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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from ________ to ________.
Commission File Number: 33-41102
SILICON VALLEY BANCSHARES
(Exact name of Registrant as specified in its charter)
California 94-2856336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3003 Tasman Drive 95054
Santa Clara, California (Zip Code)
(Address of principal executive offices)
(408) 383-5282
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ___
At October 31, 1995, 8,926,118 shares of the Registrant's Common Stock (no
par value) were outstanding.
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This Report Contains a Total of 25 Pages
SILICON VALLEY BANCSHARES
FORM 10-Q
SEPTEMBER 30, 1995
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1 SILICON VALLEY BANCSHARES INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS 3
CONDENSED INCOME STATEMENTS 4
CONDENSED STATEMENTS OF CASH FLOWS 5
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 24
ITEM 2 CHANGES IN SECURITIES 24
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
ITEM 5 OTHER INFORMATION 24
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURE 25
2
PART I - FINANCIAL INFORMATION
ITEM 1
SILICON VALLEY BANCSHARES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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CONDENSED BALANCE SHEETS
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SEPTEMBER 30, December 31,
1995 1994
(Dollars in thousands) (UNAUDITED)
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ASSETS:
Cash and Due from Banks $ 104,310 $ 139,792
Federal Funds Sold and Securities Purchased Under Agreement
to Resell 270,128 150,057
Investment Securities:
At Fair Market Value 171,517 148,703
At Cost 6,612 7,786
Loans:
Commercial 596,490 616,652
Real Estate Construction 14,660 10,674
Real Estate Term 59,739 59,120
Consumer and Other 33,249 21,017
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Gross Loans 704,139 707,463
Unearned Income on Loans (3,377) (3,654)
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Loans, Net of Unearned Income 700,762 703,809
Allowance for Loan Losses (27,000) (20,000)
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Net Loans 673,762 683,809
Premises and Equipment 4,656 2,221
Other Real Estate Owned 5,533 7,089
Accrued Interest Receivable and Other Assets 19,828 22,082
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TOTAL ASSETS $1,256,346 $1,161,539
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Noninterest-Bearing Demand Deposits $ 393,898 $ 401,455
Money Market, NOW and Savings Deposits 685,503 585,171
Time Deposits 68,949 88,747
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Total Deposits 1,148,350 1,075,373
Other Liabilities 9,833 8,909
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Total Liabilities 1,158,183 1,084,282
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Shareholders' Equity:
Preferred Stock, No Par Value:
20,000,000 Shares Authorized; None Outstanding
Common Stock, No Par Value:
30,000,000 Shares Authorized; 8,869,071 Shares Outstanding
at September 30, 1995; 8,509,194 Shares Outstanding at
December 31, 1994 58,130 54,068
Retained Earnings 40,426 27,702
Net Unrealized Loss on Available-for-Sale Investments (309) (4,159)
Unearned Compensation (84) (354)
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Total Shareholders' Equity 98,163 77,257
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,256,346 $1,161,539
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See notes to interim consolidated financial statements.
3
SILICON VALLEY BANCSHARES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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CONDENSED INCOME STATEMENTS
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Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1995 1994 1995 1994
(Dollars in thousands, except per share amounts) (UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
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INTEREST INCOME:
Loans, including Fees $19,193 $16,315 $59,371 $43,671
Investment Securities:
Taxable 2,001 2,456 6,483 8,491
Non-Taxable 110 134 348 409
Other 3,894 150 7,307 947
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Total Interest Income 25,198 19,055 73,509 53,518
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INTEREST EXPENSE:
Deposits 7,282 3,880 19,062 10,292
Other Borrowings -- 2 -- 22
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Total Interest Expense 7,282 3,882 19,062 10,314
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Net Interest Income 17,916 15,173 54,447 43,204
Provision for Loan Losses 3,337 490 6,098 2,182
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Net Interest Income After Provision for Loan Losses 14,579 14,683 48,349 41,022
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NONINTEREST INCOME:
Disposition of Client Warrants 3,823 9 5,626 1,876
Letter of Credit and Foreign Exchange Income 807 638 2,267 1,675
Deposit Service Charges 315 425 1,000 1,205
Investment Losses -- (396) (770) (1,294)
Other 153 131 434 394
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Total Noninterest Income 5,098 807 8,557 3,856
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NONINTEREST EXPENSE:
Compensation and Benefits 6,517 5,704 20,374 17,401
Professional Services 1,032 1,479 3,620 3,236
Equipment 1,473 431 2,678 1,116
Occupancy 1,007 550 2,655 1,674
FDIC Deposit Insurance 14 594 1,210 1,812
Data Processing Services 214 349 767 960
Corporate Legal and Litigation 179 1,325 571 2,535
Client Services 82 262 339 870
Cost of Other Real Estate Owned 23 45 37 1,349
Other 1,370 1,045 4,143 3,228
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Total Noninterest Expense 11,911 11,784 36,394 34,181
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INCOME BEFORE INCOME TAX EXPENSE 7,766 3,706 20,512 10,697
INCOME TAX EXPENSE 2,303 1,598 7,788 4,615
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NET INCOME $ 5,463 $ 2,108 $12,724 $ 6,082
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NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.59 $ 0.24 $ 1.40 $ 0.71
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See notes to interim consolidated financial statements.
4
SILICON VALLEY BANCSHARES
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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CONDENSED STATEMENTS OF CASH FLOWS
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Nine Months Ended
September 30,
-------------------------
1995 1994
(Dollars in thousands) (UNAUDITED) (Unaudited)
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CASH AND CASH EQUIVALENTS WERE PROVIDED BY (APPLIED TO):
OPERATING ACTIVITIES:
Net Income $ 12,724 $ 6,082
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Provision for Loan Losses 6,098 2,182
Net Loss on Sales of Investment Securities 770 1,294
Depreciation and Amortization 1,633 698
(Gain)/Loss on Disposal of Premises and Equipment 1,078 (49)
Provision for Valuation Adjustments on Other Real Estate Owned -- 956
Gain on Sales of Other Real Estate Owned (124) (305)
Increase in Accrued Interest Receivable (429) (606)
Increase in Accounts Receivable (362) (55)
Increase (Decrease) in Accrued Interest Payable 98 (360)
Increase (Decrease) in Deferred Loan Fees (277) 626
Other, Net 197 (2,147)
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Net Cash Provided by Operating Activities 21,406 8,316
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INVESTING ACTIVITIES:
Proceeds from Maturities, Paydowns and Sales of Investment Securities 68,682 213,441
Purchases of Investment Securities (83,569) (133,862)
Net Increase in Loans (1,406) (110,628)
Proceeds from Recoveries of Charged-Off Loans 5,224 2,128
Net Proceeds from Sales of Other Real Estate Owned 2,093 19,796
Purchases of Premises and Equipment (5,151) (890)
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Net Cash Applied to Investing Activities (14,127) (10,015)
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FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposits 72,977 (16,243)
Proceeds from Issuance of Common Stock, Net of Issuance Costs 4,333 1,025
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Net Cash Provided by (Applied to) Financing Activities 77,310 (15,218)
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Net Increase (Decrease) in Cash and Cash Equivalents 84,589 (16,917)
Cash and Cash Equivalents at January 1, 289,849 154,976
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Cash and Cash Equivalents at September 30, $374,438 $138,059
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OTHER CASH FLOW INFORMATION:
Interest Paid $ 18,964 $ 10,374
Income Taxes Paid $ 9,124 $ 7,675
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NON-CASH FINANCING AND INVESTING ACTIVITIES:
Transfer of Loans to Other Real Estate Owned $ 408 $ 3,445
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See notes to interim consolidated financial statements.
5
SILICON VALLEY BANCSHARES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accounting and financial reporting policies of Silicon Valley Bancshares
(the "Company") and its subsidiaries conform with generally accepted
accounting principles and prevailing practices within the banking industry.
The interim consolidated financial statements include the accounts of the
Company and those of its wholly-owned subsidiaries, Silicon Valley Bank (the
"Bank") and SVB Leasing Company (inactive). The revenues, expenses, assets
and liabilities of the subsidiaries are included in the respective line
items in the interim consolidated financial statements after elimination of
intercompany accounts and transactions.
In the opinion of Management, the interim consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position
at September 30, 1995, the results of its operations for the three and nine
month periods ended September 30, 1995 and September 30, 1994, and the
results of its cash flows for the nine month periods ended September 30,
1995 and September 30, 1994. The December 31, 1994 consolidated financial
statements were derived from audited financial statements, and certain
information and footnote disclosures normally presented in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's 1994 Annual Report to Shareholders. The results of operations
for the three and nine month periods ended September 30, 1995 may not
necessarily be indicative of the operating results for the full year.
Certain reclassifications have been made to the Company's 1994 consolidated
financial statements to conform to the 1995 presentations. Such
reclassifications had no effect on the results of operations or
shareholders' equity.
Cash and cash equivalents as reported in the condensed statements of cash
flows include cash on hand, cash balances due from banks, Federal funds
sold and securities purchased under agreement to resell.
2. NET INCOME PER SHARE COMPUTATION
Net income per common and common equivalent share is calculated using
weighted average shares, including the dilutive effect of stock options
outstanding during the period. Weighted average shares totaled 9,305,261
and 9,073,862 for the three and nine
6
month periods ended September 30, 1995, and 8,674,977 and 8,625,924 for the
three and nine month periods ended September 30, 1994, respectively.
3. FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Federal funds sold and securities purchased under agreement to resell
include interest-bearing deposits in other financial institutions of
$128,000 at September 30, 1995 and $57,000 at December 31, 1994.
4. INVESTMENT SECURITIES
The fair market value of investment securities classified as
"held-to-maturity" and recorded at historical cost, adjusted for the
amortization of premium or the accretion of discount where appropriate, was
$7.0 million at September 30, 1995 and $8.1 million at December 31, 1994.
5. NEW ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan." This standard, including its amendment by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures," was adopted by the Company on January 1,
1995. SFAS No. 114 requires the Company to measure impairment of a loan
based upon the present value of expected future cash flows discounted at
the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loan's observable
market price or the fair value of the collateral if the loan is
collateral-dependent. A loan is considered impaired when, based upon
current information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement.
At the time of adoption, certain insubstance foreclosure loans previously
classified as other real estate owned were reclassified as nonaccrual
loans. The amount of loans reclassified to conform with this new
accounting standard was $1.4 million at December 31, 1994.
The aggregate recorded investment in loans for which impairment has been
recognized in accordance with SFAS No. 114 totaled $20.3 million at
September 30, 1995. Average impaired loans for the quarter ended September
30, 1995 totaled $14.0 million. Allocations to the allowance for loan
losses related to impaired loans totaled $3.0 million
7
at September 30, 1995. The activity in the allowance for loan losses for the
three and nine month periods ended September 30, 1995 and 1994 was as
follows:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(Dollars in thousands) 1995 1994 1995 1994
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Beginning Balance $22,500 $25,000 $20,000 $25,000
Provision for Loan Losses 3,337 490 6,098 2,182
Charge-offs (1,948) (950) (4,322) (4,310)
Recoveries 3,111 460 5,224 2,128
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Balance at September 30, $27,000 $25,000 $27,000 $25,000
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Loans are placed on nonaccrual status when they become 90 days past due as
to principal or interest payments (unless the principal and interest are
well secured and in the process of collection), when the Company has
determined that the timely collection of principal or interest is doubtful,
or when the loans otherwise become impaired under the provisions of SFAS No.
114. When a loan is placed on nonaccrual status, the accrued interest
receivable is reversed and the loan is accounted for on the cash or cost
recovery method thereafter until qualifying for return to accrual status.
6. REGULATORY MATTERS
During 1993, the Company and Bank consented to formal supervisory orders by
the Federal Reserve Bank of San Francisco and the Bank consented to a formal
supervisory order by the California State Banking Department. These orders
require, among other actions, the following: suspension of cash
dividends; restrictions on transactions between the Company and the Bank
without prior regulatory approval; development of a capital plan to ensure
the Bank maintains adequate capital levels subject to regulatory approval;
development of plans to improve the quality of the Bank's loan portfolio
through collection or improvement of the loans within specified time
frames; changes to the Bank's loan policies which require the Directors'
Loan Committee to approve all loans to any one borrower exceeding $3.0
million and requiring the Board of Directors to become more actively
involved in loan portfolio management and monitoring activities; review of,
and changes in, the Bank's loan policies to implement (i) policies for
controlling and monitoring credit concentrations, (ii) underwriting
standards for all loan products, and (iii) standards for credit analysis
and credit file documentation; development of an independent loan review
function and related loan review policies and procedures; development of
Board of Directors oversight programs to establish and maintain effective
control and supervision of Management and major Bank operations and
activities; development of a plan, including a written methodology, to
maintain an adequate allowance for loan losses, defined as a minimum of
2.0% of total loans; development of business plans to establish guidelines
for growth and ensure maintenance of adequate capital levels; a review and
evaluation of existing compensation practices and development officer
compensation policies and procedures by the Boards of Directors of
the Company and Bank; policies requiring that changes in fees paid to
directors as well as bonuses paid to executive officers first receive
regulatory approval; and development of a detailed internal audit plan
8
for approval by the Board of Directors of the Bank. The State Banking
Department order further requires the Bank to maintain a tangible
equity-to-assets ratio of 6.5%.
In addition, such plans, policies, and procedures may not be amended without
prior regulatory approval. The Company and the Bank have taken steps to
address these requirements. The Company believes compliance with these
actions has not and will not have a material adverse impact on the business
of the Bank, its clients, or the Company. The Company and the Bank were in
substantial compliance with such orders at September 30, 1995.
9
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
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Silicon Valley Bancshares (the "Company") is a bank holding company whose
principal subsidiary is Silicon Valley Bank (the "Bank"), a
California-chartered bank with headquarters in Santa Clara, California. The
Bank maintains regional banking offices in Northern and Southern California,
and additionally has loan offices in Oregon and Massachusetts. The Bank has
also applied for regulatory approval to open a loan office in Maryland. The
Bank serves emerging and middle-market growth companies in specific targeted
niches, and focuses on the technology and life science industries, while
identifying and capitalizing on opportunities to serve other groups of clients
with unique financial needs. Substantially all assets, liabilities, and
earnings of the Company relate to its investment in the Bank.
Early in 1995, the Bank received regulatory approval to relocate its corporate
headquarters and main branch to a new 100,000 square foot facility in Santa
Clara. Concurrent with this move, the Bank closed its existing branch and
operational offices in San Jose and Santa Clara, California and has
consolidated them into the nearby headquarters. The Bank commenced the
relocation of its staff beginning in August, 1995. A majority of the staff
completed relocation during the third quarter of 1995, and the move is expected
to be complete by December, 1995.
RESULTS OF OPERATIONS
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EARNINGS SUMMARY
The Company reported net income of approximately $5.5 million, or $0.59 per
share, for the third quarter of 1995. This represents an increase of $3.4
million, or $0.35 per share, compared with net income of $2.1 million, or $0.24
per share, for the third quarter of 1994. Net income for the first nine months
of 1995 was $12.7 million, or $1.40 per share, compared with net income of $6.1
million, or $0.71 per share, for the first nine months of the prior year. The
increase in 1995 net income as compared with 1994 (for both the three and nine
month periods ended September 30) was primarily due to an increase in both net
interest income and income from the disposition of warrants held in some of the
Company's clients. (See RESULTS OF OPERATIONS -- "Net Interest Income and
Margin" and "Noninterest Income" for additional related discussions.)
The Company's annualized return on average assets ("ROAA") was 1.8% for the
third quarter of 1995, and 1.5% for the nine months ended September 30, 1995.
These ratios improved from the Company's 0.9% ROAA for both the third quarter
and the first nine months of 1994. The Company's annualized return on average
equity was 22.4% for the third quarter of 1995 and 19.3% for the first nine
months of 1995, up from 11.4% for the third quarter of 1994 and 11.1% for the
first nine months of 1994.
10
NET INTEREST INCOME AND MARGIN
Net interest income is the principal source of revenue for the Company. It
represents the difference between interest earned primarily on loans and
investments and interest paid on funding sources, primarily deposits. Net
interest margin is the amount of net interest income, on a fully
taxable-equivalent basis, expressed as a percentage of average interest-earning
assets.
11
The following tables set forth average assets, liabilities, and shareholders'
equity, interest income and interest expense, average yields and rates, and the
composition of the Company's net interest margin for the three and nine month
periods ended September 30, 1995 and September 30, 1994, respectively:
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AVERAGE BALANCES, RATES AND YIELDS
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For the three months ended September 30,
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1995 1994
(UNAUDITED) (Unaudited)
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AVERAGE Average
AVERAGE YIELD/ Average Yield/
(Dollars in thousands) BALANCE INTEREST RATE Balance Interest Rate
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INTEREST-EARNING ASSETS:
Federal Funds Sold and Securities Purchased
Under Agreement to Resell $ 264,361 $ 3,894 5.9% $ 13,426 $ 150 4.5%
Investment Securities:
Taxable 134,047 2,001 6.0 178,564 2,456 5.5
Non-Taxable (1) 6,686 169 10.1 8,093 206 10.2
Loans, Net of Unearned Income:
Commercial 570,022 16,831 11.8 526,991 14,307 10.9
Real Estate Construction and Term 72,497 1,843 10.2 64,957 1,477 9.1
Consumer and Other 21,420 519 9.7 22,574 531 9.4
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Total Loans 663,939 19,193 11.6 614,522 16,315 10.6
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Total Interest-Earning Assets 1,069,033 25,257 9.5 814,605 19,127 9.4
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Cash and Due from Banks 111,873 122,306
Allowance for Loan Losses (24,549) (25,647)
Other Real Estate Owned 5,446 7,791
Other Assets 26,519 14,059
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TOTAL ASSETS $1,188,322 $ 933,114
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FUNDING SOURCES:
Interest-Bearing Liabilities:
Money Market, NOW and Savings Deposits $ 651,752 6,679 4.1 $ 467,393 3,404 2.9
Time Deposits 63,998 603 3.8 61,388 476 3.1
Federal Funds Purchased -- -- -- 166 2 4.8
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Total Interest-Bearing Liabilities 715,750 7,282 4.1 528,947 3,882 2.9
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Portion of Noninterest-Bearing Funding Sources 353,283 285,658
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Total Funding Sources 1,069,033 7,282 2.7 814,605 3,882 1.9
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Noninterest-Bearing Funding Sources:
Demand Deposits 360,919 323,683
Portion Used to Fund Interest-Earning Assets (353,283) (285,658)
Other Liabilities 15,015 6,770
Shareholders' Equity 96,638 73,714
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,188,322 $ 933,114
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NET INTEREST INCOME $17,975 $15,245
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NET INTEREST MARGIN 6.7% 7.5%
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MEMORANDUM: TOTAL DEPOSITS $1,076,669 $ 852,464
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(1) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis. The tax-equivalent adjustments were $59 and
$72 for the three month periods ended September 30, 1995 and 1994,
respectively.
12
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AVERAGE BALANCES, RATES AND YIELDS
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For the nine months ended September 30,
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1995 1994
(UNAUDITED) (Unaudited)
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AVERAGE Average
AVERAGE YIELD/ Average Yield/
(Dollars in thousands) BALANCE INTEREST RATE Balance Interest Rate
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INTEREST-EARNING ASSETS:
Federal Funds Sold and Securities Purchased
Under Agreement to Resell $ 166,227 $ 7,307 5.9% $ 37,963 $ 947 3.3%
Investment Securities:
Taxable 146,261 6,483 5.9 207,787 8,491 5.5
Non-Taxable (1) 7,064 536 10.1 8,269 629 10.2
Loans, Net of Unearned Income:
Commercial 588,841 52,547 11.9 486,798 38,130 10.5
Real Estate Construction and Term 69,269 5,287 10.2 63,524 3,969 8.4
Consumer and Other 18,777 1,537 10.9 24,140 1,572 8.7
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Total Loans 676,887 59,371 11.7 574,462 43,671 10.2
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Total Interest-Earning Assets 996,439 73,697 9.9 828,481 53,738 8.7
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Cash and Due from Banks 115,424 119,042
Allowance for Loan Losses (22,886) (25,660)
Other Real Estate Owned 5,939 10,440
Other Assets 22,085 14,102
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TOTAL ASSETS $1,117,001 $ 946,405
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FUNDING SOURCES:
Interest-Bearing Liabilities:
Money Market, NOW and Savings Deposits $ 595,922 17,372 3.9 $ 478,568 8,990 2.5
Time Deposits 64,034 1,690 3.5 64,685 1,302 2.7
Federal Funds Purchased -- -- -- 664 22 4.4
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Total Interest-Bearing Liabilities 659,956 19,062 3.9 543,917 10,314 2.5
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Portion of Noninterest-Bearing Funding
Sources 336,483 284,564
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Total Funding Sources 996,439 19,062 2.6 828,481 10,314 1.7
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Noninterest-Bearing Funding Sources:
Demand Deposits 355,606 325,882
Portion Used to Fund Interest-Earning
Assets (336,483) (284,564)
Other Liabilities 13,157 3,786
Shareholders' Equity 88,282 72,820
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,117,001 $ 946,405
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NET INTEREST INCOME $54,635 $43,424
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NET INTEREST MARGIN 7.3% 7.0%
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MEMORANDUM: TOTAL DEPOSITS $1,015,562 $ 869,135
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(1) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis. The tax-equivalent adjustments were $188 and
$220 for the nine month periods ended September 30, 1995 and 1994,
respectively.
13
Net interest income, on a fully taxable-equivalent basis, was $18.0 million for
the third quarter of 1995, up $2.7 million, or 17.9%, from the $15.2 million
reported for the third quarter of 1994. The increase in net interest income was
the result of an increase in average interest-earning assets over the
comparable prior year period, partially offset by an increase in the total cost
of funding sources.
Average interest-earning assets for the third quarter of 1995 increased $254.4
million, or 31.2%, compared to the third quarter of 1994. This increase was
primarily comprised of lower-yielding liquid investments in Federal funds sold
and securities purchased under agreement to resell. Average Federal funds sold
and securities purchased under agreement to resell were $264.4 million for the
third quarter of 1995, a $251.0 million increase over the $13.4 million average
for the third quarter of 1994. This increase resulted from a $224.2 million, or
26.3%, increase in the Bank's average deposits during the third quarter of
1995, as compared to the third quarter of 1994, and was also a result of the
1995 third quarter interest rate environment.
The Bank's net interest margin for the quarter ended September 30, 1995 was
6.7%, compared to 7.5% for the third quarter of 1994. The decrease in the net
interest margin was due to the combination of an increase in lower-yielding
interest-earning assets and a higher cost of funding resulting from a shift in
the Bank's deposit mix towards higher rate money market deposits. Average
money market deposits were $640.6 million for the third quarter of 1995, an
increase of $184.3 million, or 40.4%, compared to the prior year third quarter.
Net interest income was $54.6 million for the first nine months of 1995, up
$11.2 million, or 25.8%, from the $43.4 million reported for the first nine
months of 1994. The Bank's net interest margin for the first nine months of
1995 increased to 7.3%, compared to 7.0% for the first nine months of the
previous year. The increase in net interest income and net interest margin was
the result of an increase in the volume of, and yield on, interest-earning
assets over the comparable prior year period, partially offset by an increase
in the total cost of funding sources.
Whereas the increase in average interest-earning assets for the third quarter
of 1995 was primarily concentrated in lower-yielding liquid investments, the
increase of $168.0 million, or 20.3%, in average interest-earning assets for
the first nine months of 1995, over the comparable prior year period, was
concentrated in both higher-yielding loans as well as lower-yielding liquid
investments. Average loans increased $102.4 million, or 17.8%, for the first
nine months of 1995, compared to the first nine months of the previous year.
This growth occurred primarily during the latter part of 1994, and was
concentrated in the commercial loan portfolio. Average Federal funds sold and
securities purchased under agreement to resell were $166.2 million for the
first nine months of 1995, an increase of $128.3 million from the comparable
prior year period. As with the quarter ended September 30, 1995, the growth in
average interest-earning assets for the first nine months of 1995, compared to
the first nine months of 1994, was primarily funded through deposit growth, and
was also a result of the 1995 interest rate environment.
Total cost of funding for the nine months ended September 30, 1995 increased
from the comparable prior year period, as average total deposits increased
$146.4 million, or 16.9%, from the average for the first nine months of 1994.
However, the shift in the Bank's deposit mix towards higher rate money market
deposits was not as pronounced for the first nine months of 1995 as it was for
the third quarter of 1995. Growth in average money market deposits for the
14
first nine months of 1995, as compared to the prior year respective period, was
$116.7 million, or 25.0%, versus the $184.3 million, or 40.4%, increase in the
third quarter of 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on Management's evaluation of the
adequacy of the existing allowance for loan losses in relation to total loans,
and on Management's continuous assessment of the inherent and identified risk
dynamics of the loan portfolio resulting from reviews of selected individual
loans and loan commitments.
The provision for loan losses was $3.3 million for the third quarter of 1995,
an increase of $2.8 million, compared with $0.5 million for the third quarter
of 1994. The provision for loan losses was $6.1 million for the first nine
months of 1995, an increase of $3.9 million, compared with $2.2 million for the
comparable period in 1994. (See FINANCIAL CONDITION -- "Credit Risk and the
Allowance for Loan Losses" for additional related information.)
NONINTEREST INCOME
Total noninterest income for the three and nine month periods ended September
30, 1995 was $5.1 million and $8.6 million, an increase of $4.3 million and
$4.7 million, respectively, from $0.8 million and $3.9 million reported in the
comparable 1994 periods. The increase in noninterest income during 1995 was
primarily due to an increase in income related to the disposition of client
warrants, as the Company exercised warrants held in some of its clients which
recently completed public stock offerings.
The Company has historically obtained rights to acquire stock (in the form of
warrants) in certain nonpublic clients as part of negotiated credit facilities.
The receipt of warrants does not change the loan covenants or other collateral
control techniques employed by the Bank to mitigate the risk of a loan becoming
nonperforming. Interest rates, loan fees and collateral requirements on loans
with warrants are similar to lending arrangements where warrants are not
obtained. The timing and amount of income from the disposition of warrants
typically depends on factors beyond the control of the Company, including the
general condition of the capital markets, and therefore cannot be predicted
with any degree of accuracy and is likely to vary materially over time.
Letter of credit fees, foreign exchange fees and other income related to trade
finance activities were $0.8 million and $2.3 million for the third quarter and
first nine months of 1995, an increase of $0.2 million, or 26.4%, and $0.6
million, or 35.4%, compared to the respective 1994 periods. The growth in this
category of noninterest income reflects a concerted effort by Management to
expand the penetration of trade finance-related services among the Bank's
client base.
Deposit service charges were $0.3 million and $1.0 million for the three and
nine month periods ended September 30, 1995, a decrease of $0.1 million, or
25.8%, and $0.2 million, or 17.1%, from the $0.4 million and $1.2 million
earned in the comparable 1994 periods. Clients compensate the Bank for
depository services either through earnings credits computed on their demand
deposit balances, or via explicit payments recognized as deposit service
charges. As interest rates for the three and nine month periods ended September
30, 1995 were higher than in
15
the comparable 1994 periods, earnings credits were higher, thus lowering the
amount of explicit deposit service charges.
There were no gains or losses incurred through sales of investment securities
during the third quarter of 1995, while in the 1994 third quarter $0.4 million
in such losses were incurred. On a year-to-date basis, losses incurred through
sales of investment securities were $0.8 million at September 30, 1995 and $1.3
million at September 30, 1994. The securities sold during the first nine months
of 1995 were primarily mortgage-backed securities. All sales of investment
securities were conducted as a normal component of the Company's interest rate
risk and liquidity management activities.
NONINTEREST EXPENSE
Noninterest expense for the third quarter of 1995 was $11.9 million, an
increase of $0.1 million, or 1.1%, compared to $11.8 million for the third
quarter of 1994. Noninterest expense was $36.4 million for the first nine
months of 1995, an increase of $2.2 million, or 6.5%, over the $34.2 million
for the comparable 1994 period. Management closely monitors the level of
noninterest expense using a variety of financial ratios, including the
efficiency ratio. The efficiency ratio is calculated by dividing the amount of
noninterest expense, excluding costs associated with other real estate owned,
by adjusted revenues, defined as the total of net interest income and
noninterest income, excluding warrant income and gains or losses incurred
through securities sales. This ratio reflects the level of operating expense
required to generate $1 of operating revenue. The Company's efficiency ratio
improved from 71.7% for the third quarter of 1994 to 61.9% for the third
quarter of 1995, and also improved from 70.6% for the first nine months of 1994
to 62.5% for the first nine months of 1995. The following tables present the
detail of noninterest expense and the incremental contributions of each line
item to the Company's efficiency ratio:
Three Months Ended September 30,
- --------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------
Percent Percent
of Adjusted of Adjusted
(Dollars in thousands) Amount Revenues Amount Revenues
- --------------------------------------------------------------------------------------------------
Compensation and Benefits $ 6,517 34.0% $ 5,704 34.9%
Professional Services 1,032 5.4 1,479 9.0
Equipment 1,473 7.7 431 2.6
Occupancy 1,007 5.2 550 3.4
FDIC Deposit Insurance 14 0.1 594 3.6
Data Processing Services 214 1.1 349 2.1
Corporate Legal and Litigation 179 0.9 1,325 8.1
Client Services 82 0.4 262 1.6
Other 1,370 7.1 1,045 6.4
------- ----- ------- -----
Total Excluding Cost of Other Real
Estate Owned 11,888 11,739
Efficiency Ratio 61.9% 71.7%
---- ----
---- ----
Cost of Other Real Estate Owned 23 45
------- -------
Total Noninterest Expense $11,911 $11,784
------- -------
------- -------
16
Nine Months Ended September 30,
- --------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------
Percent Percent
of Adjusted of Adjusted
(Dollars in thousands) Amount Revenues Amount Revenues
- --------------------------------------------------------------------------------------------------
Compensation and Benefits $20,374 35.0% $17,401 37.4%
Professional Services 3,620 6.2 3,236 7.0
Equipment 2,678 4.6 1,116 2.4
Occupancy 2,655 4.6 1,674 3.6
FDIC Deposit Insurance 1,210 2.1 1,812 3.9
Data Processing Services 767 1.3 960 2.1
Corporate Legal and Litigation 571 1.0 2,535 5.5
Client Services 339 0.6 870 1.9
Other 4,143 7.1 3,228 6.9
------- ----- ------- -----
Total Excluding Cost of Other Real
Estate Owned 36,357 32,832
Efficiency Ratio 62.5% 70.6%
---- ----
---- ----
Cost of Other Real Estate Owned 37 1,349
------- -------
Total Noninterest Expense $36,394 $34,181
------- -------
------- -------
Compensation and benefits expenses were $6.5 million for the third quarter of
1995, an increase of $0.8 million, or 14.2%, compared to $5.7 million for the
third quarter of 1994. For the nine months ended September 30, 1995,
compensation and benefits expenses were $20.4 million, an increase of $3.0
million, or 17.1%, compared to $17.4 million for the respective 1994 period.
The number of average full-time equivalent staff during the third quarter of
1995 was 339, compared with 304 for the third quarter of 1994, and 331 for the
first nine months of 1995, compared with 295 for the first nine months of 1994.
Staff increases year-over-year were primarily due to the expansion of the
Bank's lending staff in response to the growth in the client base, as well as
in an effort to develop new lending markets.
Professional services expenses were $1.0 million for the third quarter of 1995,
a decrease of $0.5 million, or 30.2%, compared to $1.5 million for the third
quarter of 1994. For the nine months ended September 30, 1995, professional
services expenses were $3.6 million, an increase of $0.4 million, or 11.9%,
compared to $3.2 million for the corresponding 1994 period. The reduction in
third quarter 1995 professional services expenses, as compared to the third
quarter of 1994, can be attributed to a number of projects related to building
the Bank's infrastructure having been substantially completed during the third
quarter of 1995, such as the conversion to a new in-house computer system.
Professional services expenses for the nine months ended September 30, 1995
were up slightly from the corresponding prior year period, as several of the
larger projects related to building the Bank's infrastructure, such as the new
computer system, were started during the latter part of 1994 and continued
until the third quarter of 1995.
Occupancy and equipment expenses were $2.5 million for the third quarter of
1995, an increase of $1.5 million, or 152.9%, compared to $1.0 million for the
third quarter of 1994. For the nine months ended September 30, 1995, occupancy
and equipment expenses were $5.3 million, an
17
increase of $2.5 million, or 91.1%, compared to $2.8 million for the comparable
1994 period. These expenses increased as the Company incurred certain
non-recurring costs during the first nine months of 1995 in connection with a
move into a new headquarters facility. These costs included both the disposal
and purchase of premises and equipment.
FDIC deposit insurance expense decreased $0.6 million for the third quarter and
the first nine months of 1995, compared to the respective periods of 1994, as
the Bank's assessment rate was reduced in the third quarter of 1995 due to the
recapitalization of the Bank Insurance Fund.
Corporate legal and litigation expenses were $0.2 million for the third quarter
of 1995, a decrease of $1.1 million, or 84.6%, compared to $1.3 million for the
third quarter of 1994. For the nine months ended September 30, 1995, corporate
legal and litigation expenses were $0.6 million, a decrease of $1.9 million, or
76.0%, compared to $2.5 million for the comparable 1994 period. Legal expenses
for the first nine months of 1994 contained costs related to a shareholder
class action lawsuit originally filed in June, 1993, including a $1.0 million
charge in the third quarter of 1994 in connection with the settlement of this
lawsuit.
Costs associated with other real estate owned ("OREO") were less than $40,000
for both the three and nine month periods ended September 30, 1995, compared
with $45,000 for the third quarter of 1994 and $1.3 million for the nine months
ended September 30, 1994. The decline in the costs associated with OREO during
the last six months of 1994 and for all of 1995 was a result of the overall
reduction in the Bank's level of OREO. Total OREO declined from $15.0 million
at June 30, 1994 to $7.1 million at December 31, 1994 and $5.5 million at
September 30, 1995. The costs associated with OREO include: maintenance
expenses; property taxes; marketing costs; net operating expense or income
associated with income-producing properties; property write-downs; and gains or
losses on the sales of such properties.
INCOME TAXES
Income tax expense was $2.3 million, with an effective tax rate of 29.7%, for
the third quarter of 1995, compared to $1.6 million, with an effective tax rate
of 43.1%, for the third quarter of 1994. For the nine months ended September
30, 1995, income tax expense was $7.8 million, with an effective tax rate of
38.0%, compared to $4.6 million and a 43.1% effective tax rate for the
corresponding 1994 period. The reduction in the Company's estimated annual
effective tax rate, during the third quarter of 1995, was attributable to
adjustments in the Company's estimate of its tax liabilities.
18
FINANCIAL CONDITION
- -------------------
Total assets were $1.3 billion at September 30, 1995, an increase of $94.8
million, or 8.2%, compared to $1.2 billion at December 31, 1994.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL
Federal funds sold and securities purchased under agreement to resell totaled
$270.1 million at September 30, 1995, an increase of $120.0 million, or 80.0%,
compared to $150.1 million at year-end 1994. This increase was primarily the
result of significant growth in the Bank's deposits combined with the interest
rate environment at the end of the 1995 third quarter.
INVESTMENT SECURITIES
Investment securities totaled $178.1 million at September 30, 1995, an increase
of $21.6 million, or 13.8%, compared to $156.5 million at December 31, 1994.
The increase in investment securities was primarily in response to the Bank's
liquidity management activities, as a portion of the increased deposit balances
as of September 30, 1995 was invested in short-term money market instruments
other than Federal funds sold and securities purchased under agreement to
resell.
LOANS
As of September 30, 1995, total loans, net of unearned income, were $700.8
million, down $3.0 million, or 0.4%, from $703.8 million at year-end 1994. The
slight decline in total loans from year-end reflects the combination of new
loan production during 1995 offset by a higher than expected amount of loan
payoffs attributable to the capital raising activities of some of the Bank's
clients.
CREDIT RISK AND THE ALLOWANCE FOR LOAN LOSSES
Lending money involves an inherent risk of nonpayment. Through the
administration of the loan policies and careful monitoring of the portfolio,
Management seeks to reduce such risks to an acceptable level. The allowance
for loan losses provides a financial buffer for losses, both identified and
unidentified, in the loan portfolio. Management regularly reviews and
monitors the loan portfolio to determine the risk profile of each credit and to
identify credits whose risk profiles have changed. This review includes, but
is not limited to, such factors as payment status, the financial condition of
the borrower, borrower compliance with loan covenants, underlying collateral
values, potential loan concentrations, and general economic conditions.
Potential problem credits are identified and appropriate action plans are
developed.
19
Nonperforming assets consist of loans that are past due 90 days or more but
still accruing interest, loans on nonaccrual status, and OREO. The table below
sets forth certain relationships between nonperforming loans, nonperforming
assets, and the allowance for loan losses.
- -----------------------------------------------------------------------------------------
CREDIT QUALITY
- -----------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1995 1994
(Dollars in thousands) (UNAUDITED)
- -----------------------------------------------------------------------------------------
NONPERFORMING ASSETS:
Loans Past Due 90 Days or More $ 685 $ 444
Nonaccrual Loans (1) 20,272 11,269
- -----------------------------------------------------------------------------------------
Total Nonperforming Loans 20,957 11,713
OREO (1) 5,533 7,089
- -----------------------------------------------------------------------------------------
Total Nonperforming Assets $26,490 $18,802
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Nonperforming Loans as a Percent of Total Loans 3.0% 1.7%
OREO as a Percent of Total Assets 0.4% 0.6%
Nonperforming Assets as a Percent of Total Assets 2.1% 1.6%
ALLOWANCE FOR LOAN LOSSES $27,000 $20,000
As a Percent of Total Loans 3.8% 2.8%
As a Percent of Nonaccrual Loans 133.2% 177.5%
As a Percent of Nonperforming Loans 128.8% 170.8%
(1) In accordance with Statement of Financial Accounting Standard No. 114,
insubstance foreclosure loans have been reclassified from OREO to
nonaccrual loans. The reclassified amount was $1,377 at December 31, 1994.
Nonperforming assets were $26.5 million at September 30, 1995, an increase of
$7.7 million, or 41.0%, compared to $18.8 million as of December 31, 1994. The
increase in nonperforming assets was primarily due to one manufacturing loan
being placed on nonaccrual status during the third quarter of 1995. Based on
current information, Management believes this loan is well secured and
continues a concerted effort to maintain a strong credit discipline and
consistent administration of credit policies and procedures.
In addition to loans included in nonperforming assets, Management has
identified eight loans with principal amounts aggregating approximately $10.6
million, including one loan with a balance in excess of $6.0 million, that, on
the basis of information available to Management as of September 30, 1995, were
judged to have a higher than normal risk of becoming nonperforming. The Company
is not aware of any other loans at September 30, 1995 where known information
about possible problems of the borrower casts serious doubts about the ability
of the borrower to comply with the loan repayment terms.
DEPOSITS
Total deposits were $1,148.4 million at September 30, 1995, an increase of
$73.0 million, or 6.8%, compared to $1,075.4 million at December 31, 1994. This
growth was concentrated in money market deposits, which totaled $675.6 million
at September 30, 1995, an increase of $102.1 million, or 17.8%, compared to
$573.5 million at December 31, 1994.
20
LIQUIDITY MANAGEMENT
Management regularly reviews general economic and financial conditions, both
external and internal, and determines whether the positions taken with respect
to liquidity and interest rate sensitivity are appropriate. The objectives of
liquidity management are to provide funds, at an acceptable cost, to meet loan
demand and depositors' needs, and to service other liabilities as they come
due. Liquid assets include cash and due from banks, short-term time deposits,
Federal funds sold, securities purchased under agreement to resell, and
investment securities maturing within one year. As of September 30, 1995,
liquid assets as a percentage of deposits were 38.9%, compared with 30.4% at
December 31, 1994. This increase was primarily the result of significant growth
in the Bank's deposits.
CAPITAL RESOURCES
Management seeks to maintain adequate capital to support anticipated asset
growth and credit risks, and to ensure that the Company and the Bank are in
compliance with all regulatory capital guidelines. The primary source of
increased capital for the Company has been the retention of earnings. Aside
from current earnings, an additional source of new capital for the Company has
been proceeds from the issuance of common stock under the Company's employee
benefits plans, including the Company's Stock Option Plan, Employee Stock
Ownership Plan, and Employee Stock Purchase Plan. Capital generated through
employee benefits plans during the first nine months of 1995 was $4.3 million,
compared with $1.0 million during the comparable period of 1994. Shareholders'
equity also increased $3.9 million during the nine month period ended September
30, 1995 due to a decline in the net unrealized loss on investment securities,
classified as available-for-sale, from $4.2 million at year-end 1994 to $0.3
million at September 30, 1995.
The Company and Bank are subject to capital adequacy guidelines issued by the
Federal Reserve Board. Under these guidelines, the minimum total capital
requirement is 8.0% of assets and certain off-balance sheet items, weighted by
risk. At least 4.0% of the 8.0% total capital ratio must consist of Tier 1
capital, defined as tangible common equity, and the remainder may consist of
subordinated debt, cumulative preferred stock, and a limited amount of the
allowance for loan losses.
The Federal Reserve Board has established minimum capital leverage ratio
guidelines for state member banks. The ratio is determined using Tier 1 capital
divided by quarterly average total assets. The guidelines require a minimum of
3.0%; however, banks experiencing high growth rates are expected to maintain
capital positions well above minimum supervisory levels.
In addition to the foregoing requirements, the Bank is also subject to a
capital requirement established by the California State Banking Department.
Under the regulatory consent order with the California State Banking
Department, the Bank must maintain a minimum tangible equity-to-assets ratio of
6.5%. The Bank's tangible equity-to-assets ratio at September 30, 1995 was
7.5%, compared with 6.5% at December 31, 1994.
21
The Company's risk-based capital ratios were in excess of regulatory guidelines
for "well-capitalized" institutions as of September 30, 1995 and December 31,
1994. Capital ratios for the Company are set forth below:
- -------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1995 1994
- -------------------------------------------------------------------------------
Total Risk-Based Capital Ratio 11.7% 10.1%
Tier 1 Risk-Based Capital Ratio 10.4% 8.9%
Tier 1 Leverage Ratio 8.3% 8.3%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The improvement in the total and Tier 1 risk-based capital ratios from December
31, 1994 to September 30, 1995 is attributable to 1995 asset growth primarily
occuring in lower risk-weighted assets, and also to an increase in Tier 1
capital. The increase in Tier 1 capital resulted from 1995 year-to-date net
income of $12.7 million and $4.3 million in capital generated through the
Company's employee benefits plans during the first nine months of 1995.
CURRENT OPERATING ENVIRONMENT
The national economy for most of 1995 has been centered around a sharp slowdown
and an inventory correction, the effect of which has been a significantly lower
volume of activity, especially in the manufacturing sector. In recent months,
however, a resurgence of activity has been visible as the cycle of inventory
correction appears to have come to an end. Although current economic reports
are still on the soft side, the national economy is showing signs of
improvement from the subdued rate of growth experienced during the first half
of 1995.
Inflation at both the producer and consumer levels remains under control with
recent data indicating an annual growth rate for the Producer Price Index of
1.8% and the Consumer Price Index of 2.6%.
The current condition of moderate growth combined with low inflation has
distinct characteristics of a stable Federal Reserve policy on interest rates
for the immediate future. Although a moderate rate reduction during the fourth
quarter of 1995 cannot be ruled out, were such a reduction to occur, it is
likely the Company's net interest margin would decline from its current level.
The California economy continues its recovery and progress in the
transformation to a technology-driven economy. Some of the hurdles which
remain include further closures of military bases, state and local government
fiscal problems, and further consolidation in certain industries.
Manufacturing job levels are stabilizing, retail job levels are higher, and
construction jobs levels have shown strong recent growth. These factors,
together with the growing strength of business services, tourism and
international trade, could have a favorable impact in future periods on the
local economic recovery.
Economic conditions can influence the market for initial public offerings
(IPO's) by certain clients of the Company. The level of activity in the IPO
market can have a direct effect on loan demand, deposit growth, and the amount
of warrant income realized by the Company. As a result of the high level of
technology-related IPO activity during 1995, the Company has disclosed that it
22
experienced unusually large amounts of loan payoffs in combination with a
significant amount of warrant income. The Company realized in excess of $3.8
million of warrant income during the third quarter of 1995, and for the nine
months ended September 30, 1995, the Company's warrant income has been in
excess of $5.6 million. The timing and amount of income from the disposition
of warrants typically depends on factors beyond the control of the Company,
including the general condition of the capital markets, and therefore cannot be
predicted with any degree of accuracy and is likely to vary materially over
time.
Formal supervisory actions resulted from regulatory examinations completed
during the fourth quarter of 1992. The Company and Bank consented to these
orders during the second quarter of 1993, which require, among other matters,
the actions set forth in Note 6 of the notes to the interim consolidated
financial statements. While the Company cannot predict the effect of any
specific requirement of these orders, the Company believes that continued
compliance with these orders will not have a material adverse effect on the
business of the Bank, its clients, or the Company.
Competition from other financial institutions for certain segments of the
Company's current and prospective client base has increased from historical
levels during 1995, and this trend is expected to continue in future periods.
Management of the Company, however, does not intend to lower credit standards
or weaken loan covenants simply to match competitive offerings. It is not
possible to predict the extent to which any such increase in competition will
adversely affect the Company's future growth or earnings potential.
Current financial results should not be considered to be an indicator of future
financial performance, and investors should not use historical trends to
anticipate results or trends in future periods.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain lawsuits and claims arising in the ordinary course of business have
been filed or are pending against the Bank and/or the Company. Based upon
information available to the Company, its review of such claims to date, and
consultation with its counsel, Management believes the liability relating to
these actions, if any, will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
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
Sequentially
a) Exhibits: Numbered
Exhibit Number Exhibit Page
- -------------- ------- ------------
10.24 Lease Agreement between Norman B. Leventhal 1
and Edwin N. Sidman, Trustees and Silicon
Valley Bank; 40 William St. Wellesley, MA 02181
10.25 Employment Agreement among Silicon Valley Bank, 64
Silicon Valley Bancshares and Roger V. Smith
10.26 Mutual General Release Agreement among Silicon 79
Valley Bank, Silicon Valley Bancshares and
Dennis G. Uyemura
10.27 Consulting Agreement among Silicon Valley Bank, 83
Silicon Valley Bancshares and Dennis G. Uyemura
b) No reports on Form 8-K have been filed by the Registrant during the three
months ended September 30, 1995.
24
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SILICON VALLEY BANCSHARES
-------------------------
(Registrant)
Date: By: (s) Christopher T. Lutes
--------------------- ---------------------------------
Christopher T. Lutes
Vice President and Controller
(Chief Accounting Officer)
25