-----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, RD2hg6Ttg5mSAAZmFn3bwHssj8jiPGeJubFLOxmIHGnIOMoBDU8aMWQEP31pP6CK /Tj0HDE3azu4LmQemkubAg== 0000898430-98-003040.txt : 19980817 0000898430-98-003040.hdr.sgml : 19980817 ACCESSION NUMBER: 0000898430-98-003040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREATER BAY BANCORP CENTRAL INDEX KEY: 0000775473 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 942952485 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25034 FILM NUMBER: 98691705 BUSINESS ADDRESS: STREET 1: 2860 WEST BAYSHORE ROAD CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4153751555 MAIL ADDRESS: STREET 1: 2860 BAYSHORE STREET 2: 420 COWPER ST CITY: PALO ALTO STATE: CA ZIP: 943011504 FORMER COMPANY: FORMER CONFORMED NAME: MID PENINSULA BANCORP DATE OF NAME CHANGE: 19941031 FORMER COMPANY: FORMER CONFORMED NAME: SAN MATEO COUNTY BANCORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR QUARTERLY PERIOD ENDED 6/30/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND - - EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR - - TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _____ to____. Commission file number 0-25034 GREATER BAY BANCORP (Exact name of registrant as specified in its charter) CALIFORNIA 77-0387041 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2860 WEST BAYSHORE ROAD, PALO ALTO, CALIFORNIA 94303 (Address of principal executive offices) (Zip Code) (650) 813-8200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Outstanding shares of Common Stock, no par value, as of July 31, 1998: 9,201,531 This report contains a total of 38 pages. GREATER BAY BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997.......................... 3 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1998 and 1997....................................... 4 Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 1998 and 1997....................................... 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997...................... 6 Notes to Consolidated Financial Statements................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................. 35 Signatures................................................... 38 2
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1998 December 31, (Dollars in thousands) (unaudited) 1997* - -------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 69,239 $ 53,000 Federal funds sold 126,200 75,000 Other short term securities 90,320 103,549 ---------- ---------- Cash and cash equivalents 285,759 231,549 Investment securities: Available for sale (amortized cost $302,985 and $166,169 at June 30, 1998 and December 31, 1997, respectively) 303,358 166,548 Held to maturity (market value $35,147 and $45,246 at June 30, 1998 and December 31, 1997, respectively) 34,440 44,461 Other securities 3,317 2,118 ----------- ---------- Investment securities 341,115 213,127 Loans: Commercial 357,758 345,742 Real estate construction and land 139,850 112,514 Real estate term 227,652 196,217 Consumer and other 81,750 82,914 Deferred loan fees and discounts (2,446) (2,765) --------- ---------- Total loans, net of deferred fees 804,564 734,622 Allowance for loan losses (17,584) (16,093) ---------- ---------- Total loans, net 786,980 718,529 Property, premises and equipment 10,095 8,475 Interest receivable and other assets 46,918 28,639 --------- ---------- Total assets $1,470,867 $1,200,319 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand, noninterest-bearing $ 263,121 $ 219,495 MMDA, NOW and savings 809,594 627,475 Time certificates, $100,000 and over 180,891 183,147 Other time certificates 31,009 41,031 ---------- ---------- Total deposits 1,284,615 1,071,148 Other borrowings 70,000 19,480 Subordinated debt 3,000 3,000 Other liabilities 10,919 10,433 Company obligated mandatorily redeemable cumulative trust preferred securities of subsidiary trust holding solely junior subordinated debentures 20,000 20,000 ---------- ---------- Total liabilities 1,388,534 1,124,061 ---------- ---------- Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, no par value: 4,000,000 shares authorized; none issued - - Common stock, no par value: 24,000,000 shares authorized; 9,189,961 and 9,006,930 shares issued and outstanding as of June 30, 1998 and December 31, 1997, respectively** 54,247 52,218 Accumulated other comprehensive income 186 223 Retained earnings 27,900 23,817 ---------- ---------- Total shareholders' equity 82,333 76,258 ---------- ---------- Total liabilities andshareholders' equity $1,470,867 $1,200,319 ========== ==========
* Restated to reflect the merger with Pacific Rim Bancorporation on a pooling of interests basis. ** Restated to reflect 2-for-1 stock split declared for shareholders of record as of April 30, 1998. See notes to consolidated financial statements. 3 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30, --------------------------- -------------------------- (Dollars in thousands, except per share amounts) (unaudited) 1998 1997* 1998 1997* - -------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest on loans $19,753 $16,293 $38,415 $30,644 Interest on investment securities: Taxable 3,636 1,924 6,926 3,728 Tax - exempt 480 274 794 537 --------------------------- -------------------------- Total interest on investment securities 4,116 2,198 7,720 4,265 Other interest income 2,786 2,419 5,252 4,282 --------------------------- -------------------------- Total interest income 26,655 20,910 51,387 39,191 --------------------------- -------------------------- INTEREST EXPENSE Interest on deposits 9,501 7,517 18,260 14,080 Interest on long term borrowings 1,446 572 2,419 173 Interest on other borrowings 281 192 631 883 --------------------------- -------------------------- Total interest expense 11,228 8,281 21,310 15,136 --------------------------- -------------------------- Net interest income 15,427 12,629 30,077 24,055 Provision for loan losses 1,307 2,275 2,243 4,268 --------------------------- -------------------------- Net interest income after provision for loan 14,120 10,354 27,834 19,787 losses --------------------------- -------------------------- OTHER INCOME Trust fees 727 481 1,277 935 Service charges and other fees 349 400 769 678 Gain on sale of SBA loans 221 181 465 347 Gain (loss) on investments, net (8) 8 - (35) Warrant income - 1,114 497 1,115 Other income 309 296 31 554 --------------------------- -------------------------- Total other income 1,598 2,480 3,039 3,594 OPERATING EXPENSES Compensation and benefits 5,548 4,727 10,799 9,574 Occupancy and equipment 1,514 1,295 2,885 2,610 Legal and other professional fees 485 500 867 942 Telephone, postage and supplies 381 342 811 657 Contribution to GBB Foundation - - 701 - Marketing and promotion 329 272 449 543 Directors' fees 142 122 281 268 Client services 116 79 267 185 Insurance 95 84 175 153 FDIC insurance and regulatory assessments 77 83 166 140 Other real estate owned (8) 71 16 99 Legal settlement recovery - - - (1,700) Other 471 534 1,289 792 --------------------------- -------------------------- Total operating expenses, excluding merger costs 9,150 8,109 18,706 14,263 Merger costs 2,125 - 2,125 - --------------------------- -------------------------- Total operating expenses 11,275 8,109 20,831 14,263 --------------------------- -------------------------- Income before provision for income taxes 4,443 4,725 10,042 9,118 Provision for income taxes 1,520 1,714 3,414 3,303 --------------------------- -------------------------- Net income $ 2,923 $ 3,011 $ 6,628 $ 5,815 =========================== ========================== Net income per share - basic** $ 0.32 $ 0.34 $ 0.73 $ 0.65 =========================== ========================== Net income per share - diluted** $ 0.29 $ 0.32 $ 0.67 $ 0.61 =========================== ==========================
* Restated on an historical basis to reflect the merger with Peninsula Bank of Commerce and Pacific Rim Bancorportion on a pooling of interests basis. ** Restated to reflect 2-for-1 stock split declared for shareholders of record as of April 30, 1998. See notes to consolidated financial statements. 4 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- (Dollars in thousands) (unaudited) 1998 1997* 1998 1997* - ------------------------------------------------------------------------------------------------------------------------------------ Net income $2,923 $3,011 $6,628 $5,815 Other comprehensive income: Unrealized holding gains (losses) arising during period (net of taxes of $(96) and $76 for the three months ended June 30, 1998 and 1997, and $(26) and $50 for the six months ended June 30, 1998 and 1997, respectively) (137) 109 (37) 72 Reclassification adjustment for gains (losses) included in net income (net of taxes of $(3) and $3 for the three months ended 1998 and 1997, and $0 and $(14) for the six month ended 1998 and 1997, respectively) (5) 5 - (21) ----------------------------- -------------------------- Other comprehensive income (losses) (142) 114 (37) 51 ----------------------------- -------------------------- Comprehensive income $2,781 $3,125 $6,591 $5,868 ============================= ==========================
* Restated on an historical basis to reflect the merger with Peninsula Bank of Commerce and Pacific Rim Bancorporation on a pooling of interests basis. See notes to consolidated financial statements. 5 GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, -------------------------------------- (Dollars in thousands) (unaudited) 1998 1997* - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS - OPERATING ACTIVITIES Net income $ 6,628 $ 5,815 Reconcilement of net income to net cash from operations: Provision for loan losses 2,243 4,268 Depreciation and amortization 1,084 966 Deferred income taxes (614) (2,757) (Gain) loss on sale of investment, net - 35 Changes in: Accrued interest receivable and other assets 593 (4,561) Accrued interest payable and other liabilities (381) 505 Deferred loan fees and discounts, net (319) 211 ---------------------------- Operating cash flows, net 9,234 4,482 ---------------------------- CASH FLOWS - INVESTING ACTIVITIES Maturities and partial paydowns on of investment securities: Held to maturity 10,022 4,671 Available for sale 27,418 26,117 Purchase of investment securities: Held to maturity - (2,472) Available for sale (176,152) (34,554) Other securities (1,199) (664) Proceeds from sale of available for sale securities 11,803 1,950 Loans, net (70,450) (82,812) Purchase of property, premises and equipment (2,567) (1,235) Purchase of insurance policies (18,122) - ---------------------------- Investing cash flows, net (219,247) (88,999) ---------------------------- CASH FLOWS - FINANCING ACTIVITIES Net change in deposits 213,467 83,605 Net change in other borrowings - short-term (19,480) (9,031) Proceeds on other borrowings - long term 70,000 - Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures issued - 20,000 Proceeds from sale of stock 1,514 1,557 Cash dividends (1,278) (994) ---------------------------- Financing cash flows, net 264,223 95,137 ---------------------------- Net change in cash and cash equivalents 54,210 10,620 Cash and cash equivalents at beginning of period 231,549 191,871 ---------------------------- Cash and cash equivalents at end of period $ 285,759 $202,491 ============================ CASH FLOWS - SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $ 25,560 $ 14,386 ============================ Income taxes $ 1,820 $ 3,300 ============================ Non-cash transactions: Additions to other real estate owned $ 105 $ 173 ============================
*Restated on an historical basis to reflect the merger with Peninsula Bank of Commerce and Pacific Rim Corporation on a pooling of interests basis. See notes to consolidated financial statements. 6 Notes To Consolidated Financial Statements As of June 30, 1998 and 1997 and for the Three and Six Months Ended June 30, 1998 and 1997 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The results of operations for the quarter ended June 30, 1998 are not necessarily indicative of the results expected for any subsequent quarter or for the entire year ended December 31, 1997. The financial statements should be read in conjunction with the consolidated financial statements, and the notes thereto, included in the 1997 annual report to shareholders. Consolidation and Basis of Presentation The consolidated financial statements include the accounts of Greater Bay Bancorp ("Greater Bay Bancorp" on a parent-only basis and the "Company" on a consolidated basis) and its wholly owned subsidiaries, Cupertino National Bank, Golden Gate Bank ("Golden Gate"), Mid-Peninsula Bank, Peninsula Bank of Commerce and GBB Capital I. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior years' consolidated financial statements to conform to the current presentation. The accounting and reporting policies of the Company conform to generally accepted accounting principles and the prevailing practices within the banking industry. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from those estimates. Comprehensive Income On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). This statement requires companies to classify items of other comprehensive income by their nature in the financial statement and display the accumulated other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. As of June 30, 1998 and December 31, 1997, the only component of accumulated other comprehensive income was unrealized gains on securities available for sale. The changes to the balances of accumulated other comprehensive income is as follows:
Accumulated Other Comprehensive (Dollars in thousands) Income - ----------------------------------------------------------- Balance - as of December 31, 1997 $ 223 Current period charge (37) --------- Balance - as of June 30, 1998 186 =========
Per Share Data Net income per share is stated in accordance with SFAS No. 128 "Earnings per Share." Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted net income per share is computed by dividing diluted net income available to common shareholders by the weighted average number of common shares and common equivalent shares outstanding including dilutive stock options. The computation of common stock equivalent shares is based on the weighted average market price of the Company's common stock throughout the period. All years presented include the effect of the 2- for-1 stock split declared on March 24, 1998 and effective for shareholders of record on April 30, 1998 (see Note 4). 7 Notes To Consolidated Financial Statements As of June 30, 1998 and 1997 and for the Three and Six Months Ended June 30, 1998 and 1997 The following table provides a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three and six month periods ended June 30, 1998 and 1997:
For the three months ended June 30, 1998 For the three months ended June 30, 1997 ------------------------------------------------------------------------------------- Average Average Income Shares* Per Share Income Shares* Per Share (Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------ --------------------------------------- Net income $2,923 $3,011 Basic net income per share: Income available to common shareholders 2,923 9,163,034 $0.32 3,011 8,895,548 $0.34 Effect of dilutive securities: Stock options - 793,774 - - 589,124 - -------------------------------------- --------------------------------------- Diluted net income per share: Income available to common shareholders and assumed conversions $2,923 9,956,808 $0.29 $3,011 9,484,672 $0.32 ====================================== ======================================= For the six months ended June 30, 1998 For the six months ended June 30, 1997 -------------------------------------- --------------------------------------- Average Average Income Shares* Per Share Income Shares* Per Share (Dollars in thousands, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------ --------------------------------------- Net income $6,628 $5,815 Basic net income per share: Income available to common shareholders 6,628 9,106,015 $0.73 5,815 8,923,764 $0.65 Effect of dilutive securities: Stock options - 818,143 - - 670,715 - -------------------------------------- --------------------------------------- Diluted net income per share: Income available to common shareholders and assumed conversions $6,628 9,924,158 $0.67 $5,815 9,594,479 $0.61 ====================================== =======================================
* Restated to reflect 2-for-1 stock split declared for shareholders of record as of April 30, 1998. Options to purchase 713 shares that were considered anti-dilutive whereby the options' exercise price was greater than the average market price of the common shares, during the periods ended June 30,1998 were excluded from this computation. Weighted average shares outstanding and all per share amounts included in the consolidated financial statements and notes thereto are based upon the increased number of shares giving retroactive effect to the 1997 merger with PBC and the 1998 merger with Golden Gate. Recent Accounting Pronouncements In February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefit. This statement standardizes the disclosure requirements for pensions and other postretirement benefits and presents them in one footnote: requires that additional information be disclosed regarding changes in the benefit obligation and fair values of plan assets: eliminates certain disclosures that are no longer considered useful, including general descriptions of the plan and permits the aggregation of information about certain plans. SFAS No. 132 is not expected to have a significant impact on the Company. On June 15, 1998, FASB issued Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 standardizes the accounting for derivative instruments by requiring that 8 Notes To Consolidated Financial Statements As of June 30, 1998 and 1997 and for the Three and Six Months Ended June 30, 1998 and 1997 for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon the Statement's initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. The impact on the Company of adopting SFAS No. 133 is not expected to be material. NOTE 2 -- MERGERS On August 4, 1998, Greater Bay entered into an agreement to acquire Pacific Business Funding Corporation ("PBFC"), an asset-based speciality finance company. The acquisition is structured as a merger transaction in which Greater Bay will acquire PBFC as a wholly owned subsidiary, in consideration of the issuance of approximately 264,000 shares of Greater Bay common stock to the shareholders of PBFC. PBFC had total assets of approximately $14.9 million as of May 31, 1998. It is anticipated that the transaction will be accounted for as a pooling-of-interest. The transaction is expected to close on or before August 31, 1998. 9 Notes to Consolidated Financial Statements As of June 30, 1998 and 1997 and for the Three and Six Months Ended June 30, 1998 and 1997 The following table sets forth the combined financial position and results of operations of the Company and PBPC as of and for the six months ended June 30, 1998;
As of (Dollars in thousands) June 30, 1998 - ------------------------------------------------------ Assets: Greater Bay Bancorp $1,470,867 Pacific Business Funding Corporation 15,583 ---------- Combined $1,486,480 ========== Liabilities: Greater Bay Bancorp $1,388,534 Pacific Business Funding Corporation 15,503 ---------- Combined $1,404,037 ========== Shareholders' equity: Greater Bay Bancorp $ 82,333 Pacific Business Funding Corporation 90 ---------- Combined $ 82,423 ========== Net interest income: Greater Bay Bancorp $ 30,077 Pacific Business Funding Corporation 1,154 ---------- Combined $ 31,231 ========== Provision for loan losses: Greater Bay Bancorp $ 2,243 Pacific Business Funding Corporation 100 ---------- Combined $ 2,343 ========== Net income: Greater Bay Bancorp $ 6,628 Pacific Business Funding Corporation* 344 ---------- Combined $ 6,972 ==========
*Shown on a proforma basis to reflect taxes for PBFC which would have been incurred had PBFC been a C Corp. On May 8, 1998, Pacific Rim Bancorporation ("PRB"), the former holding company of Golden Gate, merged with and into the Company. Upon consumation of the merger, the outstanding shares of PRB were converted into an aggregated of 950,748 shares (as adjusted to reflect the stock split) of the Company's stock. The stock was issued to former PRB's sole shareholder, the Leo K. W. Lum PRB Revocable Trust (the "Trust"), in a tax-free exchange accounted for as a pooling-of-interest. The securities issued in the merger were sold in a private transaction pursuant to an applicable exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). 10 Notes To Consolidated Financial Statements As of June 30, 1998 and 1997 and for the Three and Six Months Ended June 30, 1998 and 1997 The following table sets forth the composition of the operations of the Company and PRB, on a consolidated basis with Golden Gate, for the three months ended March 31, 1998, prior to the consummation of the merger on May 8, 1998:
As of (Dollars in thousands) March 31, 1998 - ------------------------------------------------------------------------ Net interest income: Greater Bay Bancorp $13,366 Pacific Rim Bancorporation 1,285 ------- Combined $14,651 ======= Provision for loan losses: Greater Bay Bancorp $ 866 Pacific Rim Bancorporation 70 ------- Combined $ 936 ======= Net income: Greater Bay Bancorp $ 3,646 Pacific Rim Bancorporation 60 ------- Combined $ 3,706 =======
There were no significant transactions between the Company and PRB prior to the merger. All intercompany transactions have been eliminated. 11 Notes To Consolidated Financial Statements As of June 30, 1998 and 1997 and for the Three and Six Months Ended June 30, 1998 and 1997 NOTE 3 -- BORROWINGS The Company's borrowings are detailed as follows:
June 30, December 31, (Dollars in thousands) 1998 1997 - ------------------------------------------------------------------------------- Other borrowings: Short term borrowings: Securities sold under agreements to repurchase (short term) $ - $19,480 ------- ------- Total short term borrowings - 19,480 ------- ------- Other long term borrowings: Securities sold under agreements to repurchase (long term) 50,000 - FHLB advances 20,000 - ------- ------- Total other long term borrowings 70,000 - ------- ------- Total other borrowings $70,000 $19,480 ======= ======= Subordinated notes, due September 15, 2005 $ 3,000 $ 3,000 ------- ------- Total subordinated debt $ 3,000 $ 3,000 ======= =======
During the six month period ended June 30, 1998 and the twelve month period ended December 31, 1997, the average balance of securities sold under short term agreements to repurchase were $11,673,000 and $5,278,000, respectively, and the average interest rates during those periods were 5.65% and 5.71%, respectively. Securities sold under short term agreements to repurchase generally mature within 90 days of dates of purchase. During the six month period ended June 30, 1998 and the twelve month period ended December 31, 1997, the average balance of federal funds purchases was $885,000 and $1,523,000, respectively, and the average interest rates during those periods were 5.45% and 5.32%, respectively. These purchases were primarily between the Banks. The Company has sold securities under long term agreements to repurchase which mature in the year 2003. The counterparties to these agreements have put options which give them the right to demand early repayment. As of June 30, 1998, $40.0 million of these borrowings are subject to early repayment beginning in 1999 and $10.0 million are subject to early repayment beginning in 2000. The FHLB advances will mature in the year 2003. The advances are collateralized by securities pledged to the FHLB. Under the terms of the advances, the FHLB has a put option which gives it the right to demand early repayment beginning in 1999. The subordinated notes which will mature on September 15, 2005, were offered to members of Cupertino National Bank's Board of Directors and bank officers along with other accredited investors within the definition of Rule 501 under the Securities Act of 1933, as amended. The notes bear an interest rate of 11.5%. The notes are redeemable by the Company any time after September 30, 1998 at a premium ranging from 0% to 5%. The notes qualify as Tier 2 capital for the Company. 12 Notes To Consolidated Financial Statements As of June 30, 1998 and 1997 and for the Three and Six Months Ended June 30, 1998 and 1997 NOTE 4 -- STOCK SPLIT On March 24, 1998 the Company announced a 2-for-1 stock split of its common stock. This split was effective for shareholders of record as of April 30, 1998 with a payment date of May 15, 1998. All share and per share information has been retroactively restated to reflect this split. NOTE 5 -- CASH DIVIDEND The Company declared a cash dividend of 9.5 cents per share payable on July 15, 1998 to shareholders of record as of June 30, 1998. NOTE 6 -- SUBSEQUENT EVENTS On August 12, 1998, the Company completed an offering of Cumulative Trust Preferred Securities ("TPS") in an aggregate amount of $30 million through GBB Capital II, a trust affiliate of the Company formed for the purpose of the offering. The securities issued in the offering were sold in a private transaction pursuant to an applicable exemption form registration under the Securities Act and have not been registered under the Securities Act. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The securities have an offering price (liquidation amount) of $1,000 per security and will receive distributions at a variable rate of interest, initially at 7.1875%. The interest rate will reset quarterly, equal to 3-month LIBOR plus 150 basis points, will be cumulative and will be payable quarterly. As part of this transaction, the Company negotiated an interest rate swap to fix the cost of the offering at 7.55% for 10 years. The TPS accrue and pay distributions quarterly beginning December 15, 1998 at a floating rate equal to the 3-month LIBOR plus 150 basis points on the liquidation amount of $1,000 per share TPS. The expense for those distributions will be included in interest on long term borrowings. Greater Bay has fully and unconditionally guaranteed all of the obligations of the GBB Capital II. The TPS are mandatorily redeemable, in whole or in part, upon repayment of the Debentures at their stated maturity of September 15, 2028 or their earlier redemption. The Debentures are redeemable prior to maturity at the option of the Company, on or after September 15, 2008, in whole at any time or in part form time to time. All of the proceeds from the sale of the TPS have been invested by GBB Capital II in Junior Subordinated Debentures of the Company. Greater Bay intends to invest approximately $10 million of the net proceeds in one or more of the Company's subsidiary banks to increase their capital levels. The Company intends to use the remaining net proceeds for general corporate purposes. Under applicable regulatory guidelines, Greater Bay expects that a certain portion of the TPS will qualify as Tier I Capital, and the remaining portion will qualify as Tier 2 capital. 13 Item 2 -- Management's Discussion and Analysis of Results of Operations And Financial Condition OVERVIEW Greater Bay Bancorp ("Greater Bay," on a parent-only basis, and the "Company," on a consolidated basis) was formed as the result of the merger in November 1996 between Cupertino National Bancorp, the holding company for Cupertino National Bank ("CNB"), and Mid-Peninsula Bancorp, the holding company for Mid-Peninsula Bank ("MPB"). In December 1997, the Company completed a merger with Peninsula Bank of Commerce ("PBC"), whereby PBC joined CNB and MPB as the third wholly owned banking subsidiary of Greater Bay. In May 1998, the Company completed a merger with Pacific Rim Bancorporation ("PRB"), the holding company for Golden Gate Bank ("Golden Gate"), whereby Golden Gate joined CNB, MPB, PBC as the forth wholly owned banking subsidiary of Greater Bay. All mergers were accounted for as pooling of interests. All of the financial information for the Company for the periods prior to the mergers has been restated to reflect the pooling of interests, as if they occurred at the beginning of the earliest reporting period presented. The following discussion and analysis is intended to provide greater details of the results of operations and financial condition of the Company. The following discussion should be read in conjunction with the information under "Financial Highlights" and the Company's consolidated financial data included in the Company's 1997 Annual Report to Shareholders. Certain statements under this caption constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited, to economic conditions, competition in the geographic and business areas in which the Company conducts its operations, fluctuation in interest rates, credit quality and government regulation. RESULTS OF OPERATIONS The Company reported net income of $4.2 million, (excluding merger costs, net of taxes) for the second quarter of 1998, compared with net income of $3.0 million, for the second quarter of 1997. Diluted net income per share was $0.43, (excluding merger costs, net of taxes) and $0.32 for the quarters ended June 30, 1998 and 1997, respectively. The Company reported net income, including merger costs of $2.9 million and diluted net income per share of $0.29 for the quarter ended June 30, 1998. The annualized return on average assets and return on average shareholders' equity excluding merger costs and net of tax was 1.25% and 21.62% for the second quarter of 1998, compared with 1.18% and 16.63%, respectively, for the same period in 1997. The earnings for the second quarter of 1997 includes $1.1 million in warrant income that was recorded in May and June 1997 resulting from the exercise of warrants and sale of the underlying shares of common stock in two of the clients of one of the Banks. The Company occasionally receives warrants to acquire common stock from companies that are in the start-up or development phase. The timing and amount of income derived from the exercise and sale of client warrants typically depend upon factors beyond the control of the Company, and cannot be predicted with any degree of accuracy and are likely to vary materially from period to period. Net income totaled $7.9 million, (excluding merger costs, net of taxes) for the six months ended June 30, 1998, versus $5.8 million for the respective 1997 period. Diluted net income per share was $0.80, (excluding merger costs, net of taxes) and $0.61 for the six months ended 1998 and 1997, respectively. For the first six months of 1998, the annualized return on average assets, excluding merger costs, was 1.24% and the return on average shareholders' equity was 20.29% versus 1.19% and 16.72%, respectively, for the comparable prior year period. The Company's net income, including merger costs, were $6.6 million and its diluted net income per share was $0.67 for the year to date June 30, 1998. The increase in 1998 net income was the result of significant loan and deposit growth, which resulted in increased net interest income, and increases in trust fees, depositors' service fees and other fee income. Operating expense increases required to service and support the Company's growth partially offset the increase in revenues. During the first quarter of 1998 Greater Bay's Board of Directors established the Greater Bay Bancorp Foundation (the "Foundation"). The Foundation was formed to provide a vehicle through which the Company, its officers and directors can provide support to the communities in which it does business. 14 Management's Discussion and Analysis of Results of Operations And Financial Condition The Foundation will focus its support on initiatives related to education, health and economic growth. To fund the Foundation, the Company contributed appreciated warrants, which had an unrealized gain of $701,000. The Company recorded a contribution deduction for the fair market value of the warrants contributed and also recorded warrant income of $701,000 ($498,000 net of related employee incentives). For income tax purposes, the Company is not required to recognize the warrant income, however it is allowed to deduct the fair market value of the contributed warrants. As a result, the Company recognized a tax benefit of $288,000. In the first quarter of 1998, the Company recorded a $484,000 write down on equity securities in accordance with APB 18. The provision for loan losses was $1.4 million for the six months ended June 30, 1998 and $2.3 million for the same period June 30, 1997. For the quarter ended June 30, 1998, the Company's provision for loan losses was $1.3 million, as compared to $936,000 for the preceding quarter and $2.3 million for the quarter ended June 30, 1997. The loan loss reserve to total loans was 2.19% at June 30, 1998 compared to 2.19% at December 31, 1997 and 2.09% at June 30, 1997. Net Interest Income Net interest income for the second quarter of 1998 was $15.4 million, a $777,000 increase over the first quarter of 1998 and a $2.8 million increase over the second quarter of 1997. The increase from the second quarter of 1997 to the second quarter of 1998 was primarily due to the $318.5 million, or 33.7% increase in average interest-earning assets which is partially offset by a 42 basis point decrease in the Company's interest rate spread from 4.58% in the second quarter of 1997 to 4.16% in the second quarter of 1998. The interest rate spread for these periods was reduced by the low spread earned on PBC's Special Deposit (discussed in Note 7 to the Financial Statements contained in the Company's Annual Report to Shareholders). The average investment and deposit balances related to the Special Deposit during these periods were $89.5 million and $98.2 million, respectively, on which the Company earned spreads of approximately 2.25%. Excluding PBC's Special Deposit, the interest rate spread would have been 4.29% and 4.81% for the second quarter of 1998 and 1997, respectively. The Company's interest rate spread was affected by a higher percentage of interest-earning assets in Federal Funds sold and Investment Securities during the second quarter of 1998 compared to the same quarter in 1997. Net interest income increased 22.16% in the quarter ended June 30, 1998 from the same quarter in 1997 despite the 38 basis point decrease in the Company's interest rate spread. 15 Management's Discussion and Analysis of Results of Operations And Financial Condition The following table presents, for the quarterly periods indicated, condensed average balance sheet information for the Company, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities. Average balances are average daily balances:
Three Months Ended Three Months Ended June 30, 1998 March 31, 1998 --------------------------------- -------------------------------- Average Average Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate - -------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Federal funds sold $ 102,223 $ 1,403 5.51% $ 76,878 $ 1,026 5.41% Other short term investments 97,823 1,383 5.67% 106,970 1,440 5.46% Investment securities: Taxable 240,850 3,636 6.06% 200,915 3,290 6.64% Tax-exempt (1) 35,047 480 5.49% 25,217 314 5.05% Loans (2), (3) 749,474 19,753 10.57% 738,009 18,662 10.26% ----------------------- ------------------------ Total interest-earning assets 1,225,417 26,655 8.72% 1,147,989 24,732 8.74% Noninterest-earning assets 133,985 74,593 70,343 ----------------------- ------------------------ Total assets $1,359,402 26,655 $1,222,582 24,732 =========== ---------- =========== ----------- INTEREST-BEARING LIABILITIES: Deposits: MMDA, NOW and savings $ 735,456 6,826 3.72% $ 660,630 5,964 3.66% Time deposits, over $100,000 154,721 2,072 5.37% 169,969 2,192 5.23% Other time deposits 47,365 603 5.11% 46,311 603 5.28% ----------------------- ------------------------ Total interest-bearing 937,542 9,501 4.06% 876,910 8,759 4.05% deposits Other borrowings 85,111 1,153 5.43% 56,004 749 5.42% Subordinated debt 3,000 87 11.60% 3,000 86 11.63% TPS 20,000 487 9.77% 20,000 488 9.90% ----------------------- ------------------------ Total interest-bearing 1,045,653 11,228 4.31% 955,914 10,082 4.28% liabilities Noninterest bearing deposits 217,839 180,483 Other noninterest-bearing liabilities 16,430 8,933 Shareholders' equity 79,480 77,252 ----------------------- ------------------------ Total shareholders' equity $1,359,402 11,228 $1,222,582 10,082 and liabilities =========== ---------- =========== ----------- Net interest income $15,427 $14,650 =========== ============ Interest rate spread 4.41% 4.46% Contribution of interest free funds 0.64% 0.72% Net yield on interest-earning assets (4) 5.05% 5.18% Three Months Ended June 30, 1997 -------------------------- Average Average Yield/ (Dollars in thousands) Balance Interest Rate - -------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Federal funds sold $ 79,311 $ 1,073 5.43% Other short term investments 99,132 1,346 5.45% Investment securities: Taxable 120,773 1,924 6.39% Tax-exempt (1) 21,517 274 5.12% Loans (2), (3) 623,557 16,293 10.48% ------------------------- Total interest-earning assets 944,290 20,910 8.88% Noninterest-earning assets 70,343 ------------------------- Total assets $1,014,633 20,910 =========== ------------ INTEREST-BEARING LIABILITIES: Deposits: MMDA, NOW and savings $ 548,333 $ 4,919 3.60% Time deposits, over $100,000 116,260 1,499 5.17% Other time deposits 74,782 1,099 5.90% ------------------------- Total interest-bearing deposits 739,375 7,517 4.08% Other borrowings 9,567 192 8.05% Subordinated debt 3,000 86 11.50% TPS 20,000 486 9.75% ------------------------- Total interest-bearing liabilities 771,942 8,281 4.30% Noninterest bearing deposits 163,285 Other noninterest-bearing liabilities 7,572 Shareholders' equity 71,834 ------------------------- Total shareholders' equity and liabilities $1,014,633 8,281 =========== ------------ Net interest income $12,629 =========== Interest rate spread 4.58% Contribution of interest free funds 0.78% Net yield on interest-earning assets (4) 5.36%
(1) The tax equivalent yields earned on the tax exempt securities are 8.29%, 7.56% and 7.71% for the quarters ended June 30, 1998, March 31, 1998 and June 30, 1997, respectively, using the federal statuary rate of 34%. (2) Nonaccrual loans are excluded in the average balance. (3) Interest income includes loan fees of $871,000, $918,000 and $896,000 for the quarters ended June 30, 1998, March 31, 1998 and June 30, 1997, respectively. (4) Net yield on interest-earning assets during the period equals (a) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (b) average interest-earning assets for the period. 16 Management's Discussion and Analysis of Results of Operations And Financial Condition The most significant impact on the Company's net interest income between periods is derived from the interaction of changes in the volume of and rate earned or paid on interest-earning assets and interest-bearing liabilities. The volume of interest-earning asset dollars in loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in the net interest income between period. The table below sets forth, for the periods indicated, a summary of the changes in average asset and liability balances (volume) and changes in average interest rates (rate):
Three Months Ended June 30, 1998 Three Months Ended June 30, 1998 Compared with March 31, 1998 Compared with June 30, 1997 favorable/(unfavorable) favorable/(unfavorable) (Dollars in thousands)(1) Volume Rate Net Volume Rate Net - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST EARNED ON INTEREST-EARNING ASSETS Federal funds sold $ 396 $ (19) $ 377 $ 335 $ (5) $ 330 Other short term investments (130) 73 (57) (19) 56 37 Investment securities: Taxable 724 (378) 346 1,921 (209) 1,712 Tax-exempt 151 15 166 194 12 206 Loans 1,512 (421) 1,091 4,396 (936) 3,460 ------- ----- ------- ------- ------- ------- Total interest income 2,653 (730) 1,923 6,827 (1,082) 5,745 ------- ----- ------- ------- ------- ------- INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES Deposits: MMDA, NOW and savings (815) (47) (862) (1,585) (322) (1,907) Time deposits over $100,000 202 (82) 120 (470) (103) (573) Other time deposits (18) 18 - 328 168 496 Total interest-bearing deposits Other borrowings (429) 25 (404) (921) (40) (961) Subordinated debt - (1) (1) - (1) (1) TPS - 1 1 - (1) (1) ------- ----- ------- ------- ------- ------- Total interest expense (1,060) (86) (1,146) (2,648) (299) (2,947) ------- ----- ------- ------- ------- ------- Net increase (decrease) in net interest income $ 1,593 $(816) $ 777 $ 4,179 $(1,381) $ 2,798 ======= ===== ======= ======= ======= =======
(1) Changes in interest income and expense which are not attributable specifically to either volume or rate, are allocated proportionately between both variances. Nonaccrual loans are excluded in average loans THE QUARTER ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997 --------------------------------------------------------- Interest income in the second quarter ended June 30, 1998 increased 27.5% to $26.7 million from $20.9 million in the same period in 1997. This was primarily due to the $6.8 million favorable volume variance which resulted from a $318.5 million or 33.7% increase in average interest-earning assets over the comparable prior year. Average loans increased $163.3 million, or 26.2% to $786.8 million for the second quarter of 1998 as compared to $623.6 million in the second quarter of 1997. The average yield on interest-earning assets decreased 16 basis points to 8.72% in the second quarter of 1998 from 8.88% in the same period of 1997 primarily due to the decrease on the yields on loans. Average yields on loans increased 9 basis points to 10.57% in the three months ended June 30, 1998 from 10.48% for the same period in 1997. Interest expense in the second quarter of 1998 increased 35.6% to $11.2 million from $8.3 million for the same period in 1997. This increase was due to greater volumes of interest-bearing liabilities coupled with slightly higher interest rates paid on interest-bearing liabilities. Average interest- bearing liabilities increased 35.5% to $1.0 billion in the second quarter of 1998 from $771.9 million in the same period for 1997 due to the efforts of the Banks' relationship managers in generating core deposits from their client relationships, deposits derived from the activities of the Greater Bay Trust Company and the Venture Banking Group and increases in other borrowings. During the second quarter of 1998, average noninterest-bearing deposits increased to $217.8 million from $163.3 million in the same period in 1997. Average noninterest-bearing deposits comprised 18.9% of total deposits for the second quarter of 1998, compared to 18.1% for the same period in 1997. 17 Management's Discussion and Analysis of Results of Operations And Financial Condition THE QUARTER ENDED JUNE 30, 1998 COMPARED TO MARCH 31, 1998 ---------------------------------------------------------- Interest income increased 8.0% to $26.7 million for the second quarter of 1998, as compared to $24.7 million for the previous quarter. Average interest- earning assets increased 10.0% in the second quarter of 1998 from $1.1 billion for the previous quarter. The increase in interest income for the second quarter of 1998, as compared to the prior quarter, was primarily the result of an increase in the loans which increased $48.8 million and investments which grew $49.8 million from the prior quarter. The impact of increases in average balances on loans was offset by a decrease in the yield earned on those assets. The yield on the higher volume of average interest-earning assets declined 2 basis points to 8.72% in the second quarter of 1998 from 8.74% in the first quarter of 1998, primarily as a result of decreases in market rates of interest and the purchase of investments with shorter maturities. Interest expense in the second quarter of 1998 increased 11.4% to $11.2 million from $10.1 million in the prior quarter. The increase is primarily the result of increased average other borrowings, which rose to $85.1 million for the second quarter of 1998, as compared to $56.0 million for the prior quarter. As a result of the changes in the liability mix, the average rate paid on average interest-bearing liabilities increased 3 basis points to 4.31% in the second quarter of 1998 from 4.28% in the prior quarter. Corresponding to the growth in average interest-earning assets, average interest-bearing liabilities increased 10.5% to $1.0 billion in the second quarter of 1998 from $955.9 million for the first quarter of 1998. As a result of the foregoing, the Company's interest rate spread declined to 4.41% in the second quarter of 1998 compared to 4.46% in the prior quarter and the net yield on interest-earning assets declined to 5.05% from 5.18%. 18 Management's Discussion and Analysis of Results of Operations And Financial Condition The following tables present the Company's average balance sheet, net interest income and interest rates for the six month periods presented, as well as the analysis of variances due to rate and volume:
Six Months Ended Six Months Ended June 30, 1998 June 30, 1997 ---------------- ---------------- Average Average Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Federal funds sold $ 89,621 $ 2,429 5.47% $ 64,509 $ 1,717 5.37% Other short term investments 102,271 2,823 5.57% 98,305 2,565 5.26% Investment securities: Taxable 220,993 6,926 6.32% 115,180 3,728 6.53% Tax-exempt (1) 30,159 794 5.31% 21,233 537 5.10% Loans (2), (3) 762,549 38,415 10.16% 601,945 30,644 10.27% ------------------------ ---------------------- Total interest-earning assets 1,205,593 51,387 8.60% 901,172 39,191 8.77% Noninterest-earning assets 85,779 60,506 ------------------------ ---------------------- Total assets $1,291,372 51,387 $961,678 39,191 ========== ------- ======== ------- INTEREST-BEARING LIABILITIES: Deposits: MMDA, NOW and savings $ 698,250 12,790 3.69% $536,059 9,415 3.54% Time deposits, over $100,000 162,303 4,264 5.30% 110,228 2,836 5.19% Other time deposits 46,841 1,206 5.19% 65,683 1,829 5.61% ------------------------ ---------------------- Total interest-bearing deposits 907,394 18,260 4.06% 711,970 14,080 3.99% Other borrowings 70,638 1,902 5.43% 12,429 395 6.40% Subordinated debt 3,000 173 11.63% 3,000 173 11.66% TPS 20,000 975 9.83% 10,256 488 9.60% ------------------------ ---------------------- Total interest-bearing liabilities 1,001,032 21,310 4.29% 737,655 15,136 4.14% Noninterest bearing deposits 199,264 146,817 Other noninterest-bearing liabilities 12,129 6,923 Shareholders' equity 78,947 70,283 ------------------------ ---------------------- Total shareholders' equity and liabilities $1,291,372 21,310 $961,678 15,136 ========== ------- ======== ------- Net interest income $30,077 $24,055 ======= ======= Interest rate spread 4.30% 4.63% Contribution of interest free funds 0.73% 0.75% Net yield on interest-earning assets (4) 5.03% 5.38%
(1) The tax equivalent yields earned on the tax exempt securities are 8.00% and 7.67% at June 30, 1998 and June 30, 1997, respectively, using the federal statuary rate of 34%. (2) Nonaccrual loans are excluded in the average balance. (3) Interest income includes loan fees of $1,740,000, and $1,546,000 for the six months ended June 30, 1998 and June 30, 1997, respectively. (4) Net yield on interest-earning assets during the period equals (a) the difference between interest income on interest-earning assets and the interest expense on interest-bearing liabilities, divided by (b) average interest-earning assets for the period. 19 Management's Discussion and Analysis of Results of Operations And Financial Condition
Six Months Ended June 30, 1998 Compared with June 30, 1997 favorable / (unfavorable) (Dollars in thousands)(1) Volume Rate Net - ------------------------------------------------------------------------------------------------------------ INTEREST EARNED ON INTEREST-EARNING ASSETS Federal funds sold $ 680 $ 32 $ 712 Other short term investments 448 (190) 258 Investment securities: Taxable 3,314 (116) 3,198 Tax-exempt 234 23 257 Loans 8,263 (492) 7,771 ------------------------------------------- Total interest income 12,939 (743) 12,196 ------------------------------------------- INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES Deposits: MMDA, NOW and savings (2,885) (490) (3,375) Time deposits over $100,000 (1,267) (161) (1,428) Other time deposits 493 128 622 ------------------------------------------- Total interest-bearing deposits (3,659) (522) (4,181) Other borrowings (1,460) (47) (1,507) Subordinated debt - - - TPS (487) - (487) ------------------------------------------- Total interest expense (5,606) (569) (6,175) ------------------------------------------- Net increase (decrease) in net interest income $ 7,332 $(1,312) $ 6,022 ===========================================
(1) Changes in interest income and expense which are not attributable specifically to either volume or rate, are allocated proportionately between both variances. Nonaccrual loans are excluded from average loans THE YEAR TO DATE JUNE 30, 1998 COMPARED TO JUNE 30, 1997 -------------------------------------------------------- Net interest income totaled $30.1 million for the first six months of 1998, an increase of $6.0 million, or 24.9%, from the $24.1 million total for the first six months of 1997. The increase in net interest income was attributable to a $12.2 million, or 31.1%, increase in interest income, offset by a $6.2 million, or 40.8%, increase in interest expense over the comparable prior year end. The $12.2 million increase in interest income for the first half of 1998, as compared to the first half of 1997, was primarily due to a $12.9 million favorable volume variance, slightly offset by a $742,000 unfavorable rate variance. The favorable volume variance was attributable to growth in average interest-earning assets, which increased $304.4 million, or 33.8%, from the prior year comparable period. The increase was partially offset by a decrease in the yield on average interest-earning assets of approximately 17 basis points for the first six months of 1998, as compared to the respective prior year period. Total interest expense for the first half of 1998 increased $6.2 million from the first half of 1997. This increase was primarily due to an unfavorable volume variance of $5.2 million which resulted from a $263.0 million, or 35.7%, increase in average interest-bearing liabilities for the first six months of 1998 over the comparable prior year period. For the six months ended June 30, 1998, the Company's net interest spread of 4.30% reflected a decrease from 4.63% for the same period in 1997. 20 Management's Discussion and Analysis of Results of Operations And Financial Condition Certain client service expenses were incurred by the Company with respect to its noninterest-bearing liabilities. These expenses include messenger services, check supplies and other related items and are included in operating expenses. Had they been included, the impact of these expenses on the Company's net yield on interest-earning assets would have been as follows for each of the periods presented.
Three Months Six Months Ended Ended June 30, June 30, --------------------------------- ----------------------------------- (Dollars in thousands) 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Average noninterest bearing demand deposits $217,839 $163,285 $199,264 $146,817 Client service expenses 116 79 267 185 Client service expenses, annualized 0.21% 0.19% 0.27% 0.25% IMPACT ON NET YIELD ON INTEREST-EARNING ASSETS: Net yield on interest-earning assets 5.05% 5.36% 5.03% 5.38% Impact of client service expense (0.04)% (0.03)% (0.04)% (0.04)% ------------------------------------------------------------------------ Adjusted net yield on interest-earning assets (1) 5.01% 5.33% 4.99% 5.34% ------------------------------------------------------------------------
(1) Noninterest-bearing liabilities are included in cost of funds calculations to determine adjusted net yield of spread The impact on the net yield on interest-earning assets is determined by offsetting net interest income by the cost of client service expense, which reduces the yield on interest-earning assets. Provision for Loan Losses The provision for loan losses creates an allowance for future loan losses. The loan loss provision for each year is dependent on many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management's assessment of the quality of the loan portfolio, the value of the underlying collateral on problem loans and the general economic conditions in the Company's market area. The Company performs a regular assessment of the risk inherent in its loan portfolio, as well as a detailed review of each asset determined to have identified weaknesses. Based in this analysis, which includes reviewing historical loss trends, current economic conditions, industry concentrations and specific reviews of assets classified with identified weaknesses, the Company makes a provision for potential loan losses. Specific allocations are made for loans where the probability of a loss can be defined and reasonably determined, while the balance of the provisions for loan losses are based on historical data, delinquency trends, economic conditions in the Company's market area and industry averages. Annual fluctuations in the provision for loan losses result from management's assessment of the adequacy of the allowance for loan losses, and ultimate loan losses may vary from current estimates. The provision for loan losses was $1.3 million in the second quarter of 1998, an increase of $371,000 from the $936,000 in the first quarter of 1998, and a $970,000 decrease from the $2.2 million in the second quarter of 1997. Nonperforming loans, comprised of nonaccrual loans, accruing loans past due 90 days or more, and restructured loans were $4.4 million at June 30, 1998, compared with $4.2 million at December 31, 1997, and $7.6 million at June 30, 1997. Simultaneously, the Company's ratio of loan loss reserve to total loans was 2.19% at June 30, 1998 compared to 2.19% at December 31, 1997 and 2.09% at June 30, 1997. For further information on nonperforming and classified loans and the allowance for loan losses, see - "Nonperforming and Classified Assets" herein. 21 Management's Discussion and Analysis of Results of Operations And Financial Condition Other Income Total other income was $1.6 million for the second quarter of 1998, an increase of $157,000 from the first quarter of 1998, and a decrease of $882,000 from the second quarter of 1997. The following table sets forth information by category of other income for the periods indicated.
At and for the quarters ended June 30, March 31, December 31, September 30, June 30, ------------------------------------------------------------------ (Dollars in thousands) 1998 1998 1997 1997 1997 - ----------------------------------------------------------------------------------------------------------------------------- Trust fees $ 727 $ 550 $ 603 $ 550 $ 481 Service charges and other fees 349 420 394 433 400 Gain on sale of SBA loans 221 244 269 216 181 Gain (loss) on investments, net (8) 8 25 5 8 Other 309 (278) 167 240 296 ------ ---- ----- ------ ----- 1,598 944 1,458 1,444 1,366 Warrant income - 497 14 34 1,114 ------ ------ ------ ------ ------ Total $1,598 $1,441 $1,472 $1,478 $2,480 ====== ====== ====== ====== ======
The increase in other income for the second quarter of 1998 from the first quarter was primarily the result of a $484,000 writedown on equity securities in accordance with APB 18, which was recorded during the first quarter of 1998 and is included in other income. The Company also realized a $177,000 increase in trust fees. The increase in trust fees was due to significant growth in assets under management by Greater Bay Trust Company as trust assets increased to $636.4 million at the end of the second quarter of 1998, compared to $486.7 million at June 30, 1997. These increases to other income from the quarter ended June 30 as compared to the prior quarter were partially offset by $497,000 in warrant income recognized in the first quarter discussed above. 22 Management's Discussion and Analysis of Results of Operations And Financial Condition Operating Expenses The following table represents the major components of operating expenses for the periods indicated:
At and for the periods ended June 30, March 31, December 31, September 30, June 30, --------------------------------------------------------------------------------- (Dollars in thousands) 1998 1998 1997 1997 1997 - ------------------------------------------------------------------------------------------------------------------------ Compensation and benefits $ 5,548 $5,251 $ 5,268 $4,951 $4,727 Occupancy and equipment 1,514 1,371 1,342 1,376 1,295 Legal and other professional fees 485 382 392 506 500 Telephone, postage and supplies 381 439 350 335 342 Contribution to GBB Foundation - 701 - - - Marketing and promotion 329 116 326 335 272 Directors' fees 142 142 119 104 122 Client services 116 151 80 111 79 FDIC insurance and regulatory assessments 77 89 73 70 83 Expenses on other real estate owned (8) 24 25 (10) 71 Other 566 890 1,332 467 618 ----------------------------------------------------------------------------- Total operating expenses, excluding merger costs) $ 9,150 $9,556 $ 9,307 $8,245 $8,109 Merger costs 2,125 - 3,333 - - ----------------------------------------------------------------------------- Total operating expenses $11,275 $9,556 $12,640 $8,245 $8,109 ============================================================================= Efficiency ratio 66.23% 59.39% 78.10% 54.04% 53.67% Efficiency ratio, before merger costs 53.75% 59.39% 57.51% 54.04% 53.67% Total operating expenses to average assets* 3.33% 3.17% 4.43% 3.09% 3.21% Total operating expenses to average assets, before merger costs* 2.70% 3.17% 3.26% 3.09% 3.21%
*Annualized Operating expenses totaled $11.3 million for the second quarter of 1998, an increase of $1.7 million from the first quarter of 1998, and an increase of $3.1 million from the second quarter of 1997. The ratio of operating expenses to average assets at June 30, 1998 and 1997 was 3.33% and 3.21%, respectively. The increase in operating expenses for the quarter ended June 30, 1998 as compared to the prior quarter is primarily due to the $2,125,000 in cost incurred related to the PRB merger. This increase from the prior quarter is partially offset by nonrecurring costs for the first quarter of 1998 represented by a $701,000 donation to the GBB Foundation, as previously discussed. The efficiency ratio is computed by dividing total operating expenses by net interest income and other income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income while a decrease would indicate a more efficient allocation of resources. The Company's efficiency ratio for the second quarter of 1998 was 66.23%, compared to 53.67% for the same period in 1997. Excluding merger costs, the Company's efficiency ratios were 53.75% and 53.67% for quarters ended June 30, 1998 and 1997, respectively. Compensation and benefits expenses increased in the three months ended June 30, 1998 to $5.5 million compared to $5.3 million at March 31, 1998 and $4.7 million at June 30, 1997. The increase in compensation and benefits is due primarily to the additions in personnel made to accommodate the growth of the Company. Income Taxes The Company's effective income tax rate for the quarter ended June 30, 1998 was 34.2%, compared to 36.3% for the same period in 1997. The effective rate in 1997 was lower than the statutory rate due to tax-exempt income on municipal securities. The effective income tax rate for the six month period ended June 30, 1998 was 34.0%, as compared to 36.2% for the six month period ended June 30, 1997. 23 Management's Discussion and Analysis of Results of Operations And Financial Condition FINANCIAL CONDITION Total assets increased 22.7% to $1.5 billion at June 30, 1998, compared to $1.2 billion at December 31, 1997. The increases in 1998 were primarily due to increases in the Company's investment and loan portfolio funded by long term borrowings as well as growth in deposits. Included in total assets at June 30, 1998 and December 31, 1997 were the invested proceeds of a Special Deposit of $89.5 million and $88.1 million, respectively. This deposit was received in late 1996 and management anticipates that a significant portion of this deposit may be withdrawn at some point in 1998. Loans Total loans, net of deferred fees, increased 9.6% to $804.6 million at June 30, 1998, compared to $734.6 million at December 31, 1997. The increases in loan volumes in 1998 were primarily due to the strong economy in the Company's market areas coupled with the business development efforts by the Company's relationship managers. The Company's loan portfolio is concentrated in commercial (primarily manufacturing, service and technology) and real estate lending, with the balance in consumer loans. While no specific industry concentration is considered significant, the Company's lending operations are located in a market area that is dependent on the technology and real estate industries and supporting service companies. Thus, the Company's borrowers could be adversely impacted by a downturn in these sectors of the economy, which could reduce the demand for loans and adversely impact the borrowers' abilities to repay their loans, while also decreasing the Company's net interest margin. The following table presents the composition of the Company's loan portfolio at the dates indicated:
June 30, December 31, 1998 1997 ---------------------------------------------- (Dollars in thousands) Amount % Amount % - ---------------------------------------------------------------------------------------------------- Commercial $357,758 45.5% $345,742 48.1% Real estate construction and land 139,850 17.8 112,514 15.7 Real estate term 227,652 28.9 196,217 27.3 Consumer and other 81,750 10.3 82,914 11.5 ---------------------------------------------- Total loans, gross 807,010 102.5 737,387 102.6 Deferred fees and discounts, net (2,446) -0.3 (2,765) -0.4 ---------------------------------------------- Total loans, net of deferred fees 804,564 102.2 734,622 102.2 Allowance for loan losses (17,584) -2.2 (16,093) -2.2 ---------------------------------------------- Total loans $786,980 100.0% $718,529 100.0% ==============================================
Nonperforming and Classified Assets Management generally places loans on nonaccrual when they become 90 days past due, unless they are well secured and in the process of collection. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is generally reversed from income. Loans are charged-off when management determines that collection has become unlikely. Restructured loans are those where the Banks have granted a concession on the interest paid or original repayment terms due to financial difficulties of the borrower. Other real estate owned ("OREO") consists of real property acquired through foreclosure on the related collateral underlying defaulted loans. 24
Management's Discussion and Analysis of Results of Operations And Financial Condition The following table sets forth information regarding nonperforming assets at the dates indicated: At and for the periods ended June 30, March 31, December 31, September 30, June 30, ----------------------------------------------------------------------------- (Dollars in thousands) 1998 1998 1997 1997 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Nonperforming loans Nonaccrual loans $ 3,758 $ 3,152 $ 2,971 $ 4,565 $ 5,783 Accruing loans past due 90 days or more 75 108 158 575 147 Restructured loans 531 903 1,062 1,453 1,705 ----------------------------------------------------------------------------- Total nonperforming Loans 4,364 4,163 4,191 6,593 7,635 Other real estate owned 730 1,001 1,303 1,069 1,402 ----------------------------------------------------------------------------- Total nonperforming assets $ 5,094 $ 5,164 $ 5,494 $ 7,662 $ 9,037 ============================================================================= Nonperforming assets to total loans and other real estate owned 0.63% 0.67% 0.75% 1.11% 1.39%
At June 30, 1998, the Company had $3.8 million in nonaccrual loans. Interest income forgone on nonperforming loans outstanding at period and totaled $81,000 and $96,000 for the quarter ended June 30, 1998 and 1997, respectively. Interest income recognized for the quarter on nonperforming loans at June 30, 1998 and June 30, 1997 was $62,000 and $19,000, respectively. The Company records OREO at the lower of carrying value or fair value less estimated costs to sell. Estimated losses that result from the on going periodic valuation of these properties are charged to earnings through a provision for losses on foreclosed property in the period in which they are identified. At June 30, 1998, OREO consisted of six properties acquired through foreclosure with a carrying value of $730,000. The policy of the Company is to review each loan in the portfolio to identify problem credits. There are three classifications for problem loans: "substandard," and "loss." Substandard loans have one or more defined weakness and are characterized by the distinct possibility that the Banks will sustain some loss if the deficiencies are not corrected. Doubtful loans have the weaknesses of substandard loans, with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values questionable; and there is a high possibility of loss of some portion of the principal balance. A loan classified "loss" is considered uncollectible and its continuance as an asset is not warranted. The following table sets forth the classified assets at the dates indicated:
At and for the periods ended June 30, March 31, December 31, September 30, June 30, ------------------------------------------------------------------------------- (Dollars in thousands) 1998 1998 1997 1997 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Substandard $ 9,068 $ 9,138 $15,723 $17,119 $17,214 Doubtful 1,041 1,092 1,377 714 2,068 Loss - 47 49 272 231 Other real estate owned 730 1001 1,303 1,069 1,402 ------------------------------------------------------------------------------- Classified assets $10,839 $11,278 $18,452 $19,174 $20,915 ============================================================================= Classified assets to total loans and other real 1.35% 1.47% 2.51% 2.78% 3.21% estate owned Allowance for loan losses to total classified assets 162.23% 143.69% 87.22% 75.27% 64.95%
With the exception of these classified loans, management was not aware of any loans as of June 30, 1998 where the known credit problems of the borrower would cause management to have serious doubts as to the ability of such borrowers to comply with their present loan repayment terms and which 25 Management's Discussion and Analysis of Results of Operations And Financial Condition would result in such loans being included in nonperforming or classified asset tables at some future date. Management cannot, however, predict the extent to which economic conditions in the Company's market areas may worsen or the full impact such an environment may have on the Company's loan portfolio. Accordingly, there can be no assurances that other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured loans, or other real estate owned in the future. The Company has an active credit administration function which includes, in addition to internal reviews, the regular use of an outside loan review firm to review the quality of the loan portfolio. Senior management, the officer's loan committee and the director's loan committee review credit quality issues on a regular basis. Allowances For Loan Losses The allowance for loan losses is established through a provision for loan losses based on management's evaluation of risk inherent in the Company's loan portfolio and economic conditions in the Company's market areas. See - "Provision for Loan Losses" herein. The allowance is increased by provisions charged against earnings and reduced by net loan charge-offs. Loans are charged - -off when they are deemed to be uncollectible; recoveries are generally recorded only when cash payments are received. The following table sets forth information concerning the Company's allowances for loan losses at the dates and for the periods indicated:
At and for the periods ended June 30, March 31, December 31, September 30, June 30, ----------------------------------------------------------------------- (Dollars in thousands) 1998 1998 1997 1997 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Period end loans outstanding $804,565 $766,269 $734,622 $688,537 $650,890 Average loans outstanding $782,665 $741,079 $711,521 $668,856 $630,188 Allowance for loan losses: Balance at beginning of period $ 16,205 $ 16,093 $ 14,433 $ 13,584 $ 11,634 Charge-offs: Commercial - (734) (464) (263) (301) Real estate construction and land (4) - - - - Real estate term - (2) (50) (62) (14) Consumer and other (14) (119) (234) (62) (39) ---------------------------------------------------------------------- Total charge-offs (18) (855) (748) (387) (354) ---------------------------------------------------------------------- Recoveries: Commercial 19 22 7 7 5 Real estate construction and land - - - - - Real estate term - - - - 22 Consumer and other 1 9 1 5 2 ---------------------------------------------------------------------- Total recoveries 20 31 8 12 29 ---------------------------------------------------------------------- Net charge-offs 2 (824) (740) (376) (325) Provision charged to income (1) 1,377 936 2,400 1,224 2,275 ---------------------------------------------------------------------- Balance at end of period $ 17,585 $ 16,205 $ 16,093 $ 14,432 $ 13,584 ---------------------------------------------------------------------- Quarterly net charge-offs to average loans outstanding during the period, annualized 0.00% 0.45% 0.42% 0.23% 0.23% Year to date net charge-offs to average loans outstanding during the period, annualized 0.22% 0.45% 0.24% 0.18% 0.17% Allowance as a percentage of average loans outstanding 2.25% 2.19% 2.26% 2.16% 2.16% Allowance as a percentage of period end loans outstanding 2.19% 2.11% 2.19% 2.10% 2.09% Allowance as a percentage of non-performing loans 402.93% 389.26% 383.99% 218.90% 177.92%
(1) Includes $70,000 in the second quarter of 1998 and $1.4 million in the fourth quarter of 1997 to conform practices for the Bank's reserve methodologies, which is included in mergers and related nonrecurring costs. Management considers changes in the size and character of the loan portfolio, changes in nonperforming and past due loans, historical loan loss experience, and the existing and prospective economic conditions when determining the adequacy of the allowance for loan losses. Although management believes that the allowance for loan losses is adequate to provide for both potential losses and estimated inherent losses in the portfolio, future provisions will be subject to continuing evaluations of the 26 Management's Discussion and Analysis of Results of Operations And Financial Condition Liquidity and Cash Flow The objective of liquidity management is to maintain each Bank's ability to meet the day-to-day cash flow requirements of its clients who either wish to withdraw funds or require funds to meet their credit needs. The Company must manage its liquidity position to allow the Banks to meet the needs of their clients while maintaining an appropriate balance between assets and liabilities to meet the return on investment expectations of its shareholders. The Company monitors the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. In addition to liquidity from core deposits and repayments and maturities of loans and investments, the Banks utilize brokered deposit lines, sell securities under agreements to repurchase and borrow overnight federal funds. In the first quarter of 1997, the Company issued $20.0 million in TPS to enhance its regulatory capital base, while also providing added liquidity. On August 12, 1998, the Company completed a second offering of TPS in an aggregate amount of $30.0 million through GBB Capital II, a trust affiliate of the Company formed for the purpose of the offering. The securities issued in the offering were sold in a private transaction pursuant to an applicable exemption from registration under the Securities Act and have not been registered under the Securities Act. Greater Bay intends to invest approximately $10.0 million of the net proceeds in one or more of the Company's subsidiary banks to increase their capital levels. The Company intends to use the remaining net proceeds for general corporate purposes. Under applicable regulatory guidelines, Greater Bay expects that a initially only a portion, approximately $7.3 million, of the TPS will qualify as Tier 1 capital, and the remaining portion will qualify as Tier 2 capital. However, as the Company's shareholder's equity increases, the amount of the additional TPS that will count as Tier 1 capital will increase. Net cash provided by operating activities, consisting of primarily net interest income, totaled $9.3 million for the six months ended June 30, 1998 and $4.5 for the same period in 1997. Cash used for investing activities totaled $218.5 million for the six months ended June 30, 1998 and $89.0 million in the same period in 1997. The funds used for investing activities primarily represent increases in loans and investment for each year reported. For the six months ended June 30, 1998, net cash provided by financing activities was $264.2 million. Historically, the primary financing activity of the Company has been deposits and borrowings. Deposits increased $213.5 million for the six months ended June 30, 1998 and other borrowings increased $50.5 million for the same period. For the six months ended June 30, 1997, net cash provided by financing activities was $95.1 million. Deposits increased $83.6 million, while other borrowings decreased $9.0 million. During that period there were also proceeds from the issuance of TPS of $20.0 million. Greater Bay is a company separate and apart from the Banks. It must provide for its own liquidity. Substantially all of Greater Bay's revenues are obtained from management fees, interest received and dividends declared and paid by the Banks. Management of Greater Bay believes that such restrictions will not have an impact on the ability of Greater Bay to meet its ongoing cash obligations. As of June 30, 1998, Greater Bay did not have any material commitments for capital expenditures. There are statutory and regulatory provisions that could limit the ability of the Banks to pay dividends to Greater Bay. Capital Resources Shareholders' equity at June 30, 1998 increased to $82.3 million from $76.3 million at December 31, 1997. During the second quarter of 1998 and the twelve months ended December 31, 1997, Greater Bay paid aggregate cash dividends of $0.095 and $0.30 per share, as adjusted for the 2-for-1 stock split effective April 30, 1998. In 1997, prior to the completion of its merger with the Company, PBC declared a cash dividend of $3.20 per share. The Company has provided a substantial portion of its capital requirements through the retention of earnings. In the first quarter of 1997, the Company increased its capital base by issuing $20.0 million of TPS, which, subject to certain limitations, qualify as Tier 1 capital. The Company's equity to asset ratio at June 30, 1998 and December 31, 1997 was 5.6% and 6.4%, respectively. A banking organization's total qualifying capital includes two components, core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core capital, which must comprise at least half of total capital, includes common shareholders' equity, qualifying perpetual preferred stock, trust preferred stock and minority interests, less goodwill. Supplementary capital includes the allowance for loan losses (subject 27 Management's Discussion and Analysis of Results of Operations And Financial Condition capital, includes common shareholders' equity, qualifying perpetual preferred stock, trust preferred stock and minority interests, less goodwill. Supplementary capital includes the allowance for loan losses (subject to certain limitations), other perpetual preferred stock, trust preferred securities, certain other capital instruments, and term subordinated debt. The Company's major capital components are shareholders' equity trust preferred securities in core capital, and the allowance for loan losses and subordinated debt in supplementary capital. At June 30, 1998, the minimum risk-based capital requirements to be considered adequately capitalized are 4.0% for core capital and 8.0% for total capital. Federal banking regulators have also adopted leverage capital guidelines to supplement risk-based measures. The leverage ratio is determined by dividing Tier 1 capital as defined under the risk-based guidelines by average total assets (not risk-adjusted) for the preceding quarter. The minimum leverage ratio is 3.0%, although certain banking organizations are expected to exceed that amount by 1.0% or more, depending on their circumstances. Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve, the OCC and the FDIC have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. The capital levels of the Company at June 30, 1998 and the requirements to qualify for well capitalized and adequately capitalized status under these regulations are as follows: 28 Management's Discussion and Analysis of Results of Operations And Financial Conditions
To Be Well Capitalized For Capital Under Prompt Adequacy Corrective Actual Purposes Action Provisions As of June 30, 1998 ------------------- --------------- --------------------- (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio ------- ------ ------ ----- ------- -------- Total Capital (To Risk Weighted Assets): GREATER BAY BANCORP $117,545 11.79% $79,770 8.00% N/A Cupertino National Bank 45,206 10.35 34,939 8.00 $43,674 10.00% Golden Gate Bank 9,736 12.87 6,050 8.00 7,562 10.00 Mid-Peninsula Bank 37,419 10.77 27,803 8.00 34,754 10.00 Peninsula Bank of Commerce 16,439 13.31 9,882 8.00 12,353 10.00 Tier 1 Capital (To Risk Weighted Assets): GREATER BAY BANCORP $101,935 10.22% $39,885 4.00% N/A Cupertino National Bank 36,690 8.40 17,470 4.00 $26,204 6.00% Golden Gate Bank 8,790 11.62 3,025 4.00 4,537 6.00 Mid-Peninsula Bank 33,071 9.52 13,902 4.00 20,852 6.00 Peninsula Bank of Commerce 14,893 12.06 4,941 4.00 7,412 6.00 Tier 1 Capital (To Average Quarterly Assets): GREATER BAY BANCORP $101,935 7.50% $54,376 4.00% N/A Cupertino National Bank 36,690 6.77 21,675 4.00 $27,093 5.00% Golden Gate Bank 8,790 6.99 5,029 4.00 6,286 5.00 Mid-Peninsula Bank 33,071 7.11 13,962 3.00 23,270 5.00 Peninsula Bank of Commerce 14,893 6.94 8,585 4.00 10,731 5.00 To Be Well Capitalized For Capital Under Prompt Adequacy Corrective Actual Purposes Action Provisions As of June 30, 1998 ------------------- --------------- --------------------- (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------- ------- Total Capital (To Risk Weighted Assets): GREATER BAY BANCORP $109,614 12.58% $69,710 8.00% N/A Cupertino National Bank 40,201 10.03 32,118 8.00 $40,147 10.00% Golden Gate Bank 9,408 12.79 5,882 8.00 7,353 10.00 Mid-Peninsula Bank 34,727 11.88 23,416 8.00 29,269 10.00 Peninsula Bank of Commerce 15,252 14.33 8,525 8.00 10,657 10.00 Tier 1 Capital (To Risk Weighted Assets): GREATER BAY BANCORP $ 95,709 10.98% $34,855 4.00% N/A Cupertino National Bank 32,126 8.02 16,059 4.00 $24,088 6.00% Golden Gate Bank 8,523 11.59 2,941 4.00 4,412 6.00 Mid-Peninsula Bank 31,064 10.63 11,708 4.00 17,562 6.00 Peninsula Bank of Commerce 13,917 13.08 4,263 4.00 6,394 6.00 Tier 1 Capital (To Average Annual Assets): GREATER BAY BANCORP $ 95,709 9.31% $41,113 4.00% N/A Cupertino National Bank 32,126 7.08 18,189 4.00 $22,737 5.00% Golden Gate Bank 8,523 9.51 3,652 4.00 4,565 5.00 Mid-Peninsula Bank 31,064 8.54 10,935 3.00 18,225 5.00 Peninsula Bank of Commerce 13,917 6.65 8,401 4.00 10,501 5.00
At June 30, 1998, the company's risk-based capital ratios were 10.22% for Tier 1 risk-based capital and 11.79% for total risk-based capital, compared to 10.90% and 12.49 respectively, as of December 31, 1997. The Company's leverage ratio was 7.50% at June 30, 1998, compared to 8.48% at December 31, 1997. These ratios all exceeded the well-capitalized guidelines shown above. In addition, at June 30, 1998, each of the Banks had levels of capital which exceeded the well-capitalized guidelines. For additional information on the capital levels and capital ratios of the Company 29 Management's Discussion and Analysis of Results of Operations And Financial Condition and each of the Banks, see Note 13 of Notes to Consolidated Financial Statements included in the Consolidated Financial Statements contained in the Company's 1997 Annual Report to Shareholders. The Company anticipates that the economic and business conditions in its market areas will continue to expand in 1998, resulting in continued growth in earnings and deposits. To support this continuing growth or future acquisition opportunities, it may be necessary for the Company to raise additional capital through the sale of either debt or equity securities in order for the Company and each of the Banks to remain well-capitalized under applicable regulations. Quantitative and Qualitative Disclosures About Market Risk The Company's financial performance is impacted by, among other factors, interest rate risk and credit risk. The Company utilizes no derivatives to mitigate its credit risk, relying instead on loan review and an adequate loan loss reserve (see - "Allowance for Loan Losses" herein). Interest rate risk is the risk of loss in value due to changes in interest rates. This risk is addressed by the Company's Asset Liability Management Committee ("ALCO"), which includes senior management representatives. The ALCO monitors and considers methods of managing interest rate risk by monitoring changes in the market value of portfolio equity ("MVPE") and net interest income under various interest rate scenarios. The ALCO attempts to manage the various components of the Company's balance sheet to minimize the impact of sudden and sustained changes in interest rates on MVPE and net interest income. The Company's exposure to interest rate risk is reviewed on at least a quarterly basis by the Board of Directors and the ALCO. Interest rate risk exposure is measured using interest rate sensitivity analysis to determine the Company's change in MVPE in the event of hypothetical changes in interest rates and interest liabilities. If potential changes to MVPE and net interest income resulting from hypothetical interest rate swings are not within the limits established by the Board, the Board may direct management to adjust its asset and liability mix to bring interest rate risk within Board-approved limits. In order to reduce the exposure to interest rate fluctuations, the Company has developed strategies to manage its liquidity, lengthen the effective maturities of certain interest-earning assets, and shorten the effective maturities of certain interest-bearing liabilities. The Company has focused its investment activities on securities with generally medium-term (5 years to 7 years) maturities or average lives. The Company has utilized short-term borrowings and deposit marketing programs to adjust the term to repricing of its liabilities. Interest rate sensitivity analysis is used to measure the Company's interest rate risk by computing estimated changes in MVPE of its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. MVPE represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market rate sensitive instruments in the event of sudden and sustained increases and decreases in market interest rates of 100 basis points. All market rate sensitive instruments presented in this table are classified as either held to maturity or available for sale. The Company has no trading securities. The following table presents the Company's projected change in MVPE for the these rate shock levels as of June 30, 1998:
(Dollars in thousands) Projected Change Change in ---------------------------------- Interest Rates MVPE Dollars Percentage - ------------------------------------------------------------------------------------------ 100 basis point rise $101,745 $ 8,068 8.60 % Base scenario 93,678 - - 100 basis point decline 85,610 (8,068) (8.60)%
The preceding table indicates that, at June 30, 1998, in the event of a sudden and sustained increase or decrease in prevailing market interest rates, the Company's MVPE would be expected to decrease. However, the foregoing analysis does not attribute additional value to the Company's noninterest- bearing deposit balances, which have a significantly higher market value during periods of increasing interest rates. 30 Management's Discussion and Analysis of Results of Operations And Financial Condition MVPE is calculated based on the net present value of estimated cash flows utilizing market prepayment assumptions and market rates of interest provided by independent broker quotations and other public sources. Computation of forecasted effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposits decay, and should not be relied upon as indicative of actual future results. Further, the computations do not contemplate any actions the ALCO could undertake in response to changes in interest rates. Certain shortcomings are inherent in the method of analysis presented in the computation of MVPE. Actual values may differ from those projections presented should market conditions vary from assumptions used in the calculation of the MVPE. Certain assets, such as adjustable-rate loans, which represent one of the Company's loan products, have features which restrict changes in interest rate on short-term basis and over the life of the assets. In addition, the proportion of adjustable-rate loans in the Company's portfolio could decrease in future periods if market interest rates remain at or decrease below current levels due to refinance activity. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in the MVPE. Finally, the ability of many borrowers to repay their adjustable-rate mortgage loans may decrease in the event of significant interest rate increases. Interest Rate Risk Management Interest rate risk management is a function of the repricing characteristics of the Company's portfolio of assets and liabilities. Interest rate risk management focuses on the maturity structure of assets and liabilities and their repricing characteristics during periods of changes in market interest rates. Effective interest rate risk management seeks to ensure that both assets and liabilities respond to changes in interest rates within an acceptable time frame, thereby minimizing the effect of interest rate movements on net interest income. Interest rate sensitivity is measured as the difference between the volumes of assets and liabilities in the Company's current portfolio that are subject to repricing at various time horizons: one day or immediate, two days to six months, seven to twelve months, one to three years, four to five years, over five years and on a cumulative basis. The differences are known as interest sensitivity gaps. 31 Management's Discussion and Analysis of Results of Operations And Financial Condition The following table shows interest sensitivity gaps for different intervals as of June 30, 1998.
Immediate 2 Days To 7 Months to 1 Year 4 Years (Dollars in thousands) or One Day 6 Months 12 Months to 3 Years to 5 Years - -------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ - $ - $ - $ - $ - Short term investments 126,452 90,068 - - - Investment securities 243 86,355 17,085 57,890 38,354 Loans 636,421 33,824 24,904 64,573 24,535 Loan losses/unearned fees - - - - - Other assets - - - - - ------------------------------------------------------------------------ Total assets $763,116 $210,247 $ 41,989 $122,463 $ 62,889 ------------------------------------------------------------------------ LIABILITIES AND EQUITY Deposits: DDA $ - $ - $ - $ - $ - NOW, MMDA, and savings 809,594 - - - - Time deposits - 171,618 31,269 8,202 811 Other borrowings - - 50,000 20,000 - Subordinated debt - - - - - Trust preferred securities - - - - - Other liabilities - - - - - Shareholders' equity - - - - - ------------------------------------------------------------------------ Total liabilities and equity $809,594 $171,618 $ 81,269 $ 28,202 $ 811 ------------------------------------------------------------------------ Gap $(46,478) $ 38,629 $(39,280) $ 94,261 $ 62,078 Cumulative Gap $(46,478) $ (7,849) $(47,129) $ 47,132 $109,210 Cumulative Gap/total assets -3.16% -0.53% -3.20% 3.20% 7.42% More than Total Rate Non-Rate (Dollars in thousands) 5 Years Sensitive Sensitive Total ---------------------------------------------------------- ASSETS Cash and due from banks $ - $ - $ 69,239 $ 69,239 Short term investments - 216,520 - 216,520 Investment securities 137,872 337,799 3,316 341,115 Loans 22,753 807,010 - 807,010 Loan losses/unearned fees - - (20,030) (20,030) Other assets - - 57,013 57,013 ---------------------------------------------------------- Total assets $160,625 $1,361,329 $ 109,538 $1,470,867 ---------------------------------------------------------- LIABILITIES AND EQUITY Deposits: DDA $ - $ - $ 263,121 $ 263,121 NOW, MMDA, and savings - 809,594 - 809,594 Time deposits - 211,900 - 211,900 Other borrowings - 70,000 - 70,000 Subordinated debt 3,000 3,000 - 3,000 Trust preferred securities 20,000 20,000 - 20,000 Other liabilities - - 10,919 10,919 Shareholders' equity - - 82,333 82,333 ---------------------------------------------------------- Total liabilities and equity $ 23,000 $1,114,494 $ 356,373 $1,470,867 ---------------------------------------------------------- Gap $137,625 $ 246,835 $(246,835) - Cumulative Gap $246,835 $ 246,835 $ - - Cumulative Gap/total assets 16.78% 16.78% - -
The foregoing table indicates that the Company had a one year negative gap of $47.1 million, or 3.2% of total assets, at June 30, 1998. In theory, this would indicate that at June 30, 1998, $47.1 million more in liabilities than assets would reprice if there was a change in interest rates over the next 365 days. Thus, if interest rates were to increase, the gap would tend to result in a lower net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and its supporting liability can vary significantly while the timing of repricing of both the asset and its supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposit. The impact of fluctuations in interest rates on the Company's projected next twelve month net interest income and net income has been evaluated through an interest rate shock simulation modeling analysis that includes various assumptions regarding the repricing relationship of assets and liabilities, as well as the anticipated changes in loan and deposit volumes over differing rate environments. As of June 30, 1998, the analysis indicates that the Company's net interest income would increase a maximum of 18.5% if rates rose 200 basis points immediately and would decrease a maximum of 18.5% if rates declined 200 basis points immediately. In addition, the results indicate that notwithstanding the Company's gap position, which would indicate that the net interest margin increases when rates rise, the Company's net interest margin increases during rising rate periods due to the basis risk imbedded in the Company's interest- bearing liabilities. In addition, while this analysis indicates the probable impact of interest rate movements on the Company's net interest income, it does not take into consideration other factors that would impact this analysis. These factors would include but not be limited to management and ALCOs action to mitigate the impact to the Company and the impact of the Company's credit risk profile during periods of significant interest rate movements. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities which are not reflected in the interest sensitivity analysis table. These prepayments may have significant effects on the Company's net interest margin. Because of these factors and others, an interest sensitivity gap report may not provide a complete assessment of the Company's exposure to changes in interest rates. 32 Management's Discussion and Analysis of Results of Operations And Financial Condition Year 2000 Compliance Greater Bay is working to resolve the potential impact of the year 2000 on the ability of the Company's computerized information systems to accurately process information that may be date-sensitive. Any of the Company's programs that recognize a date using "00" as the year 1900 rater than the year 2000 could result in errors or system failures. Greater Bay utilizes a number of computer programs across its entire operation. The Company has not completed its assessment, but currently believes that costs of addressing this issue will not have a material adverse impact on the Company's financial position. However, if the Company and third parties upon which it relies are unable to address this issue in a timely manner, it could result in a material financial risk to the Company. In order to assure that this does not occur, Greater Bay plans to devote all resources required to resolve any significant year 2000 issues in a timely manner. Specifically the Company has undertaken a major project to ensure that its internal operating systems will be fully capable of processing Year 2000 transactions. The initial phase of the project was to assess and identify all internal business processes requiring modification and to develop comprehensive renovation plans as needed. This phase was largely completed in late 1997. The second phase, expected to be accomplished by the end of 1998, will be to execute those renovation plans and begin testing systems by simulating Year 2000 data conditions. Testing and implementation is planned to be completed during the first half of 1999. The primary cost of the project has been and will continue to be the reallocation of internal resources, and therefore does not represent incremental expense to the Company. The Company has budgeted anticipated expenditures of $300,000 to $500,000 in 1998 and 1999 to ensure that its systems are ready for processing information in the year 2000. The Company relies upon third-party software vendors and service providers for substantially all of its electronic data processing and does not operate any proprietary programs which are critical to the Company's operations. Thus, the focus of the Company is to monitor the progress of its primary software providers towards compliance with Year 2000 issues and prepare to test actual data of the Company in simulated processing of future sensitive dates. As well as evaluating its own internal operating systems, the Company has also inquired with its major customers and suppliers as to their ability to meet Year 2000 requirements. Common Stock Price and Dividend History The Company's stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol "GBBK". The Company's common stock was listed on Nasdaq on September 9, 1996. Prior to September 9, 1996, the Company's common stock was not listed on any exchange nor was it quoted by Nasdaq. It was, however, listed with the National Quotation Service and on the Over The Counter Bulletin Board. Hoefer & Arnett, Incorporated and Van Kasper & Company acted as the primary market makers and facilitated trades in the Company's common stock. Based on information provided to the Company from Hoefer & Arnett, the range of high and low bid quotations for the Common Stock for the first three quarters of 1996 are set forth below. Such quotations reflect inter-dealer prices, without retail mark- up, mark-down or commission and may not represent actual transactions. Quotations subsequent to September 30, 1996 reflect the high and low sales prices for the Company's common stock as reported by Nasdaq. 33 Management's Discussion and Analysis of Results of Operations And Financial Condition
Cash dividends For the period indicated(1) High Low declared (2) - ----------------------------------------------------------------------------------------------- 1998 Second Quarter $33.26 $32.33 $0.095 First Quarter 25.59 24.95 0.095 1997 Fourth Quarter $26.75 $21.00 $0.075 Third Quarter 22.25 15.94 0.075 Second Quarter 15.75 12.44 0.075 First Quarter 13.82 11.88 0.075 1996 Fourth Quarter $12.19 $10.57 $0.075 Third Quarter 10.50 9.00 0.075 Second Quarter 11.07 8.88 0.075 First Quarter 9.38 8.25 0.075
(1) Restated to reflect the 2-for-1 stock split declared for shareholders of record as of April 30, 1998. (2) Includes only those dividends declared by Greater Bay, and excludes those dividends paid by Cupertino National Bancorp prior to the 1996 merger and by PBC prior to the 1997 merger. In 1996, Cupertino National Bancorp declared and paid dividends of $0.10 to its shareholders. PBC declared dividends of $3.20 and $1.35 per share, in 1997 and 1996, respectively, to its shareholders. On a consolidated basis, the Company has declared dividends of $0.52 and $0.30 per share in 1997 and 1996, respectively. 34 PART II. OTHER INFORMATION ITEM 1 -- NOT APPLICABLE ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS On May 8, 1998, PRB, the former holding company of Golden Gate, merged with and into the Company. Upon consummation of the merger, the outstanding shares of PRB were converted into an aggregate of 950,748 shares (as adjusted to reflect the stock split) of the Company's stock. The stock was issued to former PRB's sole shareholder, the Leo K. W. Lum PRB Revocable Trust (the "Trust"), in a tax-free exchange accounted for as a pooling-of-interests. The securities issued in the merger were sold in a private transaction pursuant to an applicable exemption from registration under the Securities Act. ITEM 3 -- NOT APPLICABLE ITEM 4 -- NONE ITEM 5 -- Not applicable ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K The Exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Report. (a) Exhibits EXHIBIT NO. EXHIBIT - ------- ------- 2 Agreement and plan of reorganization by and among Greater Bay Bancorp, Pacific Rim Bancorporation and the Leo K.W. Lum PRB Revocable Trust dated February 24, 1998.+++ 3.1 Articles of Incorporation of Greater Bay Bancorp, as amended.+++ 3.2 Bylaws of Greater Bay Bancorp, as amended. +++ 4.1 Junior Subordinated Indenture dated as of March 31, 1997 between Greater Bay Bancorp and Wilmington Trust Company, as Trustee. ++ 4.2 Officers' Certificate and Company Order, dated March 31, 1997.++ 4.3 (Reserved.) 4.4 Certificate of Trust of GBB Capital I.+ 4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997.+ 35 4.6 Amended and Restated Trust Agreement of GBB Capital I, among Greater Bay Bancorp, Wilmington Trust Company and the Administrative Trustees named therein dated as of March 31, 1997.++ 4.7 Trust Preferred Certificate of GBB Capital I.++ 4.8 Common Securities Certificate of GBB Capital I.++ 4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington Trust Company, dated as of March 31, 1997.++ 4.10 Agreement as to Expenses and Liabilities, dated as of March 31, 1997.++ 4.11 Form of Subordinated Debentures; incorporated herein by reference from Exhibit 1 of Cupertino National Bancorp's Form 8-K (File No. 0-18015), filed with the Commission on October 25, 1995. 4.12 Supplemental Debenture Agreement of Cupertino National Bancorp dated as of November 22, 1996.+ 4.13 Supplemental Debenture Agreement dated November 27, 1996 between Cupertino National Bancorp and Mid-Peninsula Bancorp. + 4.14 Supplemental Debenture Agreement, dated as of March 27, 1997.++ 10.1 Employment Agreement with David L. Kalkbrenner, dated March 3, 1992; incorporated herein by reference from Exhibit 10.15 to Mid-Peninsula Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-25034), filed with the Commission on March 30, 1995.* 10.1.1 Amendment No. 1 to Employment Agreement with David L. Kalkbrenner, dated March 27, 1998.* 10.2 Employment, Severance and Retirement Benefits Agreement with Steven C. Smith dated July 31, 1995.*+ 10.2.1 Amendment No. 1 to Employment, Severance and Retirement Benefits Agreement with Steven C. Smith, dated March 27, 1998.*+++ 10.3 Employment, Severance and Retirement Benefits Agreement with David R. Hood dated July 31, 1995.*+ 10.3.1 Amendment No. 1 to Employment, Severance and Retirement Benefits Agreement with David R. Hood, dated March 27, 1998.* 10.4 Greater Bay Bancorp 1996 Stock Option Plan, as amended; incorporated herein by reference from Exhibit 99.1 to Greater Bay Bancorp's Registration Statement on Form S-8 (Registration No. 333-47747), filed with the Commission on March 11, 1998.* 10.5 Greater Bay Bancorp 401(k) Profit Sharing Plan.*+++ 10.6 Greater Bay Bancorp Employee Stock Purchase Plan; incorporated herein by reference from Greater Bay Bancorp's Proxy Statement for Annual Meeting of Shareholders (File No. 000-25034), filed with the Commission on May 13, 1997.* 10.6.1 Amendment to Greater Bay Bancorp Employee Stock Purchase Plan. *+++ 10.7 Greater Bay Bancorp Change of Control Pay Plan I. *+++ 10.8 Greater Bay Bancorp Change of Control Pay Plan II. *+++ 10.9 Greater Bay Bancorp Termination and Layoff Plan I. *+++ 10.10 Greater Bay Bancorp Termination and Layoff Plan II. *+++ 10.11 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan. *+++ 10.12 Form of Indemnification Agreement between Greater Bay Bancorp and with directors and certain executive officers. + 11 Statements re Computation of Earnings Per Share. 27.1 Financial Data Schedule. 27.2 Restated Financial Data Schedule. 27.3 Restated Financial Data Schedule. - -------- * Represents executive compensation plans and arrangements of Greater Bay Bancorp. + Incorporated by reference from Greater Bay Bancorp's Registration Statement on Form S-1 (Registration No. 33-22783) filed with the Commission on March 5, 1997. ++ Incorporated by reference from Greater Bay Bancorp's current report on Form 8-K (File No. 000-25034) dated June 5, 1997. 36 +++Incorporated by reference form Greater Bay Bancorp's current report on Form 10-K (File No. 000-25034) dated March 31, 1998. - ---- (b) Reports on Form 8-K for the quarter covered by this report. On May 20, 1998, the Company filed a Form 8-K reporting the completion of the merger of Greater Bay Bancorp, Pacific Rim Bancorporation and its wholly owned subsidiary, Golden Gate Bank. 37 SIGNATURES IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. GREATER BAY BANCORP (Registrant) By: /s/ Steven C. Smith - ------------------- Steven C. Smith Executive Vice President, Chief Operating Officer and Chief Financial Officer Date: August 14, 1998 38 EX-11 2 CONTINUATION OF EARNINGS PER SHARE EXHIBIT 11 Greater Bay Bancorp Form 10-Q Exhibit 11 - Statements Re Computation of Earnings Per Share
Three Months Ended June 30, Six Months Ended June 30, (Dollars and shares in thousands, except per share amounts) 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------ -------------------------- Basic Earnings Per Share: Income available to common shareholders $ 2,923 $ 3,011 $ 6,628 $ 5,815 Weighted average common shares outstanding 9,163,934 8,895,548 9,106,015 8,923,764 -------------------------- -------------------------- Basic earnings per share $ 0.32 $ 0.34 $ 0.73 $ 0.65 ========================== ========================== Diluted Earnings Per Share: Income available to common shareholders $ 2,923 $ 3,011 $ 6,628 $ 5,815 Weighted average common shares outstanding 9,163,934 8,895,548 9,106,015 8,923,764 Effect of dilutive securities 793,774 589,124 818,143 670,715 -------------------------- -------------------------- Weighted average common and common equivalent shares outstanding 9,956,505 9,484,672 9,924,158 9,594,479 -------------------------- -------------------------- Diluted earnings per share $ 0.29 $ 0.32 $ 0.67 $ 0.61 ========================== ==========================
EX-27.1 3 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS 3-MOS DEC-31-1998 DEC-31-1998 APR-01-1998 JAN-01-1998 JUN-30-1998 MAR-31-1998 69,239 70,749 0 378 126,200 78,100 0 0 303,358 309,565 34,440 38,055 35,147 38,852 786,980 750,064 (17,584) (16,205) 1,470,867 1,304,562 1,284,615 1,106,431 0 11,900 80,919 22,967 23,000 83,000 0 0 0 0 54,247 52,916 28,086 27,348 1,470,867 1,304,562 19,753 18,554 4,116 4,831 2,786 1,347 26,655 24,732 9,501 8,759 11,228 10,082 15,427 14,650 1,307 936 (8) 8 9,150 9,556 6,568 5,599 6,568 5,599 0 0 0 0 2,923 3,705 0.32 0.41 0.29 0.37 4.61 4.98 3,758 3,152 75 108 531 903 0 0 16,205 16,098 (18) (856) 20 31 17,585 16,205 17,585 16,205 0 0 0 0
EX-27.2 4 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 3-MOS 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 APR-01-1997 JUL-01-1997 OCT-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997 36,128 44,058 49,436 53,000 0 0 0 0 62,300 64,300 57,800 75,000 0 0 0 0 149,220 165,296 77,422 172,096 59,239 47,111 42,966 44,461 59,191 48,072 42,600 35,147 598,539 637,306 674,104 718,529 (11,619) (13,584) (14,433) (16,093) 959,032 1,014,314 1,077,718 1,200,319 849,342 908,533 970,433 1,071,148 11,803 2,969 0 9,930 5,988 7,128 7,869 10,433 23,000 23,000 23,000 32,550 0 0 0 0 0 0 0 0 51,010 43,957 44,181 52,218 28,727 19,250 32,235 24,040 959,032 1,014,314 1,077,718 1,200,319 14,350 16,293 17,270 17,306 3,267 2,198 3,445 4,942 662 2,417 1,589 1,718 18,279 20,910 22,304 23,966 6,538 7,517 7,940 8,624 6,830 8,281 8,524 9,254 11,449 12,629 13,780 14,712 1,993 2,275 1,224 1,000 0 8 5 25 6,204 8,109 8,245 12,640 4,486 4,725 5,789 2,544 4,486 4,725 5,789 2,544 0 0 0 0 0 0 0 0 2,897 3,011 3,643 1,558 0.59 0.34 0.41 0.43 0.56 0.32 0.38 0.39 5.27 5.46 6.31 6.11 4,500 5,786 4,565 2,971 967 147 575 158 1,845 1,705 1,453 1,062 0 0 0 0 9,883 11,634 13,584 14,433 (271) (354) (386) (748) 14 29 12 8 11,619 13,584 14,433 16,098 11,619 13,584 14,433 16,098 0 0 0 0 0 0 0 0
EX-27.3 5 RESTATED FINANCIAL DATA SCHEDULE
9 1,000 12-MOS 12-MOS 12-MOS DEC-31-1997 DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JAN-01-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 53,000 49,959 38,602 0 0 0 75,000 32,400 45,400 0 0 0 272,215 84,023 93,818 44,461 63,176 61,275 45,246 63,535 61,717 718,529 554,796 394,994 (16,093) (9,883) (6,603) 1,200,319 897,671 652,124 1,071,148 821,366 584,355 0 0 0 10,432 6,489 5,866 42,480 3,000 3,000 0 0 0 0 0 0 52,218 50,025 48,109 24,040 16,141 12,884 1,200,319 897,671 652,124 66,608 47,648 40,311 14,541 9,528 8,160 3,951 3,183 3,087 85,099 60,364 51,543 30,649 21,224 17,748 32,882 21,705 18,594 52,217 38,659 32,949 6,492 2,306 1,160 (5) (255) (113) 35,228 31,405 27,263 18,454 10,643 9,020 17,979 10,316 8,589 0 0 0 0 0 0 10,823 6,343 5,571 2.20 1.33 1.24 2.05 1.26 1.18 4.69 5.19 5.47 2,971 4,616 4,833 158 1,237 830 1,062 1,828 1,530 0 0 0 9,883 6,603 6,938 (1,692) (471) (1,846) 60 645 351 16,093 9,883 6,603 16,093 9,883 6,603 0 0 0 0 0 0
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