheet. 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 C Net Income Per Share of Common Stock
The weighted average number of common stock shares and common stock
equivalent shares used in computing net income per share of common
stock are set forth below for the periods indicated:
</FN>
Quarter ended Nine months ended
September 30, September 30,
-----------------------------------------------------
1995 1994 1995 1994
-----------------------------------------------------
Weighted average number of shares
outstanding during the period 2,383,407 1,630,322 2,374,708 1,630,322
Common stock equivalents 124,875 87,885 118,258 87,786
-----------------------------------------------------
Total 2,508,282 1,718,207 2,492,966 1,718,108
=====================================================
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SJNB Financial Corp. (the "Company") is the holding company for San Jose
National Bank ("SJNB" and the "Bank"), San Jose, California. This discussion
focuses primarily on the results of operations of the Company on a consolidated
basis for the three and nine months ended September 30, 1995 and the liquidity
and financial condition of the Company and SJNB as of September 30, 1995 and
December 31, 1994.
All dollar amounts in the text in this Item 2 are in thousands, except
per share amounts or as otherwise indicated.
The following presents selected financial data and ratios as of and for the
three and nine months ended September 30, 1995 and 1994:
SELECTED FINANCIAL DATA AND RATIOS
- - ---------------------------------------------------------------------------------------------- ---------------------------
For the quarters For the nine months
ended September 30, ended September 30,
--------------------------------------------------------
SELECTED ANNUALIZED OPERATING RATIOS: 1995 1994 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------
Return on average equity 12.70% 10.36% 11.75% 9.87%
Return on average tangible equity 18.33 10.36 17.42 9.87
Return on average assets 1.35 1.26 1.34 1.22
Net chargeoffs (recoveries) to average loans .25 (.17) .46 .08
Average equity to average assets 10.61 12.19 11.39 12.34
Average tangible equity to average assets 8.80 12.19 9.39 12.34
============================================================================================================================
At September 30, At December 31,
PER SHARE DATA: 1995 1994 1994
- - --------------------------------------------------------------------------------------------------------------
Shareholders' equity per share $10.77 $10.42 $9.92
Tangible equity per share $8.72 $10.42 $7.84
SELECTED FINANCIAL POSITION RATIOS:
- - --------------------------------------------------------------------------------------------------------------
Leverage capital ratio 8.91% 12.28% 9.33%
Nonperforming loans to total loans .56 3.03 3.67
Nonperforming assets to total assets .80 3.15 3.32
Allowance for possible loan losses to total loans 2.24 2.27 2.22
Allowance for possible loan losses
to nonperforming loans 400.44 75.13 60.45
Allowance for possible loan losses
to nonperforming assets 187.51 52.94 47.49
==============================================================================================================
Summary of Financial Results
The Company reported net income of $807 or $.32 per share for the quarter ended
September 30, 1995, compared with net income of $441 or $.26 per share for the
third quarter of 1994. The improvement in earnings is due primarily to the
acquisition of Business Bancorp and California Business Bank ("CBB") as of the
beginning of the last quarter of 1994 and to additional volume growth.
For the nine months ended September 30, 1995, the net income was $2,159 or $.87
per share compared with net income of $1,221 or $.71 per share in 1994. The
improvement was due mainly to the reasons discussed above regarding the
comparison of the third quarter results, and the recognition of $485 of interest
income on loans that had been on nonaccrual.
Net Interest Income
Net interest income for the quarter ended September 30, 1995 increased $1.3
million as compared to the same quarter a year ago. Net interest income is
dependent upon volume and net interest margin. The Bank's average earning assets
for the same period increased by $90 million, primarily as the result of the
acquisition of CBB and the addition of $24 million of on-balance-sheet hedge
instruments as discussed in the section "Asset/Liability Management" below. The
Bank's net interest margin decreased from 7.05% in the third quarter of 1994 to
6.52% in the third quarter of 1995. This decrease is due mainly to the decline
in the spread between the rate earned on earning assets and the rates paid on
interest bearing deposits. The competitive environment within the Bank's
marketplace has become more aggressive and the competition among banks for both
loan and deposit growth has caused more competitive pricing. To the extent that
such competitive pricing continues, the Bank's net interest margins could
continue to decline. See "Loans" and "Funding". Additionally $54 of interest
recognized in the third quarter of 1995 relates to prior periods and if such
interest was not included in the third quarter results, the net interest margin
would have been 6.42%.
Net interest income for the nine months ended September 30, 1995 increased $4.2
million over that of the same period a year ago. The increase was primarily the
result of the increase in volumes and recognition of interest on previously
nonaccruing loans. The Bank's net interest margin increased from 7.01% for the
nine months ended September 30, 1994 to 7.29% for the nine months ended
September 30, 1995. Adjusting for the interest income collected on previously
nonaccruing loans (which amounted to approximately $485 for the nine months
ended September 30, 1995), the net interest margin would have decreased to 6.94%
in 1995.
A substantial portion (25% for the nine months ended September 30, 1995 and 30%
for the nine month period ended September 30, 1994) of the Bank's deposits are
non-interest-bearing and therefore do not reprice when interest rates change.
See "Funding." Due to the nature of the Company's market in which loans are
generally tied to the prime rate, an increase in interest rates should
positively affect the Company's net interest income. Increases in the prime rate
during 1994 had a significant positive impact on the net interest income.
Conversely stable or declining rates will have an adverse impact on net interest
income. The Bank utilizes various vehicles to hedge its interest rate position.
See "Asset/Liability Management."
Net interest income also reflects the impact of nonperforming loans. Interest
income on the loan portfolio is recorded on the accrual basis. However, the
Company follows the practice of discontinuing the accrual of interest and
reversing any accrued and unpaid interest 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
amount is well-secured and in the process of collection. For these loans,
interest is recorded when payment is received. See "Nonperforming Loans."
The effect of nonaccrual of interest income based on loans classified as
nonaccrual at September 30, 1995 and 1994, is set forth in the following table:
IMPACT OF NONACCRUAL LOANS
(dollars in thousands) Quarter ended Nine months ended
September 30, September 30,
---------------------------------------------
1995 1994 1995 1994
- - ---------------------------------------------------------------------------------------------------
Interest revenue which would have been
recorded under original terms $29 $86 $86 $220
Interest revenue actually realized (2) (6) (6)
---
- - ---------------------------------------------------------------------------------------------------
Negative impact on interest revenue $27 $86 $80 $214
===================================================================================================
This table does not reflect the cash basis interest received on several
significant loan collections, as such loans were not classified as nonaccrual as
of September 30, 1995 and 1994. When interest payments are received on a loan
that has been on nonaccrual, those interest payments are included in interest
income in the period the payments are received. See the above discussion
regarding the collection of such income and its impact on net interest income
for the third quarter and the first nine months of 1995.
The following table shows the composition of average earning assets and average
funding sources, average yields and rates and the net interest margin, on an
annualized basis, for the three and nine months ended September 30, 1995 and
1994.
AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands)
Quarter ended September 30,
---------------------------------------------------------------------------
1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Assets Balance Interest Yield (1) Balance Interest Yield (1)
- - ----------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Loans, net (2) $155,487 $4,524 11.54% $103,214 $2,683 10.31%
Securities held to maturity:
Taxable (3) 12,155 195 6.36 6,568 79 4.79
Nontaxable (4) 2,733 46 6.71 2,080 33 6.24
Securities available for sale (5) 39,521 608 6.10 11,041 135 4.85
Money market investments 7,857 113 5.71 4,358 45 4.10
Interest rate hedging instruments ---- (2) ---- ---- 8 ----
- - -------------------------------------------------------------------------- --------------------------
Total interest-earning assets 217,754 5,484 9.99 127,261 2,983 9.30
- - -------------------------------------------------------------------------- --------------------------
Allowance for possible loan losses (3,610) (2,417)
Cash and due from banks 11,608 7,170
Bank premises and equipment, net 3,321 2,476
Other real estate owned 1,556 1,336
Accrued interest receivable and
other assets 2,157 2,572
Core deposit intangibles and
goodwill, net 4,713 ----
============================================================== =============
Total $237,499 $138,398
============================================================== =============
Liabilities and Shareholders' equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $31,055 305 3.90 $10,148 40 1.56
Money market and savings 53,111 446 3.33 36,780 284 3.06
Certificates of deposit:
Less than $100,000 15,447 215 5.52 12,071 124 4.08
$100,000 or more 44,820 643 5.69 26,373 273 4.11
- - -------------------------------------------------------------------------- --------------------------
Total certificates of deposits 60,267 858 5.65 38,444 397 4.10
- - -------------------------------------------------------------------------- --------------------------
Other short-term borrowings 19,599 299 6.05 172 1 1.31
- - -------------------------------------------------------------------------- --------------------------
Total interest-bearing liabilities 164,032 1,908 4.61 85,544 722 3.34
- - -------------------------------------------------------------------------- --------------------------
Noninterest-bearing demand 44,894 34,929
Accrued interest payable and
other liabilities 3,377 1,060
- - -------------------------------------------------------------- -------------
Total liabilities 212,303 121,533
- - -------------------------------------------------------------- -------------
Shareholders' equity 25,196 16,865
============================================================== =============
Total $237,499 $138,398
- - ------------------------------------------------------------------------- --------------------------
Net interest income and margin (6) $3,576 6.52% $2,261 7.05%
================================================= ======================== =========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $251 for 1995, and $231 for 1994. Nonperforming
loans have been included in average loan balances.
(3) Includes dividend income of $8 received in 1995 and $4 in 1994.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($13 in 1995 and $9 in 1994).
(5) Includes dividend income of $58 and $50 received in 1995 and 1994.
(6) The net interest margin represents the net interest income as a percentage
of average earning assets.
</FN>
AVERAGE BALANCES, RATES AND YIELDS
(dollars in thousands)
Nine months ended September 30,
---------------------------------------------------------------------------
1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Assets Balance Interest Yield (1) Balance Interest Yield (1)
- - ----------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Loans, net (2) $149,743 $13,364 11.93% $100,272 $7,497 10.00%
Securities held to maturity:
Taxable (3) 12,105 566 6.25 6,670 236 4.73
Nontaxable (4) 2,547 122 6.39 1,888 89 6.31
Securities available for sale (5) 26,739 1,201 6.01 9,408 325 4.63
Money market investments 4,830 212 5.87 5,183 145 3.74
Interest rate hedging instruments ---- (41) ---- ---- 84 ----
- - -------------------------------------------------------------------------- --------------------------
Total interest-earning assets 195,964 15,424 10.52 123,421 8,376 9.07
- - -------------------------------------------------------------------------- --------------------------
Allowance for possible loan losses (3,512) (2,225)
Cash and due from banks 11,279 7,064
Bank premises and equipment, net 3,321 2,491
Other real estate owned 1,355 1,180
Accrued interest receivable and
other assets 2,468 2,027
Core deposit intangibles and
goodwill, net 4,778 ----
============================================================== =============
Total $215,653 $133,958
============================================================== =============
Liabilities and Shareholders' equity
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $29,797 829 3.72 $9,365 100 1.43
Money market and savings 50,587 1,288 3.40 34,122 734 2.88
Certificates of deposit:
Less than $100,000 15,502 595 5.13 12,617 358 3.79
$100,000 or more 38,762 1,577 5.44 25,200 711 3.77
- - -------------------------------------------------------------------------- --------------------------
Total certificates of deposits 54,264 2,172 5.35 37,817 1,069 11.21
- - -------------------------------------------------------------------------- --------------------------
Other short-term borrowings 9,631 443 6.15 242 5 2.74
- - -------------------------------------------------------------------------- --------------------------
Total interest-bearing liabilities 144,279 4,732 4.38 81,546 1,908 3.13
- - -------------------------------------------------------------------------- --------------------------
Noninterest-bearing demand 43,930 34,997
Accrued interest payable and
other liabilities 2,875 881
- - -------------------------------------------------------------- -------------
Total liabilities 191,084 117,424
- - -------------------------------------------------------------- -------------
Shareholders' equity 24,569 16,534
============================================================== =============
Total $215,653 $133,958
- - -------------------------------------------------------------------------- --------------------------
Net interest income and margin (6) $10,692 7.29% $6,468 7.01%
================================================= ======================== =========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $827 for 1995, and $754 for 1994. Nonperforming
loans have been included in average loan balances.
(3) Includes dividend income of $22 received in 1995 and $11 in 1994.
(4) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($35 in 1995 and $25 in 1994).
(5) Includes dividend income of $177 and $138 received in 1995 and 1994.
(6) The net interest margin represents the net interest income as a percentage
of average earning assets.
</FN>
Interest margin is affected by changes in volume, changes in rates, and a
combination of changes in volume and rates. Volume changes are caused by
differences in the level of earning assets, deposits and borrowings. Rate
changes result in differences in yields earned on assets and rates paid on
liabilities. Changes not solely attributable to volume or rates are allocated to
volume and rate in proportion to the relationship to the absolute dollar amounts
of changes in each. The following table shows the effect on the interest
differential of volume and rate changes for the quarters and nine months ended
September 30, 1995 and 1994.
VOLUME/RATE ANALYSIS
(dollars in thousands)
Quarter ended September 30, 1995 vs. Nine months ended September 30, 1995 vs.
Quarter ended September 30, 1994 Nine months ended September 30, 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) Increase (decrease)
due to change in due to change in
- - ------------------------------------------------------------------------------------------------------------------------------------
Average Average Total Average Average Total
Volume Rate Change Volume Rate Change
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans (1) $1,359 $482 $1,841 $3,702 $2,165 $5,867
Securities:
Taxable 67 49 116 192 138 330
Nontaxable 10 3 13 31 2 33
Available for sale 348 125 473 601 275 876
Money market investments 36 32 68 (10) 77 67
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 1,820 691 2,511 4,516 2,657 7,173
- - -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest checking 82 183 265 219 510 729
Money market and savings 126 36 162 355 199 554
Certificates of deposits:
Less than $100,000 35 56 91 82 155 237
$100,000 or greater 191 179 370 382 484 866
Other short-term borrowings 64 234 298 192 246 438
- - ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 498 688 1,186 1,230 1,594 2,824
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest rate hedging instruments (10) (10) ---- (125) (125)
- - ------------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $1,322 $(7) $1,315 $3,286 $938 $4,224
====================================================================================================================================
<FN>
(1) The effect of the change in loan fees is included as an adjustment to the
average rate.
Provision for Possible Loan Losses
The level of the allowance for possible loan losses and therefore the related
provision reflect the Company's judgment as to the inherent risks associated
with the loan and lease portfolios. Based on management's evaluation of such
risks, additions of $180 and $100 were made to the allowance for possible loan
losses for the quarters ended September 30, 1995 and 1994, respectively and $890
and $400 for the nine months ended September 30, 1995 and 1994, respectively.
Management's determinations of the provision in 1995 and 1994 were based on the
measurement of the possibility of future loan losses through various objective
and subjective criteria and the impact of net charge-offs. The primary cause for
the increase in the third quarter of 1995 was due to several factors, including
a significant increase in loan volume, greater exposure on SBA loan guarantees
and management's evaluation of the impact of the local economy on its loan
portfolio. Please refer to the section regarding the "Loan Portfolio" for a
detailed discussion of loan quality and the allowance for possible loan losses.
</FN>
Other Income
The following table sets forth the components of other income and the percentage
distribution of such income for the quarters and nine months ended September 30,
1995 and 1994.
OTHER INCOME
(dollars in thousands)
Quarter ended September 30, Nine months ended September 30,
-----------------------------------------------------------------------------------------
1995 1994 1995 1994
Amount Percent Amount Percent Amount Percent Amount Percent
- - ------------------------------------------------------------------------------------------------------------------------------------
Depositor service charges $140 50.36% $85 130.77% $426 59.16% $250 60.83%
Other operating income 138 49.64 53 81.54 337 46.80 166 40.39
Gain on sale of SBA loans ---- ---- ---- ---- ---- ---- 75 18.24
Net loss on securities available for sale ---- ---- (73) (112.31) (43) (5.96) (80) (19.46)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $278 100.00% $65 100.00% $720 100.00% $411 100.00%
====================================================================================================================================
Other income increased from $65 for the quarter ended September 30, 1994 to $278
for the comparable quarter in 1995. This increase was due mainly to the impact
of the CBB acquisition plus the realization of $73 of losses on securities
available for sale during the 1994 third quarter. For the nine months ended
September 30, 1995, other income was $720, as compared to $411 for the same
period in 1994. The increase was due mainly to the CBB acquisition.
Other Expenses
The following schedule summarizes the major categories of expense as a
percentage of average assets on an annualized basis:
OTHER EXPENSES AS A PERCENT OF AVERAGE ASSETS
(dollars in thousands)
Quarter ended September 30, Nine months ended September 30,
-------------------------------------------------------------------------------------
1995 1994 1995 1994
Amount Percent * Amount Percent * Amount Percent * Amount Percent *
- - --------------------------------------------------------------------------------------------------------------------------------
Salaries and benefits $1,091 1.84% $808 2.34% $3,212 1.99% $2,343 2.33%
Amortization of core deposit
intangibles and goodwill 140 .24 ----- ----- 420 .26 ----- -----
Legal and professional fees 126 .21 75 .22 359 .22 198 .20
Data processing 119 .20 92 .27 343 .21 249 .25
Occupancy 101 .17 68 .20 307 .19 202 .20
Furniture and equipment 76 .13 62 .18 253 .15 176 .18
Regulators assessments 4 .01 78 .23 248 .15 241 .24
Business promotion 70 .12 57 .16 236 .15 190 .19
Client services paid by bank 61 .10 29 .08 186 .11 121 .12
Directors' fees and costs 60 .10 41 .12 182 .11 95 .09
Loan and collection 91 .15 51 .15 163 .10 154 .15
Advertising 46 .08 16 .05 138 .09 49 .05
Stationery and supplies 49 .08 27 .08 130 .08 89 .09
Net cost of foreclosed property 56 .09 (18 ) (.05) 43 .03 49 .05
Other 135 .23 95 .27 387 .24 263 .26
- - -----------------------------------------------------------------------------------------------------------------------------
Total $2,225 3.75% $1,481 4.29% $6,607 4.08% $4,419 4.40%
=============================================================================================================================
<FN>
* The percentages are calculated by annualizing the quarter or year to date
expense, and comparing that amount to average assets for the respective periods
ended September 30, 1995 and 1994.
</FN>
Total other expenses for the third quarter and first nine months of 1995
increased $744 and $2,188 respectively, from the same periods a year ago. The
increases relate primarily to the increased costs associated with the
acquisition of CBB, including the amortization of core deposit premium and
goodwill. Most costs showed increases in absolute amounts while declining as a
percent of average assets, with the exception of legal and professional fees,
directors' fees and costs and advertising. Legal and professional fees increased
due to increased cost of litigation. Directors' fees have increased due to a
greater number of directors and an increase in fees paid. Costs of advertising
have increased due to greater promotion of the Bank. During the third quarter of
1995, the FDIC reduced its premium on insured deposits from 23 cents per hundred
to 4 cents per hundred effective as of June 1, 1995. This resulted in
approximately $109 reduction in the costs of regulators assessments, of which
approximately $25 related to the second quarter.
The net cost of foreclosed property (See "Other Real Estate Owned") are
summarized below:
NET COST OF FORECLOSED PROPERTY
(dollars in thousands)
Quarter ended Nine months ended
September 30, September 30,
----------------------------------------------
1995 1994 1995 1994
- - ---------------------------------------------------------------------------------------------
Costs relating to foreclosed properties $26 $22 $35 $152
Loss on dispositions 34 ---- 22 ----
Income collected on foreclosed property (3) (41) (14) (103)
- - --------------------------------------------------------------------------------------------
Net cost of other real estate owned $56 $(19) $43 $49
============================================================================================
Income Tax Provision
The Company accounts for income taxes using the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" (SFAS No. 109). Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year 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 during the period which includes the enactment
date.
The effective tax rate of 44% for the nine months ended September 30, 1995 is
affected by several items, the most significant of which are the amortization of
the intangibles; estimates for tax exempt income and the California Franchise
Tax Enterprise Tax Zone Credit. The effective tax rate for the year ended
December 31, 1994 was 42%.
Financial Condition and Earning Assets
Consolidated assets increased to $245 million at September 30, 1995 compared to
$206 million at December 31, 1994. The increase consisted primarily of
securities available for sale and loans and was funded by an increase in the
Bank's core interest-bearing deposit accounts and large ($100 or more)
certificates of deposits. See "Funding." In addition, there was an increase in
other short-term borrowings of $21 million relating primarily to the Bank's
hedging activities. See "Asset/Liability Management."
Money Market Investments
Money market investments, which include federal funds sold, increased to $2
million at September 30, 1995 from none at December 31, 1994. This increase was
related to the growth in deposits.
Securities
The following table shows the composition of the securities portfolio, at book
value, at September 30, 1995 and December 31, 1994. There were no issuers of
securities for which the book value of specific securities held by the Bank
exceeded 10% of the Company's shareholders' equity, except U.S. Government
Securities.
SECURITIES PORTFOLIO
(dollars in thousands)
September 30, 1995 December 31, 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gain (Loss) Value Cost Gain (Loss) Value
- - ------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U. S. Treasury $4,264 $(2) $4,262 $4,260 $(159) $4,101
U. S. Government Agencies 4,972 20 4,992 4,963 (211) 4,752
State and municipal (nontaxable) 2,690 26 2,716 1,797 (34) 1,763
Mortgage backed 2,413 130 2,543 2,377 (63) 2,314
Federal Reserve Bank Stock 519 ---- 519 462 ---- 462
- - ------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity 14,858 174 15,032 13,859 (467) 13,392
- - ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
U. S. Treasury 3,997 50 4,047 9,989 (203) 9,786
U. S. Government Agencies 34,125 72 34,197 4,960 (5) 4,955
Mortgage backed 11 3 14 19 (1) 18
Mutual funds 4,032 (155) 3,877 4,180 (233) 3,947
- - ------------------------------------------------------------------------------------------------------------------------------------
Securities available for sale 42,165 (30) 42,135 19,148 (442) 18,706
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $57,023 $144 $57,167 $33,007 $(909) $32,098
====================================================================================================================================
Securities held to maturity include those securities which management has the
ability and intent to hold to maturity. This decision is dependent upon the
liquidity and asset/liability needs of the Bank and does not involve any
specific type of securities except that all state and municipal securities will
be included in the "held to maturity" category and all mutual funds are
classified as "available for sale." The Bank's policy is to acquire generally
"A" rated or better state and municipal securities. The specific issues are
monitored for changes in financial condition and appropriate action would be
taken if significant deterioration was noted. Management's policy is to reduce
the market valuation risk of the investment portfolio by generally limiting
portfolio maturities to 60 months or less. It is management's intent to maintain
at least 50% of its total investment securities portfolio in U.S. Treasury and
U.S. Government Agencies securities.
Gross unrealized gains on securities held to maturity were $174 as of September
30, 1995 as compared to an unrealized loss of $467 as of December 31, 1994. The
unrealized gain results from the significant decrease in interest rates over the
last nine months. The decrease in interest rates has a positive effect on the
value of securities for which the interest rate is fixed. The Bank's weighted
average maturity of the held to maturity investment portfolio was approximately
2.09 years as of September 30, 1995. It is estimated that for each 1% change in
interest rates, the value of the Company's securities held to maturity will
change by approximately 1.86%. This volatility decreases as the average maturity
shortens. It is the intention of management to hold these securities to maturity
and therefore this increase in value will be recognized over the life of the
securities as the interest income is recognized.
Securities available for sale, which include all mutual funds, are acquired
without the intent to hold until maturity. Any unrealized gain or loss is
reflected in the carrying value of the security and reported net of income taxes
in the equity section of the condensed consolidated balance sheets. Realized
gains and losses are reported in the condensed consolidated statement of
operations. The unrealized loss on securities available for sale as of September
30, 1995 was $30. The Bank's weighted average maturity of the available for sale
portfolio was approximately 1.91 years as of September 30, 1995. It is estimated
that for each 1% change in interest rates the value of the Company's available
for sale securities will change by 1.77%.
A substantial portion of the large increase in the available for sale securities
consists of $24 million of government agency securities purchased as part of a
hedge transaction. The agency securities have fixed rates, and the purchases
were financed by short term repurchase agreements. See "Asset and Liability
Management."
Mortgage backed securities are considered to have increased risks associated
with them because of the timing of principal repayments. At September 30, 1995,
the Bank had the following securities which were mortgage-backed related
securities:
Historical Market
(dollars in thousands) Cost Value
----------------------------------------------------- ------------ ----------
Federal Home Loan Mortgage Corp.
(U.S. Agency) $2,413 $2,544
Federal National Mortgage Association
(U.S. Agency) 11 13
Federated ARMs Funds * 1,686 1,632
Overland Variable Rate
Government Fund* 1,263 1,180
----------------------------------------------------- ------------ ----------
* The assets of these mutual funds are invested mainly in adjustable rate U. S.
Treasury or Agency securities.
Interest income earned on the securities portfolio for the quarters and nine
months ended September 30, 1995 and 1994 are as follows:
INTEREST AND DIVIDEND INCOME ON INVESTMENT SECURITIES
(dollars in thousands)
Quarter ended Nine months ended
September 30, September 30,
---------------------------------------------
1995 1994 1995 1994
- - ---------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury $54 $37 $160 $139
U.S. Government agencies 77 37 229 86
State and municipal (nontaxable) 33 24 87 64
Mortgage backed 56 155
----- -----
Federal Reserve Bank Stock 8 5 22 11
Securities available for sale:
U.S. Treasury 69 86 348 187
U. S. Government Agencies 481 678
----- -----
Mortgage backed (1) (2)
----- -----
Mutual funds 58 49 176 138
- - ---------------------------------------------------------------------------------------------------------------------
Interest and dividend income $835 $238 $1,853 $625
=====================================================================================================================
Loan Portfolio
The following table provides a breakdown of the Company's consolidated loans by
type of loan or borrower:
LOAN PORTFOLIO
(dollars in thousands)
September 30, 1995 December 31, 1994
- - --------------------------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Loans Amount Loans
- - --------------------------------------------------------------------------------------------------------
Commercial $45,871 27.93% $49,018 32.81%
Real estate construction 10,472 6.38 16,343 10.94
Real estate-other 66,296 40.36 63,104 42.23
Consumer 9,276 5.65 9,461 6.34
Other 21,714 13.22 7,362 4.93
Unearned fee income (775) (.47) (889) (.60)
- - ------------------------------------------------------------------------------------------------------
Loan portfolio 152,854 93.06% 144,399 96.65%
Loans available for sale 11,394 6.94 5,008 3.35
- - ------------------------------------------------------------------------------------------------------
Total loans $164,248 100.00% $149,407 100.00%
======================================================================================================
Consolidated loans increased to $164 million at September 30, 1995 from $149
million at December 31, 1994. The increase in the loan portfolio can be
attributed to the success of the Bank's SBA and other business development
efforts offset by a decrease in real estate construction loans reflecting the
recent slowdown in market demand for residential construction.
Economic conditions in Northern California have begun to level off during 1995.
At the same time, the competitive environment within the Bank's marketplace has
become more aggressive and the competition between lenders for additional loan
growth has caused more competitive pricing. The Bank's net interest margin has
declined from 7.05% for the quarter ended September 30, 1994 to 6.42% for the
quarter ended September 30, 1995 (after excluding the effect of recovery of
interest on nonaccrual loans). To the extent that such competitive pricing
continues throughout 1995 and the Bank finds it necessary to meet such
competition, the Bank's net interest margins could continue to decline.
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 economic 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 portfolio, a substantial
portion of its customers' ability to honor contracts is reliant upon the
economic stability of Santa Clara County, which in some degree relies on the
stability of high technology companies in its "Silicon Valley." Loans are
generally made on the basis of a secure repayment source and collateral is
generally a secondary source for loan qualification.
Approximately 59% of the loan portfolio is directly related to real estate or
real estate interests, including real estate construction loans, real
estate-other, real estate equity lines (included in the Consumer category) (3%),
mortgage warehouse line (1%) and loans to real estate developers for short-term
investment purposes (2%) and loans for RE investments purposes made to
non-developers (3%). The latter three types are included in the Other category.
Approximately 31% of the loan portfolio is made up of commercial loans; however,
no particular industry represents a significant portion of such loans.
Inherent in any loan portfolio are risks associated with certain types of loans.
The Company attempts to limit these risks through stringent loan policies and
review procedures. Included in these policies are specific maximum loan-to-value
(LTV) limitations as to various categories of real estate related loans. These
ratios are as follows:
Category of Real Estate Collateral Maximum
LTV Ratio
Raw land 50%
Land Development 60%
Construction:
1-4 Single family residence,
Less than $500,000 75%
Greater than $500,000 70%
Other 70%
Term loans (construction take-out and commercial) 70%
Other improved property 70%
Prime equity loans 75%
Any term loans on income producing properties must have a maximum debt service
coverage of at least 1.2 to 1 for non-owner occupied property and at least 1.1
to 1 for owner occupied.
One of the significant risks associated with real estate lending is the possible
existence of environmental risks or hazards on or in property affiliated with
the loan. The Bank mitigates such risk through the use of an Environmental Risk
Questionnaire for all loans secured by real estate. A Phase I environmental
report is required if indicated by the questionnaire or if for any other reason
it is determined appropriate. Other reasons would include the industry use of
environmentally sensitive substances or the proximity to known other
environmental problems. A Phase II report is required in certain cases,
depending on the outcome of the Phase I report.
Quality of Loans
A consequence of lending activities is that losses will be experienced and that
the amount of such losses will vary from time to time depending upon the risk
characteristics of the loan portfolio as affected by economic conditions and the
financial experiences of borrowers. The allowance for possible loan losses,
which provides for the risk of losses inherent in the credit extension process,
is increased by the provision for possible loan losses charged to expense and
decreased by the amount of charge-offs net of recoveries. There is no precise
method of predicting specific losses or amounts that ultimately may be charged
off on particular segments of the loan portfolio, especially in light of the
current economic environment. The conclusion that a loan may become
uncollectable (in whole or in part) and be charged off against the allowance is
a matter of judgment. Similarly, the adequacy of the allowance for possible loan
losses and the level of the related provision for possible loan losses is
determined on a judgmental basis, after full review, including consideration of:
o Economic conditions;
o Borrowers' financial condition;
o Loan impairment;
o Evaluation of industry trends;
o Industry concentrations;
o Loans which are contractually current as to payment terms but
demonstrate a higher degree of risk as identified by
management;
o Continuing evaluation of the performing loan portfolio;
o Monthly review and evaluation of problem loans identified as
having loss potential;
o Quarterly review by the Board of Directors; and,
o Off-balance sheet risks.
In addition to the continuing internal assessment of the loan portfolio (and
off-balance sheet credit risk, such as letters of credit, etc.), the
consolidated financial statements are examined by independent accountants and
the Company retains a consultant who performs credit reviews on a quarterly
basis and who provides an assessment of the adequacy of the allowance for
possible loan losses. Also, examinations of the loan portfolio are conducted
periodically by the Federal banking regulators.
The Company utilizes a method of assigning a minimum and maximum loss ratio for
each grade of loan within each category of loans (commercial, real estate-other,
real estate construction, etc.) Loans are graded on a ranking system based on
management's assessment of the loan's credit quality. The assigned loss ratio is
based upon the Company's prior experience, industry experience, delinquency
trends and the level of nonaccrual loans. Loans secured by real estate are
evaluated on the basis of their underlying collateral in addition to using the
assigned loss ratios. The methodology also considers (and assigns a risk factor
for) current economic conditions, off-balance sheet risk (including SBA
guarantees and servicing and letters of credit) and concentrations of credit. In
addition, each loan is evaluated on the basis of whether it is impaired and for
such loans, the expected cash flow is discounted on the basis of the loan's
interest rate. The methodology provides a systematic approach for the
measurement of the possible existence of future loan losses. Management and the
Board of Directors evaluate the allowance and determine the desired level of the
allowance considering the objective in addition to subjective measures, such as
knowledge of the borrowers' business, valuation of collateral and exposure to
potential losses. Management believes that the allowance for possible loan
losses was determined as described above and therefore believes it to be an
adequate allowance against losses inherent in the loan portfolio.
The allowance for possible loan losses is a general reserve available against
the total loan portfolio and off-balance sheet credit exposure. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for possible losses on loans. Such
agencies may require the Bank to provide additions to the allowance based on
their judgment of information available to them at the time of their
examination.
There is uncertainty concerning the future economic trends. Accordingly, it is
not possible to predict the effect future economic trends may have on the level
of the provision for possible loan losses in future periods.
The allowance for possible loan losses was approximately $3.7 million at
September 30, 1995, or 2.24% of loans outstanding. The following schedule
provides an analysis of the allowance for possible loan losses:
ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
Quarter ended Nine months ended Year ended
September 30, September 30, December 31,
------------------------------------------------------------------
1995 1994 1995 1994 1994
- - -------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of the period $3,604 $2,252 $3,311 $2,057 $2,057
Charge-offs by loan category:
Commercial ---- 28 230 113 148
Real estate-construction ---- ---- 150 ---- ----
Real estate-other 117 ---- 220 126 637
Consumer 8 ---- 83 33 73
Other ---- 50 ---- 74 824
- - --------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 125 78 683 346 1,682
- - -------------------------------------------------------------------------------------------------------------------------------
Recoveries by loan category:
Commercial 2 3 36 57 192
Real estate-other 25 ---- 25 ---- 10
Consumer ---- ---- 6 7 7
Other ---- 118 101 220 222
- - -------------------------------------------------------------------------------------------------------------------------------
Total recoveries 27 121 168 284 431
- - -------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) 98 (43) 515 62 1,251
- - -------------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 180 100 890 400 600
Allowance relating to California Business Bank ---- ---- ---- ---- 1,905
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, end of the period $3,686 $2,395 $3,686 $2,395 $3,311
===============================================================================================================================
Ratios:
Net charge-offs (recoveries) to average loans, annualized .25% ( .17%) .46% .08% 1.11%
Allowance to total loans at the end of the period 2.24 2.27 2.24 2.27 2.22
Allowance to nonperforming loans at end of the period 400.44 75.14 400.44 75.14 60.45
===============================================================================================================================
During the three months ended September 30, 1995, the Company charged off $125
and recovered $27 on loans previously charged off. This compares to $78 and
$121, respectively, for the three months ended September 30, 1994. During the
nine months ended September 30, 1995, the Company charged off $683 and recovered
$168. This compares to $346 and $284, respectively for the nine months ended
September 30, 1994. The most significant charge-offs during 1995 represented
partial write offs of a commercial loan in the amount of $198 and three real
estate development loans totaling $268. These loans were the result of the
acquisition of CBB. There were no trends indicated by the detail of the
aggregate charge-offs for any of the periods discussed.
The allowance for possible loan losses was 400% of nonperforming loans at
September 30, 1995 compared to 60% at December 31, 1994. This increase relates
mainly to the collection of a large real estate loan in the amount of $2.5
million in June 1995 and the further efforts by management to reduce
nonperforming loans through collection efforts and foreclosure.
Based on an evaluation of individual credits, historical credit loss experienced
by loan type and economic conditions, management has allocated the allowance for
possible loan losses as follows as of September 30, 1995 and December 31, 1994:
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
(dollars in thousands)
September 30, 1995 December 31, 1994
- - ----------------------------------------------------------------------------------------------------
Percentage Percentage
Amount of of loans to Amount of of loans to
Allowance total loans Allowance total loans
- - ----------------------------------------------------------------------------------------------------
Commercial $1,222 30.87% $1,192 33.96%
Real estate construction 132 6.38 310 10.87
Real estate-other 1,107 44.36 1,051 43.97
Consumer 179 5.65 219 6.29
Other 371 12.74 94 4.91
Unallocated 675 --- 445 ---
- - ---------------------------------------------------------------------------------------------------
Total $3,686 100.00% $3,311 100.00%
===================================================================================================
The allowance for possible loan losses is maintained without any internal
allocation to the segments of the loan portfolio. The above schedule is being
presented in accordance with the Securities and Exchange Commission's
requirements to provide an allocation of the allowance. The allocation is based
on subjective estimates that take into account historical loss experience and
management's current assessment of the relative risk characteristics of the
portfolio as of the reporting dates noted above and as described more fully
under the section "Asset Quality - Allowance for Possible Loan Losses". The
increase in the unallocated portion is due to several factors including the
write-off of loans which had been previously identified, an increased allocation
relating to the off-balance sheet risk of SBA guaranteed loans and management's
assessment of the overall risk relating to local economic conditions.
Nonperforming Loans
Loans for which the accrual of interest has been suspended and other loans with
principal or interest contractually past due 90 days or more are set forth in
the following table.
NONPERFORMING LOANS
(dollars in thousands)
September 30, December 31,
1995 1994
- - --------------------------------------------------------------------------------------------
Loans accounted for on a non-accrual basis $921 $5,395
Other loans with principal or interest contractually past
due 90 days or more --- 83
- - --------------------------------------------------------------------------------------------
Total $921 $5,478
============================================================================================
The Company follows the practice of discontinuing the accrual of interest and
reversing any accrued and unpaid interest 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
amount is well-secured and in the process of collection.
As of September 30, 1995, the Company had approximately $921 of nonperforming
loans, consisting of four loans, of which the most significant are summarized
below.
SUMMARY OF SIGNIFICANT NONPERFORMING LOANS
(dollars in thousands)
Purpose Amount Description of Collateral Date of Appraisal
- - ------------------------------------ ------------- ------------------------------------- ----------------------------
Land development $594 2nd deed of trust on five rural August 1993
lots and a 1st deed of trust on
another lot, San Jose, CA
Business loan 200 2nd deed of trust on commercial August 1991
building in Campbell, CA
At December 31, 1994, there were 14 loans which were included as nonperforming
loans. Of these loans, 11 were secured by commercial or residential real estate
(approximately 89%) and three were secured by general business assets
(approximately 11%).
Management conducts an ongoing evaluation and review of the loan portfolio in
order to identify potential nonperforming loans. Management considers loans
which are classified for regulatory purposes, loans which are graded as
classified by the Bank's outside loan review consultant and internal personnel,
as to whether they (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (ii) represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. Based on such reviews as of September 30, 1995, management has identified
approximately $57 of loans relating to two borrowers with respect to which known
information causes management to have doubts about the borrower's abilities to
comply with present repayment terms, such that the loans might subsequently be
classified as nonperforming.
Other Real Estate Owned
At September 30, 1995, the Bank had five properties which were acquired through
the foreclosure process in the amount of $1 million. A summary of the properties
at September 30, 1995 and December 31, 1994 follows:
(dollars in thousands) Carrying Value
Description of Property September 30, 1995 December 31, 1994
SFR on 4.78 acres in Petaluma, CA $333 -----
Two vacant parcels, currently subject to a one-year sewer 304 $304
moratorium
SFR in Piedmont, CA 225 -----
Raw land, 11.7 acres in San Jose, CA 135 -----
Other properties 48 1,191
------------------------ -------------------------
Total $1,045 $1,495
======================== =========================
At the time of foreclosure, any difference between the loan balance and the net
realizable value of the collateral is charged to the allowance for possible loan
losses. Foreclosed property is recorded at the lower of its revised basis or
fair value, less estimated selling costs. Any subsequent decline in value is
charged directly to the income statement. See "Financial Review - Other Expense"
for the analysis of the net cost of other real estate owned for the quarters and
nine months ended September 30, 1995 and 1994.
Commitments and Lines of credit
It is the Bank's policy not to issue formal commitments or lines of credit
except to a limited number of well-established and financially responsible local
commercial enterprises. Such commitments can be either secured or unsecured and
are typically in the form of revolving lines of credit for seasonal working
capital needs.
Occasionally, such commitments are in the form of a letter of credit to
facilitate the customer's particular business transaction. Commitments and lines
of credit typically mature within one year. These commitments, to varying
degrees, involve credit risk in excess of the amount recognized as either an
asset or liability in the statement of financial position. The Company controls
credit risk through its credit approval process. The same credit policies are
used when entering into such commitments and lines of credit.
As of September 30, 1995 and December 31, 1994, the Company had undisbursed loan
commitments to extend credit under normal lending arrangements as follows:
UNDISBURSED LOAN COMMITMENTS
(dollars in thousands) September 30, December 31,
Loan Category 1995 1994
- - -------------------------------------------------------------------------------
Commercial $24,253 $22,837
Real estate-other 2,206 3,658
Real estate construction 10,977 9,314
Consumer 4,710 6,955
Other 15,677 11,832
- - -------------------------------------------------------------------------------
Total $57,823 $54,596
===============================================================================
In addition there was approximately $3 million for commitments under unused
letters of credit at September 30, 1995.
Funding
The following table provides a breakdown of deposits by category as of the dates
indicated:
DEPOSIT CATEGORIES
(dollars in thousands)
September 30, 1995 December 31, 1994
- - -------------------------------------------------------------------------------------------------------
Percentage Percentage
Total of Total Total of Total
Amount Deposits Amount Deposits
- - -------------------------------------------------------------------------------------------------------
Noninterest-bearing demand $48,891 25.08% $54,002 29.95%
Interest-bearing demand 31,407 16.11 29,041 16.11
Money market and savings 52,903 27.13 47,170 26.16
Certificates of deposit:
Less than $100,000 16,391 8.41 16,038 8.90
$100,000 or more 45,383 23.27 34,036 18.88
- - -------------------------------------------------------------------------------------------------------
Total $194,975 100.00% $180,287 100.00%
=======================================================================================================
Consolidated deposits as of September 30, 1995, were $195 million compared to
$180 million at December 31, 1994. The increase in deposits relates to the
growth of interest-bearing deposits of all types. Noninterest-bearing deposits
have declined from $54 million as of December 31, 1994 to $49 million as of
September 30, 1995. The decline in these deposits is due the impact of customers
who have converted such deposits to interest-bearing deposits. The growth in
interest-bearing deposits has been due to the successful business development
efforts of the Bank's business development officers and higher interest rates on
certificates of deposits.
The Bank raises a substantial amount of funds through certificates of deposits
of greater than $100. These deposits are usually at interest rates greater than
other types of deposits and are more sensitive to interest rate changes.
Historically, the Bank's cost of funds has been significantly less than its peer
group. However, these certificates of deposits are usually more interest rate
sensitive, and therefore their repricing could negatively impact the Bank's net
interest margin without a corresponding increase in rates earned on its earning
assets. See "Liquidity."
Asset/Liability Management
The Company defines interest rate sensitivity as the measurement of the mismatch
in repricing characteristics of assets, liabilities and off-balance sheet
instruments at a specified point in time. This mismatch, or interest rate
sensitivity gap, represents the potential mismatch in the change in the rate of
accrual of interest revenue and interest expense that would result from a change
in interest rates. Mismatches in interest rate repricing among assets and
liabilities arise primarily from the interaction of various customer businesses
(i.e., types of loans versus the types of deposits maintained) and from
management's discretionary investment and funds gathering activities. The
Company attempts to manage its exposure to interest rate sensitivity; however
due to its size and direct competition from the major banks, it must offer
products which are competitive in the market place even if such products are not
optimum with respect to its interest rate exposure.
The Company's balance sheet position is asset-sensitive (based upon the
significant amount of variable rate loans and the repricing characteristics of
its deposit accounts). This balance sheet position provides a hedge against
rising interest rates, but has a detrimental effect during times of interest
rate decreases. Net interest revenues are negatively impacted by a decline in
interest rates. The interest rate gap is a measure of interest rate exposure and
is based upon the known repricing dates of certain assets and liabilities and
assumed repricing dates of others.
To counter its natural interest rate position, the Bank entered into an interest
rate "floor" in the amount of $10 million which expires in May 1999. The Bank
has paid a fixed premium of $47 for which it will receive the amount of interest
on $10 million based on the difference of 7% and prime when prime is less than
7%. This will protect the Bank against decreases in its net income when the
prime decreases. Settlement is done quarterly and the Bank records the impact of
this hedge on an accrual basis.
During the second and third quarter of 1995, the Bank executed several
transactions which are intended to mitigate its exposure to a decline in general
market interest rates. The transactions involved the purchase of three U.S.
Agency securities for an aggregate cost of $24 million which were financed
through the use of five 90 day repurchase agreements. The repurchase agreements
are shown as short-term borrowings on the Company's balance sheet. The
securities are fixed rate and $7 million matures in November 1997, $10 million
matures in May 1998 and $7 million matures in July 1998. The repurchase
agreements interest rates range from 5.79% to 5.89% and mature through December
1995.
The following table quantifies the Company's interest rate exposure at September
30, 1995 based upon the known repricing dates of certain assets and liabilities
and the assumed repricing dates of others. At September 30, 1995, the Company
was, as noted above, asset sensitive in the near term. This table displays a
static view of the Company's interest rate sensitivity position and does not
consider the dynamics of the balance sheet and interest rate movements.
DISTRIBUTION OF REPRICING OPPORTUNITIES
At September 30, 1995
(dollars in thousands)
After three After six After one
Within months but months but year but After
three within six within one within five
months months year five years years Total
- - --------------------------------------------------------------------------------------------------------------------
Investment securities-taxable ---- ---- $3,310 $8,340 $518 12,168
Investment securities-non-taxable 0 ---- 850 1,840 ---- 2,690
Securities available for sale 4,876 977 6,033 30,234 14 42,135
Loans 148,315 63 717 11,384 3,770 164,248
- - -----------------------------------------------------------------------------------------------------------------
Total earning assets 155,191 1,040 10,910 51,798 4,302 223,241
- - -----------------------------------------------------------------------------------------------------------------
Interest checking, money market
and savings 84,310 ---- ---- ---- ---- 84,310
Certificates of deposit:
Less than $100,000 8,367 2,694 2,592 2,738 ---- 16,391
$100,000 or more 20,970 11,093 10,684 2,636 ---- 45,383
Repurchase agreements 20,295 ---- ---- ---- ---- 20,295
Other borrowings ---- ---- ---- ---- 643 643
- - -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 133,942 13,787 13,276 5,374 643 167,022
- - -----------------------------------------------------------------------------------------------------------------
Interest rate gap $21,249 ($12,747) ($2,366) $46,424 $3,659 $56,218
=================================================================================================================
Cumulative interest rate gap $21,249 $8,502 $6,136 $52,559 $56,218
=====================================================================================================
Interest rate gap ratio 1.16 0.08 0.82 9.64 6.69
=====================================================================================================
Cumulative interest rate gap ratio 1.16 1.06 1.04 1.32 1.34
=====================================================================================================
The maturities and yields of the investment portfolio at September 30, 1995 are
shown below:
MATURITY AND YIELDS OF INVESTMENT SECURITIES At September 30, 1995 (dollars in
thousands)
Maturity
--------------------------------------------------------------------------
After one year
Carrying Within one year within five years After ten years
Value Amount Yield Amount Yield Amount Yield
- - -------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U. S. Treasury $4,264 $3,310 4.43% $954 7.05% ---- ----
U. S. Government Agencies 4,972 ---- ---- 4,973 6.14 ---- ----
State and municipal 2,690 850 6.51 1,839 8.27 ---- ----
Mortgage backed 2,413 ---- ---- 2,413 7.90 ---- ----
Other 519 ---- ---- ---- ---- $519 6.00%
- - -------------------------------------------------------- ------------ -------------
Total 14,858 4,160 10,179 519
- - -------------------------------------------------------- ------------ -------------
Securities available for sale:
U. S. Treasury 4,047 1,001 5.94 3,046 7.18 ---- ----
U.S. Government Agencies 34,197 7,009 6.06 27,188 6.13 ---- ----
Mortgage backed 14 ---- ---- ---- ---- 14 ----
Mutual funds 3,877 3,877 6.00 ---- ---- ---- ----
- - -------------------------------------------------------- ------------ -------------
Total 42,135 11,887 30,234 14
- - -------------------------------------------------------- ------------ -------------
Total $56,993 $16,047 5.73% $40,413 6.44% $533 5.84%
======================================================================================================================
The following table shows the maturity and interest rate sensitivity of
commercial, real estate-other and real estate construction loans at September
30, 1995. Approximately 89% of the commercial and real estate loan portfolio is
priced with floating interest rates which limits the exposure to interest rate
risk on long-term loans.
COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE SENSITIVITY
(dollars in thousands)
Balances maturing Interest Rate Sensitivity
-------------------------------------------------------------
Predeter-
Balances at One mined Floating
September 30, One year year to Over interest interest
1995 or less five years five years rates rates
- - -------------------------------------------------------------------------------------------------------------
Commercial $50,703 $34,291 $12,961 $3,451 $1,563 $49,140
============================================================================================================
Real estate-other $72,858 $8,338 $30,897 $33,623 $13,049 $59,809
============================================================================================================
Real estate construction $10,472 $9,757 $715 ----- ----- $10,472
============================================================================================================
The above table does not take into account the possibility that a loan may be
renewed at the time of maturity. In most circumstances, the Company treats a
renewal request in substantially the same manner in which it considers the
request for an initial extension of credit. The Company does not have a policy
to automatically renew loans.
Capital and Liquidity
Capital
The Company's book value per share was $10.77 and $9.92 on September 30, 1995
and December 31, 1994, respectively. Shareholders' equity was $26 million and
$23 million as of September 30, 1995 and December 31, 1994, respectively.
The Federal Reserve Board's risk-based capital guidelines require that total
capital be in excess of 8% of total assets on a risk-weighted basis. Under the
guidelines for a bank holding company capital requirements are based upon the
composition of the Company's asset base and the risk factors assigned to those
assets. The guidelines characterize an institution's capital as being "Tier 1"
capital (defined to be principally shareholders' equity) and "Tier 2" capital
(defined to be principally the allowance for loan losses, limited to one and
one-fourth percent of loans, and other supplemental capital). The guidelines
require the Company to maintain a risk-based capital target ratio of 8%,
one-half or more of which should be in the form of Tier 1 capital.
The Comptroller of the Currency also requires SJNB to maintain adequate capital.
The Comptroller's current regulations require national banks to maintain Tier 1
leverage capital ratio equal to at least 3% to 5% of total assets, depending on
the Comptroller's evaluation of the Bank.
The Comptroller also has adopted risk-based capital requirements. Similar to the
Federal Reserve's guidelines, the amount of capital the Comptroller requires a
bank to maintain is based upon the composition of its asset base and risk
factors assigned to those assets. The guidelines require the Bank to maintain a
risk-based capital target ratio of 8%, one-half or more of which should be in
the form of Tier 1 capital.
The capital of the Company and SJNB exceed the amount required by the various
capital guidelines. The table below summarizes the various capital ratios of the
Company and the Bank at September 30, 1995 and December 31, 1994.
Risk-based and Leverage Capital Ratios
(dollars in thousands)
Company September 30, 1995 December 31, 1994
---------------------------------------------------
Risk-based Amount Ratio Amount Ratio
---------------------------------------------------
Tier 1 capital $20,705 11.26% $18,530 10.93%
Tier 1 capital minimum requirement 7,356 4.00 6,781 4.00
===================================================
Excess $13,350 7.26% $11,749 6.93%
---------------------------------------------------
Total capital $23,082 12.55% $20,724 12.23%
Total capital minimum requirement 14,711 8.00 13,561 8.00
---------------------------------------------------
Excess $8,370 4.55% $7,163 4.23%
===================================================
Risk-adjusted assets $183,892 $169,514
============== =============
Leverage
Tier 1 capital $20,705 8.91% $18,530 9.33%
Minimum leverage ratio requirement (1) 9,300 4.00 7,942 4.00
---------------------------------------------------
Excess $11,405 4.91% $10,588 5.33%
===================================================
Average total assets $232,501 $198,542
============== =============
Bank
Risk-based
Tier 1 capital $19,783 10.76% $17,477 10.34%
Tier 1 capital minimum requirement 7,353 4.00 6,759 4.00
---------------------------------------------------
Excess $12,430 6.76% $10,718 6.34%
===================================================
Total capital $22,158 12.05% $19,664 11.64%
Total capital minimum requirement 14,705 8.00 13,518 8.00
---------------------------------------------------
Excess $7,453 4.05% $6,146 3.64%
===================================================
Risk-adjusted assets $183,818 $168,976
============== =============
Leverage
Tier 1 capital $19,783 8.50% $17,477 8.81%
Minimum leverage ratio requirement (1) 9,312 4.00 7,934 4.00
---------------------------------------------------
Excess $10,471 4.50% $9,543 4.81%
===================================================
Average total assets $232,805 $198,341
============== =============
(1) The required ratio is determined on an individual bank basis as a result of
factors considered by the Company's and Bank's regulators. To date, however, the
regulators have not established this amount. Amounts shown as the minimum
requirements relate to the standards imposed by the FDIC in their determination
of an "adequately capitalized" bank for their insurance premium determination.
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan funding and deposit withdrawals in the most economically
feasible manner. Liquidity requirements are evaluated by taking into
consideration factors such as deposit concentrations, seasonality and
maturities, loan demand, capital expenditures, and prevailing and anticipated
economic conditions. SJNB's business is generated primarily through customer
referrals and employee business development efforts; however the Bank utilizes
purchased deposits to satisfy temporary liquidity needs.
The Bank's source of liquidity consists of its deposits with other banks,
overnight funds sold to correspondent banks, and short-term marketable
investments. At September 30, 1995, consolidated liquid assets totaled $31
million or 13% of consolidated total assets as compared to $31 million or 15% of
consolidated total assets on December 31, 1994. In addition to the liquid asset
portfolio, SJNB also has available $9 million in lines of credit with five major
commercial banks, a repurchase line with a maximum limit of $40 million (of
which approximately $20 has been utilized) and a credit facility with the
Federal Reserve Bank based on loans secured by real estate for approximately $4
million.
SJNB is primarily a business and professional bank and, as such, its deposit
base is more susceptible to economic fluctuations. Accordingly, management
strives to maintain a balanced position of liquid assets to volatile and
cyclical deposits. Commercial clients in their normal course of business
maintain balances in large certificates of deposit, the stability of which hinge
upon, among other factors, market conditions and each business' seasonality.
Large certificates of deposit amounted to 23% of total deposits on September 30,
1995 as compared to 19% on December 31, 1994. This increase is principally due
to the impact of several customers which have transferred balances from other
deposit accounts and the placement by several new customers of new funds into
the Bank.
Additionally, SJNB is a depository of title company funds which are cyclical and
dependent mainly upon the residential real estate market. There were $6 million
of such title company deposits on September 30, 1995 and December 31, 1994.
Liquidity is also affected by portfolio maturities and the effect of interest
rate fluctuations on the marketability of both assets and liabilities. The loan
portfolio consists primarily of floating rate, short-term loans. On September
30, 1995, approximately 33% of total consolidated assets had maturities under
one year and 90% of total consolidated loans had floating rates tied to the
prime rate or similar indexes. The short-term nature of the loan portfolio, and
loan agreements which generally require monthly interest payments, provide the
Company with an additional secondary source of liquidity. In addition, the Bank
currently has available $11 million of SBA loans available for sale. These loans
could be sold within a 30 day period.
There are no material commitments for capital expenditures in 1995.
Effects of Inflation
The most direct effect of inflation on the Company is higher interest rates.
Because a significant portion of the Bank's deposits are represented by
non-interest-bearing demand accounts, changes in interest rates have a direct
impact on the financial results of the Bank. See the discussion regarding
asset/liability management. Another effect of inflation is the upward pressure
on the Company's operating expenses. Inflation did not have a material effect on
the Bank's operations in 1995 or 1994.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank is a party to any material pending legal
proceedings other than as previously disclosed. Material legal proceedings were
reported in the Form 10-QSB for the quarterly period ended June 30, 1995. The
Bank is party to routine litigation incidental to its business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
(2) Plan of Acquisition and Merger by and between SJNB Financial Corp. and
Business Bancorp (as amended) is hereby incorporated by reference to Annex
A filed with Registration Statement on Form S-4, Amendment No. 2 Commission
File No. 33-79874, filed with the Securities and Exchange Commission on
August 3, 1994.
(3)a.The Registrant's Articles of Incorporation and Bylaws are hereby
incorporated by reference from Exhibit 3 of Registrant's Registration
Statement on Form S-4, as filed on July 5, 1985 under Registration No.
2-98846.
(3)b.The Certificate of Amendment to Articles of Incorporation filed June 17,
1988 is hereby incorporated by reference from Exhibit (3) b. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1988.
(3)c.Amendments to Bylaws dated January 25, February 22 and March 22, 1995 and
restated bylaws as of March 22, 1995 is hereby incorporated by reference
from Exhibit 3 (ii) of Registrant's Form 10-QSB filed for the first quarter
of 1995.
*(10)a. The Registrant's 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 October 4, 1989 and amended January 24,1992 under Registration No.
33-31392.
*(10)b. The form of Incentive Stock Option Agreement being utilized under the
Stock Option Plan is hereby incorporated by reference from Exhibit 4.2 of
Amendment No. 1 to the Registrant's Registration Statement on Form S-8, as
filed on January 24, 1992, under Registration No. 33-31392.
*(10)c. The form of Stock Option Agreement being utilized under the Stock Option
Plan is hereby incorporated by reference from Exhibit 4.3 of Amendment No.
1 to the Registrant's Registration Statement on Form S-8, as filed on
January 24, 1992, under Registration No. 33-31392.
*(10)d. Amendment No. 3 to the Stock Option Plan is hereby incorporated by
reference from Exhibit 4.4 of Amendment No. 1 to the Registrant's
Registration Statement on Form S-8, as filed on January 24, 1992, under
Registration No. 33-31392.
*(10)e. Amendment No. 4 to the Stock Option Plan is hereby incorporated by
reference from Exhibit 4.5 of Amendment No. 2 to the Registrant's
Registration Statement on Form S-8, as filed on June 22, 1992, under
Registration No. 33-31392.
*(10)f. 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.
Amendment No. 1 to the 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit (10) f. of Registrant's Form 10-QSB
filed for the second quarter of 1995.
*(10)g. 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)h. 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)i. The Registrant's 1992 Director Stock Option Plan is hereby incorporated
by reference from Exhibit (10) i. of the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1992. Amendment No. 1 to the
1992 Director Stock Option Plan is hereby incorporated by reference from
Exhibit (10) i. of Registrant's Form 10-QSB filed for the second quarter of
1995.
*(10)j. The form of Stock Option Agreement being utilized under the 1992
Director Stock Option Plan is hereby incorporated by reference from Exhibit
(10) j. of the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992.
*(10)k. Agreement between James R. Kenny and SJNB Financial Corp. dated June 18,
1991 and amendment dated January 9, 1992 is hereby incorporated by
reference from Exhibit (10) f. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991.
(10)l. Systems Management Services Agreement by and between Systematics, Inc.
and San Jose National Bank dated March 1, 1990, and amendments dated April
5, 1990, July 10, 1990 and January 27, 1992 are hereby incorporated by
reference from Exhibit (10) g. of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991.
(10)m. Agreement for Item Processing Services by and between Datatronix
Financial Services and San Jose National Bank dated April 13, 1992 is
hereby incorporated by reference from Exhibit (10) m. of the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1992.
(10)n. Sublease dated April 5, 1982, for premises at 95 South Market Street, San
Jose, CA is hereby incorporated by reference from Exhibit (10) n. of the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994.
(10)o. Sublease by and between McWhorter's Stationary and San Jose National
Bank, as amended, dated July 6, 1995 and as amended August 11, 1995 and
September 21, 1995 for premises at 95 South Market Street, San Jose, CA.
(27) Financial Data Schedule
* Indicates management contract or compensation plan or arrangement.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SJNB FINANCIAL CORP.
(Registrant)
S/James R. Kenny
Date: November 6, 1995 ___________________________________________
James R. Kenny
President and
Chief Executive Officer
S/Eugene E. Blakeslee
Date: November 6, 1995 ___________________________________________
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer