-----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, S7VxByespoe/Yk/2KCYYI+3wXrwaNJRKEiXRsZqiza+9lbKp725lZU+MJ3wQhfum XWWSXsJ1GaIo1V3zJU+sPw== 0001012870-97-001027.txt : 19970520 0001012870-97-001027.hdr.sgml : 19970520 ACCESSION NUMBER: 0001012870-97-001027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 1934 Act SEC FILE NUMBER: 000-25034 FILM NUMBER: 97606275 BUSINESS ADDRESS: STREET 1: 2860 WEST BAYSHORE ROAD CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4153751555 MAIL ADDRESS: STREET 1: 2860 BAYSHORE 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 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 March 31, 1997 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) (415) 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 May 9, 1997: 3,327,144 This report contains a total of 16 pages. 1 of 16 GREATER BAY BANCORP INDEX PART I. FINANCIAL INFORMATION Item 1. Interim Consolidated Financial Statements Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996.................. 3 Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996............................... 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996............................... 5 Notes to Interim Consolidated Financial Statements.... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K...................... 16 Signatures............................................ 16 2 of 16
PART I. FINANCIAL INFORMATION GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, (dollars in thousands) 1997 1996 (unaudited) - ----------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 27,700 $ 39,896 Federal funds sold 41,300 14,000 - ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 69,000 53,896 Investment securities Held to maturity (Market value $51,342 at March 31, 1997; 51,409 56,964 $58,745 at December 31, 1996) Available for sale (Cost $37,562 at March 31, 1997; $46,987 at December 31, 1996) 37,704 47,105 Other securities 1,545 1,451 - ----------------------------------------------------------------------------------------------------------------------- Total investment securities 90,658 105,520 Loans: Commercial 266,036 257,042 Real estate-construction and land 93,677 78,278 Real estate-term 92,955 72,802 Consumer and other 38,662 42,702 Deferred loan fees and discounts (2,126) (1,952) - ----------------------------------------------------------------------------------------------------------------------- Total Loans 489,204 448,872 Allowance for loan losses (9,066) (7,312) - ----------------------------------------------------------------------------------------------------------------------- Net loans 480,138 441,560 Premises and equipment, net 3,754 3,831 Accrued interest receivable and other assets 21,526 17,237 - ----------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $665,076 $622,044 ======================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand, noninterest-bearing $114,587 $139,941 NOW 14,142 26,936 Money Market Demand Accounts 259,421 271,748 Savings 59,754 13,599 Other time certificates 45,327 38,889 Time certificates, $100 and over 85,823 68,170 - ----------------------------------------------------------------------------------------------------------------------- Total deposits 579,054 559,283 Accrued interest payable and other liabilities 15,738 15,079 Subordinated debentures 3,000 3,000 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures 20,000 - - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 617,792 577,362 Shareholders' equity: Preferred stock, no par value: 4,000,000 shares authorized; none issued - - Common stock, no par value: 6,000,000 shares authorized; shares outstanding: 3,301,209 at March 31, 1997 and 3,238,887 at December 31, 1996 35,679 34,884 Unrealized gain (loss) on available-for-sale securities, net of taxes 138 71 Retained earnings 11,467 9,727 - ----------------------------------------------------------------------------------------------------------------------- Total shareholder's equity 47,284 44,682 - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $665,076 $622,044 ======================================================================================================================= See notes to consolidated financial statements - -----------------------------------------------------------------------------------------------------------------------
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GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) Three Months Ended March 31, - ----------------------------------------------------------------------------------------------------------------------- 1997 1996 (unaudited) - ----------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest on loans $11,253 $7,936 Interest on investment securities: Taxable 1,284 1,499 Non-taxable 188 156 - ----------------------------------------------------------------------------------------------------------------------- Total Investment securities 1,472 1,655 Other interest income 356 373 - ----------------------------------------------------------------------------------------------------------------------- Total interest income 13,081 9,964 INTEREST EXPENSE: Interest on deposits 4,523 3,569 Other interest expense 292 103 - ----------------------------------------------------------------------------------------------------------------------- Total interest expense 4,815 3,672 - ----------------------------------------------------------------------------------------------------------------------- Net interest income 8,266 6,292 PROVISION FOR LOAN LOSSES 1,948 320 - ----------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 6,318 5,972 OTHER INCOME: Other loan fees 6 15 Trust Fees 454 309 Gain on sale of SBA loans 158 130 Depositor service fees 263 208 Investment gains (losses) (51) 13 Other 131 136 - ----------------------------------------------------------------------------------------------------------------------- Total other income 961 811 OPERATING EXPENSES: Compensation and benefits 3,697 2,794 Occupancy and equipment 1,062 757 Professional services 350 272 FDIC insurance and regulatory assessments 41 27 Data Processing 65 81 Marketing 232 164 Client services 82 120 Other real estate, net 2 24 Other 607 452 - ----------------------------------------------------------------------------------------------------------------------- 6,138 4,691 Legal settlement recovery (1,700) - - ----------------------------------------------------------------------------------------------------------------------- Total operating expenses 4,438 4,691 - ----------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAX EXPENSE 2,841 2,092 Income tax expense 1,102 842 - ----------------------------------------------------------------------------------------------------------------------- NET INCOME $ 1,739 $1,250 Net income per common and common equivalent share $ 0.50 $ 0.39 - ----------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements - -----------------------------------------------------------------------------------------------------------------------
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GREATER BAY BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Three Months Ended March 31, --------------------------------------- 1997 1996 (unaudited) -------------- -------------- CASH FLOWS--OPERATING ACTIVITIES: Net income $ 1,739 $ 1,250 Reconciliation of net income to net cash from operations: Provision for loan losses 1,948 320 Depreciation and amortization 341 246 Accrued interest receivable and other assets (4,289) 75 Accrued interest payable and other liabilities 659 (370) Net change in deferred loan fees and discounts 174 14 Proceeds from sales of loans held for sale - 2,515 Origination of loans held for sale - (2,515) Loss(gain) on sale of securities 51 (13) Net unrealized (gain) loss on securities (67) - -------------- -------------- Operating cash flows, net 556 1,522 CASH FLOWS--INVESTING ACTIVITIES: Maturities of investment securities: Held-to-maturity 6,268 2,330 Available-for-sale 12,043 3,741 Purchase of investment securities: Held-to-maturity (745) (2,019) Available-for-sale (4,530) (322) Net change in loans (40,500) (22,014) Sale of AFS Securities 1,950 9,000 Principal payments on AFS Securities 7 16 Purchase of life insurance policies - (235) Purchase of premises and equipment, net (315) (429) Other, net - (48) -------------- -------------- Investing cash flows, net (25,822) (9,980) CASH FLOWS--FINANCING ACTIVITIES: Net change in deposits 19,771 9,251 Net change in short-term borrowings (197) - Proceeds from issuance of Trust Preferred Securities 20,000 - Stock purchased by employees and stock options exercised 796 435 Cash dividends - (157) -------------- -------------- Financing cash flows, net 40,370 9,529 -------------- -------------- Net increase in cash and cash equivalents 15,104 1,071 Cash and cash equivalents at beginning of period 53,896 58,111 -------------- -------------- Cash and cash equivalents at end of period $ 69,000 $ 59,182 ============== ============== CASH FLOWS--SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest on deposits and other borrowings $ 4,844 $ 3,687 Income taxes - 597 Non-cash transactions: Additions to other real estate owned 137 217 See notes to consolidated financial statements. - -----------------------------------------------------------------------------------------------------------------
5 of 16 GREATER BAY BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. BASIS OF PRESENTATION Greater Bay Bancorp (referred to as the "Company" when such reference includes Greater Bay Bancorp and its subsidiaries, collectively, or "Greater Bay" when referring only to the parent company) is a California corporation and bank holding company that was incorporated on November 14, 1984 as San Mateo County Bancorp. The name was changed to Mid-Peninsula Bancorp on October 7, 1994 as a result of the merger between Mid-Peninsula Bancorp and Cupertino National Bancorp. Upon consummation of the merger with Cupertino National Bancorp, the Company became a multi-bank holding company with wholly owned bank subsidiaries, Mid-Peninsula Bank ("MPB") and Cupertino National Bank & Trust ("CNB"), collectively the "Banks". MPB commenced operations in October 1987 and is a state chartered bank regulated by the Federal Reserve Bank (FRB) and the California State Banking Department. CNB commenced operations in May 1985 and is a national banking association regulated by the Office of the Comptroller of Currency (OCC). The merger was accounted for as a pooling of interests. Accordingly, all of the financial information for the Company for the periods prior to the merger have been restated to reflect the pooling of interests as if it occurred at the beginning of the earliest reporting period presented. The accompanying unaudited consolidated financial statements include the accounts of the Company. These financial statements reflect, in management's opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company's financial position and the results of its operations and cash flows for the periods presented. Certain amounts for prior periods have been reclassified to conform to current period presentation. The results for the three months ended March 31, 1997 are not necessarily indicative of the results expected for any subsequent quarter or for the entire year ending December 31, 1997. These financial statements should be read in conjunction with the financial statements included in the 1996 Annual Report to Shareholders. 2. COMPANY OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF GBB CAPITAL I On March 30, 1997, GBB Capital I (the "Trust"), a Delaware business trust wholly-owned by Greater Bay completed a public offering of 800,000 shares of 9.75% cumulative trust preferred securities ("TPS"). The Trust used the proceeds from the offering to purchase a like amount of 9.75% Junior Subordinated Deferrable Interest Debentures (the "Debentures") of Greater Bay. The Debentures are the sole assets of the Trust and are eliminated along with the related income statement effects, in the consolidated financial statements. Greater Bay invested approximately 58.5% of the proceeds in CNB and MPB to increase their capital levels to support future growth. The remaining proceeds will be used for general corporate purposes. The TPS accrue and pay distributions quarterly at an annual rate of 9.75% of the liquidation amount of $25 per TPS. Greater Bay has fully and unconditionally guaranteed all of the obligations of the Trust. The TPS are mandatory redeemable, in whole or in part, upon repayment of the Debentures at the stated maturity or their earlier redemption. The Debentures are redeemable prior to maturity (April 1, 2027) at the option of Greater Bay, on or after April, 2002, in whole at any time or in part from time to time. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Capital Ratios" for discussion of Tier I Capital. 6 of 16 3. SHARE AND PER SHARE AMOUNTS Earnings per common and common equivalent shares are calculated based upon the weighted average number of shares outstanding during the period, plus equivalent shares representing the effect of dilutive stock options. The number of shares used to compute earnings per share were 3,525,609 and 3,215,616 for the three months ended March 31, 1997 and 1996, respectively. 4. EARNINGS PER SHARE Earnings per share are based on the weighted average shares of common stock outstanding plus common equivalent shares using the treasury stock method. The treasury stock method calculation assumes all dilutive common stock equivalent are exercised and the funds generated by the exercise are used to buy back outstanding common stock at the average market price during the reporting period, for primary earnings per share, or at the end of period market price if higher, for fully diluted earnings per share. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earning Per Share" (SFAS 128"). SFAS 128 is designed to improve the earnings per share ("EPS") information provided in the financial statements by simplifying the existing computational guidelines, revising the disclosure requirements, and increasing the comparability of EPS data on an international basis. SFAS 128 is effective for financial statements issued for periods ending December 31, 1997, including interim periods. The Company will implement SFAS 128 in its December 31, 1997 financial statements. The Company believes the impact of SFAS will not have a material effect on its earnings per share calculation. 5. CASH DIVIDEND The company paid a quarterly cash dividend of $.15 per share on April 21, 1997 to shareholders of record on April 7, 1997. 7 of 16 GREATER BAY BANCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company reported net income for the first quarter of 1997 of $1.7 million or $0.50 per common and common equivalent share, compared to net income of $1.3 million or $0.39 per common and common equivalent share, reported in the first quarter of last year. Return on average assets annualized for the first quarters of 1997 and 1996 were 1.10% and 1.03% respectively, while annualized return on average common equity was 15.34% for the first quarter of 1997, compared with 12.30% for the first quarter of 1996. Included in the first quarter of 1997 is a $1.7 million ($1.0 million net of tax) recovery from the Company's insurance coverage related to the $1.7 million ($1.0 million net of tax) legal settlement charge that occurred in the second quarter of 1995. The first quarter of 1997 also includes a provision for loan losses of $1.95 million compared to $320,000 for the corresponding period in 1996. The higher provision in 1997 was due to the substantial increase in loans outstanding and the corresponding increase in non-seasoned loans. The first quarter of 1997 also includes $410,000 in nonrecurring charges. Excluding the insurance recovery, higher loan loss provision and nonrecurring charges, net core earnings for the first quarter of 1997 would have been $1.75 million. Non performing assets (including nonaccrual loans, loans 90 days past due and still accruing and other real estate owned ("OREO")) totaled $4.4 million at March 31, 1997, an increase of $1.12 million from December 31, 1996, and an increase of $828,000 from March 31, 1996. The ratio of nonperforming assets to loans plus foreclosed properties was .90% at March 31, 1997, up from .73% at December 31, 1996 and down from 1.15% at March 31, 1996. Classified assets totaled $11.4 million, or 1.71% of total assets, at March 31, 1997, compared to $9.4 million or 1.51% of total assets at December 31, 1996 and $12 million or 2.46% of total assets at March 31, 1996. The reserve for loan losses was $9.1 million at March 31, 1997, compared with $7.3 million at December 31, 1996 and $4.7 million at March 31, 1996. The provision for loan losses was $1.95 million for the first quarter of 1997, compared to $320,000 recorded in the first quarter of 1996 (see discussion below). Net charge-offs were $207,000 for the first quarter of 1997 and there were no charge-offs for the first quarter of 1996. The ratio of the reserve for loan losses to nonperforming assets was 207% at March 31, 1997, compared with 224% at December 31, 1996 and 133% at March 31, 1996. 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. Specific allocations are made for loans where the probability of a loss can be defined and reasonably determined, while the balance of the provision for loan losses is 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. Shareholders' equity increased $2.6 million to $47.3 million, or 7.11% of assets, at March 31, 1997, from $44.7 million or 7.18% of assets at December 31, 1996. The increase was primarily due to net earnings and stock purchased by directors and employees through stock option and stock purchase plans. 8 of 16 The Company's Tier 1 and total risk-based capital ratios were 12.36% and 14.17% at March 31, 1997, respectively, compared with 8.75% and 10.54% at December 31, 1996, respectively. The leverage ratio increased to 10.45% at March 31, 1997, from 7.27% at December 31, 1996. At March 31, 1997, the Company's risk-based capital and leverage ratios, as well as those of the Banks, exceeded the ratios for a well-capitalized financial institution as defined in FDICIA under the prompt corrective action regulations. The Company will seek to maintain its well capitalized position to ensure flexibility in its operations. GBB's common stock closed at $27.25 per share on March 31, 1997, representing approximately 194% of the $14.02 book value per common share, compared with $24.38 per share and 177% of the $13.80 book value per common share at December 31, 1996. RESULTS OF OPERATIONS NET INTEREST INCOME The following table presents the Company's average balance sheet, net interest income and the resultant yields for the quarterly periods presented:
Three Months Ended Three Months Ended Three Months Ended March 31, 1997 December 31, 1996 March 31, 1996 ----------------------------- ------------------------------ ------------------------------ Average Average Average Average Yield/ Average Yield/ Average Yield/ (Dollars in thousands) Balance(1) Interest Rate Balance(1) Interest Rate Balance(1) Interest Rate -------------------------------------------------------------------------------------------- Interest-earning assets: Loans (2) (4) $469,038 $11,253 9.73% $416,435 $10,807 10.32% $301,636 $ 7,936 10.58% Taxable investments 86,961 1,284 5.91% 94,825 1,556 6.56% 99,875 1,499 6.00% Non-taxable investments (5) 11,128 252 9.04% 13,714 243 7.09% 12,091 209 6.91% Federal funds sold 27,650 356 5.22% 44,719 585 5.20% 26,236 373 5.72% -------- -------- ----- -------- ------- -------- --------- -------- -------- Total interest-earning assets 594,777 13,145 8.79% 569,693 13,191 9.21% 439,838 10,017 9.16% Noninterest-earning assets 48,783 42,714 39,996 -------- -------- --------- Total Assets $643,560 $612,407 $479,834 ======== ======== ========= Interest-bearing liabilities: Deposits: NOW and MMDA $286,124 2,977 4.22% $313,772 2,901 3.68% $237,323 2,236 3.79% Savings deposits 36,676 174 1.93% 13,840 146 4.19% 16,103 138 3.45% Time deposits 119,105 1,372 4.67% 108,523 1,423 5.22% 91,850 1,207 5.29% -------- --------- ---- -------- ------- -------- --------- -------- -------- Total Deposits 441,905 4,523 4.15% 436,135 4,470 4.08% 345,276 3,581 4.17% Borrowings 24,901 292 4.76% 10,817 198 7.27% 3,504 103 11.82% -------- --------- ---- -------- ------- -------- --------- -------- -------- Total interest-bearing liabilities 466,806 4,815 4.18% 446,952 4,668 4.15% 348,780 3,684 4.25% -------- --------- ---- -------- ------- -------- --------- -------- -------- Noninterest-bearing deposits 127,264 115,802 87,486 Other noninterest-bearing liabilities 3,507 4,239 2,655 -------- --------- Total noninterest-bearing liabilities 130,771 120,041 90,141 -------- -------- --------- Shareholders' equity 45,983 45,414 40,913 -------- -------- --------- Total liabilities and shareholders' equity $643,560 $612,407 $479,834 ======== ======== ========= Net interest income; Interest rate spread $ 8,330 4.61% $ 8,523 5.06% $ 6,333 4.91% ======== ==== ======= ===== ======= ===== Net yield (3) $127,971 5.68% $122,741 5.95% $ 91,058 5.79% ======== ==== ======== ===== ========= =====
(1) Average balances are computed using an average of the daily balances during the period. (2) Non-accrual loans are included in the average balance column; however, only collected interest is included in the interest column. (3) The net yield on noninterest-earning assets during the period equals net interest income divided by average interest-earning assets for the period. (4) Loan fees totaling $497,000, $616,000 and $510,000 are included in loan interest income for the periods ended March 31, 1997, December 31, 1996 and March 31, 1996, respectively. (5) Tax exempt interest income includes $64,000, $83,000 and $53,000 for the three month periods ending March 31, 1997, December 31, 1996, and March 31, 1996, respectively, to adjust to a fully taxable equivalent basis using the Federal statutory rate of 34%. 9 of 16 The following table presents the dollar amount of certain changes in interest income and interest expense for each major component of interest-earning assets and interest-bearing liabilities and the difference attributable to changes in average rates and volumes for the quarterly periods indicated:
Three months ended March 31, 1997 Three months ended March 31, 1997 compared with December 31, 1996 compared with March 31, 1996 favorable (unfavorable) favorable (unfavorable) ------------------------------------- ---------------------------------- (Dollars in thousands) Volume Rate Total Volume Rate Total -------- ------- -------- ------- ------- -------- Interest income on loans $ 1,161 $ (715) $ 446 $ 4,025 $ (708) $ 3,317 Taxable investments (123) (149) (272) (192) (23) (215) Non taxable investments (50) 59 9 (19) 60 43 Federal funds sold (231) 2 (229) 19 (36) (17) -------- ------- -------- ------- ------- ------- Change in total interest income 757 (803) (46) 3,833 (707) 3,128 Interest expense on deposits NOW and MMDA (29) 368 76 478 263 741 Savings deposits 141 (113) 28 118 (82) 36 Time deposits 119 (170) (51) 323 (158) 165 -------- ------- -------- ------- ------- ------- (32) 85 53 919 23 942 Interest expense on borrowings 182 (88) 94 252 (63) 189 -------- ------- -------- ------- ------- -------- Change in total interest expense 150 (3) 147 1,171 (40) 1,131 -------- ------- -------- ------- ------- -------- Increase (decrease) in net interest income $ 607 $ (800) $ (193) $ 2,662 $ (667) $ 1,997 ======== ======= ======== ======= ======= ========
(1) In the analysis, the change due to both the rate and volume have been allocated proportionately. The Company's net interest income for the first quarter of 1997 was $8.3 million, a $193,000 decrease over the fourth quarter of 1996. When compared to the fourth quarter of 1996, average earning assets increased by $25.1 million, while the net yield on average earning assets decreased from 5.95% in the fourth quarter of 1996 to 5.68% in the first quarter of 1997. This was mainly due to an increase in the average rates paid on interest-bearing liabilities. Compared to the first quarter of 1996, average earning assets during the first quarter of 1997 increased by $154.9 million. Average loans in the first quarter of 1997 increased by $167.4 million, 55.9% over the first quarter of 1996. This was due to increased loan demand compared to the previous year's first quarter. The Company's average interest-bearing deposits grew $96.6 million and non-interest bearing deposits grew by $39.7 million compared to the first quarter of 1996. The Company provides client services to several of its noninterest-bearing demand deposit customers. The amount of credit available to clients is based on a calculation of their average noninterest-bearing deposit balance, adjusted for float and reserves, multiplied by an earnings credit rate, generally the average of the month's 90 day T-Bill rate. The credit can be utilized to pay for services including messenger service, account reconciliation and other similar services. If the cost of the services provided exceeds the available credit, the customer is charged for the difference. 10 of 16 The impact of this expense on the Company's net interest spread and net yield on interest-earning assets was as follows:
Three Months Ended -------------------------------------------------------------------- March 31, December 31, March 31, (Dollars in thousands) 1997 1996 1996 - ------------------------------------------------------------------------------------------------------------------------------ Average noninterest-bearing demand deposits $126,980 $115,802 $87,486 Client Service expense 82 90 120 Client Service cost annualized 0.26% 0.31% 0.55% Impact on Net Yield - ------------------- Yield on interest-earning assets 5.68% 5.95% 5.79% Impact of client services (0.10) (0.11) (0.15) ------ ------ ------ Adjusted net yield (1) 5.58% 5.84% 5.64% - ------------------------------------------------------------------------------------------------------------------------------
(1) Noninterest-bearing liabilities are included in cost of funds calculation to determine adjusted spread. The negative impact on the net yield on interest earning assets is caused by off-setting net interest income by the cost of client service expenses, which reduces the yield on interest-earning assets. The cost for client service expense has decreased in 1997 due to decreased volume of activity in services to noninterest-bearing demand deposit clients. INTEREST RATE SENSITIVITY Interest rate risk sensitivity 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, three to five years, over five years and on a cumulative basis. The differences are known as interest sensitivity gaps. The following table shows interest sensitivity gaps for different intervals as of March 31, 1997.
INTEREST SENSITIVITY ANALYSIS Repricing Periods More than More than More Total Immediate 2 Days To Months 1 Year 3 Yrs than Total Rate Non-rate (Dollars in thousands) One Day 6 Months 7-12 to 3 Yrs to 5 Yrs 5 Yrs Sensitive Sensitive Total ---------------------------------------------------------------------------------------------------- Assets: Cash and due from banks $ - $ - $ - $ - $ - $ - $ - $ 27,700 $ 27,700 Short term investments 41,300 - - - - - 41,300 - 41,300 Investment securities 195 5,504 5,986 8,556 30,016 38,856 89,113 1,545 90,658 Loans 383,767 9,684 10,373 15,370 8,086 59,500 486,780 4,550 491,330 Loan loss/unearned fees - - - - - - - (11,192) (11,192) Other assets - - - - - - - 25,280 25,280 -------- -------- --------- ------- ------- -------- -------- --------- -------- Total assets $425,262 $ 15,188 $ 16,359 $23,926 $38,102 $ 98,356 $617,193 $ 47,883 $665,076 ======== ======== ========= ======= ======= ======== ======== ========= ======== Liabilities and Equity: Deposits Demand $ - $ - $ - $ - $ - $ - $ - $ 114,586 $114,586 NOW, MMDA, and savings 333,317 - - - - - 333,317 - 333,317 Time deposits - 116,229 13,793 788 281 60 131,151 - 131,151 Subordinated debt 3,000 - - - - - - 3,000 3,000 Trust preferred securities - - - - - - - 20,000 20,000 Other liabilities 11,803 - - - - - 11,803 3,935 15,738 Shareholders' equity - - - - - - - 47,284 47,284 -------- --------- --------- ------ ------- -------- -------- --------- -------- Total liabilities and equity $348,120 $ 116,229 $ 13,793 $ 788 $20,281 $ 60 $499,271 $188,805 $665,076 ======== ========= ========= ====== ======= ======== ======== ========= ======== Gap $ 77,142 $(101,041) $ 2,566 $23,138 $37,821 $ 98,296 $140,922 $(140,922) $ (0) Cumulative Gap $ 77,142 $ (23,899) $ (18,333) $ 4,805 $42,626 $140,922 $ 60,535 $ (80,387) $(80,387) Cumulative Gap/total assets 28.33% (8.78)% (6.73)% 1.76% 15.65% 51.75% 22.23% (30)% (0) - ----------------------------------------------------------------------------------------------------------------------------------
11 of 16 NON-INTEREST INCOME The following table provides details of non-interest income for the previous five quarters:
Quarter Ended ------------------------------------------------------------------------------------------ March 31, December 31, September 30, June 30, March 31, (Dollars in thousands) 1997 1996 1996 1996 1996 ------------------ ----------------- ----------------- ----------------- ----------------- Loan fees $ 6 $ 24 $ 59 $ 34 $ 15 Trust fees 454 397 375 344 309 Gain on sale of SBA loans 158 144 122 123 130 Depositor service fees 263 265 275 277 208 Investment gains (losses) (51) (44) (122) (110) 13 Other 131 158 163 236 136 ------------------ ----------------- ----------------- ----------------- ----------------- Total other income $961 $944 $ 872 $ 904 $811 ================== ================= ================= ================= =================
Non-interest income was $961,000 for the first quarter of 1997, an increase of $17,000 from the fourth quarter of 1996, and an increase of $150,000 from the first quarter of 1996. The increase in the 1997 quarter from the fourth quarter of 1996 and from the third quarter of 1996 was primarily due to an increase in trust fee income and SBA fees resulting from increased activity. NON-INTEREST EXPENSE The following table provides details of non-interest expense for the previous five quarters:
Quarter Ended --------------------------------------------------------------------------------- March 31, December 31, September 30, June 30, March 31, (Dollars in thousands) 1997 1996 1996 1996 1996 ------------ ----------------- ----------------- -------------- -------------- Compensation and benefits $3,697 $3,269 $2,982 $2,976 $2,794 Occupancy and equipment 1,062 1,021 846 777 757 Professional services 350 457 264 296 272 Marketing 232 252 184 153 164 Director fees 51 59 57 62 45 FDIC insurance and assessments 41 26 22 27 27 Supplies, telephone and postage 240 187 209 208 183 Client services 82 90 105 95 120 Other real estate, net 2 - 5 6 24 Other 381 658 654 472 305 ------------ ----------------- ----------------- -------------- -------------- 6,138 6,019 5,328 5,072 4,691 Legal settlement recovery (1,700) - - - - ------------ ----------------- ----------------- -------------- -------------- Total operating expenses $4,438 $6,019 $5,328 $5,072 $4,691 ============ ================= ================= ============== ==============
Non-interest expenses, excluding legal settlement recovery, were $6.1 million for the first quarter of 1997, an increase of $119,000 from the fourth quarter of 1996, and an increase of $1.45 million from the first quarter of 1996. The increase in non-interest expenses are mainly attributable to the significant growth that has occurred from the first quarter of 1996 to the first quarter of 1997 and the corresponding increase in employees. The legal settlement recovery is attributed to the $1.70 million ($1.0 million net of tax) recovery from the Company's insurance coverage related to the $1.70 million ($1.0 million net of tax) legal settlement charge that occurred in the second quarter of 1995. 12 of 16 INCOME TAXES The provision for income taxes for the first quarter of 1997 of $1.1 million reflects an effective tax rate for the quarter of approximately 39%, compared to a tax provision recorded for the first quarter of 1996 of $842,000 with an effective tax rate of 40%. FINANCIAL CONDITION CAPITAL RATIOS The Company's and the Bank's total risk-based capital and leverage ratios were as follows:
March 31, 1997 ----------------------------------------------------------------------- Tier 1 Capital to Tier 1 Capital to Total 1 Capital to Average Risk-weighted Risk-weighted Quarterly Assets Assets Assets ---------------------- -------------------- ----------------------- Balance % Balance % Balance % (Dollar in thousands) Greater Bay Bancorp $67,281 10.45% $67,281 12.36% $77,113 14.17% Well capitalized requirement $32,178 5.00% $32,659 6.00% $54,432 10.00% ------- ----- ------- ------ ------- ------ Excess capital $35,103 5.45% $34,622 6.36% $22,681 4.17% ======= ====== ======= ====== ======= ====== Mid-Peninsula Bank $28,544 9.64% $28,544 11.61% $31,344 12.75% Well capitalized requirement $14,810 5.00% $14,754 6.00% $24,590 10.00% ------- ----- ------- ------ ------- ------ Excess capital $13,734 4.64% $13,790 5.61% $ 6,754 2.75% ======= ====== ======= ====== ======= ====== Cupertino National Bank $29,296 8.44% $29,296 9.83% $36,055 12.09% Well capitalized requirement $17,357 5.00% $17,889 6.00% $29,815 10.00% ------- ----- ------- ------ ------- ------ Excess capital $11,939 3.44% $11,407 3.83% $ 6,240 2.09% ======= ====== ======= ====== ======= ======
December 31, 1997 ----------------------------------------------------------------------- Tier 1 Capital to Tier 1 Capital to Total 1 Capital to Average Risk-weighted Risk-weighted Quarterly Assets Assets Assets ---------------------- -------------------- ----------------------- Balance % Balance % Balance % (Dollar in thousands) Greater Bay Bancorp $44,530 7.27% $44,530 8.75% $53,638 10.54% Well capitalized requirement $30,620 5.00% $30,540 6.00% $50,901 10.00% ------- ----- ------- ------ ------- ------ Excess capital $13,910 2.27% $13,990 2.75% $ 2,738 0.54% ======= ====== ======= ====== ======= ====== Mid-Peninsula Bank $22,810 8.23% $22,810 9.94% $25,415 11.07% Well capitalized requirement $13,853 5.00% $13,769 6.00% $22,949 10.00% ------- ----- ------- ------ ------- ------ Excess capital $ 8,957 3.23% $ 9,041 3.94% $ 2,466 1.07% ======= ====== ======= ====== ======= ====== Cupertino National Bank $21,515 6.42% $21,515 7.70% $28,022 10.03% Well capitalized requirement $16,765 5.00% $16,759 6.00% $27,932 10.00% ------- ----- ------- ------ ------- ------ Excess capital $ 4,750 1.42% $ 4,756 1.70% $ 90 0.03% ======= ====== ======= ====== ======= ======
The Company and its Subsidiaries seek to maintain capital ratios at levels that will maintain their status as a well-capitalized financial institution. On October 21, 1996, the Federal Reserve announced that certain qualifying amounts of cumulative preferred securities having the characteristics of the Trust Preferred Securities could be included as Tier 1 capital. Accordingly, the Company's Tier 1 and total risk-based capital ratios include the $20 million Trust Preferred Securities. 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 requirements 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. The Company maintains $50 million in inter-bank Fed Fund purchase lines, as well as $221 million in institutional deposit or brokered deposit lines, and $40 million in reverse repurchase lines. All sources combined provide a solid liquidity base for growth. As of March 31, 1997, the Company had $19.6 million in institutional deposits outstanding and no outstanding federal funds purchased. 13 of 16 PROVISION AND RESERVE FOR LOAN LOSSES The following schedule details the activity in the Company's reserve for loan losses and related ratios for each of the last five quarters:
Quarter ended ---------------------------------------------------------------------------------- March 31, December 31, September 30, June 30, March 31, (Dollars in thousands) 1997 1996 1996 1996 1996 ---------------------------------------------------------------------------------- Reserve for loan losses at beginning of period $ 7,312 $ 5,591 $ 4,976 $ 4,743 $ 4,399 Provision charged to operations 1,948 1,545 606 365 320 Loans charged off (207) (56) (74) (168) - Loan recoveries 13 232 83 36 24 ------- ------- ------- ------- ------- Reserve for loan losses at end of period $ 9,066 $ 7,312 $ 5,591 $ 4,976 $ 4,743 ======= ======= ======= ======= ======= Ratio of: Reserve for loan losses to loans 1.85% 1.63% 1.45% 1.49% 1.53% Reserve for loan losses to nonperforming assets 206.61% 224.02% 177.89% 131.40% 133.23% - --------------------------------------------------------------------------------------------------------------------
The provision for loan losses was $1.95 million in the first quarter of 1997, an increase of $403,000 from the $1.55 million in the fourth quarter of 1996, and a significant increase from the $320,000 in the first quarter of 1996. 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 loan loss reserve. The reserve for loan losses was $9.1 million at March 31, 1997, compared with $4.7 million at March 31, 1996. The ratio of the reserve for loan losses to total loans was 1.85% at March 31, 1997, compared with 1.63% at December 31, 1996, and 1.53% at March 31, 1996. The ratio of the reserve for loan losses to total nonperforming assets, including foreclosed real estate, was 206.6% at March 31, 1997, compared to 224.0% at December 31, 1996 and 133.2% at March 31, 1996. NON-ACCRUING LOANS, RESTRUCTURED LOANS, ACCRUING LOANS PAST DUE 90 DAYS OR MORE AND FORECLOSED PROPERTIES
Quarter ended ------------------------------------------------------------------------------ March 31, December 31, September 30, June 30, March 31, (Dollars in thousands) 1997 1996 1996 1996 1996 ------------------------------------------------------------------------------ Non-accruing loans $3,166 $1,875 $2,457 $2,214 $2,325 Restructuring loans - - - - - Accruing loans past due 90 days or more 933 1,237 686 1,356 1,018 ------ ------ ------ ------- ------ Total nonperforming loans 4,099 3,112 3,143 3,570 3,343 OREO 289 152 - 217 217 ------ ------ ------ ------- ------ Total nonperforming assets $4,388 $3,264 $3,143 $3,787 $3,560 ====== ====== ====== ====== ====== Total nonperforming assets to total assets 0.66% 0.52% 0.54% 0.72% 0.73% - --------------------------------------------------------------------------------------------------------------------------
14 of 16 Total nonperforming assets were $4.4 million at March 31, 1997, compared with $3.3 million at December 31, 1996, and $3.6 million at March 31, 1996. Nonperforming loans, which includes non-accruing loans, restructured loans, and accruing loans which are past due 90 days or more, were $4.1 million at March 31, 1997, compared with $3.1 million at December 31, 1996, and $3.3 million at March 31, 1996. Accruing loans past due 90 days or more, which are well secured and in the process of collection, were $933,000 at March 31, 1997, compared with $1.2 million at December 31, 1996, and $1.0 million at March 31, 1996. It is the Company's policy to discontinue the accrual of interest when the ability of a borrower to repay principal or interest is in doubt, or when a loan is past due 90 days or more, except when, in management's judgment, the loan is well secured and in the process of collection. Total classified assets increased to $11.4 million at March 31, 1997, from $9.4 million at December 31, 1996. The $2.0 million increase is primarily due to an increase in classified technology loans. The Company has focused strategically on technology loans through the Venture Lending department, and the volume of this type of loan has increased significantly. As of March 31, 1997, the Company had three foreclosed properties for $289,000, compared with $152,000 at December 31, 1996, and $217,000 at March 31, 1996. 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 and an internal asset review committee review problem loans on a regular basis. EFFECTS OF INFLATION The impact of inflation on a financial institution differs significantly from that exerted on industrial concerns, primarily because its assets and liabilities consist largely of monetary items. The most direct effect of inflation on a financial institution is fluctuation in interest rates. However, net interest income is affected by the spread between interest rates received on assets and those paid on interest bearing liabilities, rather than the absolute level of interest rates. Additionally, there may be some upward pressure on the Company's operating expenses, such as increases in occupancy expenses based on consumer price indices. In the opinion of management, inflation has not had a material effect on the operating results of the Company. 15 of 16 PART II. OTHER INFORMATION 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 27 Financial Data Schedule (b) Reports on Form 8-K for the quarter covered by this report - On March 7, 1997, the Company filed a form 8-K covering the announcement that (a) the merger between Cupertino National Bancorp and Mid-Peninsula Bancorp was consummated, (b) Mid-Peninsula, as the surviving corporation changed its name to Greater Bay Bancorp, and (c) Cupertino National Bancorp's corporate existence ceased. 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: May 14, 1997 16 of 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1996 JAN-01-1997 MAR-31-1997 27,700 464,467 41,300 0 39,249 51,409 51,342 489,204 9,066 665,076 579,054 0 15,738 23,000 35,679 0 0 11,605 665,076 11,253 1,472 356 13,081 0 4,815 8,266 1,948 (51) 0 2,841 2,841 0 0 1,739 .50 .50 5.68 3,166 933 0 0 7,312 207 13 9,066 9,066 0 4,126
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