-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bn9aWy8Un45FjqyBGh8xMKkP6XygZBbqkbJT/sNNyvTNOrx87S1ILIRbatyT+06T oTO76OohR5o6kcljusWIHw== /in/edgar/work/0000912057-00-031832/0000912057-00-031832.txt : 20000714 0000912057-00-031832.hdr.sgml : 20000714 ACCESSION NUMBER: 0000912057-00-031832 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICON VALLEY BANCSHARES CENTRAL INDEX KEY: 0000719739 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 942856336 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-39728 FILM NUMBER: 672413 BUSINESS ADDRESS: STREET 1: 3003 TASMAN DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4086547400 MAIL ADDRESS: STREET 1: 3003 TASMAN DRIVE, M/S NC820 CITY: SANTA CLARA STATE: CA ZIP: 95054 S-3/A 1 s-3a.txt S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 2000 REGISTRATION NO.: 333-39728 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ SILICON VALLEY BANCSHARES (Exact name of registrant as specified in its charter) DELAWARE 91-1962278 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) JOHN C. DEAN PRESIDENT AND CHIEF EXECUTIVE OFFICER SILICON VALLEY BANCSHARES 3003 TASMAN DRIVE 3003 TASMAN DRIVE SANTA CLARA, CALIFORNIA 95054 SANTA CLARA, CALIFORNIA 95054 TELEPHONE: (408) 654-7400 TELEPHONE: (408) 654-7400 (Address including zip code, and telephone number, (Name, address, including zip code, and telephone including area code, of registrant's principal executive number, including area code, of agent for service) office)
------------------------------ COPIES TO: TODD H. BAKER, ESQ. MICHAEL J. SCHIAVONE, ESQ. GIBSON, DUNN & CRUTCHER LLP SHEARMAN & STERLING ONE MONTGOMERY STREET, 26TH FLOOR 599 LEXINGTON AVENUE SAN FRANCISCO, CA 94104 NEW YORK, NY 10022-6069 TELEPHONE: (415) 393-8200 TELEPHONE: (212) 848-4000 FACSIMILE: (415) 986-5309 FACSIMILE: (212) 848-7179
------------------------------ Approximate date of commencement of proposed sale to public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JULY 13, 2000 PROSPECTUS The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. 2,000,000 SHARES [LOGO] COMMON STOCK ------------- Silicon Valley Bancshares is selling all of the shares. The shares are quoted on the Nasdaq National Market under the symbol "SIVB." On July 12, 2000, the last sale price of the shares as reported on the Nasdaq National Market was $45.44 per share. INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8 OF THIS PROSPECTUS. ----------------
PER SHARE TOTAL --------- -------- Public offering price............................... $ $ Underwriting discount............................... $ $ Proceeds, before expenses, to Silicon Valley Bancshares........................................ $ $
The underwriters may also purchase up to an additional 300,000 shares from Silicon Valley Bancshares at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The shares will be ready for delivery on or about , 2000. ------------------ MERRILL LYNCH & CO. DAIN RAUSCHER WESSELS DONALDSON, LUFKIN & JENRETTE ----------- The date of this prospectus is , 2000. TABLE OF CONTENTS
PAGE -------- Prospectus Summary.......................................... 1 Risk Factors................................................ 8 Forward-Looking Statements.................................. 12 Use of Proceeds............................................. 13 Price Range of Common Stock and Dividend Policy............. 14 Capitalization.............................................. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 16 Management.................................................. 44 Underwriting................................................ 47 Legal Matters............................................... 49 Experts..................................................... 49 Where You Can Find More Information About Us................ 49 Incorporation of Information We File with the SEC........... 50
------------------- You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, as well as information we previously filed with the SEC and incorporated by reference, is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. PROSPECTUS SUMMARY THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED NOTES AND OTHER FINANCIAL DATA INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS." IN ADDITION, SOME STATEMENTS INCLUDE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SEE "FORWARD-LOOKING STATEMENTS." UNLESS WE INDICATE OTHERWISE, ALL INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION. OTHER THAN ON THE COVER PAGE, WHEN WE REFER TO "SILICON VALLEY BANCSHARES," OR "WE" OR SIMILAR WORDS, WE INTEND TO INCLUDE SILICON VALLEY BANCSHARES AND OUR SUBSIDIARIES COLLECTIVELY, INCLUDING SILICON VALLEY BANK. WHEN WE REFER TO "SILICON," WE ARE REFERRING ONLY TO SILICON VALLEY BANCSHARES. IN MARCH 2000, OUR BOARD OF DIRECTORS APPROVED A TWO-FOR-ONE STOCK SPLIT, IN THE FORM OF A STOCK DIVIDEND ON OUR COMMON STOCK. THE SETTLEMENT DATE FOR THIS STOCK DIVIDEND WAS MAY 15, 2000. UNLESS OTHERWISE INDICATED, ALL INFORMATION RELATING TO OUR COMMON STOCK, INCLUDING COMMON STOCK AND PER SHARE AMOUNTS, INCLUDED IN THIS PROSPECTUS REFLECT THIS STOCK SPLIT. SILICON VALLEY BANCSHARES We provide innovative banking products and services to emerging growth and middle-market companies, focusing primarily on companies in the technology and life sciences industries that are backed by venture capital investors. A key component of our business strategy is to develop relationships with our clients at a very early stage, and to offer them banking products and services that meet their needs throughout their life cycle. We have cultivated strong relationships with venture capital firms, many of whom are our clients, which provide us with access to many potential banking clients. Our unique business strategy and focus has resulted in significant growth. Our banking operations have expanded from a single location in Santa Clara, California to a national network of 23 offices located in Arizona, California, Colorado, Georgia, Illinois, Massachusetts, Minnesota, North Carolina, Oregon, Pennsylvania, Texas, Virginia and Washington. Since December 31, 1995, our total assets and total deposits have increased at compound annual growth rates of 35.2% and 34.3%, respectively. As of March 31, 2000, we had $5.1 billion in total assets, $4.5 billion in total deposits and $400.7 million in stockholders' equity. In addition, off-balance sheet client funds have increased from $1.2 billion as of March 31, 1999 to $9.5 billion as of March 31, 2000. TECHNOLOGY AND LIFE SCIENCES NICHE Our technology and life sciences niche serves primarily venture capital-backed companies within a variety of technology and life sciences industries and markets throughout the United States. Because these companies' primary source of funding is equity from venture capitalists, they generally keep large cash balances in their deposit accounts with us and often do not borrow large amounts under their credit facilities. Lending to this niche typically involves working capital lines of credit, equipment financing, asset acquisition loans, and bridge financing. Our technology and life sciences niche includes the following practices: - Our COMMUNICATIONS AND ON-LINE SERVICES practice serves companies in the networking, telecommunications and on-line services industries. The networking industry includes companies supplying the equipment and services that facilitate distributed enterprise networks such as local and wide area networks. The telecommunications industry encompasses the suppliers of equipment and services to companies and consumers for the transmission of voice, data and 1 video. Companies included in the on-line services industry supply access, content, services, and support to individuals and businesses participating on the internet, or in other on-line activities. - Our COMPUTERS AND PERIPHERALS practice focuses on companies that are engaged in the support and manufacturing of computers, electronic components and related peripheral products. The specific markets these companies serve include personal computers, specialty computer systems, add-in boards, printers, storage devices, networking equipment, and contract manufacturing. - Our SEMICONDUCTORS practice serves companies involved in the design, manufacturing and marketing of integrated circuits. This includes companies involved in the manufacturing of semiconductor production equipment and semiconductors, testing and related services, electronic parts wholesaling, computer-aided design and computer-aided manufacturing. - Our SOFTWARE practice primarily serves companies that design integrated computer systems, provide computer programming services and develop and market commercial and industrial applications as well as prepackaged software. - Our LIFE SCIENCES practice serves companies in the biotechnology, medical devices and health care services industries. The biotechnology industry includes companies involved in research and development of therapeutics and diagnostics for the medical and pharmaceuticals industries. The medical devices industry encompasses companies involved in the design, manufacturing and distribution of surgical instruments and medical equipment. Companies included in the health care services industry deal with patients, either in a primary care or secondary care role. In addition to the industry-related practices discussed above, we provide commercial lending and other financial products and services to other clients associated with the technology and life sciences industries. Through our PACIFIC RIM practice, we serve U.S.-based technology and life sciences companies that receive equity funding from Asian or Asian-based venture capital sources. Through our VENTURE CAPITAL practice, we provide venture capital firms with financing and other specialized products and services. Lastly, through our EMERGING TECHNOLOGIES practice, we target non-venture-backed technology companies in northern California, with a primary focus on the software industry. SPECIAL INDUSTRY NICHES We have always served a variety of commercial enterprises unrelated to our technology and life sciences niche. We serve these clients through several special industry niche practices. We continue to follow this strategy by identifying industries whose financial services needs we believe are underserved. The following is a brief summary of our special industry niche practices. - Our REAL ESTATE practice makes real estate construction and term loans whose primary source of repayment is cash flow or sales proceeds from real property collateral. We focus on construction loans for residential and commercial projects, and construction and mini-permanent loans on retail, industrial and office projects in northern California. - Our PREMIUM WINERIES practice focuses on wineries that produce select or exclusive vintages of up to 150,000 cases annually. Our lending in this niche consists of both short-term inventory loans and term loans related to vineyard acquisition and development, equipment financing and cooperage. - Our MEDIA PRACTICE focuses on acquisition, recapitalization and plant upgrade financings of less than $10 million for radio, television, outdoor advertising and cable television operators. In addition to serving the special industry niches listed above, we serve a broad array of industries in northern California through our DIVERSIFIED INDUSTRIES practice. This practice allows us to continue to evaluate potential niches by initially identifying and serving a few clients in related industries or markets. 2 SPECIALIZED PRODUCTS AND SERVICES We offer a variety of specialized lending products and other financial products and services to clients at various stages of development. These services allow us to begin serving companies in their start-up phases, and then gradually expand the services we provide as the companies grow. From the time companies receive their initial funding, we seek to serve their cash management needs. Initially, we provide investment services to assist our clients in managing their short-term investments. On behalf of clients, we purchase investment securities that include U.S. Treasury securities, U.S. agency securities, commercial paper, Eurodollar deposits, and bankers' acceptances. We also offer our clients access to private label mutual fund products as an alternative to our deposit products. In addition, our Internet site, eSource-TM-, provides our early stage clients with an on-line resource, providing access to various services that technology and life sciences entrepreneurs require. In eSource-TM- we have formed a broad national and global network of service providers in a variety of areas important to our clients, including financial and administrative services, office set-up services, human resources, staffing services, risk management services and industry specific research. As our clients conduct research and development and prepare for production, we offer equipment leasing services as well as vendor financing for many types of technology purchases, including software, hardware, maintenance and professional services. We structure these arrangements to suit the risk profile of the client in its particular stage of growth. Once our clients enter production, many experience rapid growth and consequently require banking products which augment their cash flow. We offer factoring services, which involves purchasing clients' accounts receivable at a discount, making operating funds immediately available to the clients, and then managing the collection of these receivables. As our clients mature, we may offer more advanced cash management products, providing services to help our customers manage cash collections and disbursements efficiently and cost effectively. These services include wholesale lockbox services, electronic information reporting and controlled disbursement services. In addition, we also provide real estate loans, typically to finance commercial real estate to be owned and operated by our clients. We also assist our many clients who do business internationally by providing foreign exchange, import and export letters of credit, documentary collections, and a number of other trade finance products and services. We have been granted delegated authority by the Export-Import Bank of the U.S. and the California Export Finance Office. This enables us to provide our clients with working capital loans guaranteed by the Export-Import Bank and California Export Finance Office to finance foreign receivables and inventory intended for export, as well as to provide purchase order financing. If our clients experience periods when their profit performance has been interrupted or where they need greater financial flexibility, we may assist them by providing asset-based credit facilities that involve frequent monitoring of the underlying collateral, which generally consists of accounts receivable, inventory and equipment. For clients in the more advanced stages of growth, we pursue opportunities in mezzanine lending and will provide private equity and debt placement services, high yield debt services and mergers and acquisitions advice. We also assist our clients through investment bank referrals for public offerings, equity research, sales and trading services, asset securitizations, and fixed income services. For clients in all stages of their growth cycle, we focus on serving the personal banking needs of senior executives and owners of our client companies. In addition, we serve the personal banking needs of partners and senior executives of venture capital firms and other professionals whose businesses are related to our niche practices. 3 EQUITY SECURITIES We have historically obtained rights to acquire stock, in the form of warrants, in certain clients as part of negotiated credit facilities. We also have made investments in venture capital funds as well as direct equity investments in companies from time to time. As of May 31, 2000, we held 1,035 warrants in 830 companies, and had made investments in 172 venture capital funds and direct equity investments in 37 companies. GENERAL Silicon is a bank holding company incorporated in Delaware. Our principal subsidiary, Silicon Valley Bank, is a California state-charted bank and a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. Our principal offices are located at 3003 Tasman Drive, Santa Clara, California 95054 and our telephone number is (408) 654-7400. Our World Wide Web site is WWW.SIVB.COM. The information on our website is not incorporated by reference in this prospectus and is not part of this prospectus. 4 THE OFFERING COMMON STOCK OFFERED BY SILICON........... 2,000,000 shares SHARES OUTSTANDING AFTER THE OFFERING............................ 48,136,175 shares USE OF PROCEEDS........................... We estimate that our net proceeds from this offering without exercise of the over-allotment option will be approximately $85.3 million. Silicon intends to retain approximately $25.0 million of the net proceeds of this offering and contribute the remaining $60.3 million to our subsidiary, Silicon Valley Bank. Silicon intends to use the proceeds it retains for investments in venture capital funds and direct equity investments in companies and for potential strategic investments or strategic initiatives. Silicon Valley Bank intends to use the remaining proceeds for general corporate purposes. RISK FACTORS.............................. See "Risk Factors" beginning on page 8 and other information included or incorporated by reference in this prospectus for a discussion of factors you should consider carefully before deciding to invest in the common stock. NASDAQ NATIONAL MARKET SYMBOL............. SIVB
The number of shares outstanding after the offering excludes 4,465,672 shares issuable upon the exercise of options at an average exercise price of $12.55 per share and 947,866 shares reserved for issuance under our stock options plans. This number assumes that the underwriters' over-allotment option is not exercised. If the over-allotment option is exercised in full, we will issue and sell an additional 300,000 shares. 5 SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA The following summary presents our selected consolidated financial data as of, and for the years ended, December 31, 1999, 1998, 1997, 1996 and 1995. That financial data has been derived from our audited consolidated financial statements. The following summary also presents our selected consolidated financial data as of, and for the three months ended, March 31, 2000 and 1999. That financial data has been derived from our unaudited consolidated quarterly financial statements which, in our opinion, include all adjustments (consisting of only normal, recurring adjustments) considered necessary for a fair presentation. The summary selected consolidated financial data should be read in conjunction with our consolidated financial statements and the related notes which have been incorporated by reference in this prospectus. The summary selected consolidated financial data for the three months ended March 31, 2000 is not necessarily indicative of our operating results for the entire year.
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, AS OF AND FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (DOLLARS AND NUMBERS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT SUMMARY: Net interest income....... $ 71,500 $ 41,402 $ 205,439 $ 146,615 $ 110,824 $ 87,275 $ 73,952 Provision for loan losses.................. 12,572 7,968 52,407 37,159 10,067 10,426 8,737 Noninterest income........ 81,134 5,252 58,855 23,162 13,265 11,609 12,565 Noninterest expense....... 47,519 25,537 125,659 83,645 66,301 52,682 47,925 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before taxes....... 92,543 13,149 86,228 48,973 47,721 35,776 29,855 Income tax expense........ 37,888 5,313 34,030 20,117 20,043 14,310 11,702 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income................ $ 54,655 $ 7,836 $ 52,198 $ 28,856 $ 27,678 $ 21,466 $ 18,153 ========== ========== ========== ========== ========== ========== ========== COMMON SHARE SUMMARY: Diluted earnings per share................... $ 1.15 $ 0.19 $ 1.23 $ 0.69 $ 0.68 $ 0.55 $ 0.50 Book value per share...... 8.71 5.37 8.23 5.21 4.37 3.63 2.93 Weighted average diluted shares outstanding...... 47,528 41,616 42,518 41,846 40,676 38,764 36,576 PERIOD-END BALANCE SHEET SUMMARY: Assets.................... $5,064,525 $3,938,569 $4,596,398 $3,545,452 $2,625,123 $1,924,544 $1,407,587 Loans, net of unearned income.................. 1,631,442 1,614,335 1,623,005 1,611,921 1,174,645 863,492 738,405 Investment securities, at fair value.............. 1,910,499 1,504,739 1,747,408 1,397,502 1,013,904 625,022 321,309 Noninterest-bearing deposits................ 2,405,490 999,509 1,928,100 921,790 788,442 599,257 451,318 Total deposits............ 4,515,851 3,654,287 4,109,405 3,269,753 2,432,407 1,774,304 1,290,060 Stockholders' equity...... 400,684 223,273 368,850 215,865 174,481 135,400 104,974 OTHER DATA: Off-balance sheet client funds................... $9,498,906 $1,160,393 $5,666,278 $1,096,300 N/A N/A N/A CAPITAL RATIOS: Total risk-based capital ratio................... 16.2% 12.2% 15.5% 11.5% 11.5% 11.5% 11.9% Tier 1 risk-based capital ratio................... 14.9% 11.0% 14.3% 10.3% 10.2% 10.2% 10.6% Tier 1 leverage ratio..... 9.0% 7.2% 8.8% 7.6% 7.1% 7.7% 8.0% Stockholders' equity to assets.................. 7.9% 5.7% 8.0% 6.1% 6.6% 7.0% 7.5%
6 The following summary presents our selected consolidated asset quality data and selected financial ratios as of, and for the years ended, December 31, 1999, 1998, 1997, 1996 and 1995. That data has been derived from our audited consolidated financial statements. The following summary also presents our selected consolidated asset quality data and selected financial ratios as of, and for the three months ended, March 31, 2000 and 1999. That data has been derived from our unaudited consolidated quarterly financial statements which, in our opinion, include all adjustments (consisting of only normal, recurring adjustments) considered necessary for a fair presentation. The summary selected consolidated asset quality data and selected financial ratios should be read in conjunction with our consolidated financial statements and the related notes which have been incorporated by reference in this prospectus. The summary selected consolidated financial asset quality data and selected financial ratios for the three months ended March 31, 2000 are not necessarily indicative of our operating results for the entire year.
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, AS OF AND FOR THE YEAR ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- -------- -------- (UNAUDITED) (DOLLARS IN THOUSANDS) SELECTED ASSET QUALITY DATA: Loans past due 90 days or more and still accruing interest............. $ -- $ 740 $ 911 $ 441 $ 1,016 $ 8,556 $ 906 Nonaccrual loans...................... 28,789 50,993 27,552 19,444 24,476 14,581 27,867 ------- ------- ------- ------- ------- ------- ------- Total nonperforming loans............. 28,789 51,733 28,463 19,885 25,492 23,137 28,773 Other real estate owned and other foreclosed assets................... -- 1,370 -- 1,800 1,858 1,948 4,955 ------- ------- ------- ------- ------- ------- ------- Total nonperforming assets............ $28,789 $53,103 $28,463 $21,685 $27,350 $25,085 $33,728 ======= ======= ======= ======= ======= ======= ======= Allowance for loan losses............. $72,900 $47,600 $71,800 $46,000 $37,700 $32,700 $29,700 ======= ======= ======= ======= ======= ======= ======= SELECTED FINANCIAL RATIOS: Return on average assets(1)........... 4.6% 0.9% 1.3% 1.0% 1.3% 1.4% 1.6% Return on average stockholders' equity(1)........................... 55.7% 14.5% 21.9% 14.5% 18.2% 17.9% 19.8% Efficiency ratio(2)................... 45.2% 54.6% 53.5% 53.6% 55.7% 55.9% 60.6% Net interest margin(1)................ 6.6% 5.0% 5.5% 5.2% 5.6% 6.1% 7.1% Allowance for loan losses as a percentage of: total loans......................... 4.4% 2.9% 4.4% 2.8% 3.2% 3.8% 4.0% total nonperforming loans........... 253.2% 92.0% 252.3% 231.3% 147.9% 141.3% 103.2% Nonperforming loans to total loans.... 1.8% 3.2% 1.7% 1.2% 2.2% 2.7% 3.9% Nonperforming assets to total assets.............................. 0.6% 1.4% 0.6% 0.6% 1.0% 1.3% 2.4% Net charge-offs (recoveries) to average loans(1).................... 2.9% 1.6% 1.7% 2.2% 0.5% 1.0% (0.1)%
- ------------------------ (1) Annualized for the three months ended March 31, 2000 and 1999. (2) Noninterest expense (excluding retention and warrant incentive plans and other real estate owned, or OREO, costs) divided by the sum of net interest income plus noninterest income (excluding warrant income and securities gains/losses). 7 RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN THIS PROSPECTUS, AS WELL AS THE INFORMATION IN DOCUMENTS THAT WE INCORPORATE BY REFERENCE IN THIS PROSPECTUS. IF A SIGNIFICANT NUMBER OF CLIENTS FAIL TO PERFORM UNDER THEIR LOANS, OUR BUSINESS, PROFITABILITY AND FINANCIAL CONDITION WOULD BE ADVERSELY AFFECTED. As a lender, the largest risk we face is the possibility that a significant number of our client borrowers will fail to pay their loans when due. If borrower defaults cause losses in excess of our allowance for loan losses, it could have an adverse affect on our business, profitability and financial condition. We have established an evaluation process designed to determine the adequacy of the allowance for loan losses. While this evaluation process uses historical and other objective information, the classification of loans and the establishment of loan losses is dependent to a great extent on our experience and judgment. We cannot assure you that our loan loss reserves will be sufficient to absorb future loan losses or prevent a material adverse effect on our business, profitability or financial condition. BECAUSE OF THE CREDIT PROFILE OF OUR LOAN PORTFOLIO, OUR LEVELS OF NONPERFORMING ASSETS AND CHARGE-OFFS CAN BE VOLATILE, AND WE MAY NEED TO MAKE MATERIAL PROVISIONS FOR LOAN LOSSES IN ANY PERIOD, WHICH COULD CAUSE REDUCED NET INCOME OR NET LOSSES IN THAT PERIOD. Our loan portfolio has a credit profile different from that of most other banking companies. Many of our loans are made to companies in the early stages of development with negative cash flow and no established record of profitable operations. In some cases, repayment of the loan is dependent upon receipt of additional equity financing from venture capitalists or others. Collateral for many of the loans often includes intellectual property, which is difficult to value and may not be readily salable in the case of a default. Because of the intense competition and rapid technological change which characterize the companies in our technology and life sciences niche, a borrower's financial position can deteriorate rapidly. We also make loans which are larger relative to the revenues of the borrower than those made by traditional small business lenders, so the impact of any single borrower default may be more significant to us. Because of these characteristics, our level of nonperforming loans and loan charge-offs can be volatile and can vary materially from period to period. For example, our nonperforming loans totaled: - $28.8 million, or 1.8% of total loans, at March 31, 2000 - $28.5 million, or 1.7% of total loans, at December 31, 1999 - $35.5 million, or 2.1% of total loans, at September 30, 1999 - $47.4 million, or 3.0% of total loans, at June 30, 1999 - $51.7 million, or 3.2% of total loans, at March 31, 1999 - $19.9 million, or 1.2% of total loans, at December 31, 1998 Our nonperforming loans at March 31, 2000 included two large commercial credits that totaled $13.8 million. The first credit, totaling $7.1 million, was in our health care services niche and was disclosed as having a higher than normal risk of becoming a nonperforming loan in our 1999 Annual Report on Form 10-K, which is incorporated by reference in this prospectus. The second credit, a $6.7 million financial services (non-technology) niche loan, has been classified as nonperforming since March 31, 1999 and was partially charged off in the fourth quarter of 1999. Changes in our level of nonperforming loans may require us to make material provisions for loan losses in any period, which could reduce our net income or cause net losses in that period. 8 In the first three months of 2000, we incurred $16.3 million in gross charge-offs and had $4.8 million in gross recoveries. The charge-offs included two commercial credits totaling $12.0 million in our health care services niche. Of the total first quarter gross charge-offs, $7.5 million were classified as nonperforming loans at the end of 1999. Our ratio of net charge-offs to average total loans varies considerably from period to period. For example, our net charge-offs as a percentage of our average total loans were 2.9% in the first three months of 2000, as compared to 1.6% in the equivalent 1999 period. IF THE AMOUNT OF CAPITAL AVAILABLE TO START-UP AND EMERGING GROWTH COMPANIES DECREASES, IT COULD ADVERSELY AFFECT OUR BUSINESS, PROFITABILITY AND GROWTH PROSPECTS. Our strategy has focused on providing banking products and services to start-up and emerging growth companies receiving financial support from sophisticated investors, including venture capital, "angel" and corporate investors. In some cases, our lending credit decision is based on our analysis of the likelihood that our venture capital or "angel"-backed client will receive a second or third round of equity infusion from investors. If the amount of capital available to start-up and emerging growth companies decreases, it is likely that the number of our new clients and the financial support investors provide to our existing borrowers would decrease which could have an adverse effect on our business, profitability and growth prospects. Among the factors that could affect the amount of capital available to start-up and emerging growth companies is the receptivity of the capital markets to initial public offerings or mergers and acquisitions of companies within our technology and life sciences niche, the availability and return on alternative investments and general economic conditions in the technology and life sciences industries. Recently, the stock prices of many technology companies have declined, and the capital markets have been less receptive to initial public offerings. These reduced capital markets valuations could reduce the amount of capital available to start-up and emerging growth companies, including companies within our technology and life sciences niche. WE ARE SUBJECT TO EXTENSIVE REGULATION THAT COULD LIMIT OR RESTRICT OUR ACTIVITIES AND IMPOSE FINANCIAL REQUIREMENTS OR LIMITATIONS ON THE CONDUCT OF OUR BUSINESS. Silicon and Silicon Valley Bank are extensively regulated under both federal and state law. This regulation is intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of stockholders or security holders. Federal laws and regulations limit the activities in which Silicon may engage as a bank holding company. In addition, both Silicon and Silicon Valley Bank are required to maintain certain minimum levels of capital. Federal and state banking regulators possess broad powers to take supervisory action as they deem appropriate with respect to Silicon and Silicon Valley Bank. Supervisory actions can result in higher capital requirements, higher insurance premiums and limitations on the activities of Silicon or Silicon Valley Bank which could have a material adverse effect on our business and profitability. ANY EXISTING UNREALIZED WARRANT, VENTURE CAPITAL FUND AND DIRECT EQUITY INVESTMENT PORTFOLIO GAINS MAY NEVER BE REALIZED. We have historically obtained rights to acquire stock, in the form of warrants, in certain clients as part of negotiated credit facilities. We also have made investments in venture capital funds as well as direct equity investments in companies from time to time. Many of the companies in our portfolio are non-public. We may not be able to realize gains from warrants in future periods, or our realized gains may be materially less than the current level of unrealized gains disclosed in this prospectus, due to fluctuations in the market prices of the underlying common stock of these companies. In addition, our investments in venture capital funds and direct equity investments could lose value or become worthless which would reduce our net income or could cause a net loss in any period. The timing and amount of income, if any, from the disposition of client warrants and venture capital fund and direct equity investments typically depend upon factors beyond our control, including the general condition of the 9 public equity markets, levels of mergers and acquisitions activity, and legal and contractual restrictions on our ability to sell the underlying securities. Therefore, we cannot predict future gains with any degree of accuracy and any gains are likely to vary materially from period to period. In addition, a significant portion of the income we realize from the disposition of client warrants and venture capital fund and direct equity investments may be offset by expenses related to our efforts to build an infrastructure sufficient to support our present and future business activities, as well as by expenses incurred in evaluating and pursuing new business opportunities, or by increases to our provision for loan losses. PUBLIC OFFERINGS AND MERGERS AND ACQUISITIONS INVOLVING OUR CLIENTS CAN CAUSE LOANS TO BE PAID OFF EARLY, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND PROFITABILITY. WE HAVE EXPERIENCED NO LOAN GROWTH IN 1999 AND THE FIRST THREE MONTHS OF 2000, PRIMARILY AS A RESULT OF THIS PHENOMENON. While an active market for public equity offerings and mergers and acquisitions generally has positive implications for our business, one negative consequence is that our clients may pay off or reduce their loans with us if they complete a public equity offering or are acquired or merge with another company. Any significant reduction in our outstanding loans could have a material adverse effect on our business and profitability. Our total loans, net of unearned income, were $1.6 billion at March 31, 2000, December 31, 1999 and December 31, 1998. While we continue to generate new loans in most of our technology and life sciences and special industry niche practices, as well as in specialized lending products, many of our clients, primarily in the technology and life sciences niche practice, have received significant cash inflows from the capital markets and venture capital community. Consequently, we have experienced higher than normal loan paydowns and payoffs, which have caused our total loans to remain relatively unchanged during recent periods. OUR CURRENT LEVEL OF INTEREST RATE SPREAD MAY DECLINE IN THE FUTURE. ANY MATERIAL REDUCTION IN OUR INTEREST RATE SPREAD COULD HAVE A MATERIAL IMPACT ON OUR BUSINESS AND PROFITABILITY. A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid by us on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates we receive on interest-earning assets, such as loans extended to our clients and securities held in our investment portfolio. Interest rates are highly sensitive to many factors that are beyond our control, such as inflation, recession, global economic disruptions, and unemployment. During 1999 and early 2000, we reduced the interest rates which we pay on deposits, despite a generally increasing trend in domestic interest rates, and our rates are now lower than those of some of our competitors. We reduced our rates as part of our balance sheet management efforts. In the future, we may be required to increase our deposit rates to attract deposits. We cannot assure you that our current level of interest rate spread will not decline in the future. Any material decline would have a material adverse effect on our business and profitability. ADVERSE CHANGES IN DOMESTIC OR GLOBAL ECONOMIC CONDITIONS, ESPECIALLY IN THE TECHNOLOGY SECTOR, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, GROWTH AND PROFITABILITY. If conditions worsen in the domestic or global economy, especially in the technology sector, our business, growth and profitability are likely to be materially adversely affected. Our technology clients would be harmed by any global economic slowdown, as their businesses are often dependent upon international suppliers and international sales. They would also be harmed if the U.S. economy were to decline, as many of their sales generally are made domestically. They may be particularly sensitive to any disruption in the growth of the technology sector of the U.S. economy. To the extent that our clients' underlying business is harmed, they are more likely to default on their loans. IF WE FAIL TO RETAIN OUR KEY EMPLOYEES, OUR GROWTH AND PROFITABILITY COULD BE ADVERSELY AFFECTED. We rely on experienced client relationship managers and on officers and employees with strong relationships with the venture capital community to generate new business. If a significant number of 10 these employees were to leave us, our growth and profitability could be adversely affected. We believe that our employees frequently have opportunities for employment with competing financial institutions and with our clients. WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO MAINTAIN OUR HISTORICAL LEVELS OF PROFITABILITY IN THE FACE OF SUSTAINED COMPETITIVE PRESSURES. We cannot assure you that we will be able to maintain our historical levels of profitability in the face of sustained competitive pressures. Other banks and specialty and diversified financial services companies, many of which are larger and better capitalized than we are, offer lending, leasing and other financial products to our customer base. In some cases, our competitors focus their marketing on our niche practice areas and seek to increase their lending and other financial relationships with technology companies, early stage growth companies or special industries such as wineries or real estate. In other cases, our competitors may offer a financial product which provides an alternative to one of the products we offer to all our customers. When new competitors seek to enter one of our markets, or when existing market participants seek to increase their market share, they sometimes undercut the pricing and/or credit terms prevalent in that market. Our pricing and credit terms could deteriorate if we do not act to meet these competitive challenges. THE PRICE OF OUR COMMON STOCK MAY DECREASE RAPIDLY AND PREVENT YOU FROM SELLING SHARES YOU BUY IN THIS OFFERING AT A PROFIT. The market price of our common stock could decrease rapidly and significantly at any time. This could prevent you from selling shares you buy in this offering at a profit. The market price of our common stock has fluctuated in recent years. Since January 1, 1998, the market price of our common stock has ranged from a low of $5.15 per share to a high of $48.13 per share. Fluctuations may occur, among other reasons, in response to: - our operating results; - the perceived value of our warrants, venture capital investments and direct equity investments; - trends in our nonperforming assets or the nonperforming assets of other banks; - announcements by our competitors; - economic changes; - general market conditions; and - legislative and regulatory changes. The trading price of our common stock may continue to be subject to wide fluctuations in response to the factors set forth above and other factors, many of which are beyond our control. The stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. You should consider the likelihood of these market fluctuations before investing in our common stock. 11 FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe harbor provisions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including those set forth under "Risk Factors." Words such as "expect," "anticipate," "intend," "plan," "believe," "estimate" and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, prospective investors are cautioned not to place undue reliance on our forward-looking statements. 12 USE OF PROCEEDS We estimate that we will receive net proceeds of approximately $85.3 million from our sale of 2,000,000 shares of common stock in this offering, at an assumed public offering price of $45.44 per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $98.1 million. Silicon intends to retain approximately $25.0 million of the net proceeds of the offering and contribute the remaining $60.3 million to Silicon Valley Bank. Silicon intends to use the proceeds it retains for investments in venture capital funds and direct equity investments in companies and for potential strategic investments or strategic initiatives. Silicon Valley Bank intends to use the remaining proceeds for general corporate purposes. 13 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Our common stock is traded over the counter on the Nasdaq National Market under the symbol "SIVB." The following table shows high and low sales prices for our common stock for each quarterly period since January 1, 1998 as reported by the Nasdaq National Market.
FISCAL 1998 LOW HIGH - ----------- -------- -------- First Quarter............................................... $12.37 $16.12 Second Quarter.............................................. 15.12 18.25 Third Quarter............................................... 6.12 19.50 Fourth Quarter.............................................. 5.15 13.65 FISCAL 1999 LOW HIGH - ----------- -------- -------- First Quarter............................................... $ 7.50 $10.50 Second Quarter.............................................. 8.19 12.67 Third Quarter............................................... 10.37 14.25 Fourth Quarter.............................................. 11.12 27.61 FISCAL 2000 LOW HIGH - ----------- -------- -------- First Quarter............................................... $23.81 $45.31 Second Quarter.............................................. 16.75 44.75 Third Quarter (through July 12, 2000)....................... 39.50 48.13
On July 12, 2000, the last reported sale price of our common stock on the Nasdaq National Market was $45.44 per share. As of July 11, 2000, there were 465 stockholders of record of our common stock. We have not paid cash dividends on our common stock since 1992 and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Our ability to pay dividends is limited by generally applicable corporate and banking laws and regulations. 14 CAPITALIZATION The following table sets forth our unaudited consolidated capitalization at March 31, 2000: - on an actual basis; and - as adjusted to reflect our estimated net proceeds from the issuance and sale of the shares at an assumed offering price of $45.44 per share less the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our consolidated capitalization, actual and as adjusted, includes $40 million face amount of mandatorily redeemable trust preferred securities of SVB Capital I, a subsidiary trust, issued in 1998. SVB Capital I holds the 8.25% Junior Subordinated Deferrable Interest Debentures due June 15, 2028 of Silicon as its sole asset. See Note 9 of the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 1999, which has been incorporated by reference in this prospectus. The number of outstanding shares of common stock listed in the following table excludes 3,158,178 shares issuable upon the exercise of options outstanding on March 31, 2000 with a weighted average exercise price of $7.31 per share and 158,016 shares reserved for issuance under our 1997 equity incentive plan. On April 20, 2000, our stockholders approved an amendment to our 1997 equity incentive plan to reserve an additional 2,200,000 shares of common stock for issuance under this plan.
MARCH 31, 2000 ---------------------- ACTUAL AS ADJUSTED ------ ----------- (DOLLARS IN THOUSANDS) Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures................................... $ 38,550 $ 38,550 Stockholders' equity: Preferred stock, par value $.001 per share: 20,000,000 shares authorized, none issued............... -- -- Common stock, par value $.001 per share: 60,000,000 shares authorized, 46,008,180 outstanding actual, 48,008,180 outstanding, as adjusted............. 46 48 Additional paid-in capital................................ 171,034 256,286 Retained earnings......................................... 230,685 230,685 Unearned compensation..................................... (4,136) (4,136) Accumulated other comprehensive income: Net unrealized gain on available-for-sale investments... 3,055 3,055 -------- -------- Total stockholders' equity.............................. 400,684 485,938 -------- -------- Total capitalization........................................ $439,234 $524,488 ======== ========
15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS--COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 EARNINGS SUMMARY We reported net income of $54.7 million, or $1.15 per diluted share, for the first quarter of 2000, compared with net income of $7.8 million, or $0.19 per diluted share, for the first quarter of 1999, an increase of $46.9 million, or $0.96 per diluted share. The annualized return on average assets, or ROA, was 4.6% in the first quarter of 2000 versus 0.9% in the first quarter of 1999. The annualized return on average equity, or ROE, for the first quarter of 2000 was 55.7%, compared to 14.5% in the 1999 first quarter. The large increase in net income during the three month period ended March 31, 2000, as compared with the same period in the prior year, was primarily attributable to significant increases in net interest income and noninterest income, partially offset by an increase in both the provision for loan losses and noninterest expense. The major components of net income and changes in these components are summarized in the following table for the three months ended March 31, 2000 and 1999, and are discussed in more detail below.
THREE MONTHS ENDED MARCH 31, ------------------------------ 1999 TO 2000 2000 1999 INCREASE -------- -------- -------- (DOLLARS IN THOUSANDS) Net interest income.............................. $71,500 $41,402 $30,098 Provision for loan losses........................ 12,572 7,968 4,604 Noninterest income............................... 81,134 5,252 75,882 Noninterest expense.............................. 47,519 25,537 21,982 ------- ------- ------- Income before income taxes....................... 92,543 13,149 79,394 Income tax expense............................... 37,888 5,313 32,575 ------- ------- ------- Net income....................................... $54,655 $ 7,836 $46,819 ======= ======= =======
NET INTEREST INCOME AND MARGIN Net interest income is defined as the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits. Net interest income is our principal source of recurring revenue. Net interest margin is defined as the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. The average yield earned on interest-earning assets is the amount of fully taxable-equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources is defined as interest expense as a percentage of average interest-earning assets. 16 The following tables set forth average assets, liabilities and stockholders' equity, interest income and interest expense, average yields and rates, and the composition of our net interest margin for the three months ended March 31, 2000 and 1999.
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------------------- 2000 1999 ---------------------------------- ---------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ---------- -------- ---------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) Interest-earning assets: Federal funds sold and securities purchased under agreement to resell(1)............................. $1,101,198 $16,027 5.9% $ 509,434 $ 5,978 4.8% Investment securities: Taxable............................................ 1,588,349 23,112 5.9 1,253,046 17,581 5.7 Non-taxable(2)..................................... 143,040 2,221 6.2 123,377 1,944 6.4 Loans: Commercial......................................... 1,397,920 39,331 11.3 1,393,750 32,925 9.6 Real estate construction and term.................. 135,975 3,480 10.3 138,101 3,568 10.5 Consumer and other................................. 65,069 1,482 9.2 45,667 1,039 9.2 ---------- ------- ---- ---------- ------- ---- Total loans.......................................... 1,598,964 44,293 11.1 1,577,518 37,532 9.6 ---------- ------- ---- ---------- ------- ---- Total interest-earning assets........................ 4,431,551 85,653 7.8 3,463,375 63,035 7.4 ---------- ------- ---- ---------- ------- ---- Cash and due from banks.............................. 283,142 153,377 Allowance for loan losses............................ (71,312) (49,406) Other real estate owned.............................. -- 605 Accrued interest receivable and other assets......... 186,009 62,609 ---------- ---------- Total assets......................................... $4,829,390 $3,630,560 ========== ========== Funding sources: Interest-bearing liabilities: NOW deposits....................................... $ 52,596 260 2.0 $ 22,346 76 1.4 Regular money market deposits...................... 419,387 1,904 1.8 338,296 2,250 2.7 Bonus money market deposits........................ 1,498,010 7,579 2.0 1,926,388 17,077 3.6 Time deposits...................................... 357,647 3,633 4.1 146,246 1,549 4.3 ---------- ------- ---- ---------- ------- ---- Total interest-bearing liabilities................... 2,327,640 13,376 2.3 2,433,276 20,952 3.5 Portion of noninterest-bearing funding sources....... 2,103,911 1,030,099 ---------- ------- ---- ---------- ------- ---- Total funding sources................................ 4,431,551 13,376 1.2 3,463,375 20,952 2.4 ---------- ------- ---- ---------- ------- ---- Noninterest-bearing funding sources: Demand deposits...................................... 1,981,318 915,443 Other liabilities.................................... 86,945 24,404 Trust preferred securities(3)........................ 38,539 38,488 Stockholders' equity................................. 394,948 218,949 Portion used to fund interest-earning assets......... (2,103,911) (1,030,099) ---------- ---------- Total liabilities and stockholders' equity........... $4,829,390 $3,630,560 ========== ========== Net interest income and margin....................... $72,277 6.6% $42,083 5.0% ======= ==== ======= ==== Total deposits....................................... $4,308,958 $3,348,719 ========== ==========
- ------------------------------ (1) Includes average interest-bearing deposits in other financial institutions of $364 and $195 for the three months ended March 31, 2000 and 1999, respectively. (2) Interest income on non-taxable investments is presented on a fully taxable-equivalent basis using the federal statutory rate of 35% in 2000 and 1999. The tax equivalent adjustments were $777 and $680 for the three months ended March 31, 2000 and 1999, respectively. (3) The 8.25% annual distribution to SVB Capital I is recorded as a component of noninterest expense. 17 Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as "volume change." Net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as "rate change." The following table sets forth changes in interest income and interest expense for each major category of interest-earning assets and interest-bearing liabilities. The table also reflects the amount of change attributable to both volume and rate changes for the periods indicated. Changes relating to investments in non-taxable municipal securities are presented on a fully taxable-equivalent basis using the federal statutory rate of 35% in 2000 and 1999.
2000 COMPARED TO 1999 ------------------------------ THREE MONTHS ENDED MARCH 31, ------------------------------ INCREASE (DECREASE) DUE TO CHANGE IN ------------------------------ VOLUME RATE TOTAL -------- -------- -------- (DOLLARS IN THOUSANDS) Interest income: Federal funds sold and securities purchased under agreement to resell.................... $ 8,388 $ 1,661 $10,049 Investment securities.......................... 5,511 297 5,808 Loans.......................................... 546 6,215 6,761 ------- ------- ------- Increase in interest income...................... 14,445 8,173 22,618 ------- ------- ------- Interest expense: NOW deposits................................... 138 46 184 Regular money market deposits.................. 995 (1,341) (346) Bonus money market deposits.................... (3,218) (6,280) (9,498) Time deposits.................................. 2,157 (73) 2,084 ------- ------- ------- Increase (decrease) in interest expense.......... 72 (7,648) (7,576) ------- ------- ------- Increase in net interest income.................. $14,373 $15,821 $30,194 ======= ======= =======
Net interest income, on a fully taxable-equivalent basis, totaled $72.3 million for the first quarter of 2000, an increase of $30.2 million, or 71.7%, from the $42.1 million total for the first quarter of 1999. The increase in net interest income was the result of a $22.6 million, or 35.9%, increase in interest income, combined with a $7.6 million, or 36.2%, decrease in interest expense over the comparable prior year period. The $22.6 million increase in interest income for the first quarter of 2000, as compared to the first quarter of 1999, was the result of a $14.4 million favorable volume variance and a $8.2 million favorable rate variance. The favorable volume variance resulted from a $968.2 million, or 28.0%, increase in average interest-earning assets over the comparable prior year period. The increase in average interest-earning assets resulted from strong growth in our average deposits, which increased $960.2 million, or 28.7%, compared to the first quarter of 1999. The increase in average interest-earning assets was primarily centered in highly liquid federal funds sold, securities purchased under agreement to resell and investment securities, which collectively increased $946.7 million. Average investment securities for the first quarter of 2000 increased $355.0 million, or 25.8%, as compared to the 1999 first quarter, resulting in a $5.5 million favorable volume variance. The aforementioned strong growth in average deposits exceeded the growth in average loans over the past year, and generated excess funds that were largely invested in U.S. agency securities, collateralized mortgage obligations and municipal securities. The growth in the investment portfolio reflected our actions to continue to increase as well as further diversify our portfolio of short-term investments in response to the continuing increase in liquidity. 18 Average federal funds sold and securities purchased under agreement to resell in the first quarter of 2000 increased a combined $591.8 million, or 116.2%, over the prior year first quarter, resulting in a $8.4 million favorable volume variance. This increase was also a result of the aforementioned strong growth in average deposits during the past year and our actions to continue to diversify our portfolio of short-term investments. Favorable rate variances associated with each component of interest-earning assets in the first quarter of 2000 resulted in an increase in interest income of $8.2 million as compared to the same period in the prior year. Short-term market interest rates have increased on an overall basis during the past year. As a result of this increase, we have earned higher yields during the first quarter of 2000 on federal funds sold, securities purchased under agreement to resell and our investment securities, a significant portion of which were short-term in nature, resulting in a $2.0 million favorable rate variance as compared to the first quarter of 1999. The average yield on loans in the first quarter of 2000 also increased 150 basis points from the respective prior year first quarter, accounting for the remaining $6.2 million of the total favorable rate variance. This increase was primarily attributable to a 94 basis points increase in our weighted average prime rate in the first quarter of 2000 as compared to the similar prior year period. Approximately 78.2% of our loans continue to be prime rate-based as of March 31, 2000. The yield on average interest-earning assets increased 40 basis points in the first quarter of 2000 from the comparable prior year period. This increase primarily resulted from a rise in the average yield on loans, largely due to an increase in our prime rate as well as an increase in short-term market rates, which resulted in increased yields on federal funds sold and securities purchased under agreement to resell. Total interest expense in the first quarter of 2000 decreased $7.6 million from the first quarter of 1999. This decrease was due to a favorable rate variance of $7.6 million, partially offset by an unfavorable volume variance of $0.1 million. The favorable rate variance largely resulted from a reduction in the average rate paid on our bonus money market deposit product, from 3.6% in the first quarter of 1999 to 2.0% in the first quarter of 2000. The reduction in average rate paid on interest-bearing liabilities during the first quarter of 2000 as compared to the same period of the prior year was primarily attributable to our lowering the rate paid on our bonus money market deposit product by 188 basis points. We took this action in order to lower total assets and thereby increase our Tier 1 leverage capital ratio. See "--Capital Resources" for further discussion. We experienced a $0.1 million unfavorable volume variance on interest-bearing liabilities despite a $105.6 million, or 4.3%, decrease in total interest-bearing liabilities. This unfavorable variance was primarily due to a shift in the composition of the deposit balance towards higher rate paying deposit products, such as time deposits. The overall decrease in interest-bearing liabilities resulted from our effort to manage balance sheet growth by emphasizing higher yielding third party off-balance sheet investment products to our clients. The average cost of funds paid on interest-bearing liabilities for the first quarter of 2000 of 1.2% was down from the 2.4% paid in the first quarter of 1999. This decrease in the average cost of funds was largely due to a decrease of 160 basis points in the average rate paid on our bonus money market deposit product. PROVISION FOR LOAN LOSSES The provision for loan losses is based on our evaluation of the adequacy of the existing allowance for loan losses in relation to total loans, and on our periodic assessment of the inherent and identified risk dynamics of the loan portfolio resulting from reviews of selected individual loans and loan commitments. Our provision for loan losses totaled $12.6 million for the first quarter of 2000, a $4.6 million, or 57.8%, increase compared to the $8.0 million provision for the first quarter of 1999. See "--Credit Quality and the Allowance for Loan Losses" for further discussion. 19 NONINTEREST INCOME The following table summarizes the components of noninterest income for the three month periods ended March 31, 2000 and 1999:
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (DOLLARS IN THOUSANDS) ------------------- Disposition of client warrants............................. $39,354 $ 821 Investment gains........................................... 29,888 131 Client investment fees..................................... 5,619 232 Letter of credit and foreign exchange income............... 3,631 2,669 Deposit service charges.................................... 714 667 Other...................................................... 1,928 732 ------- ------ Total noninterest income................................... $81,134 $5,252 ======= ======
Noninterest income increased $75.9 million, to a total of $81.1 million in the first quarter of 2000 versus $5.3 million in the first quarter of 1999. The increase in noninterest income was largely due to a $38.5 million increase in income from the disposition of client warrants, combined with a $29.8 million increase in investment gains and a $5.4 million increase in client investment fees. Income from the disposition of client warrants totaled $39.4 million and $0.8 million during the first quarter of 2000 and 1999, respectively. We have historically obtained rights to acquire stock, in the form of warrants, in certain clients as part of negotiated credit facilities. The receipt of warrants does not change the loan covenants or other collateral control techniques we employ to mitigate the risk of a loan becoming nonperforming, and collateral requirements on loans with warrants are similar to lending arrangements where we do not obtain warrants. The timing and amount of income from the disposition of client warrants typically depend upon factors beyond our control, including the general condition of the public equity markets as well as the mergers and acquisitions environment. We therefore cannot predict the timing and amount of this income with any degree of accuracy and it is likely to vary materially from period to period. During the first three months of 2000, as well as throughout 1999, a portion of the income we realized from the disposition of client warrants was offset by expenses related to our efforts to build an infrastructure sufficient to support present and prospective business activities, and by increases to the provision for loan losses during those periods. We realized $29.9 million in gains on sale of investment securities during the first quarter of 2000 related to venture capital fund and direct equity investments. This represented an increase of $29.8 million compared to the same period of the prior year. Client investment fees totaled $5.6 million in the first quarter of 2000 compared to $0.2 million in the 1999 first quarter. Prior to June 1999, we only earned client investment fees on off-balance sheet funds that were invested by clients in investment securities such as U.S. Treasury securities, U.S. agency securities and commercial paper. Beginning in June 1999, we began offering off-balance sheet private label mutual fund products to clients. We earn fees ranging from 35 to 50 basis points on the average balance in these products. At March 31, 2000, $9.5 billion in client funds were invested by clients off-balance sheet, including $6.4 billion in the mutual fund products. The significant growth in the amount of off-balance sheet client funds was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community during the past year, by growth in the number of clients we served and by increased marketing of off-balance sheet private label mutual fund products. 20 Letter of credit fees, foreign exchange fees and other trade finance income totaled $3.6 million in the first quarter of 2000, an increase of $1.0 million, or 36.0%, from the $2.7 million reported in the first quarter of 1999. The growth in this category of noninterest income reflects a concerted effort by our management to expand the penetration of trade finance-related products and services among our growing client base, a large percentage of which provide products and services in international markets. Deposit service charges totaled $0.7 million for the three months ended March 31, 2000, relatively unchanged from the first quarter of 1999. Clients compensate us for depository services either through earnings credits computed on their demand deposit balances, or via explicit payments recognized as deposit service charges income. Other noninterest income largely consists of service-based fee income, and increased $1.2 million, or 163.4%, to $1.9 million in the first quarter of 2000 from $0.7 million in the first quarter of 1999. The increase was primarily due to corporate finance fees of $0.6 million and a higher volume of cash management and loan documentation services related to our growing client base. NONINTEREST EXPENSE Noninterest expense in the first quarter of 2000 totaled $47.5 million, a $22.0 million, or 86.1%, increase from the $25.5 million incurred in the comparable 1999 period. We closely monitor our 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 retention and warrant incentive plans and other real estate owned, by adjusted revenues. Adjusted revenues are defined as the total of net interest income and noninterest income, excluding income from the disposition of client warrants and gains or losses related to sales of investment securities. This ratio reflects the level of operating expense required to generate $1 of operating revenue. Our efficiency ratio for the first quarter of 2000 was 45.2% versus 54.6% for the first quarter of 1999. The following table presents the detail of noninterest expense and the incremental contribution of each line item to our efficiency ratio:
THREE MONTHS ENDED MARCH 31, --------------------------------------------- 2000 1999 --------------------- --------------------- PERCENT OF PERCENT OF ADJUSTED ADJUSTED AMOUNT REVENUES AMOUNT REVENUES -------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) Compensation and benefits.............................. $24,371 29.2% $14,881 32.6% Professional services.................................. 2,446 2.9 2,343 5.1 Business development and travel........................ 2,443 2.9 1,331 2.9 Furniture and equipment................................ 2,014 2.4 1,388 3.0 Net occupancy expense.................................. 1,904 2.3 1,469 3.2 Trust preferred securities distributions............... 825 1.0 825 1.8 Postage and supplies................................... 788 1.0 665 1.5 Advertising and promotion.............................. 499 0.6 600 1.3 Telephone.............................................. 496 0.6 399 0.9 Other.................................................. 1,883 2.3 1,043 2.3 ------- ---- ------- ---- Total excluding cost of other real estate owned and retention and warrant incentive plans................ 37,669 45.2% 24,944 54.6% ==== ==== Retention and warrant incentive plans.................. 9,850 320 Cost of other real estate owned........................ -- 273 ------- ------- Total noninterest expense.............................. $47,519 $25,537 ======= =======
21 Compensation and benefits expenses totaled $24.4 million in the first quarter of 2000, a $9.5 million, or 63.8%, increase over the $14.9 million incurred in the first quarter of 1999. The increase in compensation and benefits expenses was largely the result of an increase in the number of average full-time equivalent personnel we employ combined with an increase in performance-based compensation associated with our incentive bonuses and employee stock ownership plan. Average full-time equivalent personnel were 713 for the three month period ended March 31, 2000, versus 602 for the prior year period. The increase in full-time equivalent personnel was primarily due to a combination of our efforts to develop and support new markets through geographic expansion, to develop and expand products, services and niches, and to build an infrastructure sufficient to support present and prospective business activities. Further growth in our full-time equivalent personnel is likely to occur during future years as a result of the continued expansion of our business activities. Retention and warrant incentive plans expense totaled $9.9 million in the first quarter of 2000, a $9.5 million increase over the $0.3 million incurred in the first quarter of 1999. Under the provisions of the retention and warrant incentive plans, employees are compensated with a fixed percentage of gains realized on warrant and certain venture capital fund and direct equity investments. The increase in retention and warrant plans expense in the first quarter of 2000 was directly related to the increase in warrant, venture capital fund and direct equity investment gains over the comparable 1999 period. Professional services expenses, which consist of costs associated with corporate legal services, litigation settlements, accounting and auditing services, consulting, and our board of directors, totaled $2.4 million for the three months ended March 31, 2000, relatively unchanged from the comparable 1999 period. Business development and travel expenses totaled $2.4 million in the first quarter of 2000, a $1.1 million, or 83.5%, increase from the $1.3 million incurred in the first quarter of 1999. The increase in business development and travel expenses was largely attributable to overall growth in our business, including both an increase in the number of full-time equivalent personnel and expansion into new geographic markets. Occupancy, furniture and equipment expenses totaled $3.9 million for the three months ended March 31, 2000, an increase of $1.1 million, or 37.1%, from the $2.9 million for the three months ended March 31, 1999. The increase in occupancy, furniture and equipment expenses in the first three months of 2000 as compared to the comparable period of the prior year was primarily the result of our continued geographic expansion to develop and support new markets. Trust preferred securities distributions totaled $0.8 million for the three months ended March 31, 2000 and 1999. These distributions resulted from the issuance of $40.0 million in cumulative trust preferred securities during the second quarter of 1998. The trust preferred securities pay a fixed rate quarterly distribution of 8.25% and have a maximum maturity of 30 years. Other noninterest expense totaled $1.9 million for the three months ended March 31, 2000, an increase of $0.8 million, or 80.5%, compared to $1.0 million for the comparable 1999 period. This increase was primarily attributable to an increase in data processing costs. INCOME TAXES Our effective tax rate was 40.9% for the first quarter of 2000, relatively unchanged from 40.4% in the comparable three month period in 1999. 22 RESULTS OF OPERATIONS--COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 EARNINGS SUMMARY We reported net income in 1999 of $52.2 million, compared with net income of $28.9 million in 1998 and $27.7 million in 1997. Diluted earnings per share totaled $1.23 in 1999, compared to $0.69 and $0.68 in 1998 and 1997, respectively. Return on average equity in 1999 was 21.9%, compared with 14.5% in 1998 and 18.2% in 1997. Return on average assets in 1999 was 1.3%, compared with 1.0% in 1998 and 1.3% in 1997. The increase in net income for 1999, as compared to 1998, was primarily attributable to growth in both net interest income and noninterest income, partially offset by increases in the provision for loan losses and in noninterest expense. The slight increase in net income for 1998, as compared with 1997, was primarily attributable to growth in both net interest income and noninterest income, and was almost entirely offset by a significant increase in the provision for loan losses and an increase in noninterest expense. The major components of net income and changes in these components are summarized in the following table for the years ended December 31, 1999, 1998 and 1997, and are discussed in more detail on the following pages.
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1998 TO 1997 TO 1999 1998 1999 1998 INCREASE 1997 INCREASE -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Net interest income......................... $205,439 $146,615 $58,824 $110,824 $35,791 Provision for loan losses................... 52,407 37,159 15,248 10,067 27,092 Noninterest income.......................... 58,855 23,162 35,693 13,265 9,897 Noninterest expense......................... 125,659 83,645 42,014 66,301 17,344 -------- -------- ------- -------- ------- Income before income taxes.................. 86,228 48,973 37,255 47,721 1,252 Income tax expense.......................... 34,030 20,117 13,913 20,043 74 -------- -------- ------- -------- ------- Net income.................................. $ 52,198 $ 28,856 $23,342 $ 27,678 $ 1,178 ======== ======== ======= ======== =======
23 NET INTEREST INCOME AND MARGIN The following table sets forth average assets, liabilities and stockholders' equity, interest income and interest expense, average yields and rates, and the composition of our net interest margin for the years ended December 31, 1999, 1998 and 1997.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 1999 1998 ---------------------------------- ---------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ---------- -------- ---------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) Interest-earning assets: Federal funds sold and securities purchased under agreement to resell(1)........ $ 618,338 $ 31,204 5.0% $ 396,488 $ 21,305 5.4% Investment securities: Taxable....................... 1,441,081 82,193 5.7 1,044,918 61,515 5.9 Non-taxable(2)................ 135,549 8,460 6.2 78,234 5,034 6.4 Loans:(3),(4),(5) Commercial.................... 1,393,134 143,744 10.3 1,157,949 122,708 10.6 Real estate construction and term........................ 138,943 13,988 10.1 115,743 12,364 10.7 Consumer and other............ 59,557 5,241 8.8 45,134 4,064 9.0 ---------- -------- ---- ---------- -------- ---- Total loans..................... 1,591,634 162,973 10.2 1,318,826 139,136 10.6 ---------- -------- ---- ---------- -------- ---- Total interest-earning assets... 3,786,602 284,830 7.5 2,838,466 226,990 8.0 ---------- -------- ---- ---------- -------- ---- Cash and due from banks......... 186,841 137,096 Allowance for loan losses....... (59,383) (40,055) Other real estate owned......... 181 681 Other assets.................... 78,169 54,360 ---------- ---------- Total assets.................... $3,992,410 $2,990,548 ========== ========== Funding sources: Interest-bearing liabilities: NOW deposits.................. $ 32,664 620 1.9 $ 18,702 348 1.9 Regular money market deposits.................... 357,006 8,770 2.5 338,585 9,189 2.7 Bonus money market deposits... 1,907,517 58,510 3.1 1,487,240 63,155 4.3 Time deposits................. 207,108 8,530 4.1 131,530 5,917 4.5 Other borrowings.............. -- -- -- 66 4 6.0 ---------- -------- ---- ---------- -------- ---- Total interest-bearing liabilities................... 2,504,295 76,430 3.1 1,976,123 78,613 4.0 Portion of noninterest-bearing funding sources............... 1,282,307 862,343 ---------- -------- ---- ---------- -------- ---- Total funding sources........... 3,786,602 76,430 2.0 2,838,466 78,613 2.8 ---------- -------- ---- ---------- -------- ---- Noninterest-bearing funding sources: Demand deposits................. 1,177,303 769,984 Other liabilities............... 34,220 22,146 Trust preferred securities(6)... 38,507 23,620 Stockholders' equity............ 238,085 198,675 Portion used to fund interest- earning assets................ (1,282,307) (862,343) ---------- ---------- Total liabilities and stockholders' equity.......... $3,992,410 $2,990,548 ========== ========== Net interest income and margin........................ $208,400 5.5% $148,377 5.2% ======== ==== ======== ==== Total deposits.................. $3,681,598 $2,746,041 ========== ========== YEARS ENDED DECEMBER 31, ---------------------------------- 1997 ---------------------------------- AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE ---------- -------- ---------- (DOLLARS IN THOUSANDS) Interest-earning assets: Federal funds sold and securities purchased under agreement to resell(1)........ $ 312,398 $ 17,264 5.5% Investment securities: Taxable....................... 671,390 40,360 6.0 Non-taxable(2)................ 33,801 2,320 6.9 Loans:(3),(4),(5) Commercial.................... 858,459 95,304 11.1 Real estate construction and term........................ 78,311 8,063 10.3 Consumer and other............ 36,867 3,473 9.4 ---------- -------- ---- Total loans..................... 973,637 106,840 11.0 ---------- -------- ---- Total interest-earning assets... 1,991,226 166,784 8.4 ---------- -------- ---- Cash and due from banks......... 148,044 Allowance for loan losses....... (37,568) Other real estate owned......... 1,192 Other assets.................... 37,736 ---------- Total assets.................... $2,140,630 ========== Funding sources: Interest-bearing liabilities: NOW deposits.................. $ 15,814 308 1.9 Regular money market deposits.................... 345,828 9,368 2.7 Bonus money market deposits... 895,259 40,885 4.6 Time deposits................. 107,742 4,587 4.3 Other borrowings.............. 5 -- 5.0 ---------- -------- ---- Total interest-bearing liabilities................... 1,364,648 55,148 4.0 Portion of noninterest-bearing funding sources............... 626,578 ---------- -------- ---- Total funding sources........... 1,991,226 55,148 2.8 ---------- -------- ---- Noninterest-bearing funding sources: Demand deposits................. 608,475 Other liabilities............... 15,389 Trust preferred securities(6)... -- Stockholders' equity............ 152,118 Portion used to fund interest- earning assets................ (626,578) ---------- Total liabilities and stockholders' equity.......... $2,140,630 ========== Net interest income and margin........................ $111,636 5.6% ======== ==== Total deposits.................. $1,973,118 ==========
- ------------------------------ (1) Includes average interest-bearing deposits in other financial institutions of $255, $240 and $306 in 1999, 1998 and 1997, respectively. 24 (2) Interest income on non-taxable investments is presented on a fully taxable-equivalent basis using the federal statutory rate of 35% in 1999, 1998 and 1997. These adjustments were $2,961, $1,762 and $812 for the years ended December 31, 1999, 1998 and 1997, respectively. (3) Average loans include average nonaccrual loans of $37,827, $26,158 and $19,681 in 1999, 1998 and 1997, respectively. (4) Average loans are net of average unearned income of $9,328, $8,299 and $6,922 in 1999, 1998 and 1997, respectively. (5) Loan interest income includes loan fees of $15,738, $12,935 and $10,567 in 1999, 1998 and 1997, respectively. (6) The 8.25% annual distribution to SVB Capital I is recorded as a component of noninterest expense.
1999 COMPARED TO 1998 1998 COMPARED TO 1997 ------------------------------ ------------------------------ INCREASE (DECREASE) INCREASE (DECREASE) DUE TO CHANGE IN DUE TO CHANGE IN ------------------------------ ------------------------------ VOLUME RATE TOTAL VOLUME RATE TOTAL -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Interest income Federal funds sold and securities purchased under agreement to resell................ $11,195 $ (1,296) $ 9,899 $ 4,518 $ (477) $ 4,041 Investment securities...................... 26,074 (1,970) 24,104 24,765 (896) 23,869 Loans...................................... 27,933 (4,096) 23,837 36,418 (4,122) 32,296 ------- -------- ------- ------- ------- ------- Increase (decrease) in interest income....... 65,202 (7,362) 57,840 65,701 (5,495) 60,206 ------- -------- ------- ------- ------- ------- Interest expense: NOW deposits............................... 265 7 272 54 (14) 40 Regular money market deposits.............. 453 (872) (419) (197) 18 (179) Bonus money market deposits................ 12,891 (17,536) (4,645) 25,138 (2,868) 22,270 Time deposits.............................. 3,113 (500) 2,613 1,070 260 1,330 Other borrowing............................ (4) -- (4) 4 -- 4 ------- -------- ------- ------- ------- ------- Increase (decrease) in interest expense...... 16,718 (18,901) (2,183) 26,069 (2,604) 23,465 ------- -------- ------- ------- ------- ------- Increase (decrease) in net interest income... $48,484 $ 11,539 $60,023 $39,632 $(2,891) $36,741 ======= ======== ======= ======= ======= =======
Net interest income, on a fully taxable-equivalent basis, totaled $208.4 million in 1999, an increase of $60.0 million, or 40.5%, from the $148.4 million total in 1998. The increase in net interest income was attributable to a $57.8 million, or 25.5%, increase in interest income, combined with a $2.2 million, or 2.8%, decrease in interest expense over the comparable prior year period. Net interest income in 1998, on a fully taxable-equivalent basis, totaled $148.4 million, an increase of $36.7 million, or 32.9%, compared to the $111.6 million total in 1997. This increase in net interest income was the result of a $60.2 million, or 36.1%, increase in interest income, offset by a $23.5 million, or 42.5%, increase in interest expense over the comparable prior year period. The $57.8 million increase in interest income for 1999, as compared to 1998, was the result of a $65.2 million favorable volume variance, slightly offset by a $7.4 million unfavorable rate variance. The $65.2 million favorable volume variance resulted from a $948.1 million, or 33.4%, increase in average interest-earning assets over the comparable prior year period. The increase in average interest-earning assets resulted from strong growth in our average deposits, which increased $935.6 million, or 34.1%, from 1998 to 1999. The increase in average interest-earning assets consisted of loans, which increased $272.8 million, plus a combination of highly liquid, lower-yielding federal funds sold, securities purchased under agreement to resell and investment securities, which collectively increased $675.3 million, accounting for 71.2% of the total increase in average interest-earning assets. 25 Average loans increased $272.8 million, or 20.7%, in 1999 as compared to 1998, resulting in a $27.9 million favorable volume variance. This growth was widely distributed throughout the loan portfolio, as reflected by increased average loan balances in most of our technology and life sciences and special industry niche practices, in specialized lending products, and throughout our loan offices located across the nation. Average investment securities for 1999 increased $453.5 million, or 40.4%, as compared to 1998, resulting in a $26.1 million favorable volume variance. The aforementioned strong growth in average deposits exceeded the growth in average loans during 1999, and generated excess funds that were largely invested in U.S. agency securities, mortgage-backed securities, collateralized mortgage obligations, and commercial paper. The growth in the investment portfolio reflected our actions to continue to increase as well as further diversify our portfolio of short-term investments in response to the continuing increase in liquidity. Average federal funds sold and securities purchased under agreement to resell in 1999 increased a combined $221.9 million, or 56.0%, over the prior year, resulting in an $11.2 million favorable volume variance. This increase was largely due to the aforementioned strong growth in average deposits during 1999 and our actions to continue to further diversify our portfolio of short-term investments. Unfavorable rate variances associated with each component of interest-earning assets combined to decrease interest income by $7.4 million in 1999, as compared to the prior year. Short-term market interest rates declined on an overall basis during 1999. As a result of this decline, we earned lower yields during 1999 on federal funds sold, securities purchased under agreement to resell and our investment securities, a significant portion of which were short-term in nature, resulting in a $3.3 million unfavorable rate variance as compared to the prior year. The average yield on loans in 1999 also decreased 40 basis points from the respective prior year, accounting for the remaining $4.1 million of the total unfavorable rate variance. This decrease was primarily attributable to a 36 basis points decline in our weighted average prime rate in 1999 as compared to the similar prior year period. Approximately 77.5% of our loans were prime rate-based at the end of 1999. The yield on average interest-earning assets decreased 50 basis points in 1999 from the comparable prior year period. This decrease resulted from a slight decline in the average yield on loans, largely due to a decline in our average prime rate, as well as to a continuing shift in the composition of interest- earning assets towards a higher percentage of highly liquid, lower-yielding federal funds sold, securities purchased under agreement to resell and investment securities. This shift in the composition of average interest-earning assets resulted from the aforementioned strong growth in deposits continuing to outpace the growth in loans. The $60.2 million increase in interest income for 1998, as compared to 1997, was the result of a $65.7 million favorable volume variance, slightly offset by a $5.5 million unfavorable rate variance. The $65.7 million favorable volume variance resulted from a $847.2 million, or 42.5%, increase in average interest-earning assets over the comparable prior year period. The increase in average interest-earning assets resulted from strong growth in our average deposits, which increased $772.9 million, or 39.2%, from 1997 to 1998. The increase in average interest-earning assets consisted of loans, which increased $345.2 million, plus a combination of highly liquid, lower-yielding federal funds sold, securities purchased under agreement to resell and investment securities, which collectively increased $502.0 million, accounting for 59.3% of the total increase in average interest-earning assets. Average loans increased $345.2 million, or 35.5%, in 1998 as compared to 1997, resulting in a $36.4 million favorable volume variance. This growth was widely distributed throughout the loan portfolio, as reflected by increased loan balances in all of our technology and life sciences and special industry niche practices, in specialized lending products, and throughout our loan offices located across the nation. 26 In December 1998, we announced that we had discontinued new loan originations associated with our religious financial resources division. We had approximately $175.0 million in outstanding loans to religious organizations, predominantly for construction of buildings for worship and education, as of December 31, 1998. Competitive changes within the religious organizations market affected our ability to generate our anticipated loan yield and provide returns that exceed our required return on capital. The credit quality of the portfolio was not a factor in our decision to discontinue new religious financial resources loan origination. Since inception, we have not incurred any losses associated with the religious financial resources portfolio. The discontinuation of new religious financial resources loan origination could have an effect on our future loan growth. Average investment securities for 1998 increased $418.0 million, or 59.3%, as compared to 1997, resulting in a $24.8 million favorable volume variance. The aforementioned strong growth in average deposits exceeded the growth in average loans during 1998, and generated excess funds that were largely invested in U.S. agency securities, collateralized mortgage obligations and municipal securities. The growth in the investment portfolio reflected management's actions to increase as well as to further diversify our portfolio of short-term investments in response to a significant increase in liquidity. Average federal funds sold and securities purchased under agreement to resell in 1998 increased a combined $84.1 million, or 26.9%, over the prior year, resulting in a $4.5 million favorable volume variance. This increase was largely due to the aforementioned strong growth in average deposits during 1998 coupled with management's actions to further diversify our portfolio of short-term investments. Unfavorable rate variances associated with each component of interest-earning assets in 1998 resulted in a decrease in interest income of $5.5 million as compared to the prior year. Short-term market interest rates declined during the second half of 1998. As a result of this decline, we earned lower yields in 1998 on federal funds sold, securities purchased under agreement to resell and our investment securities, a significant portion of which were short-term in nature, resulting in a $1.4 million unfavorable rate variance as compared to the prior year. The average yield on loans in 1998 decreased 40 basis points from 1997, accounting for the remaining $4.1 million of the total unfavorable rate variance. This decrease was primarily attributable to both increased competition and a decline in the average prime rate we charged during the second half of 1998, as a substantial portion of our loans are prime rate-based. The total yield on average interest-earning assets decreased 40 basis points in 1998 from the comparable prior year period. This decrease resulted from a decline in the average yield on loans, largely due to both increased competition and a decline in our prime rate, as well as to a continuing shift in the composition of interest-earning assets towards a higher percentage of highly liquid, lower-yielding federal funds sold, securities purchased under agreement to resell and investment securities. This shift in the composition of average interest-earning assets resulted from the aforementioned strong growth in deposits continuing to outpace the growth in our average loans during 1998. Interest expense in 1999 decreased $2.2 million from 1998. This decrease was due to a favorable rate variance of $18.9 million, largely offset by an unfavorable volume variance of $16.7 million. The favorable rate variance largely resulted from a reduction in the average rate paid on our bonus money market deposit product, from 4.3% in 1998 to 3.1% in 1999. The reduction during 1999 in the average rate paid on our bonus money market deposit product was primarily attributable to a decline in short-term market interest rates during the second half of 1998 and to our lowering the rates paid on bonus money market deposits by an additional 163 basis points during 1999. The unfavorable volume variance of $16.7 million resulted from a $528.2 million, or 26.7%, increase in average interest-bearing liabilities in 1999 as compared to 1998. This increase was largely concentrated in our bonus money market deposit product, which increased $420.3 million, or 28.3%, and was explained by high levels of client liquidity attributable to a strong inflow of investment capital 27 into the venture capital community during the past year, and by growth in the number of clients we serve. The average cost of funds paid on average interest-bearing liabilities decreased 90 basis points from 1998 to 1999. This decrease in the average cost of funds was largely due to a decrease of 120 basis points in the average rate paid on our bonus money market deposit product. Interest expense in 1998 increased $23.5 million from 1997. This increase was due to an unfavorable volume variance of $26.1 million, partially offset by a favorable rate variance of $2.6 million. The unfavorable volume variance resulted from a $611.5 million, or 44.8%, increase in average interest-bearing liabilities in 1998 as compared to 1997. This increase was largely concentrated in our bonus money market deposit product, which increased $592.0 million, or 66.1%, and was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community during 1998, and by growth in the number of clients we served. Changes in the average rates paid on interest-bearing liabilities had a $2.6 million favorable impact on interest expense in 1998 as compared to 1997. This decrease in interest expense largely resulted from a reduction in the average rate paid on our bonus money market deposit product from 4.6% in 1997 to 4.3% in 1998. The reduction during 1998 in the average rate paid on our bonus money market deposit product was largely attributable to a decline in short-term market interest rates during the second half of 1998. The average cost of funds paid in 1998 of 2.8% was flat with the prior year. Although the average rate paid on our bonus money market deposit product decreased during 1998 as compared to 1997, this was offset by a continuing shift in the composition of average interest-bearing liabilities towards a higher percentage of deposits in that product. PROVISION FOR LOAN LOSSES The provision for loan losses is based on our evaluation of the adequacy of the existing allowance for loan losses in relation to total loans, and on our periodic assessment of the inherent and identified risk dynamics of the loan portfolio resulting from reviews of selected individual loans and loan commitments. Our provision for loan losses totaled $52.4 million in 1999 compared to $37.2 million and $10.1 million in 1998 and 1997, respectively. The increase in our provision for loan losses in 1999 was in response to an increasing trend in net charge-offs. We incurred net charge-offs of $26.6 million in 1999 and $28.9 million in 1998, compared to $5.1 million in 1997. See "--Credit Quality and the Allowance for Loan Losses" for further discussion. NONINTEREST INCOME The following table summarizes the components of noninterest income for the past three years:
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Disposition of client warrants.............................. $33,003 $ 6,657 $ 5,480 Letter of credit and foreign exchange income................ 14,027 7,397 4,512 Client investment fees...................................... 4,529 473 299 Deposit service charges..................................... 2,764 1,730 1,772 Investment gains............................................ 1,056 5,240 90 Other....................................................... 3,476 1,665 1,112 ------- ------- ------- Total noninterest income.................................... $58,855 $23,162 $13,265 ======= ======= =======
28 Noninterest income increased $35.7 million, or 154.1%, in 1999 as compared to 1998. This increase was largely due to a $26.3 million increase in income from the disposition of client warrants, coupled with a $6.6 million increase in letter of credit fees, foreign exchange fees and other trade finance income and a $4.1 million increase in client investment fees. This increase was partially offset by a decrease of $4.2 million in investment gains. Noninterest income increased $9.9 million, or 74.6%, in 1998 as compared to 1997. This increase was largely due to a $5.2 million increase in investment gains, coupled with a $2.9 million increase in letter of credit fees, foreign exchange fees and other trade finance income and a $1.2 million increase in income from the disposition of client warrants. Income from the disposition of client warrants totaled $33.0 million, $6.7 million and $5.5 million in 1999, 1998 and 1997, respectively. During the years ended December 31, 1999, 1998 and 1997, a significant portion of the income from the disposition of client warrants was offset by expenses related to our efforts to build an infrastructure sufficient to support present and prospective business activities, and was also offset by increases to the provision for loan losses in those same years. Letter of credit fees, foreign exchange fees and other trade finance income totaled $14.0 million in 1999, an increase of $6.6 million, or 89.6%, from the $7.4 million total in 1998, and an increase of $9.5 million, or 210.9%, from the $4.5 million total in 1997. The growth in this category of noninterest income reflects a concerted effort by our management to expand the penetration of trade finance-related products and services among our growing client base, a large percentage of which provide products and services in international markets. Client investment fees totaled $4.5 million in 1999 compared to $0.5 million and $0.3 million in 1998 and 1997, respectively. At December 31, 1999, $5.7 billion in client funds were invested off-balance sheet, including $3.7 billion in the mutual fund products. The significant growth in the amount of off-balance sheet client funds was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community during the past year, by growth in the number of clients we serve, and by increased marketing of off-balance sheet private label mutual fund products. Income related to deposit service charges totaled $2.8 million, $1.7 million and $1.8 million in 1999, 1998 and 1997, respectively. Clients compensate us for depository services either through earnings credits computed on their demand deposit balances, or via explicit payments recognized as deposit service charges income. The increase in deposit service charges income in 1999 was due to both a reduction in earnings credits resulting from a decrease in short-term market rates during 1998 and growth in our client base. We realized $1.1 million in gains on sales of investment securities during 1999, compared to $5.2 million in gains on sales of investment securities during 1998, and a nominal gain on sales of investment securities during 1997. The 1999 gains primarily related to distributions received from venture capital fund investments. The 1998 gains primarily related to sales of U.S. Treasury securities, U.S. agency securities, mortgage-backed securities, and collateralized mortgage obligations, with an aggregate book value of $433.3 million. All investment securities sold were classified as available-for-sale, and all sales were conducted as a normal component of our asset/liability and liquidity management activities. Other noninterest income is largely composed of service-based fee income, and totaled $3.5 million in 1999, compared to $1.7 million in 1998 and $1.1 million in 1997, respectively. The increase in 1999, as compared to 1998 and 1997, was primarily due to a higher volume of cash management and loan documentation services related to our growing client base. NONINTEREST EXPENSE Noninterest expense in 1999 totaled $125.7 million, a $42.0 million, or 50.2%, increase from 1998. Total noninterest expense was $83.6 million in 1998, up $17.3 million, or 26.2%, from 1997. Our 29 efficiency ratio was 53.5% for 1999, compared to 53.6% and 55.7% in 1998 and 1997, respectively. The following table presents the detail of noninterest expense and the incremental contribution of each expense line item to our efficiency ratio:
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1999 1998 1997 --------------------- --------------------- --------------------- PERCENT OF PERCENT OF PERCENT OF ADJUSTED ADJUSTED ADJUSTED AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES -------- ---------- -------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) Compensation and benefits................. $ 73,794 32.0% $44,022 27.9% $39,869 33.6% Professional services..................... 11,766 5.1 9,876 6.3 6,710 5.7 Net occupancy expense..................... 6,689 2.9 5,195 3.3 3,410 2.9 Business development and travel........... 6,644 2.9 6,025 3.8 4,514 3.8 Furniture and equipment................... 6,178 2.7 6,667 4.2 3,620 3.1 Trust preferred securities distributions........................... 3,300 1.4 2,012 1.3 -- -- Postage and supplies...................... 2,582 1.1 2,225 1.4 1,600 1.3 Advertising and promotion................. 2,285 1.0 2,215 1.4 1,448 1.2 Telephone................................. 1,846 0.8 2,157 1.4 1,444 1.2 Other..................................... 8,205 3.6 4,255 2.7 3,395 2.9 -------- ---- ------- ---- ------- ---- Total, excluding cost of other real estate owned and retention and warrant incentive plans......................... 123,289 53.5% 84,649 53.6% 66,010 55.7% ==== ==== ==== Retention and warrant incentive plans..... 2,102 210 215 Cost of other real estate owned........... 268 (1,214) 76 -------- ------- ------- Total noninterest expense............... $125,659 $83,645 $66,301 ======== ======= =======
Compensation and benefits expenses totaled $73.8 million in 1999, a $29.8 million, or 67.6%, increase over the $44.0 million incurred in 1998. This increase was largely the result of an increase in the number of average full-time equivalent personnel we employ, from 521 in 1998 to 645 in 1999, combined with an increase in performance-based compensation associated with our incentive bonuses and employee stock ownership plan. Compensation and benefits expenses in 1998 increased $4.2 million, or 10.4%, from the $39.9 million total in 1997. The increase in compensation and benefits expenses in 1998 was primarily the result of an increase in the number of average full-time equivalent personnel we employ, partially offset by a decrease in performance-based compensation due to lower than expected net income. Average full-time equivalent personnel were 521 in 1998 compared with 417 in 1997. The increase in full-time equivalent personnel from 1997 through 1999 was primarily due to a combination of our efforts to develop and support new markets through geographic expansion, to develop and expand products, services and niches, and to build an infrastructure sufficient to support present and prospective business activities. Further growth in our full-time equivalent personnel is likely to occur during future years as a result of the continued expansion of our business activities. Retention and warrant plans expense totaled $2.1 million in 1999, compared to $0.2 million for each of 1998 and 1997. Under the provisions of the retention and warrant incentive plans, employees are compensated with a fixed percentage of gains realized on warrant and certain venture capital fund and direct equity investments. The increase in retention and warrant incentive plans expense in 1999 was directly related to the increase in warrant gains as compared to 1998 and 1997. Professional services expenses, which consist of costs associated with corporate legal services, litigation settlements, accounting and auditing services, consulting, and our board of directors, totaled $11.8 million in 1999, a $1.9 million, or 19.1%, increase from the $9.9 million total in 1998. We incurred $6.7 million in professional services expenses in 1997. The increase in professional services 30 expenses in 1999, as compared to 1998, primarily related to an increase in consulting fees associated with several business initiatives. Further, the increase in professional services expenses during the past three years reflects the extensive efforts we have undertaken to continue to build and support our infrastructure, as well as evaluate and pursue new business opportunities. It also reflects our efforts in outsourcing several corporate functions, such as internal audit, facilities management and credit review, where we believe we can achieve a combination of cost savings and increased quality of service. The increase in professional services expenses in 1998, as compared to 1997, primarily related to an increase in both consulting fees associated with several business initiatives, including the Year 2000 remediation project, and legal fees primarily related to loan consultations and the workout of various commercial credits. Occupancy, furniture and equipment expenses totaled $12.9 million in 1999, $11.9 million in 1998 and $7.0 million in 1997. The increase in occupancy, furniture and equipment expenses in 1999, as compared to 1998, was primarily the result of our continued geographic expansion to develop and support new markets. The increase in occupancy, furniture and equipment expenses in 1998, as compared to 1997, was largely attributable to our incurrence of certain non-recurring costs in connection with the expansion of our existing headquarters facility during the second quarter of 1998 and an increase in recurring expenses associated with that additional office space. Occupancy, furniture and equipment expenses were also impacted by costs related to furniture, computer equipment and other related costs associated with our opening new loan offices in Los Angeles, California and Chicago, Illinois in early 1998. We intend to continue our geographic expansion into other emerging technology marketplaces across the U.S. during future years as opportunities to serve new markets arise. Business development and travel expenses totaled $6.6 million in 1999, an increase of $0.6 million, or 10.3%, compared to the $6.0 million total in 1998. We incurred $4.5 million in business development and travel expenses in 1997. The increase in business development and travel expenses during each of the last two years was largely attributable to overall growth in our business, including both an increase in the number of full-time equivalent personnel and expansion into new geographic markets. Trust preferred securities distributions totaled $3.3 million in 1999, an increase of $1.3 million, or 64.0%, compared to $2.0 million for 1998. These distributions resulted from the issuance of $40.0 million in cumulative trust preferred securities during the second quarter of 1998. The trust preferred securities pay a fixed rate quarterly distribution of 8.25% and have a maximum maturity of 30 years. Postage and supplies expenses totaled $2.6 million, $2.2 million and $1.6 million in 1999, 1998 and 1997, respectively. Total telephone expenses were $1.9 million in 1999, $2.2 million in 1998 and $1.4 million in 1997. The increase in postage and supplies during each of the past two years was largely the result of overall growth in our business, including both an increase in the number of full-time equivalent personnel and expansion into new geographic markets. The decrease in telephone expenses in 1999, as compared to 1998, relates primarily to our efforts to negotiate lower telecommunication rates. Advertising and promotion expenses totaled $2.3 million in 1999, $2.2 million in 1998 and $1.4 million in 1997. The increase in advertising and promotion expenses during each of the last two years, reflects our concerted effort to increase our marketing efforts nationwide. Other noninterest expenses totaled $8.2 million, $4.3 million and $3.4 million in 1999, 1998 and 1997, respectively. The increase in other noninterest expenses in 1999 of $4.0 million, as compared to 1998, was primarily due to $2.1 million in charitable contributions made to the Silicon Valley Bank Foundation and increased data processing costs. The $0.9 million increase in other noninterest expenses from 1997 to 1998 was largely due to an increase in data processing costs related to both growth in our business and several new business initiatives commenced in 1998. 31 In 1999 and 1997, we incurred minimal net costs associated with OREO. Additionally, during 1998, we realized a net gain of $1.3 million in connection with the sale of an OREO property that consisted of multiple undeveloped lots. Our net 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 Our effective income tax rate was 39.5% in 1999, compared to 41.1% in 1998 and 42.0% in 1997. The decrease in our effective income tax rate was attributable to an increase in the amount of tax-exempt interest income we received, as well as to a change in our multi-state income tax rate. FINANCIAL CONDITION Our total assets were $5.1 billion at March 31, 2000, an increase of $468.1 million, or 10.2%, compared to $4.6 billion at December 31, 1999. Our total assets were $4.6 billion at December 31, 1999, an increase of $1.1 billion, or 29.6%, compared to $3.5 billion at December 31, 1998. FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL Federal funds sold and securities purchased under agreement to resell totaled a combined $1.1 billion at March 31, 2000, an increase of $172.5 million, or 19.2%, compared to the $898.0 million outstanding at December 31, 1999. This increase was attributable to our investing excess funds, resulting from continued strong deposit growth during the first quarter of 2000, in these types of short-term liquid investments. Federal funds sold and securities purchased under agreement to resell totaled a combined $898.0 million at December 31, 1999, an increase of $498.8 million, or 125.0%, compared to the $399.2 million outstanding at December 31, 1998. This increase was attributable to our desire to maintain a high level of liquidity at year end in anticipation of the century date change. INVESTMENT SECURITIES The following table details the composition of investment securities, all of which were classified as available-for-sale and reported at fair value, at March 31, 2000 and December 31, 1999, 1998 and 1997.
MARCH 31, DECEMBER 31, ---------- ------------------------------------ 2000 1999 1998 1997 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) U.S. Treasury securities...................... $ 29,694 $ 29,798 $ 41,049 $ 217,685 U.S. agencies and corporations: Discount notes and bonds.................... 970,137 855,570 498,016 462,405 Mortgage-backed securities.................. 155,204 161,822 125,059 144,437 Collateralized mortgage obligations......... 235,437 221,952 155,149 41,051 Obligations of states and political subdivisions................................ 292,341 196,396 515,770 60,436 Commercial paper and other debt securities.... 9,000 117,084 48,464 66,836 Money market mutual funds..................... 132,821 27,103 -- -- Bankers' acceptances.......................... -- -- -- 16,140 Warrant securities............................ 54,250 68,358 670 897 Venture capital fund investments.............. 12,597 52,561 5,359 2,368 Other private equity investments.............. 4,428 4,428 569 168 Federal Reserve Bank stock and tax credit funds....................................... 14,590 12,336 7,397 1,481 ---------- ---------- ---------- ---------- Total......................................... $1,910,499 $1,747,408 $1,397,502 $1,013,904 ========== ========== ========== ==========
32 Investment securities totaled $1.9 billion at March 31, 2000, an increase of $163.1 million, or 9.3%, from the December 31, 1999 balance of $1.7 billion. This increase resulted from excess funds that were generated by strong growth in our deposits outpacing the growth in loans during the first three months of 2000, and primarily consisted of U.S. agency securities, collateralized mortgage obligations and municipal securities. Investment securities totaled $1.7 billion at December 31, 1999, an increase of $349.9 million, or 25.0%, over the December 31, 1998 balance of $1.4 billion. This increase resulted from excess funds that were generated by strong growth in our deposits outpacing the growth in loans during 1999, and primarily consisted of U.S. agency securities, mortgage-backed securities, collateralized mortgage obligations, and commercial paper. The decrease in U.S. Treasury securities and obligations of states and political subdivisions was primarily due to maturities. The overall growth in the investment portfolio reflected our actions to increase as well as to further diversify our investment portfolio in response to a continued significant increase in liquidity. The increase in market interest rates during the first three months of 2000 resulted in a pre-tax unrealized loss on our available-for-sale fixed income securities investment portfolio of $48.8 million as of March 31, 2000. This unrealized loss was offset by a pre-tax unrealized gain of $54.1 million associated with our warrant securities. Because of the level of liquidity we maintain, we do not anticipate having to sell fixed income investment securities and incurring material losses on sales in future periods for liquidity purposes. Investment securities totaled $1.4 billion at December 31, 1998. This represented a $383.6 million, or 37.8%, increase over the December 31, 1997 balance of $1.0 billion. This increase resulted from excess funds that were generated by strong growth in our deposits outpacing the growth in loans during 1998, and primarily consisted of U.S. agency securities, collateralized mortgage obligations and municipal securities. The significant increase in municipal securities was composed of both taxable and non-taxable municipal obligations, and was largely attributable to our obtaining slightly higher yields on these investments as compared to U.S. agency discount notes and bonds and other short-term securities. The decreases in U.S. Treasury securities, mortgage-backed securities and commercial paper was primarily due to sales and maturities. The overall growth in the investment portfolio reflected management's actions to increase as well as to further diversify our portfolio of short-term investments in response to a continued significant increase in liquidity. At March 31, 2000, we held no investment securities that were issued by a single party, excluding securities issued by the U.S. Government or by U.S. Government agencies and corporations, and that exceeded 10.0% of our stockholders' equity. Based on May 31, 2000 market valuations, we had potential pre-tax warrant gains totaling $23.3 million related to 46 companies. We are restricted from exercising many of these warrants until the second, third and fourth quarters of 2000. As of May 31, 2000, we held 1,035 warrants in 830 companies, and had made investments in 172 venture capital funds and direct equity investments in 37 companies. We obtained 368 warrants in 1999 compared to 258 in 1998 and 157 in 1997. Many of these companies are non-public. Thus, for those companies for which a readily determinable market value cannot be obtained, we value these equity instruments at cost less any identified impairment. Additionally, we are typically precluded from using any type of derivative instrument to secure the current unrealized gains associated with many of these equity instruments. Hence, the amount of income we realize from these equity instruments in future periods may vary materially from the current unrealized amount due to fluctuations in the market prices of the underlying common stock of these companies. Furthermore, we may reinvest some or all of the income realized from the disposition of these equity instruments in pursuing our business strategies. For further discussion, see "Risk Factors--Any existing unrealized warrant, venture capital fund and direct equity investment portfolio gains may never be realized." 33 LOANS The composition of our loan portfolio, net of unearned income, as of March 31, 2000 and each of the past five years is as follows:
AS OF DECEMBER 31, AS OF ---------------------------------------------------------- MARCH 31, 2000 1999 1998 1997 1996 1995 -------------- ---------- ---------- ---------- -------- -------- (DOLLARS IN THOUSANDS) Commercial...................... $1,434,272 $1,414,728 $1,429,980 $1,051,218 $755,699 $622,488 Real estate construction........ 72,170 76,209 74,023 53,583 27,540 17,194 Real estate term................ 55,916 67,738 60,841 33,395 44,475 56,845 Consumer and other.............. 69,084 64,330 47,077 36,449 35,778 41,878 ---------- ---------- ---------- ---------- -------- -------- Total loans..................... $1,631,442 $1,623,005 $1,611,921 $1,174,645 $863,492 $738,405 ========== ========== ========== ========== ======== ========
Total loans, net of unearned income, at March 31, 2000, were $1.6 billion, the balance at December 31, 1999 and December 31, 1998. While we continue to generate new loans in most of our technology and life sciences and special industry niche practices, as well as in specialized lending products, many of our clients, primarily in the technology and life sciences niche, have received significant cash inflows from the capital markets and venture capital community. Consequently, we have experienced higher than normal loan paydowns and payoffs, which has caused total loans to remain relatively unchanged between March 31, 2000 and December 31, 1998. The following table sets forth the remaining contractual maturity distribution of our loans, reported on a gross basis, at March 31, 2000 for fixed and variable rate loans:
MARCH 31, 2000 ------------------------------------------------------ AFTER ONE YEAR ONE YEAR OR AND THROUGH AFTER FIVE LESS FIVE YEARS YEARS TOTAL ----------- -------------- ---------- ---------- (DOLLARS IN THOUSANDS) Fixed rate loans: Commercial................................... $ 21,222 $223,711 $90,149 $ 335,082 Real estate construction..................... 390 3,501 -- 3,891 Real estate term............................. -- 12,294 2,000 14,294 Consumer and other........................... 257 3,820 32 4,109 -------- -------- ------- ---------- Total fixed rate loans....................... $ 21,869 $243,326 $92,181 $ 357,376 ======== ======== ======= ========== Variable rate loans: Commercial................................... $695,740 $353,314 $65,905 $1,114,959 Real estate construction..................... 52,165 2,560 14,012 68,737 Real estate term............................. 7,721 24,858 3,112 35,691 Consumer and other........................... 45,072 6,874 13,083 65,029 -------- -------- ------- ---------- Total variable rate loans.................... $800,698 $387,606 $96,112 $1,284,416 ======== ======== ======= ==========
Upon maturity, loans satisfying our credit quality standards may be eligible for renewal. Such renewals are subject to the normal underwriting and credit administration practices associated with new loans. We do not grant loans with unconditional extension terms. CREDIT QUALITY AND THE ALLOWANCE FOR LOAN LOSSES Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract. While we follow underwriting and credit monitoring procedures which we believe are appropriate in growing and managing the loan portfolio, in the event of nonperformance by these other parties, our potential exposure to credit losses could significantly affect our consolidated financial position and earnings. 34 Lending money involves an inherent risk of nonpayment. Through the administration of loan policies and monitoring of the loan portfolio, our management seeks to reduce this risk. The allowance for loan losses is an estimate to provide a financial buffer for losses, both identified and unidentified, in the loan portfolio. We regularly review and monitor 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. We identify potential problem credits and, based upon known information, we develop action plans. We have established an evaluation process designed to determine the adequacy of the allowance for loan losses. This process attempts to assess the risk of losses inherent in the loan portfolio by segregating the allowance for loan losses into three components: "specific," "loss migration," and "general." The specific component is established by allocating a portion of the allowance for loan losses to individual classified credits on the basis of specific circumstances and assessments. The loss migration component is calculated as a function of the historical loss migration experience of the internal loan credit risk rating categories. The general component, composed of allocated and unallocated portions that supplements the first two components, includes: our management's judgment of the effect of current and forecasted economic conditions on the borrowers' abilities to repay, an evaluation of the allowance for loan losses in relation to the size of the overall loan portfolio, an evaluation of the composition of, and growth trends within, the loan portfolio, consideration of the relationship of the allowance for loan losses to nonperforming loans, net charge-off trends, and other factors. While this evaluation process uses historical and other objective information, the classification of loans and the establishment of the allowance for loan losses, relies, to a great extent, on the judgment and experience of our management. An analysis of the allowance for loan losses for the three months ended March 31, 2000 and for the past five years is as follows:
MARCH 31, DECEMBER 31, ------------------- ---------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Balance at beginning of period......... $71,800 $46,000 $46,000 $ 37,700 $32,700 $29,700 $20,000 Charge-offs: Commercial........................... (16,253) (8,053) (34,312) (31,123) (9,236) (9,056) (4,248) Real estate.......................... -- -- -- -- -- (634) (653) Consumer and other................... -- (24) (196) -- -- (38) (57) ------- ------- ------- -------- ------- ------- ------- Total charge-offs...................... (16,253) (8,077) (34,508) (31,123) (9,236) (9,728) (4,958) ------- ------- ------- -------- ------- ------- ------- Recoveries: Commercial........................... 4,772 1,505 7,849 1,897 3,170 2,050 3,106 Real estate.......................... -- 204 34 366 986 217 2,815 Consumer and other................... 9 -- 18 1 13 35 -- ------- ------- ------- -------- ------- ------- ------- Total recoveries....................... 4,781 1,709 7,901 2,264 4,169 2,302 5,921 ------- ------- ------- -------- ------- ------- ------- Net (charge-offs) recoveries........... (11,472) (6,368) (26,607) (28,859) (5,067) (7,426) 963 Provision for loan losses.............. 12,572 7,968 52,407 37,159 10,067 10,426 8,737 ------- ------- ------- -------- ------- ------- ------- Balance at end of period............... $72,900 $47,600 $71,800 $ 46,000 $37,700 $32,700 $29,700 ======= ======= ======= ======== ======= ======= ======= Net charge-offs (recoveries) to average total loans(1)....................... 2.9% 1.6% 1.7% 2.2% 0.5% 1.0% (0.1)% ======= ======= ======= ======== ======= ======= =======
- -------------------------- (1) Annualized for the three-months ended March 31, 2000 and 1999. 35 Average impaired loans for 1999 and 1998 totaled $37.8 million and $26.2 million, respectively. If these loans had not been impaired, we would have realized $1.4 million and $2.5 million in interest income for the years ended December 31, 1999 and 1998, respectively. We realized no interest income on such impaired loans during 1999 or 1998. The following table displays the allocation of the allowance for loan losses among specific classes of loans:
DECEMBER 31, ----------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------------- ------------------- ------------------- ------------------- ------------------- PERCENT PERCENT PERCENT PERCENT PERCENT OF TOTAL OF TOTAL OF TOTAL OF TOTAL OF TOTAL AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Commercial............. $49,985 95.5% $28,417 95.8% $30,394 89.5% $18,716 87.5% $16,176 84.3% Real estate term....... 795 1.5 438 1.4 426 2.8 873 5.2 707 7.7 Real estate construction......... 792 1.5 374 1.3 274 4.6 140 3.2 87 2.4 Consumer and other..... 757 1.5 434 1.5 386 3.1 615 4.1 339 5.6 Unallocated............ 19,471 N/A 16,337 N/A 6,220 N/A 12,356 N/A 12,391 N/A ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total.................. $71,800 100.0% $46,000 100.0% $37,700 100.0% $32,700 100.0% $29,700 100.0% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
The allowance for loan losses totaled $72.9 million at March 31, 2000, an increase of $1.1 million, or 1.5%, compared to the $71.8 million balance at December 31, 1999. This increase was due to $12.6 million in additional provisions to the allowance for loan losses, partially offset by $11.5 million of net charge-offs for the three months ended March 31, 2000. We incurred $16.3 million in gross charge-offs during the three months ended March 31, 2000. The charge-offs included two commercial credits totaling $12.0 million in our health care services niche. Of the total first quarter gross charge-offs, $7.5 million were classified as nonperforming loans at the end of 1999. We believe our allowance for loan losses is adequate as of March 31, 2000. However, future changes in circumstances, economic conditions or other factors could cause us to increase or decrease the allowance for loan losses as deemed necessary. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to make adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examination. For a discussion of factors that influence our loan losses and loan charge-offs, see "Risk Factors--Because of the credit profile of our loan portfolio, our levels of nonperforming assets and charge-offs can be volatile, and we may need to make material provisions for loan losses in any period, which could cause reduced net income or net losses in that period." The allowance for loan losses totaled $71.8 million at December 31, 1999, an increase of $25.8 million, or 56.1%, compared to $46.0 million at December 31, 1998. This increase was due to $52.4 million in additional provisions to the allowance for loan losses, offset by net charge-offs of $26.6 million during 1999. The 1999 net charge-off amount was composed of $34.5 million in gross charge-offs and $7.9 million in gross recoveries. The 1999 gross charge-offs included a $7.4 million commercial credit in our financial services (non-technology) niche and a $5.7 million commercial credit in our computers and peripherals niche. Of the total 1999 gross charge-offs, $6.0 million were classified as nonperforming loans at the end of 1998. The unallocated component of the allowance for loan losses as of December 31, 1999 increased $3.1 million, or 19.2%, from the prior year end. This increase reflects our decision to further bolster the allowance for loan losses and maintain strong coverage ratios based on the economic uncertainty 36 surrounding many of our markets in 1999 and the higher than normal gross charge-offs experienced throughout 1999. The 1998 gross charge-off total included $17.4 million and $7.2 million in charge-offs that were incurred during the third and fourth quarters of 1998, respectively. Gross charge-offs for the third quarter of 1998, the largest of which was $7.0 million, were primarily related to five commercial credits and were not concentrated in any particular niche or industry. Of the total 1998 third quarter gross charge-offs, $8.1 million were classified as nonperforming loans at the end of 1997. We incurred $7.2 million in gross charge-offs during the fourth quarter of 1998, primarily centered in our QuickStart and bridge portfolios. Gross charge-offs in the fourth quarter of 1998 included three bridge loans and four QuickStart loans totaling $2.5 million and $1.9 million, respectively. Our QuickStart product was based in large part on an analysis that indicates that almost all venture capital-backed clients that receive a first round of equity infusion from a venture capitalist will receive a second round. The analysis indicated that the second round typically occurred 18 months after the first round. Hence, proceeds from the second round could be used to pay off the 18 month term loan offered under the QuickStart product. However, the second round has been occurring much sooner than expected and the additional cash infusion has occasionally been depleted before 18 months. The likelihood of a third round occurring is not as great as a second round and thus this resulted in higher than anticipated charge-offs related to this product during the fourth quarter of 1998. Gross charge-offs for 1997 were $9.2 million, and included charge-offs totaling $6.5 million related to two commercial credits, one in our technology and life sciences niche and the other in one of our special industry niches. Gross recoveries of $4.2 million in 1997 included $1.1 million related to a commercial credit in one of our special industry niches that was partially charged off in 1996. Gross charge-offs for 1996 were $9.7 million, and primarily resulted from five credits, none of which were related to our technology and life sciences niche. Gross recoveries of $2.3 million in 1996 included $0.9 million related to one commercial credit that was partially charged off in 1994. Net loan recoveries in 1995 of $1.0 million included $2.7 million in recoveries from a real estate client relationship that had been charged off in 1992 and $1.1 million in recoveries related to a commercial credit that was partially charged off in 1994. Nonperforming assets consist of loans that are past due 90 days or more which are still accruing interest, loans on nonaccrual status and OREO and other foreclosed assets. The table below sets forth certain data and ratios between nonperforming loans, nonperforming assets and the allowance for loan losses. During 1999, 1998 and 1997, our nonaccrual loans represented all impaired loans. We measure all loans placed on nonaccrual status for impairment based on the fair value of the underlying collateral on the net present value of the expected cash flows in accordance with SFAS No 114, "Accounting by Creditors for Impairment of a Loan."
MARCH 31, DECEMBER 31, ------------------- ---------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Nonperforming assets: Loans past due 90 days or more and still accruing interest............ $ -- $ 740 $ 911 $ 441 $ 1,016 $ 8,556 $ 906 Nonaccrual loans..................... 28,789 50,993 27,552 19,444 24,476 14,581 27,867 ------- ------- ------- ------- ------- ------- ------- Total nonperforming loans............ 28,789 51,733 28,463 19,885 25,492 23,137 28,773 OREO and other foreclosed assets..... -- 1,370 -- 1,800 1,858 1,948 4,955 ------- ------- ------- ------- ------- ------- ------- Total nonperforming assets............. $28,789 $53,103 $28,463 $21,685 $27,350 $25,085 $33,728 ======= ======= ======= ======= ======= ======= ======= Nonperforming loans as a percentage of total loans.......................... 1.8% 3.2% 1.7% 1.2% 2.2% 2.7% 3.9% Nonperforming assets as a percentage of total assets......................... 0.6% 1.4% 0.6% 0.6% 1.0% 1.3% 2.4% Allowance for loan losses:............. $72,900 $47,600 $71,800 $46,000 $37,700 $32,700 $29,700 As a percentage of total loans....... 4.4% 2.9% 4.4% 2.8% 3.2% 3.8% 4.0% As a percentage of nonaccrual loans.............................. 253.2% 93.4% 260.6% 236.6% 154.0% 224.3% 106.6% As a percentage of nonperforming loans.............................. 253.2% 92.0% 252.3% 231.3% 147.9% 141.3% 103.2%
37 Nonperforming loans totaled $28.8 million, or 1.8% of total loans, at March 31, 2000, an increase of $0.3 million, or 1.1%, compared to $28.5 million, or 1.7% of total loans, at December 31, 1999. Nonperforming loans at March 31, 2000 included two commercial credits totaling $13.8 million. The first credit, totaling $7.1 million, was in our health care services niche and was disclosed as having a higher than normal risk of becoming a nonperforming in our 1999 Annual Report on Form 10-K, which is incorporated by reference in this prospectus. The second credit, totaling $6.7 million, was in our financial services (non-technology) niche. This credit has been classified as nonperforming since March 31, 1999. Our management believes these credits are adequately secured with collateral and reserves, and that any future charge-offs associated with these loans will not have a material impact on our future net income. In addition to the loans disclosed in the foregoing analysis, we have identified two loans totaling $13.0 million, that, on the basis of information known to us, are judged to have a higher than normal risk of becoming nonperforming. We are not aware of any other loans 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. Nonperforming loans totaled $28.5 million at December 31, 1999, an increase of $8.6 million, or 43.1%, from the $19.9 million total at December 31, 1998. Of the total nonperforming loans at year-end 1998, $6.0 million were charged off, $0.2 million were placed on performing status and $13.2 million were repaid during 1999. Additionally, $28.0 million in loans were placed on nonperforming status during 1999 and still classified as nonperforming loans at the end of 1999. Nonperforming loans at the end of the 1999 fourth quarter included one commercial credit totaling $7.4 million in our financial services (non-technology) niche, which has been partially charged off, as described above. This credit has been classified as nonperforming since March 31, 1999. Nonperforming loans totaled $19.9 million at December 31, 1998, a decrease of $5.6 million, or 22.0%, from the $25.5 million total at December 31, 1997. Of the total nonperforming loans at year-end 1997, $10.0 million were charged off, $7.4 million were placed on performing status and $4.8 million were repaid during 1998. An additional $16.6 million in loans were placed on nonperforming status during 1998 and still were classified as nonperforming loans at the end of 1998. Nonperforming loans at December 31, 1997 totaled $25.5 million, an increase of $2.4 million, or 10.2%, from the $23.1 million total at December 31, 1996, as a $9.9 million net increase in nonaccrual loans during 1997 was largely offset by the payoff during the first quarter of 1997 of one credit in excess of $8.0 million that was more than 90 days past due and still accruing interest, as of December 31, 1996. The increase in nonaccrual loans at December 31, 1997, from the prior year end, was primarily due to two commercial credits totaling approximately $14.1 million which were placed on nonaccrual status during the last half of 1997, one of which was returned to performing status in the first quarter of 1998 and the other was partially charged off in 1998, with the remaining balance still nonperforming. Nonperforming loans at December 31, 1996 included the aforementioned credit in excess of $8.0 million that was more than 90 days past due and still accruing interest, as of December 31, 1996. The Export- Import Bank of the U.S. provided Silicon Valley Bank with a guarantee of this credit facility, and Silicon Valley Bank received the guarantee payment related to this credit from the Export-Import Bank in the first quarter of 1997. We held no OREO or other foreclosed asset at March 31, 2000 and December 31, 1999. OREO or other foreclosed assets totaled a combined $1.8 million at December 31, 1998. The OREO and other foreclosed assets balance at December 31, 1998 consisted of one OREO property and one other asset which was acquired through foreclosure, both of which were sold during 1999. 38 DEPOSITS Our deposits are largely obtained from companies within the technology and life sciences niche, and, to a lesser extent, from businesses within our special industry niches and from individuals served by our executive banking division. We do not obtain deposits from conventional retail sources and do not accept brokered deposits. The following table presents the composition of our deposits as of March 31, 2000 and the five years ended December 31, 1999:
AS OF DECEMBER 31, AS OF MARCH 31, -------------------------------------------------------------- 2000 1999 1998 1997 1996 1995 --------------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Noninterest-bearing demand...... $2,405,490 $1,928,100 $ 921,790 $ 788,442 $ 599,257 $ 451,318 NOW............................. 81,941 43,643 19,978 21,348 8,443 10,956 Regular money market............ 467,711 363,920 350,110 351,921 326,661 288,619 Bonus money market.............. 1,129,949 1,481,457 1,835,249 1,146,075 754,730 473,717 Time............................ 430,760 292,285 142,626 124,621 85,213 65,450 ---------- ---------- ---------- ---------- ---------- ---------- Total deposits.................. $4,515,851 $4,109,405 $3,269,753 $2,432,407 $1,774,304 $1,290,060 ========== ========== ========== ========== ========== ==========
Total deposits were $4.5 billion at March 31, 2000, an increase of $406.4 million, or 9.9%, from the prior year-end total of $4.1 billion. A significant portion of the increase in deposits during the first three months of 2000 was concentrated in our noninterest-bearing demand deposits, which increased $477.4 million, or 24.8%, to a total of $2.4 billion at March 31, 2000. This increase was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community and the equity markets, and by growth during the first three months of 2000 in the number of clients we served. Total deposits were $4.1 billion at December 31, 1999, an increase of $839.7 million, or 25.7%, from the prior year-end total of $3.3 billion. A significant portion of the increase in deposits during 1999 was concentrated in our noninterest-bearing demand deposits, which increased $1.0 billion, or 109.2%, from the prior year end. This increase was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community and the equity markets, and by growth in the number of clients served by us during 1999. Client deposits in our bonus money market product totaled $1.5 billion at December 31, 1999, a $353.8 million, or 19.3%, decrease from the $1.8 billion prior year-end balance. Despite the high levels of client liquidity, our money market deposits at December 31, 1999 decreased $340.0 million from the prior year end. The decrease in money market deposits was the result of our lowering bonus money market deposit rates 163 basis points during 1999 and marketing higher-yielding off-balance sheet private label mutual fund products to clients. We took this action in order to lower total assets and thereby increase our Tier 1 leverage capital ratio. See "--Regulatory Matters" for further discussion. The aggregate amount of time deposit accounts individually exceeding $100,000 totaled $258.1 million and $122.8 million at December 31, 1999 and 1998, respectively. At December 31, 1999, all time deposit accounts exceeding $100,000 were scheduled to mature within one year. No material portion of our deposits has been obtained from a single depositor and the loss of any one depositor would not materially affect our business. MARKET RISK MANAGEMENT Interest rate risk is the most significant market risk impacting us. Our monitoring activities related to managing interest rate risk include both interest rate sensitivity "gap" analysis and the use of a simulation model to measure the impact of market interest rate changes on the net present value of 39 estimated cash flows from our assets, liabilities and off-balance sheet items, defined as our market value of portfolio equity. See our 1999 Annual Report on Form 10-K which is incorporated by reference in this prospectus for disclosure of the quantitative and qualitative information regarding the interest rate risk inherent in interest rate risk sensitive instruments as of December 31, 1999. There have been no changes in the assumptions we used in monitoring interest rate risk, and we are in compliance with all material interest rate risk policy guidelines as of March 31, 2000. Other types of market risk affecting us in the normal course of our business activities include foreign currency exchange risk and equity price risk. We do not consider the impact on us resulting from these other two types of market risks to be material. We do not maintain a portfolio of trading securities and do not intend to engage in such activity in the immediate future. LIQUIDITY Another important objective of asset/liability management is to manage liquidity. The objective of liquidity management is to ensure that funds are available in a timely manner to meet loan demand and depositors' needs, and to service other liabilities as they come due, without causing an undue amount of cost or risk, and without causing a disruption to normal operating conditions. We regularly assess the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned business activities. Our asset/liability committee provides oversight to the liquidity management process and recommends policy guidelines, subject to approval of our board of directors, and courses of action to address our actual and projected liquidity needs. The ability to attract a stable, low-cost base of deposits is our primary source of liquidity. Other sources of liquidity available to us include short-term borrowings, which consist of federal funds purchased, security repurchase agreements and other short-term borrowing arrangements. We can also meet our liquidity requirements through the use of our portfolio of liquid assets. We define liquid assets to include cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, federal funds sold, securities purchased under resale agreements, investment securities maturing within six months, investment securities eligible and available for pledging purposes with a maturity in excess of six months, and anticipated near term cash flows from investments. Our policy guidelines provide that liquid assets as a percentage of total deposits should not fall below 20.0%. At March 31, 2000, Silicon Valley Bank's ratio of liquid assets to total deposits was 57.5%. This ratio is well in excess of Silicon Valley Bank's minimum policy guidelines and is higher than the comparable ratio of 55.7% as of December 31, 1999. In addition to monitoring the level of liquid assets relative to total deposits, Silicon Valley Bank also utilizes other internal policy measures in its liquidity management activities. As of March 31, 2000 and as of December 31, 1999 and 1998, Silicon Valley Bank was in compliance with all of these policy measures. CAPITAL RESOURCES Our management seeks to maintain adequate capital to support anticipated asset growth and credit risks, and to ensure that Silicon and Silicon Valley Bank are in compliance with all regulatory capital guidelines. Our primary sources of new capital include the issuance of common stock and trust preferred securities, as well as retained earnings. In December 1999 we issued 2.8 million shares of common stock at $21.00 per share. In January 2000, we issued an additional 0.4 million shares at $21.00 per share in relation to the exercise of an over-allotment option by the underwriters for that offering. Proceeds from the sale of these securities totaled $63.3 million, net of underwriting commissions and other offering expenses. In addition, in 1998 40 we issued $40.0 million face amount in cumulative trust preferred securities through a newly formed special-purpose trust, SVB Capital I. The securities had an offering price (liquidation amount) of $25 per security and distributions at a fixed rate of 8.25% are paid quarterly. The securities have a maximum maturity of 30 years and qualify as Tier 1 capital under the capital guidelines of the Federal Reserve Board. We received proceeds of $38.5 million related to the sale of these securities, net of underwriting commissions and other offering expenses. The trust preferred securities are presented as a separate line item in the consolidated balance sheet under the caption "Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures." Stockholders' equity totaled $400.7 million at March 31, 2000, an increase of $31.8 million, or 8.6%, from the $368.9 million balance at December 31, 1999. This increase was primarily due to net income of $54.7 million for the three months ended March 31, 2000 and net proceeds from the issuance of common stock of $17.6 million, partially offset by a decrease in the after-tax net unrealized gain on available-for-sale investments of $38.6 million. See "--Investment Securities" for additional discussion on the net unrealized loss on available-for-sale investments as of March 31, 2000. Stockholders' equity was $368.9 million at December 31, 1999, an increase of $153.0 million, or 70.9%, from the $215.9 million balance at December 31, 1998. This increase was primarily due to 1999 net income of $52.2 million, net proceeds from the common stock issuance of $55.1 million and an increase in after-tax net unrealized gains on available-for-sale securities of $39.6 million. We have not paid a cash dividend on our common stock since 1992, and did not have any material commitments for capital expenditures as of March 31, 2000. In March 2000 our board of directors approved a two-for-one stock split, in the form of a stock dividend on our common stock. Holders of our common stock as of the record date, April 21, 2000, received one additional share of our common stock for each share of common stock held as of the record date. The settlement date for this stock dividend was May 15, 2000. Both Silicon and Silicon Valley Bank are subject to capital adequacy guidelines of the Federal Reserve Board. Under these capital guidelines, the minimum total risk-based capital ratio and Tier 1 risk-based capital ratio requirements are 10.0% and 6.0%, respectively, of risk-weighted assets and certain off-balance sheet items for a well capitalized depository institution. The Federal Reserve Board has also 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 5.0% for a well capitalized depository institution. Both Silicon's and Silicon Valley Bank's capital ratios were in excess of regulatory guidelines for a well capitalized depository institution as of March 31, 2000 and December 31, 1999, 1998, and 1997. Capital ratios for Silicon are set forth below:
DECEMBER 31, MARCH 31, ------------------------------ 2000 1999 1998 1997 --------- -------- -------- -------- Total risk-based capital ratio................. 16.2% 15.5% 11.5% 11.5% Tier 1 risk-based capital ratio................ 14.9% 14.3% 10.3% 10.2% Tier 1 leverage ratio.......................... 9.0% 8.8% 7.6% 7.1%
Capital ratios for Silicon Valley Bank are set forth below:
DECEMBER 31, MARCH 31, ------------------------------ 2000 1999 1998 1997 --------- -------- -------- -------- Total risk-based capital ratio................. 14.4% 14.0% 10.2% 10.8% Tier 1 risk-based capital ratio................ 13.1% 12.7% 9.0% 9.6% Tier 1 leverage ratio.......................... 7.9% 7.9% 6.6% 6.6%
41 The increase in our total risk-based capital ratio and Tier 1 risk-based capital ratio from December 31, 1999, to March 31, 2000, was primarily attributable to an increase in Tier 1 capital. This increase was due to both the issuance of common stock in January 2000 related to the exercise of an over-allotment option with respect to the issuance of common stock in December 1999, which generated net proceeds of $17.6 million, and internally generated capital, primarily net income of $54.7 million. The Tier 1 leverage ratio remained fairly consistent between December 31, 1999 and March 31, 2000 as an increase in quarterly average total assets offset the increase in Tier 1 capital. Quarterly average total assets increased due to strong growth in deposits during the 2000 first quarter. In an informal arrangement with Silicon Valley Bank's primary banking regulators, pursuant to a memorandum of understanding entered into in late September 1999 and terminated in June 2000, Silicon Valley Bank agreed to maintain a Tier 1 leverage ratio of at least 7.25%. Although the memorandum of understanding has been terminated, our internal policy guidelines require Silicon Valley Bank to maintain a Tier 1 leverage ratio at this level. The increase in the total risk-based capital ratio and the Tier 1 risk-based capital ratio at the end of 1999 from the prior year end was primarily attributable to an increase in Tier 1 capital. This increase was due to both the issuance of common stock during 1999, which generated net proceeds of $55.1 million, and internally generated capital, primarily net income of $52.2 million. The Tier 1 leverage ratio also improved as of December 31, 1999 when compared to December 31, 1998, although not as significantly as the risk-based capital ratios, due to an increase in quarterly average total assets partially offsetting the increase in Tier 1 capital. Quarterly average total assets increased due to the strong growth in deposits during 1999. Our total risk-based capital ratio at the end of 1998 was unchanged from the prior year end and the Tier 1 risk-based capital ratio was slightly higher than the prior year end, as growth in Tier 1 capital was offset by an increase in total assets. This increase in total assets was largely in lower risk-weighted categories and resulted from our strong deposit growth exceeding our loan growth during 1998. Our Tier 1 leverage ratio increased to 7.6% at the end of 1998 from 7.1% at December 31, 1997. This increase, together with the maintenance of our other regulatory ratios were partially achieved through the issuance of $40.0 million face amount in cumulative trust preferred securities during 1998 through SVB Capital I. REGULATORY MATTERS MEMORANDUM OF UNDERSTANDING In late September 1999, Silicon Valley Bank entered into an informal arrangement pursuant to a memorandum of understanding with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions, Silicon Valley Bank's primary banking regulators. The memorandum of understanding and its associated restrictions were terminated in June 2000. Under the memorandum of understanding, Silicon Valley Bank had committed to maintain a Tier 1 leverage ratio of at least 7.25%; obtain the regulators' consent prior to payment of dividends; further enhance our credit monitoring and review policies and submit reports to the regulators regarding credit quality. The Federal Reserve Bank of San Francisco had also directed Silicon to obtain its approval before incurring debt, paying dividends, repurchasing capital stock or entering into agreements to acquire any entities or portfolios. These restrictions were also terminated in June 2000. All of our capital ratios are in excess of regulatory guidelines for a well capitalized depository institution. During the first nine months of 1999, Silicon Valley Bank's Tier 1 leverage ratio had declined from the level at December 31, 1998, largely as a result of the rapid growth in deposits experienced by Silicon Valley Bank during the first half of 1999. Silicon Valley Bank's deposit growth in the first half of 1999 was driven by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital and emerging growth capital communities, and by growth in 42 the number of clients served by Silicon Valley Bank. In order to slow the growth in deposits due to the Tier 1 leverage ratio capital constraints, Silicon Valley Bank implemented a program during the third quarter of 1999 to market off-balance sheet products, such as mutual fund products, to clients. This allowed Silicon Valley Bank to continue serving its clients' needs while restraining balance sheet growth driven by deposits. Silicon also contributed $41.6 million of the proceeds of the common stock offering in December 1999 to the capital of Silicon Valley Bank. FINANCIAL MODERNIZATION ACT On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act, or GLB Act, which significantly changed the regulatory structure and oversight of the financial services industry. The GLB Act revises the Bank Holding Company Act of 1956 and repeals the affiliation provisions of the Glass-Steagall Act of 1933, permitting a qualifying holding company, called a financial holding company, to engage in a full range of financial activities, including banking, insurance, and securities activities, as well as merchant banking and additional activities that are "financial in nature" or "incidental" to such financial activities. The GLB Act thus provides expanded financial affiliation opportunities for existing bank holding companies and permits various non-bank financial services providers to acquire banks by allowing bank holding companies to engage in activities such as securities underwriting, and underwriting and brokering of insurance products. The GLB Act also expands passive investments by financial holding companies in any type of company, financial or nonfinancial, through merchant banking and insurance company investments. In order for a bank holding company to qualify as a financial holding company, its subsidiary depository institutions must be "well-capitalized" and "well-managed" and have at least a "satisfactory" Community Reinvestment Act rating. The GLB Act also reforms the regulatory framework of the financial services industry. Under the GLB Act, financial holding companies are subject to primary supervision by the Federal Reserve Board while current federal and state regulators of financial holding company regulated subsidiaries such as insurers, broker-dealers, investment companies and banks generally retain their jurisdiction and authority. In order to implement its underlying purposes, the GLB Act preempts state laws restricting the establishment of financial affiliations authorized or permitted under the GLB Act, subject to specified exceptions for state insurance regulators. With regard to securities laws, the GLB Act removes the current blanket exemption for banks from the broker-dealer registration requirements under the Securities Exchange Act of 1934, amends the Investment Company Act of 1940 with respect to bank common trust fund and mutual fund activities, and amends the Investment Advisers Act of 1940 to require registration of banks that act as investment advisers for mutual funds. The GLB Act also includes provisions concerning subsidiaries of national banks, permitting a national bank to engage in most financial activities through a financial subsidiary, provided that the bank and its depository institution affiliates are "well capitalized" and "well managed" and meet certain other qualification requirements relating to total assets, subordinated debt, capital, risk management, and affiliate transactions. With respect to subsidiaries of state banks, new activities as "principal" would be limited to those permissible for a national bank financial subsidiary. The GLB Act requires a state bank with a financial subsidiary permitted under the GLB Act as well as its depository institution affiliates to be "well capitalized," and also subjects the bank to the same capital, risk management and affiliate transaction rules as applicable to national banks. The provisions of the GLB Act relating to financial holding companies became effective on March 12, 2000, excluding the federal preemption provisions, which became effective on the date of enactment. Silicon is currently evaluating the benefits of electing financial holding company status at some point in the future. 43 MANAGEMENT BOARD OF DIRECTORS AND EXECUTIVE OFFICERS The following table provides information about our directors and executive officers, their ages (at March 17, 2000, the date of our proxy statement), and their positions and offices with us.
NAME AGE POSITION - ---- -------- ------------------------------------------ Daniel J. Kelleher........................ 57 Chairman of the Board John C. Dean.............................. 52 President, Chief Executive Officer and Director; Chairman of the Board of Silicon Valley Bank Gary K. Barr.............................. 55 Director James F. Burns, Jr........................ 62 Director David M. deWilde.......................... 59 Director Stephen E. Jackson........................ 54 Director James R. Porter........................... 64 Director Kenneth P. Wilcox......................... 51 Executive Vice President and Director; President and Chief Executive Officer of Silicon Valley Bank L. Blake Baldwin.......................... 48 Executive Vice President of Silicon Valley Bank David A. Jones............................ 42 Executive Vice President and Chief Credit Officer of Silicon Valley Bank Barbara B. Kamm........................... 48 Executive Vice President of Silicon and Silicon Valley Bank Harry W. Kellogg, Jr...................... 56 Executive Vice President; Executive Vice President and Vice Chairman of the Board of Silicon Valley Bank Christopher T. Lutes...................... 32 Executive Vice President and Chief Financial Officer of Silicon and Silicon Valley Bank A. Catherine Ngo.......................... 39 Executive Vice President, General Counsel and Secretary of Silicon and Silicon Valley Bank Marc J. Verissimo......................... 44 Executive Vice President of Silicon Valley Bank
DANIEL J. KELLEHER. Mr. Kelleher is a private investor. JOHN C. DEAN. Mr. Dean has been President and Chief Executive Officer of Silicon since April 1993. He was appointed Chairman of the Board of Silicon Valley Bank in May 1999. From April 1993 to May 1999, he served as President of Silicon Valley Bank. From April 1993 to January 2000, he served as Chief Executive Officer of Silicon Valley Bank. He also has been an Advisory Member of the Board of Directors of American Central Gas Companies, Inc., Tulsa, Oklahoma, since August 1994, eGroupTravel.com, San Luis Obispo, California since January 2000, Institutional Venture Partners, Menlo Park, California since January 2000, and grassroots.com, San Bruno, California since December 1999. He has also been a member of the Board of Directors of garage.com-TM-, Palo Alto, California since December 1997, startups.com, Palo Alto, California since January 1999, and United Overseas Bank, Singapore since February 2000. Prior to joining Silicon and Silicon Valley Bank in April 1993, Mr. Dean served as President and Chief Executive Officer of Pacific First Bank, a $6.5 billion federal savings bank, headquartered in Seattle, Washington, from 44 December 1991 until April 1993. From 1990 to 1991, Mr. Dean served as Chairman and Chief Executive Officer of First Interstate Bank of Washington, and from 1986 to 1990, Chairman and Chief Executive Officer of First Interstate Bank of Oklahoma. GARY K. BARR. Mr. Barr has been President and Chief Executive Officer of Pacific Coast Capital (a real estate investment and management company), Carbondale, Colorado, since August 1992. He also has served as Chief Executive Officer of Sports Participant Network (an internet services company) since February 1999. JAMES F. BURNS, JR. Mr. Burns has been a Trustee of CBR Liquidating Trust since October 1996, and was Executive Vice President and Chief Financial Officer of CBR Information Group (a credit and mortgage reporting company), Houston, Texas, from September 1993 to October 1996. He was Executive Vice President and Chief Financial Officer of Integratec, Inc. (a company providing credit origination, servicing and collection services, and the parent company of CBR Information Group prior to the spin-off of CBR in 1993) from 1988 to 1993. Mr. Burns was founder and has been a member of the Board of Directors of Bank First (a New Mexico chartered state bank), Albuquerque, New Mexico, since November 1997. DAVID M. DEWILDE. Mr. deWilde has been Managing Partner of L.A.I. (an executive search firm) since January 1998. He was Founder and Chief Executive Officer of Chartwell Partners International, Inc. (an executive search firm) from 1989 to January 1998. Mr. deWilde has been a Director of Berkshire Realty Company, Inc. (a real estate investment trust), Boston, Massachusetts, since 1993. STEPHEN E. JACKSON. Mr. Jackson has been President and Chief Executive Officer of American Central Gas Companies, Inc. (a gas pipeline company), Tulsa, Oklahoma since April 1996. Mr. Jackson was the founder and has served as President and Chief Executive Officer of American Land Development Company (a developer of residential homesites), Tulsa, Oklahoma, since 1988. He was the co-founder and has served as Chairman of the Board of Bristol Resources Corporation (an oil and gas exploration and production company) since 1985. JAMES R. PORTER. Mr. Porter has been a member of the Board of Directors of CCI/Triad (a computer services company) Austin, Texas, since February 1997. He served as Chairman of CCI/Triad from February 1997 to May 1999. He was President, Chief Executive Officer and Director of Triad Systems Corporation (a computer software company), Livermore, California, from September 1985 to February 1997. Mr. Porter has been a member of the Board of Directors of Firstwave Technologies (a sales automation company), Atlanta, Georgia, since April 1993, and a member of the Board of Directors of Cellular Technical Services (a cellular device company), Seattle, Washington, since July 1997. KENNETH P. WILCOX. Mr. Wilcox joined Silicon Valley Bank in April 1990 as Regional Vice President of Silicon Valley Bank's East Coast Technology Group. Prior to becoming Executive Vice President and Manager of the East Coast Technology Group in November 1995, Mr. Wilcox held increasingly responsible positions with Silicon Valley Bank (having served as Manager of the East Coast Technology Group since June 1993). Mr. Wilcox was appointed Chief Banking Officer in December 1997 and was named President and Chief Operating Officer of Silicon Valley Bank in May 1999, and was appointed Chief Executive Officer of Silicon Valley Bank in January 2000. L. BLAKE BALDWIN. Mr. Baldwin joined Silicon Valley Bank in July 1988 as Vice President of Silicon Valley Bank's Real Estate Division. Mr. Baldwin was promoted to Senior Vice President and Division Manager of the Real Estate Group in December 1992. In March 1996, Mr. Baldwin was appointed Executive Vice President and Manager of Silicon Valley Bank's Special Industries Group. In 45 September 1998, Mr. Baldwin was appointed Manager of the Human Resources Group and in November 1998 was appointed Manager of the Client and Corporate Resources Group. DAVID A. JONES. Mr. Jones joined Silicon Valley Bank in August 1997 as Executive Vice President and Chief Credit Officer. Prior to joining Silicon Valley Bank, Mr. Jones served as Senior Vice President of Wells Fargo Bank in Portland, Oregon, from April 1996 to August 1997. From January 1982 to April 1996, Mr. Jones was a Senior Vice President with First Interstate Bank in Oklahoma, Texas and Oregon. BARBARA B. KAMM. Ms. Kamm joined Silicon Valley Bank in 1991 as Vice President and Senior Loan Officer of Silicon Valley Bank's Southern California Group. Ms. Kamm served as Senior Vice President and Manager of Silicon Valley Bank's Southern California Group from August 1995 to September 1996 (having been promoted to Executive Vice President in November 1995). Ms. Kamm served as Chief Administrative Officer from September 1996 to November 1998 and Manager of Silicon Valey Bank's Products and Services Group from November 1998 to January 2000. She was appointed Manager of the Angels and Incubators Group in January 2000. HARRY W. KELLOGG, JR. Mr. Kellogg joined Silicon Valley Bank in October 1986 as Senior Vice President of Silicon Valley Bank's Technology Division. Mr. Kellogg served as Executive Vice President and Chief Marketing Officer from September 1993 to April 1994 (when he left Silicon Valley Bank for ten months, during which time, he served as Executive Vice President for the Emerging Growth Industries Division of Cupertino Bank). Mr. Kellogg returned to Silicon Valley Bank in February 1995 as Executive Vice President and Chief Marketing Officer. From December 1997 to November 1998, he served as the Manager of Silicon Valley Bank's Products and Services Group. Mr. Kellogg was appointed Manager of Silicon Valley Bank's Strategic Marketing Group in November 1998, and as the Vice Chairman of the Board of Silicon Valley Bank in May 1999. CHRISTOPHER T. LUTES. Mr. Lutes joined Silicon Valley Bank's Treasury Department in November 1994 as a Senior Treasury Analyst. In June 1995, he was named Senior Vice President and Controller. Mr. Lutes was appointed Executive Vice President and Chief Financial Officer in May 1998. Prior to joining Silicon Valley Bank, Mr. Lutes served in various positions within the Finance Department of Household Credit Services, a banking services company, in Salinas, California from March 1993 to November 1994. Prior to that he served as an auditor with Coopers & Lybrand LLP in Phoenix, Arizona. A. CATHERINE NGO. Ms. Ngo joined Silicon Valley Bank in April 1993 as Vice President and was appointed Manager of the Legal Department in November 1993. Ms. Ngo held increasingly responsible positions with Silicon Valley Bank from November 1993 to February 1997, when she was appointed Executive Vice President and named Manager of the Legal and Loan Services Group. Prior to joining Silicon Valley Bank, Ms. Ngo served as a senior associate for Hopkins & Carley, a law corporation, from June 1989 to April 1993. MARC J. VERISSIMO. Mr. Verissimo joined Silicon Valley Bank in May 1993 as Team Leader in the Northern California Technology Division. Mr. Verissimo was promoted to Manager of the Silicon Valley Lending Division in September 1993. He was appointed Manager of Silicon Valley Bank's Corporate Finance Group in January 2000 Prior to joining Silicon Valley Bank, Mr. Verissimo served as Vice President in the High Technology Group of Bank of America. 46 UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dain Rauscher Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting as representatives of the underwriters listed below. Subject to the terms and conditions set forth in the purchase agreement among us and the underwriters, we have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us, the number of shares listed opposite their names below.
NUMBER UNDERWRITER OF SHARES - ----------- ------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................... Dain Rauscher Incorporated.................................. Donaldson, Lufkin & Jenrette Securities Corporation......... --------- Total............................................ 2,000,000 =========
The underwriters have agreed to purchase all of the shares sold under the purchase agreement if any of these shares are purchased. If an underwriter defaults, the purchase agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the purchase agreement may be terminated. We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities. The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officers' certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. COMMISSIONS AND DISCOUNTS The representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the public offering, the public offering price, concession and discount may be changed. The following table shows the public offering price, underwriting discount and proceeds before expenses to Silicon. This information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
PER SHARE WITHOUT OPTION WITH OPTION --------- -------------- ----------- Public offering price.................................... Underwriting discount.................................... Proceeds, before expenses, to Silicon....................
The expenses of the offering, not including the underwriting discount, are estimated at $400,000 and are payable by Silicon. 47 OVER-ALLOTMENT OPTION We have granted an option to the underwriters to purchase up to 300,000 additional shares at the public offering price less the underwriting discount. The underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any over-allotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount reflected in the above table. NO SALES OF SIMILAR SECURITIES We and our executive officers and directors have agreed, with exceptions, not to sell or transfer any common stock prior to the 90th day after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Specifically, we and these other individuals have agreed not to directly or indirectly: - offer, pledge, sell or contract to sell any common stock, - sell any option or contract to purchase any common stock, - purchase any option or contract to sell any common stock, - grant any option, right or warrant for the sale of any common stock, - lend or otherwise dispose of or transfer any common stock, - file, or request or demand that we file, a registration statement related to the common stock, or - enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. This lockup provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. As an exception to the lockup provision, some of our executive officers and directors will be permitted to sell, and currently intend to sell, up to a total of 157,000 shares of our common stock during the lockup period, including 50,000 shares that Daniel J. Kelleher, the Chairman of the Board of Silicon, and 30,000 shares that Marc J. Verissimo, an Executive Vice President of Silicon Valley Bank, currently intend to sell. PRICE STABILIZATION AND SHORT POSITIONS Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price. If the underwriters create a short position in the common stock in connection with the offering, i.e., if they sell more shares than are listed on the cover of this prospectus, the representatives may reduce that short position by purchasing shares in the open market. The representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. Purchases of common stock to stabilize its price or to reduce a short position may cause the price of the common stock to be higher than it might be in the absence of such purchases. 48 Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters makes any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. PASSIVE MARKET MAKING In connection with this offering, underwriters and selling group members may engage in passive market making transactions in the common stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M under the Exchange Act during a period before the commencement of offers or sales of common stock and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker's bid, that bid must then be lowered when specified purchase limits are exceeded. QUOTATION ON THE NASDAQ NATIONAL MARKET The shares are quoted on the Nasdaq National Market under the symbol "SIVB." OTHER RELATIONSHIPS Some of the underwriters and their affiliates have engaged, and may in the future engage, in investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions. LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for us by our counsel, Gibson, Dunn & Crutcher LLP, San Francisco, California. Certain legal matters will be passed upon for the underwriters by Shearman & Sterling, New York, New York. EXPERTS Our consolidated financial statements as of December 31, 1999 and 1998, and for each of the years in the three-year period ended December 31, 1999, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, incorporated by reference in this prospectus, given upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION ABOUT US We have filed with the Commission a registration statement on Form S-3 under the Securities Act of 1933, as amended, with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information about us and the shares of common stock, we refer you to the registration statement and to the exhibits and schedules filed with it. Statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are not necessarily complete. We refer you to those copies of contracts or other documents that have been filed as exhibits to the registration statement, and statements relating to such documents are qualified in all aspects by such reference. Anyone may inspect a copy of the registration statement without charge at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any portion of the registration statement by writing to the Commission's Public 49 Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, and paying prescribed fees. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0300. In addition, the Commission maintains a Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies such as Silicon that file electronically with the Commission. We are subject to the information requirements of the Exchange Act and therefore we file reports, proxy statements and other information with the Commission. You can inspect and copy the reports, proxy statements and other information that we file at the public reference facilities maintained by the Commission at the Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can also obtain copies of such material from the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also makes electronic filings publicly available on its Web site. Reports, proxy and information statements and other information about us may be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. INCORPORATION OF INFORMATION WE FILE WITH THE SEC The following documents, which we have filed with the SEC, are incorporated by reference in this prospectus: (1) our annual report on Form 10-K for the fiscal year ended December 31, 1999, (2) our report on Form 10-Q for the quarter ended March 31, 2000, (3) our Proxy Statement dated March 17, 2000, and (4) our current reports on Form 8-K dated June 16, 2000. All documents that we file with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and before the termination of the offering of the shares of common stock shall be deemed incorporated by reference in this prospectus and to be a part of this prospectus from the respective dates of filing such documents. We will provide without charge to each person to whom a copy of this prospectus is delivered, upon such person's written or oral request, a copy of any and all of the information incorporated by reference in this prospectus, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this prospectus incorporates. Requests should be directed to Investor Relations Department, 3003 Tasman Drive, Santa Clara, California 85054, telephone number (408) 654-7400. Any statement contained in a document incorporated or deemed to be incorporated by reference in this prospectus shall be deemed modified, superseded or replaced for purposes of this prospectus to the extent that a statement contained in this prospectus or in any subsequently filed document that also is or is deemed to be incorporated by reference in this prospectus modifies, supersedes or replaces such statement. Any statement so modified, superseded or replaced shall not be deemed, except as so modified, superseded or replaced, to constitute a part of this prospectus. 50 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2,000,000 SHARES [LOGO] COMMON STOCK ---------------- P R O S P E C T U S ---------------- MERRILL LYNCH & CO. DAIN RAUSCHER WESSELS DONALDSON, LUFKIN & JENRETTE , 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission registration fee......... $ 23,134 NASD fee.................................................... 9,263 Nasdaq fee.................................................. 17,500 Legal fees and expenses..................................... 100,000 Blue Sky fees and expenses.................................. 10,000 Accounting fees and expenses................................ 100,000 Printing expenses........................................... 70,000 Miscellaneous expenses...................................... 70,103 -------- Total................................................... $400,000 ========
All of the above items except the registration fee, NASD fee and Nasdaq fee are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Bylaws provide that the Registrant shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Registrant) by reason of the fact that he is or was a director, officer, employee or agent of the Registrant, or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Registrant's Bylaws also provide that the Registrant shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Registrant to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Registrant, or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Registrant unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Any indemnification made under the previous two paragraphs will be made by the Registrant only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent in proper in the circumstances because he has met the applicable standard of conduct as set forth above. II-1 The Registrant's Certificate of Incorporation provides that a director of the Registrant shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, as the same exists or hereafter may be amended, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Registrant, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Delaware General Corporation Law. Pursuant to Section of the purchase agreement, the form of which is filed as Exhibit 1.1 hereto, the underwriters have agreed to indemnify the directors and certain officers of the Registrant against certain liabilities. ITEM 16. EXHIBITS (a) Exhibits
EXHIBIT NO. DESCRIPTION - ----------- ------------------------------------------------------------ 1.1 Form of Purchase Agreement. 5.1 Opinion and Consent of Gibson, Dunn & Crutcher LLP. 23.1 Consent of KPMG LLP. 23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1 above). *24.1 A power of attorney is set forth on the signature page of the Registration Statement.
* Previously filed. ITEM 17. UNDERTAKINGS (1) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 (3) The Registrant hereby undertakes that: (A) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (B) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on July 12, 2000. SILICON VALLEY BANCSHARES By * ----------------------------------------- John C. Dean CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- * - ------------------------------------ Chairman of the Board July 12, 2000 Daniel J. Kelleher - ------------------------------------ President, Chief Executive Officer and July 12, 2000 John C. Dean Director (Principal Executive Officer) * Executive Vice President, Chief - ------------------------------------ Financial Officer (Principal Financial July 12, 2000 Christopher T. Lutes Officer) - ------------------------------------ Senior Vice President, Controller July 12, 2000 Donal Delaney (Principal Accounting Officer) - ------------------------------------ Director July 12, 2000 Gary K. Barr - ------------------------------------ Director July 12, 2000 James F. Burns, Jr. - ------------------------------------ Director July 12, 2000 David M. deWilde
II-4
NAME TITLE DATE ---- ----- ---- * - ------------------------------------ Director July 12, 2000 Stephen E. Jackson - ------------------------------------ Director July 12, 2000 James R. Porter - ------------------------------------ Executive Vice President and Director July 12, 2000 Kenneth P. Wilcox /s/ A. CATHERINE NGO - ------------------------------------ Attorney-in-fact July 12, 2000 A. Catherine Ngo
* A. Catherine Ngo, by signing her name hereto, does sign this document on behalf of the persons noted above, pursuant to a power of attorney duly executed by such persons and previously filed. II-5 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ------------------------------------------------------------ 1.1........ Form of Purchase Agreement. 5.1........ Opinion and Consent of Gibson, Dunn & Crutcher LLP. 23.1........ Consent of KPMG LLP. 23.2........ Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1 above). *24.1........ A power of attorney is set forth on the signature page of the Registration Statement.
* Previously filed. EX-1.1 2 ex-1_1.txt EX-1.1 EXHIBIT 1.1 DRAFT OF JULY 12, 2000 ================================================================================ SILICON VALLEY BANCSHARES (a Delaware corporation) 2,000,000 Shares of Common Stock PURCHASE AGREEMENT Dated: , 2000 ================================================================================ TABLE OF CONTENTS
PAGE PURCHASE AGREEMENT................................................................................................1 SECTION 1. Representations and Warranties................................................................3 (a) Representations and Warranties by the Company..........................................3 (i) Compliance with Registration Requirements.....................................3 (ii) Incorporated Documents........................................................4 (iii) Independent Accountants.......................................................4 (iv) Financial Statements..........................................................4 (v) No Material Adverse Change in Business........................................4 (vi) Good Standing of the Company..................................................5 (vii) Good Standing of Subsidiaries.................................................5 (viii) Compliance with Applicable Banking Laws and Regulations.......................6 (ix) Capitalization................................................................6 (x) Authorization of Agreement....................................................6 (xi) Authorization and Description of Securities...................................7 (xii) Absence of Defaults and Conflicts.............................................7 (xiii) Absence of Labor Dispute......................................................7 (xiv) Absence of Proceedings........................................................8 (xv) Accuracy of Exhibits..........................................................8 (xvi) Possession of Intellectual Property...........................................8 (xvii) Absence of Further Requirements...............................................8 (xviii) Possession of Licenses and Permits............................................9 (xix) Title to Property.............................................................9 (xx) Investment Company Act........................................................9 (xxi) Environmental Laws...........................................................10 (xxii) Nasdaq National Market Approval..............................................10 (xxiii) Taxes and Reports............................................................10 (xxiv) Internal Accounting Controls.................................................11 (xxv) Minute and Stock Record Books................................................11 (xxvi) Insurance....................................................................11 (b) Officer's Certificates................................................................11 SECTION 2. Sale and Delivery to Underwriters; Closing...................................................11 (a) Initial Securities....................................................................11 (b) Option Securities.....................................................................12 (c) Payment...............................................................................12 (d) Denominations; Registration...........................................................12 SECTION 3. Covenants of the Company.....................................................................13 (a) Compliance with Securities Regulations and Commission Requests........................13 (b) Filing of Amendments..................................................................13 (c) Delivery of Registration Statements...................................................14 (d) Delivery of Prospectuses..............................................................14 i (e) Continued Compliance with Securities Laws.............................................14 (f) Rule 158..............................................................................14 (g) Use of Proceeds.......................................................................14 (h) Listing...............................................................................15 (i) Restriction on Sale of Securities.....................................................15 (j) Reporting Requirements................................................................15 SECTION 4. Payment of Expenses..........................................................................16 (a) Expenses..............................................................................16 (b) Termination of Agreement..............................................................16 SECTION 5. Conditions of Underwriters' Obligations......................................................16 (a) Effectiveness of Registration Statement...............................................16 (b) Opinion of Counsel for Company........................................................17 (c) Opinion of General Counsel for the Company............................................17 (d) Opinion of Counsel for Underwriters...................................................17 (e) Officers' Certificate.................................................................17 (f) Accountants' Comfort Letter...........................................................17 (g) Bring-down Comfort Letter.............................................................18 (h) Approval of Listing...................................................................18 (i) No Objection..........................................................................18 (j) Lock-up Agreements....................................................................18 (k) Conditions to Purchase of Option Securities...........................................18 (l) Additional Documents..................................................................19 (m) Termination of Agreement..............................................................19 SECTION 6. Indemnification..............................................................................19 (a) Indemnification of Underwriters.......................................................19 (b) Indemnification of Company, Directors and Officers....................................20 (c) Actions against Parties; Notification.................................................21 (d) Settlement without Consent if Failure to Reimburse....................................21 SECTION 7. Contribution.................................................................................22 SECTION 8. Representations, Warranties and Agreements to Survive Delivery...............................23 SECTION 9. Termination of Agreement.....................................................................23 (a) Termination; General..................................................................23 (b) Liabilities...........................................................................23 ii SECTION 10. Default by One or More of the Underwriters..................................................24 SECTION 11. Notices.....................................................................................25 SECTION 12. Parties.....................................................................................25 SECTION 13. GOVERNING LAW AND TIME......................................................................25 SECTION 14. Effect of Headings..........................................................................25 SCHEDULES Schedule A - List of Underwriters Sch A-1 Schedule B - Pricing Information Sch B-1 Schedule C - List of Persons and Entities Subject to Lock-up Sch C-1 EXHIBITS Exhibit A - Form of Opinion of Company's Counsel A-1 Exhibit B - Form of Opinion of General Counsel for the Company B-1 Exhibit C - Form of Lock-up Letter C-1
iii DRAFT OF JULY 12, 2000 Silicon Valley Bancshares (a Delaware corporation) 2,000,000 Shares of Common Stock (Par Value $0.001 Per Share) PURCHASE AGREEMENT , 2000 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Dain Rauscher Incorporated Donaldson, Lufkin & Jenrette Securities Corporation as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281 Ladies and Gentlemen: Silicon Valley Bancshares, a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Dain Rauscher Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting as representatives (in such capacity, the "Representatives"), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $0.001 per share, of the Company ("Common Stock") set forth in Schedule A hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 300,000 additional shares of Common Stock to cover over-allotments, if any. The aforesaid 2,000,000 shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the 300,000 shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities." The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-39728) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in such prospectus or in such Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated -, 2000 together with the Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. 2 SECTION 1. REPRESENTATIONS AND WARRANTIES. (a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company meets the requirements for use of Form S-3 under the 1933 Act. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or Prospectus. Each preliminary prospectus and the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. 3 (ii) INCORPORATED DOCUMENTS. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective, at the time the Prospectus was issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (iii) INDEPENDENT ACCOUNTANTS. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iv) FINANCIAL STATEMENTS. The financial statements included in the Registration Statement and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The allowance for loan losses of the Subsidiary Bank (as defined in (vii) below) is adequate based on management's assessment of various factors affecting the loan portfolio, including a review of problem loans, business conditions, historical loss experience, evaluation of the quality of the underlying collateral and holding and deposit costs. (v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein or contemplated thereby, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings or business affairs, or any development involving a prospective material adverse change, of the Company and its subsidiaries (as defined in 1(vii) below) considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. 4 (vi) GOOD STANDING OF THE COMPANY. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vii) GOOD STANDING OF SUBSIDIARIES. The Company does not directly or indirectly own any stock or other equity interest in any corporation, partnership, joint venture, unincorporated association or other entity other than (a) Silicon Valley Bank, a California banking corporation (the "Subsidiary Bank"), SVB Capital I, SVB Securities, Inc., Silicon Valley Bancventures, Inc., SVB Leasing Company, SVB Strategic Investors, LLC, SVB Venture Link, Inc., and Silicon Valley Bank Venture Link, Inc. (the Subsidiary Bank and such other entities being collectively referred to herein as the "subsidiaries") and (b) rights to acquire stock, in the form of warrants, in certain entities as part of negotiated credit facilities and investments in venture capital funds from time to time, which in each case does not constitute more than 5% of the outstanding capital stock of such entity or partnership interest. Each subsidiary of the Company has been duly organized and is validly existing as a corporation, business trust or limited liability company in good standing under the laws of the jurisdiction of its organization, has the power and authority to own or lease its properties and conduct its business as described in the Prospectus, and is duly qualified as a foreign corporation or entity to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing would not result in a Material Adverse Effect. Except as otherwise disclosed in the Registration Statement, all outstanding shares of capital stock of each of the subsidiaries of the Company have been duly authorized and validly issued, are fully paid and non-assessable, and are owned, directly or indirectly, by the Company free and clear of all liens, encumbrances and security interests and none of such shares were issued in violation of the preemptive or similar rights of any security holder of such subsidiary. No options, warrants or other rights to purchase, agreements or other obligations to issue, or other rights to convert any obligations into, shares of capital stock or ownership interests in any of the subsidiaries of the Company are outstanding. 5 (viii) COMPLIANCE WITH APPLICABLE BANKING LAWS AND REGULATIONS. The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Subsidiary Bank is a member of the Federal Reserve System and its deposit accounts are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the fullest extent provided by law. No proceeding for the termination of such insurance is pending or, to the Company's knowledge, is threatened. Except as disclosed in the Registration Statement, neither the Company nor the Subsidiary Bank is subject to any cease and desist order, written agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive (other than orders or directives applicable to the banking industry as a whole) by, or is a recipient of any extraordinary supervisory agreement letter from, or has adopted any board resolutions (other than board resolutions required by law or regulation and applicable to the banking industry as a whole) at the request of, federal or state governmental authorities charged with the supervision or regulation of national banking associations, savings banks, banks, savings and loan companies or associations, bank holding companies or savings and loan holding companies or engaged in the insurance of bank deposits (collectively, the "Bank Regulators"), neither the Company nor the Subsidiary Bank has been advised by any Bank Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, directive or extraordinary supervisory letter, and neither the Company nor the Subsidiary Bank is contemplating (A) becoming a party to any such written agreement, memorandum of understanding, commitment letter or similar undertaking with any Bank Regulator or (B) adopting any such board resolutions at the request of any Bank Regulator. (ix) CAPITALIZATION. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (x) AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, executed and delivered by the Company. 6 (xi) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; the Common Stock conforms to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. (xii) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any of its subsidiaries is in violation of its charter, by-laws or organizational documents or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any subsidiary. (xiii) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiary's principal customers or contractors, which, in either case, may reasonably be expected to result in a Material Adverse Effect. 7 (xiv) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (xv) ACCURACY OF EXHIBITS. There are no contracts or documents which are required to be described in the Registration Statement, the Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed as required. (xvi) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xvii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws. 8 (xviii) POSSESSION OF LICENSES AND PERMITS. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xix) TITLE TO PROPERTY. The Company and its subsidiaries have good and marketable title to all real property owned by the Company and its subsidiaries and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Prospectus or (b) do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. (xx) INVESTMENT COMPANY ACT. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). 9 (xxi) ENVIRONMENTAL LAWS. Except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws. (xxii) NASDAQ NATIONAL MARKET APPROVAL. The Shares have been approved for designation upon notice of issuance on the Nasdaq National Market. (xxiii) TAXES AND REPORTS. The Company and its subsidiaries have filed all federal, state, local and foreign tax returns or reports required to be filed, and have paid in full all taxes indicated by said returns or reports and all assessments received by it or any of them to the extent that such taxes have become due and payable, except where the Company and its subsidiaries are contesting in good faith such taxes and assessments. The Company and the Subsidiary Bank have also filed all required applications, reports, returns and other documents and information with all Bank Regulators, and no such application, report, return or other document or information contained, as of the date it was filed, an untrue statement of a material fact required to be stated therein or necessary to make the statements therein not misleading when made or failed to comply with the applicable requirements of the Bank Regulator with which such application, report, return, document or information was filed. 10 (xxiv) INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and the rules of Bank Regulators, and to maintain accountability for assets; (C) access to records is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xxv) MINUTE AND STOCK RECORD BOOKS. The minute books and stock record books of the Company and the subsidiaries are complete and correct and accurately reflect all material actions taken at meetings of the shareholders and directors of the Company and the subsidiaries, and of all committees thereof, including, without limitation, the loan committees and the audit committees of the Subsidiary Bank, since April 1, 1995, and all issuances and transfers of any shares of the capital stock of the Company and the subsidiaries since April 1, 1995. (xxvi) INSURANCE. The Company and its subsidiaries maintain insurance of the types and in the amounts generally deemed adequate in their respective businesses and consistent with insurance coverage maintained by similar companies and businesses, and as required by the rules and regulations of all governmental agencies having jurisdiction over the Company or the Subsidiary Bank, all of which insurance is in full force and effect. (b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING. (a) INITIAL SECURITIES. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. 11 (b) OPTION SECURITIES. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 300,000 shares of Common Stock, at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) PAYMENT. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. 12 (d) DENOMINATIONS; REGISTRATION. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each Underwriter as follows: (a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) FILING OF AMENDMENTS. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object. 13 (c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) DELIVERY OF PROSPECTUSES. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) RULE 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (g) USE OF PROCEEDS. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds". 14 (h) LISTING. The Company will use its best efforts to maintain the quotation of the Securities on the Nasdaq National Market and will file with the Nasdaq National Market all documents and notices required by the Nasdaq National Market of companies that have securities that are traded in the over-the-counter market and quotations for which are reported by the Nasdaq National Market. (i) RESTRICTION ON SALE OF SECURITIES. During a period of 120 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company referred to in the Prospectus or (D) any shares of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan. (j) REPORTING REQUIREMENTS. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. (k) NOTIFICATION OF MARGIN CALL. [The Company shall promptly notify Merrill Lynch of any notification received from any person listed on Schedule C hereto (a "Locked-up Person") of the occurrence of any event or the existence of any condition which gives any person to whom a Locked-up Person has pledged shares of common stock of Silicon for borrowed money the right to sell any margin securities so pledged to satisfy all or a portion of such margin loan.] 15 SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company will pay or cause to be paid all expenses incident to the performance of their obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees and expenses incurred in connection with the designation of the Securities on the Nasdaq National Market. (b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1(a) hereof or in certificates of any officer of the Company or any subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) EFFECTIVENESS OF REGISTRATION STATEMENTThe Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). 16 (b) OPINION OF COUNSEL FOR COMPANY At Closing Time, the Representatives shall have received the opinion, dated as of Closing Time, of Gibson, Dunn & Crutcher LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request. (c) OPINION OF GENERAL COUNSEL FOR THE COMPANY At Closing Time, the Representatives shall have received the opinion, dated as of Closing Time, of A. Catherine Ngo, General Counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request. (d) OPINION OF COUNSEL FOR UNDERWRITERS At Closing Time, the Representatives shall have received the opinion, dated as of Closing Time, of Shearman & Sterling, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to such matters as the Representatives may reasonably require. In giving such opinion such counsel may rely, as to all matters governed by laws other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials. (e) OFFICERS' CERTIFICATE At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, or business affairs, or any development involving a prospective material adverse change, of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the chief executive officer of the Company and of the chief financial officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or are contemplated by the Commission. (f) ACCOUNTANTS' COMFORT LETTER. At the time of the execution of this Agreement, the Representatives shall have received from KPMG LLP a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. 17 (g) BRING-DOWN COMFORT LETTER. At Closing Time, the Representatives shall have received from KPMG LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (f) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (h) APPROVAL OF LISTING. At Closing Time, the Securities shall have been approved for inclusion in the Nasdaq National Market, subject only to official notice of issuance. (i) NO OBJECTION. On or prior to the date of this Agreement, the NASD shall have confirmed that it will not raise any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (j) LOCK-UP AGREEMENTS. At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit C hereto signed by the persons listed on Schedule C hereto. (k) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: (i) OFFICERS' CERTIFICATE. A certificate, dated such Date of Delivery, of the chief executive officer of the Company and of the chief financial officer of the Company confirming that the certificate delivered at Closing Time pursuant to Section 5(e) hereof remains true and correct as of such Date of Delivery. (ii) OPINION OF COUNSEL FOR COMPANY. The opinion of Gibson, Dunn & Crutcher LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) OPINION OF GENERAL COUNSEL FOR COMPANY. The opinion of A. Catherine Ngo, General Counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. (iv) OPINION OF COUNSEL FOR UNDERWRITERS. The opinion of Shearman & Sterling, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(d) hereof. (v) BRING-DOWN COMFORT LETTER. A letter from KPMG LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, 18 substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(g) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (l) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (m) TERMINATION OF AGREEMENT. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. INDEMNIFICATION. (a) INDEMNIFICATION OF UNDERWRITERS. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and 19 (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). 20 (c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 45 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. 21 SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. 22 No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters' respective obligations to contribute pursuant to this Section are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. SECTION 9. TERMINATION OF AGREEMENT. (a) TERMINATION; GENERAL. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq National Market, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal, New York or California authorities. (b) LIABILITIES. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. 23 SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, the non-defaulting Underwriters shall be obligated, each severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either (i) the Representatives or (ii) the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section. 24 SECTION 11. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at North Tower, World Financial Center, New York, New York 10281, attention of Emmet Daly; and notices to the Company shall be directed to it at Silicon Valley Bancshares, 3003 Tasman Drive, Santa Clara, California 95054, attention of A. Catherine Ngo. SECTION 12. PARTIES. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 25 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company and in accordance with its terms. Very truly yours, SILICON VALLEY BANCSHARES By -------------------------------- Name: John Dean Title: Chief Executive Officer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DAIN RAUSCHER INCORPORATED DONALDSON, LUFKIN & JENRETTE By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ------------------------------------ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 26 SCHEDULE A
Number of Initial Name of Underwriter Securities ------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated....................................................... Dain Rauscher Incorporated.............................................................. Donaldson, Lufkin & Jenrette............................................................ ---------------- Total................................................................................... 2,000,000 ---------------- ----------------
Sch A-1 SCHEDULE B Silicon Valley Bancshares 2,000,000 Shares of Common Stock (Par Value $0.001 Per Share) 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $ . 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $ , being an amount equal to the initial public offering price set forth above less $ per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. Sch B-1 SCHEDULE C List of persons and entities subject to lock-up Daniel J. Kellecher John C. Dean Gary K. Barr James F. Burns, Jr. David M. deWilde Stephen E. Jackson James R. Porter Kenneth P. Wilcox L. Blake Baldwin David. A. Jones Barbara W. Kellogg, Jr. Christopher T. Lutes A. Catherine Ngo Marc J. Verissimo Sch E-1 Exhibit A FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) The Company has the corporate power and authority to enter into the Purchase Agreement and perform its obligations thereunder and to authorize, issue and sell the Securities as contemplated by the Purchase Agreement. The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to the Purchase Agreement and, when issued and delivered by the Company pursuant to the Purchase Agreement against payment of the consideration set forth in the Purchase Agreement, will be validly issued and fully paid and non-assessable and no holder of the Securities is or will be subject to personal liability by reason of being such a holder. (ii) To the knowledge of such counsel, [other than the rights granted pursuant to the Preferred Shares Rights Agreement dated as of October 22, 1998 between the Company and Norwest Bank Minnesota, N.A., as Rights Agent, which have been waived] no preemptive or other similar subscription rights of shareholders of the Company, or of holders of warrants, options, convertible securities or other rights to acquire shares of capital stock of the Company, exist with respect to any of the Securities or the issue and sale thereof. To the knowledge of such counsel, no rights to register outstanding shares of the Company's capital stock, or shares issuable upon the exercise of outstanding warrants, options, convertible securities or other rights to acquire shares of such capital stock, exist which have not been validly exercised or waived with respect to the Registration Statement. The capital stock of the Company, including the Securities, conforms in all material respects to the description thereof incorporated by reference into the Prospectus. (iii) The Purchase Agreement has been duly authorized, executed and delivered by the Company. (iv) The Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (v) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectus, excluding the documents incorporated by reference therein, and each amendment or supplement to the Registration Statement and Prospectus, excluding the documents incorporated by reference therein, as of their respective effective or issue dates (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we express no opinion) A-1 complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (vi) The documents incorporated by reference in the Prospectus (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the 1933 Act and the 1934 Act and the rules and regulations of the Commission thereunder. (vii) The form of certificate used to evidence the Common Stock complies in all material respects with all applicable statutory requirements, with any applicable requirements of the charter and by-laws of the Company and the requirements of the Nasdaq National Market. (viii) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary is a party, or to which the property of the Company or any subsidiary is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Company of its obligations thereunder. (ix) To the best of our knowledge, there are no statutes or regulations that are required to be described in the Prospectus that are not described as required. (x) All descriptions in the Registration Statement of contracts and other documents to which the Company or its subsidiaries are a party are accurate in all material respects; to the best of our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects. (xi) To the best of our knowledge, neither the Company nor any subsidiary is in violation of its charter or by-laws and no default by the Company or any subsidiary exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement. (xii) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign, (other than under the 1933 Act and the 1933 Act Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement or for the offering, issuance, sale or delivery of the Securities. A-2 (xiii) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use Of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xi) of the Purchase Agreement) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their respective properties, assets or operations. (xiv) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. (xv) The Company has all necessary approvals of the Board of Governors to own the stock of its subsidiaries. Except as disclosed in the Prospectus, based on such counsel's reasonable reliance on the Company's certification, neither the Company nor the Subsidiary Bank is subject to any cease and desist order, written agreement or memorandum of understanding with, or are a party to any commitment letter or similar undertaking to, or are subject to any order or directive (other than orders or directives applicable to the banking industry as a whole) by, or is a recipient of any extraordinary supervisory agreement letter from, or has adopted any board resolutions (other than board resolutions required by law or regulation and applicable to the banking industry as a whole) at the request of any of the Bank Regulators, and based on such counsel's reasonable reliance at the Company's certification, neither the Company nor the Subsidiary Bank has been advised by any of the Bank Regulators that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, directive, or extraordinary supervisory letter, and neither the Company nor the Subsidiary Bank is contemplating (A) becoming a party to any such written agreement, memorandum of understanding, commitment letter or similar undertaking with any Bank Regulator or (B) adopting any such board resolutions at the request of any Bank Regulator. [Based on such Counsel's reasonable reliance on the Company's certification,] neither the Company nor any subsidiary has received notice of or has knowledge of any basis for any proceeding or action relating specifically to the Company or its subsidiaries for the revocation or suspension of any consent, authorization, approval, order, license, certificate or permit issued by, or any other action or proposed action by, any regulatory authority having jurisdiction over the Company or its subsidiaries that would have a material effect on the Company or any subsidiary. For purposes of this opinion,"based on such counsel's reasonable reliance upon the Company's certification" means that such counsel has relied solely upon a certification signed by A-3 a duly authorized officer of the Company and to which such counsel has no actual knowledge to the contrary after due inquiry. Nothing has come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information and Rule 434 Information (if applicable), (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which we make no statement), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which we make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). A-4 Exhibit B FORM OF OPINION OF GENERAL COUNSEL FOR COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(c) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus. (iii) The Company is duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. (iv) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (v) The Company does not directly or indirectly own any stock or other equity interest in any corporation, partnership, joint venture, unincorporated association or other entity other than (a) the Subsidiary Bank, SVB Capital I, SVB Securities, Inc., Silicon Valley Bancventures, Inc, SVB Leasing Company, SVB Strategic Investors, LLC, SVB Venture Link, Inc., and Silicon Valley Bank Venture Link, Inc. and (b) rights to acquire stock, in the form of warrants, in certain entities as part of negotiated credit facilities and investments in venture capital funds from time to time, which in each case does not constitute more than 5% of the outstanding capital stock of such entity or partnership interest. Each subsidiary of the Company has been duly organized and is validly existing as a corporation, business trust or limited liability company in good standing under the laws of the jurisdiction of its organization, has the power and authority to own or lease its properties and conduct its business as described in the Prospectus, and is duly qualified as a foreign corporation or entity to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing would not result in a Material Adverse Effect. Except as otherwise disclosed in the Registration Statement, all outstanding shares of capital stock of each of the subsidiaries of the Company have been duly authorized and validly issued, are fully paid and non-assessable, and are owned, directly or indirectly, by the Company free and clear of all liens, encumbrances and security interests and none of such shares were issued in violation of the preemptive or similar rights of any security holder of such subsidiary. No options, warrants or other rights to purchase, agreements or other obligations to issue, or other rights to convert any obligations into, shares of capital stock or ownership interests in any of the subsidiaries of the Company are outstanding. (vi) The Subsidiary Bank has been duly organized and is validly existing and in good standing under the laws of California, with corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus. The Company has all B-1 necessary power and authority to own the Subsidiary Bank. The Subsidiary Bank is a member of the Federal Reserve System and the deposits of the depositors in the Subsidiary Bank are insured by the FDIC. The Company and the Subsidiary Bank have all necessary consents and approvals under applicable federal and state laws and regulations relating to banks and bank holding companies to own their respective assets and carry on their respective businesses as currently conducted. (vii) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the Purchase Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus); the shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. Nothing has come to my attention that would lead me to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information and Rule 434 Information (if applicable), (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which I make no statement), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom, as to which I make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). B-2 Exhibit C July 13, 2000 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Dain Rauscher Incorporated Donaldson, Lufkin & Jenrette Securities Corporation as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281 Ladies and Gentlemen: Re: PROPOSED PUBLIC OFFERING BY SILICON VALLEY BANCSHARES Dear Sirs: The undersigned, a stockholder and an officer and/or director of Silicon Valley Bancshares, a Delaware corporation (the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Dain Rauscher Incorporated, and Donaldson Lufkin & Jenrette Securities Corporation propose to enter into a Purchase Agreement (the "Purchase Agreement") with the Company providing for the public offering of shares (the "Securities") of the Company's common stock, par value $0.001 per share (the "Common Stock"). In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder and an officer and/or director of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Purchase Agreement that, from the date hereof until 90 days from the date of the Purchase Agreement, the undersigned will not, without the prior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Company's Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or cause to be filed any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. C-1 [Notwithstanding the foregoing, the undersigned may, without the prior written consent of Merrill Lynch, (1) sell up to ___________ shares of Common Stock, (2) pledge shares of Common Stock as security for borrowed money to any commercial banking institution that is a member of the Federal Reserve System or any institutional lender than makes loans secured by margin securities in the ordinary course of business (a "Pledgee"), provided that (x) the undersigned shall notify the Company promptly of the occurrence of any event or the existence of any condition which gives a Pledgee the right to sell any margin securities so pledged by the undersigned to satisfy all or any portion of any such margin loan, whether now outstanding or hereafter made to the undersigned and (y) upon the occurrence of any such event or the existence of any such condition referred to in clause (x), the undersigned shall use his or her best efforts to cause the Pledgee to sell margin securities other than shares of Common Stock to satisfy all or such portion of such margin loan before any shares of Common Stock are sold, and (3) transfer shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, Common Stock, either during the undersigned's lifetime or, on death, by will or intestacy to members of the undersigned's immediate family or to trusts exclusively for the benefit of members of the undersigned's immediate family or in connection with bona fide gifts, provided that, prior to any such transfer, such transferee executes an agreement, satisfactory to Merrill Lynch, pursuant to which such transferee agrees to receive and hold such shares subject to the provisions of this Agreement and that there shall be no further transfer except, in accordance with the provisions of this Agreement. For purposes of this paragraph, "immediate family" shall mean the spouse, lineal descendant, father, mother, brother or sister of the undersigned.] Very truly yours, Signature: ---------------------------- Print Name: --------------------------- C-2 EX-5.1 3 ex-5_1.txt EX-5.1 EXHIBIT 5.1 July 12, 2000 (415) 393-8200 C 89349-00005 Silicon Valley Bancshares 3003 Tasman Drive Santa Clara, CA 95054 Re: Registration Statement on Form S-3 REGISTRATION NO. 333-39728 Ladies and Gentlemen: We have acted as counsel for Silicon Valley Bancshares, a Delaware corporation (the "Company"), in connection with the registration by the Company of shares of the Company's Common Stock, $0.001 par value per share (the "Common Stock"), pursuant to the above-referenced Registration Statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"). The Company proposes to issue and sell up to 2,300,000 shares of Common Stock (the "Shares") to a group of underwriters (the "Underwriters"), including Merrill Lynch, Pierce Fenner & Smith Incorporated, Dain Rauscher Incorporated, and Donaldson, Lufkin and Jenrette Securities Corporation, for offering to the public. For the purpose of the opinion set forth below, we have examined and are familiar with the proceedings taken and proposed to be taken by the Company in connection with the authorization and issuance of the Shares, including, among other things, such corporate records of the Company and certificates of officers of the Company and of public officials and such other documents as we have deemed relevant and necessary as the basis for the opinion set forth below. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. On the basis of such investigation as we have deemed necessary, we are of the opinion that (i) the Shares have been duly authorized, and (ii) when issued and sold pursuant to the Registration Statement and in accordance with the terms of the purchase agreement between the Company and the Underwriters, substantially in the form filed as an exhibit to the Registration Statement, the Shares will be validly issued, fully paid and nonassessable. The Company is a Delaware corporation. We are not admitted to practice in Delaware. However, we are familiar with the Delaware General Corporation Law and have made such review thereof as we consider necessary for the purpose of this opinion. Therefore, this opinion is limited to the current laws of the State of Delaware and the State of California, and to the current federal laws of the United States of America. We consent to the filing of this opinion as an exhibit to the Registration Statement, and we further consent to the use of our name under the caption "Legal Matters" in the Registration Statement and the prospectus which forms a part thereof. In giving these consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission. Very truly yours, GIBSON, DUNN & CRUTCHER LLP EX-23.1 4 ex-23_1.txt EX-23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Silicon Valley Bancshares: We consent to the incorporation by reference in Amendment No. 1 to the registration statement on Form S-3 of Silicon Valley Bancshares of our report dated January 20, 2000, relating to the consolidated balance sheets of Silicon Valley Bancshares and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999, annual report on Form 10-K of Silicon Valley Bancshares, and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP San Francisco, California July 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----