10-Q

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 EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2002
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
	For the transition period from __________ to __________.

Commission file number 0-25034

GREATER BAY BANCORP

(Exact name of registrant as specified in its charter)

California	77-0387041
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2860 West Bayshore Road, Palo Alto, California 94303

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (650) 813-8200

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 April 9, 2002: 50,503,317

GREATER BAY BANCORP

INDEX

Part I.    Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2002 and 2001	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Part II.    Other Information
Item 1.	Legal Proceedings	38
Item 2.	Changes in Securities and Use of Proceeds	38
Item 3.	Default Upon Senior Securities	38
Item 4.	Submission of Matters to a Vote of Security Holders	38
Item 5.	Other Information	38
Item 6.	Exhibits and Reports on Form 8-K	38
	Signatures	39

2

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2002			December 31, 2001
	(Dollars in thousands)
	(unaudited)
ASSETS
Cash and due from banks	$	206,487		$	189,404
Federal funds sold		20,000			26,000
Other short term securities		10,344			—
Cash and cash equivalents		236,831			215,404
Investment securities:
Available for sale, at fair value		3,069,368			2,863,009
Other securities		115,399			107,621
Investment securities		3,184,767			2,970,630
Total loans:
Commercial		1,901,577			1,909,056
Term real estate—commercial		1,466,686			1,407,300
Total commercial		3,368,263			3,316,356
Real estate construction and land		697,899			744,127
Real estate other		251,021			246,117
Consumer and other		196,111			204,483
Deferred loan fees and discounts		(14,917	)		(15,362	)
Total loans, net of deferred fees		4,498,377			4,495,721
Allowance for loan losses		(125,331	)		(124,744	)
Total loans, net		4,373,046			4,370,977
Property, premises and equipment, net		56,281			48,883
Goodwill		121,890			24,704
Other intangible assets		49,832			—
Interest receivable and other assets		307,378			246,456
Total assets	$	8,330,025		$	7,877,054
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand, noninterest-bearing	$	934,150		$	953,989
MMDA, NOW and savings		2,271,837			2,280,119
Time certificates, $100,000 and over		590,965			642,073
Other time certificates		1,244,260			1,113,890
Total deposits		5,041,212			4,990,071
Borrowings		2,313,428			2,095,896
Other liabilities		176,688			94,403
Total liabilities		7,531,328			7,180,370
Company obligated mandatorily redeemable cumulative trust preferred securities of subsidiary trusts holding solely junior subordinated debentures		218,000			218,000
Preferred stock of real estate investment trust subsidiaries of the Banks		15,650			15,000
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Preferred stock, no par value: 1,600,000 shares authorized; none issued		—			—
7.25% convertible preferred stock; par value $50.00: 2,400,000 authorized shares; 1,449,898 and 0 shares issued and outstanding as of March 31, 2002 and December 31, 2001, respectively		72,500			—
Common stock, no par value: 80,000,000 shares authorized; 50,501,861 and 49,831,682 shares issued and outstanding as of March 31, 2002 and December 31, 2001, respectively		213,906			206,294
Accumulated other comprehensive income		3,699			3,967
Retained earnings		274,942			253,423
Total shareholders’ equity		565,047			463,684
Total liabilities and shareholders’ equity	$	8,330,025		$	7,877,054

See notes to consolidated financial statements.

3

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended March 31,
	2002		2001*
	(Dollars in thousands, except per share amounts)
INTEREST INCOME
Interest on loans	$	82,575	$	100,751
Interest on investment securities:
Taxable		43,319		16,144
Tax-exempt		1,432		2,477
Total interest on investment securities		44,751		18,621
Other interest income		2,099		1,398
Total interest income		129,425		120,770
INTEREST EXPENSE
Interest on deposits		20,934		39,165
Interest on long term borrowings		6,317		2,143
Interest on other borrowings		9,640		4,363
Total interest expense		36,891		45,671
Net interest income		92,534		75,099
Provision for loan losses		16,000		7,328
Net interest income after provision for loan losses		76,534		67,771
NON-INTEREST INCOME
Insurance agency commissions and fees		10,891		—
Service charges and other fees		2,828		2,334
Loan and international banking fees		2,527		2,541
Trust fees		906		886
ATM network revenue		583		662
Gain on sale of loans		496		835
Gain on sale of investments, net		200		1,587
Other income		4,161		2,611
Total		22,592		11,456
OPERATING EXPENSES
Compensation and benefits		28,575		21,046
Occupancy and equipment		8,838		6,261
Dividends on Trust Preferred Securities and preferred stock of real estate investment trusts		5,323		2,458
Legal and other professional fees		1,689		1,453
Telephone, postage and supplies		1,633		1,505
Marketing and promotion		1,452		1,361
Client services		647		803
Amortization of intangibles		562		271
FDIC insurance and regulatory assessments		463		336
Directors fees		289		421
Other expenses		5,522		4,046
Total operating expenses		54,993		39,961
Income before provision for income taxes		44,133		39,266
Provision for income taxes		16,531		14,734
Net income	$	27,602	$	24,532
Net income per share—basic	$	0.54	$	0.50
Net income per share—diluted	$	0.52	$	0.48
Cash dividends per share of common stock	$	0.115	$	0.10

* Restated on a historical basis to reflect the merger described in note 1 on a pooling of interests basis.

See notes to consolidated financial statements.

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GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three months ended March 31,
	2002			2001*
	(Dollars in thousands)
Net income	$	27,602		$	24,532
Other comprehensive income (loss):
Unrealized net gains (losses) on securities:
Unrealized net holding gains (losses) arising during period (net of taxes of $220,000 and $6.6 million for the three months ended March 31, 2002 and 2001, respectively)		(386	)		9,393
Reclassification adjustment for net gains included in net income		118			934
Net change		(268	)		10,327
Cash flow hedge:
Net derivative losses arising during period (net of taxes of $(719,000) for the three months ended March 31, 2001)		—			(1,028	)
Reclassification adjustment for income included in net income (net of taxes of $18,000 for the three months ended March 31, 2001)		—			25
Net change		—			(1,003	)
Other comprehensive income (loss)		(268	)		9,324
Comprehensive income	$	27,334		$	33,856

* Restated on a historical basis to reflect the mergers described in note 1 on a pooling of interests basis.

See notes to consolidated financial statements.

5

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three months ended March 31,
	2002			2001*
	(Dollars in thousands)
Cash flows—operating activities
Net income	$	27,602		$	24,532
Reconcilement of net income to net cash from operations:
Provision for loan losses		16,000			7,328
Depreciation and amortization		3,343			2,628
Deferred income taxes		(242	)		(782	)
(Gain) loss on sale of investments, net		(200	)		1,466
Proceeds from loan sales		—			32
Changes in:
Accrued interest receivable and other assets		(83,004	)		2,199
Accrued interest payable and other liabilities		82,285			(7,048	)
Deferred loan fees and discounts, net		(445	)		(196	)
Operating cash flows, net		45,339			30,159
Cash flows—investing activities
Maturities and partial paydowns on investment securities available for sale		547,772			129,651
Purchase of investment securities:
Available for sale		(893,996	)		(420,400	)
Other securities		(7,778	)		(10,622	)
Proceeds from sale of available for sale securities		140,065			65,766
Loans, net		(17,624	)		(141,247	)
Payment for business acquisition		(59,150	)		(8,500	)
Cash acquired in business acquisition		18,288			517
Purchase of property, premises and equipment		(2,091	)		(5,309	)
Purchase of insurance policies		(19,600	)		(3,661	)
Investing cash flows, net		(294,114	)		(393,805	)
Cash flows—financing activities
Net change in deposits		51,141			62,561
Net change in other borrowings—short term		67,932			163,166
Proceeds from other borrowings—long term		149,600			—
Principal repayment—long term borrowings		—			(21,501	)
Proceeds from sale of common stock		7,612			6,333
Cash dividends for convertible preferred stock		(262	)		—
Cash dividends		(5,821	)		(4,989	)
Financing cash flows, net		270,202			205,570
Net change in cash and cash equivalents		21,427			(158,076	)
Cash and cash equivalents at beginning of period		215,404			475,975
Cash and cash equivalents at end of period	$	236,831		$	317,899
Cash flows—supplemental disclosures
Cash paid during the period for:
Interest	$	34,817		$	41,884
Income taxes	$	—		$	16,314
Non-cash transactions:
Additions to other real estate owned	$	972		$	1,426

* Restated on a historical basis to reflect the mergers described in note 1 on a pooling of interests basis.

See notes to consolidated financial statements.

6

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2002 and December 31, 2001 and for the

Three Months Ended March 31, 2002 and 2001

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Consolidated Balance Sheet as of March 31, 2002, and the Consolidated Statements of Operations, Comprehensive Income and Cash Flows for the three months ended March 31, 2002 have been prepared by Greater Bay Bancorp (“Greater Bay” on a parent-only basis, and “we” or “our” on a consolidated basis) and are not audited. The interim financial data as of March 31, 2002 is unaudited; however, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for the quarter ended March 31, 2002 are not necessarily indicative of the results expected for any subsequent quarter or for the entire year ending December 31, 2002.

Organization and Nature of Operations

Greater Bay is a financial holding company with 11 bank subsidiaries (the “Banks”): Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt. Diablo National Bank, Peninsula Bank of Commerce, and San Jose National Bank. Greater Bay also owns ABD Insurance and Financial Services, Inc. (“ABD”), a commercial insurance brokerage firm.

We also conduct business through the following divisions: CAPCO, Greater Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Carmel, Greater Bay Bank Marin, Greater Bay Bank Santa Clara Valley Group, Greater Bay Bank SBA Lending Group, Greater Bay Corporate Finance Group, Greater Bay International Banking Division, Greater Bay Trust Company, Matsco, Pacific Business Funding and the Venture Banking Group.

We provide a wide range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professionals and other individuals. We operate community banking offices throughout the San Francisco Bay Area including Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay, Santa Cruz, Marin, Monterey, and Sonoma Counties, with 45 offices located in Aptos, Blackhawk, Capitola, Carmel, Cupertino, Danville, Fremont, Hayward, Lafayette, Los Gatos, Millbrae, Milpitas, Palo Alto, Petaluma, Pleasanton, Point Reyes Station, Redwood City, San Francisco, San Jose, San Leandro, San Mateo, San Rafael, San Ramon, Santa Clara, Santa Cruz, Saratoga, Scotts Valley, Sunnyvale, Valley Ford, Walnut Creek and Watsonville. Certain of our divisions’ operations extend beyond the San Francisco Bay Area. ABD operates throughout California. CAPO’s office is located in Bellevue, Washington and operates in the Pacific Northwest. Matsco markets its dental and veterinarian financing services nationally.

We have completed three mergers or acquisitions since December 31, 2000. The merger with SJNB Financial Corp. which resulted in the acquisition of San Jose National Bank was accounted for as a pooling-of-interests and, accordingly, all of our financial information for the periods prior to the merger has been restated as if the merger had occurred at the beginning of the earliest period presented. The acquisitions of CAPCO Financial Company, Inc. (“CAPCO”) and ABD, were accounted for using the purchase accounting method and accordingly CAPCO and ABD’s results of operations have been included in the consolidated financial statements since the date of acquisitions.

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Greater Bay and its subsidiaries and its operating divisions. 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. Our accounting and reporting policies conform to generally accepted accounting principles and the prevailing practices within the banking industry.

7

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2002 and December 31, 2001 and for the

Three Months Ended March 31, 2002 and 2001

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.

Insurance Agency Commissions and Fees

Commission income is recorded as of the effective date of insurance coverage or the billing date, whichever is later. Contingent commissions and commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received, which is the Company’s first notification of amounts earned. Fee income is recognized ratably as services are rendered. The income effects of subsequent premium and fee adjustments are recorded when the adjustments become known.

Goodwill and Other Intangible Assets

Goodwill generated from purchase business combinations consummated prior to the issuance of Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” (“SFAS No. 142”) was amortized straight-line over 20 years. SFAS No. 142 addresses the initial recognition and measurement of goodwill and other intangible assets acquired as a result of a business combination and the recognition of and measurement of those assets subsequent to acquisition. Under the new standard, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized, but instead they will be tested at least annually for impairment. Upon adoption of SFAS No. 142, we did not identify any existing intangible assets to be separated from goodwill.

SFAS No. 142 also requires an analysis of impairment of goodwill at least annually or more frequently upon the occurrence of certain events. Additionally, during the year of adoption, we have six months from the date of adoption to complete the initial test. We will perform the required impairment tests of goodwill and indefinite-lived intangible assets by June 30, 2002.

Comprehensive Income

SFAS No. 130, “Reporting Comprehensive Income” requires us to classify items of other comprehensive income by their nature in the financial statements and display the accumulated other comprehensive income separately from retained earnings in the equity section of the balance sheet. The changes to the balances of accumulated other comprehensive income are as follows:

	Unrealized gains (losses) on securities			Cash flow hedges			Accumulated other comprehensive income (loss)
	(Dollars in thousands)
Balance—December 31, 2001	$	3,967		$	—		$	3,967
Current period change in fair value		(268	)		—			(268	)
Balance—March 31, 2002	$	3,699		$	—		$	3,699
Balance—December 31, 2000	$	(6,183	)	$	148		$	(6,035	)
Current period change in fair value		10,327			(1,003	)		9,324
Balance—March 31, 2001	$	4,144		$	(855	)	$	3,289

8

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2002 and December 31, 2001 and for the

Three Months Ended March 31, 2002 and 2001

Segment Information

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”), we use the “management approach” for reporting business segment information. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers.

NOTE 2—BUSINESS COMBINATIONS

On March 12, 2002, we completed an acquisition of ABD for a purchase price of $193.6 million in cash and a new series of convertible preferred stock in a tax-free reorganization. This amount includes an initial payment on consummation of the merger of $72.5 million in convertible preferred stock and $59.1 million in cash, and an additional $63.6 million in convertible preferred stock (or common stock in certain instances) and cash contingent upon ABD meeting specified performance goals during 2002, 2003, 2004 and 2005. ABD’s results of operations have been included in the consolidated financial statements since the date of the acquisition. The source of funds for the acquisition was a $45.0 million advance on credit lines and our available cash.

The purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of purchase price over the estimated fair values of the net assets acquired was $146.0 million of which $95.6 million was recorded as goodwill and $50.4 million was recorded as other intangible assets. Prospectively, goodwill will be evaluated for possible impairment under the provisions of SFAS No. 142. The other intangible assets will be amortized using a method that approximates the anticipated utilization of the expirations which will cover a period of ten years.

On October 23, 2001, SJNB Financial Corp. the holding company of San Jose National Bank, merged with and into Greater Bay. Upon consummation of the merger, the outstanding shares of SJNB Financial Corp. were converted into an aggregate of approximately 6,944,000 shares of Greater Bay’s common stock. The transaction was accounted for as a pooling-of-interests. The financial information presented herein has been restated to reflect the merger with SJNB Financial Corp. on a pooling-of-interests basis.

On March 30, 2001, we completed an acquisition of CAPCO for a purchase price of $8.5 million in cash and 44,820 shares of common stock with a fair value of $1.4 million. The acquisition was accounted for using the purchase method of accounting and, accordingly, CAPCO’s results of operations have been included in the consolidated financial statements since the date of the merger. The source of funds for the acquisition was a $6.9 million advance on an existing credit line and our available cash.

The purchase price for the CAPCO merger has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of purchase price over the estimated fair values of the net assets acquired, totaling $5.7 million, was recorded as goodwill, and through December 31, 2001 amortized using the straight-line method over twenty years. Prospectively, goodwill will be evaluated for possible impairment under the provisions of SFAS No. 142.

NOTE 3—GOODWILL AND OTHER INTANGIBLE ASSETS

        We adopted SFAS No. 142 on January 1, 2002. Upon adoption of SFAS No. 142, goodwill will no longer be amortized. Had goodwill not been amortized for the quarter ended March 31, 2001, or the year ended December 31, 2001, net income would have increased by $175,000 and $844,000, or $0.00, and $0.02 per share, respectively. There was no amortization of goodwill prior to 2001.

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GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2002 and December 31, 2001 and for the

Three Months Ended March 31, 2002 and 2001

We recorded additional goodwill of $95.6 million and expirations of $50.4 million in connection with the ABD acquisition. Expirations represent the estimated fair value of ABD’s existing customer list (or “book of business”) that has been developed by ABD over a period of years and reflects the sum total of the value of the ongoing sales and service efforts of the agency. The expirations are estimated to have a life of 10 years. Amortization for intangibles for 2002 and each of the next four years is estimated to range between $5.0 million and $6.5 million per year. Additional goodwill in the amount of $1.5 million was recognized in connection with prior acquisitions upon satisfaction of certain contingencies.

Other intangible assets at March 31, 2002 were as follows:

	Gross carrying amount		Accumulated amortization
	(Dollars in thousands)
Expirations	$	50,375	$	(543	)

SFAS No. 142 also requires an analysis of impairment of goodwill at least annually or more frequently upon the occurrence of certain events. Additionally, during the year of adoption, we have six months from the date of adoption to complete the initial test. We will perform the required impairment tests of goodwill and indefinite-lived intangible assets by June 30, 2002.

Pro forma financial information for the CAPCO and ABD acquisitions have not been provided as these acquisitions do not meet the requirements for such reporting prescribed under SFAS No. 141, “Business Combinations”.

NOTE 4—BORROWINGS

Borrowings are detailed as follows:

	March 31, 2002		December 31, 2001
	(Dollars in thousands)
Short term borrowings:
FHLB advances	$	1,158,000	$	1,334,711
Securities sold under agreements to repurchase		400,989		264,727
Advances under credit lines		45,000		—
Other short term notes payable		16,540		34,402
Bankers acceptances sold		4,000		6,800
Total short term borrowings		1,624,529		1,640,640
Long term borrowings:
FHLB advances		610,687		379,828
Securities sold under agreements to repurchase		57,700		57,700
Other long term notes payable		20,512		17,728
Total long term borrowings		688,899		455,256
Total borrowings	$	2,313,428	$	2,095,896

10

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2002 and December 31, 2001 and for the

Three Months Ended March 31, 2002 and 2001

During the three months ended March 31, 2002 and the year ended December 31, 2001, the average balance of securities sold under short term agreements to repurchase was $383.8 million and $210.4 million, respectively, and the average interest rates during those periods were 2.23% and 3.51%, respectively. Securities sold under short term agreements to repurchase generally mature within 90 days from date of purchase.

During the three months ended March 31, 2002 and the year ended December 31, 2001, the average balance of federal funds purchased was $318.9 million and $128.4 million, respectively, and the average interest rates during those periods were 2.32% and 4.43%, respectively. There was no such balance outstanding at March 31, 2002 and December 31, 2001.

During the three months ended March 31, 2002 and the year ended December 31, 2001, the average balance of bankers acceptances sold was $5.0 million and $1.7 million, respectively, and the average interest rates during those periods were 4.11% and 4.22%, respectively.

The FHLB advances are collateralized by loans and securities pledged to the FHLB. The following is a breakdown of rates and maturities:

	Short Term			Long Term
	(Dollars in thousands)
Amount	$	1,158,000		$	610,687
Maturity		2003			2004-2011
Average Rates		2.89	%		3.94	%

As of March 31, 2002, we had short-term, unsecured credit facilities from three financial institutions totaling $100.0 million. At March 31, 2002 and December 31, 2001 we had advances outstanding of $45.0 million and $0 million under these facilities. The average rate paid on these advances was approximately LIBOR + 0.50%. In addition, we were in compliance with all related financial covenants for these credit facilities.

NOTE 5—FORMATION OF MPB INVESTMENT TRUST

During the first quarter of 2002, we formed and funded MPB Investment Trust (“MPBIT”), a Maryland real estate investment trust, as a wholly owned subsidiary of Mid-Peninsula Bank (“MPB”). MPBIT provides MPB with flexibility in raising capital. MPB contributed loans with a net book value of $318.2 million, and $500,000 in cash to MPBIT, in exchange for 100% of the common and preferred stock of MPBIT. As of March 31, 2002, the net income, assets and equity of MPBIT are eliminated in consolidation.

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GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2002 and December 31, 2001 and for the

Three Months Ended March 31, 2002 and 2001

NOTE 6—PER SHARE DATA

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 net income available to common shareholders and assumed conversions by the weighted average number of common shares plus common equivalent shares outstanding including dilutive stock options. The following table provides a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three months ended March 31, 2002 and 2001.

	For the three months ended March 31, 2002
	Income (numerator)			Shares (denominator)	Per share amount
	(Dollars in thousands, except per share amounts)
Basic net income per share:
Net income	$	27,602
Dividends on preferred stock		(262	)
Income available to common shareholders		27,340		50,204,000	$	0.54
Effect of dilutive securities:
Convertible preferred stock		262		827,000
Stock options		—		1,995,000
Diluted net income per share:
Income available to common shareholders and assumed conversions	$	27,602		53,026,000	$	0.52
	For three months ended March 31, 2001
	Income (numerator)			Shares (denominator)	Per share amount
	(Dollars in thousands, except per share amounts)
Basic net income per share:
Income available to common shareholders	$	24,532		49,192,000	$	0.50
Effect of dilutive securities:
Stock options		—		2,221,000
Diluted net income per share:
Income available to common shareholders and assumed conversions	$	24,532		51,413,000	$	0.48

There were options to purchase 1,850,351 shares and 1,268,612 shares that were considered anti-dilutive whereby the options’ exercise price was greater than the average market price of the common shares, during the three months ended March 31, 2002 and 2001, respectively.

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 October 23, 2001 merger with SJNB Financial Corp. at a 1.82 conversion ratio.

NOTE 7—ACTIVITY OF BUSINESS SEGMENTS

        The accounting policies of the segments are described in the “Summary of Significant Accounting Policies.” Segment data includes intersegment revenue, as well as charges allocating the appropriate corporate-headquarters costs to each of our operating segments. Intersegment revenue is recorded at prevailing market terms and rates and is not significant to the results of the segments. This revenue is eliminated in consolidation. We evaluate the performances of our segments and allocate resources to them based on net interest income, non-interest income, net income before income taxes, total assets and deposits.

12

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2002 and December 31, 2001 and for the

Three Months Ended March 31, 2002 and 2001

We are organized primarily along community banking, insurance agency services and trust business segments. Thirteen of our operating divisions have been aggregated into the “community banking” segment. Community banking provides a range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professional and other individuals. The trust division has been shown as the “trust operations” segment. Our business is conducted within the United States; foreign operations are not material.

The following table shows each segment’s key operating results and financial position for the three months ended March 31, 2002 and 2001:

	Three months ended March 31, 2002								Three months ended March 31, 2001
	Community banking		Insurance agency services		Trust operations		Total		Community banking		Insurance agency services		Trust operations		Total
	(Dollars in thousands)
Net interest income	$	91,529	$	166	$	191	$	91,886	$	74,926	$	—	$	178	$	75,104
Non-interest income		7,304		10,891		986		19,181		10,338		—		1,002		11,340
Operating expenses		26,480		7,495		762		34,737		26,320		—		722		27,042
Net income before income taxes (1)		37,992		3,562		276		41,830		36,944		—		389		37,333
Total assets		7,249,234		210,517		—		7,459,751		5,523,397		—		—		5,523,397
Deposits		4,987,706		—		53,506		5,041,212		4,760,403		—		52,561		4,812,964
Trust assets administered		—		—		644,216		644,216		—		—		734,910		734,910

(1) Includes intercompany earnings allocation charge which is eliminated in consolidation.

A reconciliation of total segment net interest income and non-interest income combined, net income before income taxes, and total assets to the consolidated numbers in each of these categories for the three months ended March 31, 2002 and 2001 is presented below.

	Three months ended March 31, 2002		Three months ended March 31, 2001
	(Dollars in thousands)
Net interest income and non-interest income
Total segment net interest income and non-interest income	$	111,067	$	86,444
Parent company net interest income and non-interest income		4,059		111
Consolidated net interest income and non-interest income	$	115,126	$	86,555
Net income before taxes
Total segment net income before income taxes	$	41,830	$	37,333
Parent company net income before income taxes		2,303		1,933
Consolidated net income before income taxes	$	44,133	$	39,266
Total assets
Total segment assets	$	7,459,751	$	5,523,397
Parent company assets		870,274		530,998
Consolidated total assets	$	8,330,025	$	6,054,395

NOTE 8—CASH DIVIDEND

We declared a cash dividend of $0.115 cents per share payable on April 17, 2002 to shareholders of record as of April 5, 2002.

13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Greater Bay is a financial holding company with 11 bank subsidiaries: Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank, Mid-Peninsula Bank, Mt. Diablo National Bank, Peninsula Bank of Commerce, and San Jose National Bank. Greater Bay also owns ABD Insurance and Financial Services, Inc., a commercial insurance brokerage firm.

We also conduct business through the following divisions: CAPCO, Greater Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Carmel, Greater Bay Bank Marin, Greater Bay Bank Santa Clara Valley Group, Greater Bay Bank SBA Lending Group, Greater Bay Corporate Finance Group, Greater Bay International Banking Division, Greater Bay Trust Company, Matsco, Pacific Business Funding and the Venture Banking Group.

We provide a wide range of commercial banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professionals and other individuals. We operate throughout the San Francisco Bay Area including Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay, Santa Cruz, Marin, Monterey, and Sonoma Counties, with 45 offices located in Aptos, Blackhawk, Capitola, Carmel, Cupertino, Danville, Fremont, Hayward, Lafayette, Los Gatos, Millbrae, Milpitas, Palo Alto, Petaluma, Pleasanton, Point Reyes Station, Redwood City, San Francisco, San Jose, San Leandro, San Mateo, San Rafael, San Ramon, Santa Clara, Santa Cruz, Saratoga, Scotts Valley, Sunnyvale, Valley Ford, Walnut Creek and Watsonville. Certain of our divisions’ operations extend beyond the San Francisco Bay Area. ABD operates throughout California. CAPCO’s office is located in the Bellevue, Washington and operates in the Pacific Northwest. Matsco markets its dental and veterinarian financing services nationally.

At March 31, 2002, we had total assets of $8.3 billion, total loans, net, of $4.4 billion and total deposits of $5.0 billion.

We have completed three mergers or acquisitions since December 31, 2000. The merger with SJNB Financial Corp. which resulted in the acquisition of San Jose National Bank was accounted for as a pooling-of-interests and, accordingly, all of our financial information for the periods prior to the merger has been restated as if the merger had occurred at the beginning of the earliest period presented. The acquisitions with CAPCO and ABD were accounted for using the purchase accounting method and accordingly CAPCO’s and ABD’s results of operations have been included in the consolidated financial statements since the date of these acquisitions.

The following discussion and analysis is intended to provide greater details of our results of operations and financial condition. The following discussion should be read in conjunction with our consolidated financial data included elsewhere in this document. Certain statements under this caption constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. Our 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 we conduct our operations, fluctuation in interest rates, credit quality and government regulation and other factors discussed in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2001.

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

RESULTS OF OPERATIONS

The following table summarizes income, income per share and key financial ratios for the periods indicated using two different measurements:

	Net income
	Three months ended March 31, 2002			Three months ended March 31, 2001
	(Dollars in thousands, except per share amounts)
Net income	$	27,602		$	24,532
Net income per share:
Basic	$	0.54		$	0.50
Diluted	$	0.52		$	0.48
Return on average assets		1.39	%		1.73	%
Return on average shareholders’ equity		20.38	%		24.51	%
	Cash earnings (income before amortization of intangibles)(1)
	Three months ended March 31, 2002			Three months ended March 31, 2001
	(Dollars in thousands, except per share amounts)
Cash earnings	$	27,939		$	24,707
Earnings per share:
Basic	$	0.55		$	0.50
Diluted	$	0.53		$	0.48
Return on average assets		1.41	%		1.74	%
Return on average shareholders’ equity		20.63	%		24.68	%

(1) In addition to the principal performance measures prepared in accordance with generally accepted accounting principles, we are providing these supplemental pro forma performance measures to highlight the results of our cash earnings. We believe that these calculations, which are derived from data presented on the face of our consolidated financial statements, are useful for investors to provide comparability of our core operations from period to period with regard to our cash earnings. These calculations are not intended to be a substitute for the principal performance measures prepared in accordance with generally accepted accounting principles.

The 12.5% increase in net income during first quarter of 2002 as compared to first quarter of 2001 was the result of growth in loans and investments and an increase in income provided by the acquisition of ABD in March 2002. For the three months ended March 31, 2002, net interest income increased 23.2% as compared to the three months ended March 31, 2001. This increase was primarily due to a 42.3% increase in average interest-earning assets for the three months ended 2002 as compared to 2001. Non-interest income for the three months ended March 31, 2002 increased 97.2%. The increase is due primarily as a result of the acquisition of ABD. The increases in loans and deposits also contributed to the 8.7% increase in loan and international banking fees and service charges and other fees. Increases in operating expenses resulted from the addition of ABD and were also required to service and support our growth. As a result, increases in revenue were partially offset for the three months ended March 31, 2002 by a 37.6% increase in operating expenses, as compared to three months ended March 31, 2001.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Net Interest Income-Overview

We have been able to effectively manage our net interest margin over the last year as market interest rates declined 475 basis points during 2001, while our first quarter of 2002 margin only declined 77 basis points from the net interest margin during the first quarter of 2001. Our asset sensitive balance sheet caused the decline in the net interest margin in 2001; however, active management of the balance sheet mitigated the impact. Falling market interest rates place pressure on our net interest margin, while during periods of rising market interest rates, our net interest margin will expand. This is the result of the majority of our loans having interest rates tied to the prime rate and moving upward immediately upon a market interest rate increase, compared to our interest bearing liabilities, which do not reprice as quickly, nor do they reprice to the same levels as the interest rate sensitive loans. In response to those conditions, we changed our balance sheet mix and composition as we shifted the funding source of our specialty finance businesses from a core deposit base to a wholesale funding strategy. This funding shift corresponds with our original strategy for financing these niche specialty finance businesses. The impact of this change has allowed us to also restructure and increase the size of our investment securities portfolio by funding a substantial portion of it with the deposits which previously supported the specialty finance business units. The overall impact of this funding change has been threefold. First, it has increased the overall net interest income from operations, second it has allowed us to improve liquidity and reduce the duration of our investment portfolio and third it has slightly reduced the asset sensitivity of our balance sheet. On a combined basis, this change has positioned us to slightly reduce our exposure to declining interest rates, while also effectively restructuring our balance sheet to take advantage of market interest rates when they move upward.

Based on the current economic forecast, it appears an economic recovery has begun, albeit at a slow pace. Moreover, the Federal Reserve Board has now changed its bias to a neutral stance, with many economists and the forward yield curve assuming that rates will rise by the end of 2002. On a prospective basis, the Company believes that its net interest margin will increase approximately 4 to 6 basis points for every 25 basis point increase in market interest rates. The relationship is estimated to be reasonable, at a minimum, through an additional 50 basis point increase in market interest rates, assuming the mix and composition of the balance sheet remain similar.

16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Net Interest Income

Net interest income increased 23.2% to $92.5 million for the first quarter of 2002 from $75.1 million for the first quarter of 2001. This increase was primarily due to the $2.2 billion, or 42.3%, increase in average interest-earning assets, which was partially offset by the 77 basis point decrease in our net yield on interest-earning assets. Net interest income increased 5.3% in the first quarter of 2002 from $87.9 million from the fourth quarter of 2001. This increase was primarily due to the $323.2 million, or 4.5%, increase in average interest-earning assets, which was partially offset by the 15 basis point decrease in our net yield on interest-earning assets.

The following table presents, for the periods indicated, our condensed average balance sheet information 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 March 31, 2002						Three months ended December 31, 2001						Three months ended March 31, 2001
	Average balance (1)		Interest		Average yield / rate		Average balance (1)		Interest		Average yield / rate		Average balance (1)		Interest		Average yield / rate
	(Dollars in thousands)
INTEREST-EARNING ASSETS:
Fed funds sold	$	55,159	$	222	1.63	%	$	65,726	$	463	2.79	%	$	79,910	$	1,117	5.67	%
Other short term securities		345		5	5.88	%		—		—	0.00	%		19,242		281	5.92	%
Investment securities:
Taxable		2,917,473		45,191	6.28	%		2,479,752		40,346	6.46	%		901,637		16,144	7.26	%
Tax-exempt (2)		125,618		1,432	4.62	%		249,168		2,938	4.68	%		193,331		2,477	5.20	%
Loans (3)		4,439,279		82,575	7.54	%		4,420,039		86,249	7.74	%		4,101,904		100,751	9.96	%
Total interest-earning assets		7,537,874		129,425	6.96	%		7,214,684		129,996	7.15	%		5,296,024		120,770	9.25	%
Noninterest-earning assets		490,786						399,169						453,250
Total assets	$	8,028,660		129,425			$	7,613,853		129,996			$	5,749,274		120,770
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings	$	2,346,499		8,751	1.51	%	$	2,300,679		10,773	1.86	%	$	2,401,875		21,390	3.61	%
Time deposits, over $100,000		603,115		3,857	2.59	%		684,317		5,800	3.36	%		542,729		7,733	5.78	%
Other time deposits		1,170,100		8,326	2.89	%		938,691		7,979	3.37	%		720,140		10,042	5.66	%
Total interest-bearing deposits		4,119,714		20,934	2.06	%		3,923,687		24,552	2.48	%		3,664,744		39,165	4.33	%
Borrowings		2,100,865		15,957	3.08	%		1,913,930		17,552	3.64	%		440,427		6,506	5.99	%
Total interest-bearing liabilities		6,220,579		36,891	2.41	%		5,837,617		42,104	2.86	%		4,105,171		45,671	4.51	%
Noninterest-bearing deposits		935,428						945,550						1,016,228
Other noninterest-bearing liabilities		90,331						143,227						122,438
Trust Preferred Securities and preferred stock of real estate investment trust subsidiaries of the Banks		233,022						218,000						99,500
Shareholders’ equity		549,300						469,459						405,937
Total shareholders’ equity and liabilities	$	8,028,660		36,891			$	7,613,853		42,104			$	5,749,274		45,671
Net interest income			$	92,534					$	87,892					$	75,099
Interest rate spread					4.56	%					4.29	%					4.74	%
Contribution of interest free funds					0.42	%					0.55	%					1.01	%
Net yield on interest-earnings assets(4)					4.98	%					4.83	%					5.75	%

(1) Nonaccrual loans are excluded from the average balance and only collected interest on nonaccrual loans is included in the interest column.

(2) Tax equivalent yields earned on the tax exempt securities are 4.62%, 4.68% and 5.20% for the three months ended March 31, 2002, December 31, 2001, and March 31, 2001, respectively, using the federal statutory rate of 34%.

(3) Loan fees totaling $1.9 million, $2.3 million and $3.9 million are included in loan interest income for three months ended March 31, 2002, December 31, 2001 and March 31, 2001, 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.

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

The most significant impact on our 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 periods. 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 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 March 31, 2002 compared with December 31, 2001 favorable / (unfavorable)									Three months ended March 31, 2002 compared with March 31, 2001 favorable / (unfavorable)
	Volume			Rate			Net			Volume			Rate			Net
	(Dollars in thousands)
INTEREST EARNED ON INTEREST-EARNING ASSETS
Federal funds sold	$	(67	)	$	(174	)	$	(241	)	$	(271	)	$	(624	)	$	(895	)
Other short term investments		—			5			5			(274	)		(2	)		(276	)
Investment securities:
Taxable		6,064			(1,219	)		4,845			31,548			(2,501	)		29,047
Tax-exempt		(1,471	)		(35	)		(1,506	)		(795	)		(250	)		(1,045	)
Loans		100			(3,774	)		(3,674	)		7,915			(26,091	)		(18,176	)
Total interest income		4,626			(5,197	)		(571	)		38,123			(29,468	)		8,655
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits:
MMDA, NOW and savings		(188	)		2,210			2,022			482			12,157			12,639
Time deposits over $100,000		664			1,279			1,943			(797	)		4,673			3,876
Other time deposits		(1,656	)		1,309			(347	)		(4,613	)		6,329			1,716
Total interest-bearing deposits		(1,179	)		4,797			3,618			(4,928	)		23,159			18,231
Borrowings		(1,451	)		3,046			1,595			(14,035	)		4,584			(9,451	)
Total interest expense		(2,631	)		7,844			5,213			(18,962	)		27,742			8,780
Net increase (decrease) in net interest income	$	1,995		$	2,647		$	4,642		$	19,160		$	(1,725	)	$	17,435

The Quarter Ended March 31, 2002 Compared to March 31, 2001

Interest income in the first quarter ended March 31, 2002 increased 7.2% to $129.4 million from $120.8 million in the quarter ended March 31, 2001. This was primarily due to the increase in loans, our highest yielding interest-earning asset, and investment securities. The increase was partially offset by a decrease in the yield earned on average interest-earning assets. Average interest-earning assets increased $2.2 billion, or 42.3%, to $7.5 billion in the three months ended March 31, 2002, compared to $5.3 billion in the same period for 2001. Average loans increased $337.4 million, or 8.2%, to $4.4 billion for three months ended March 31, 2002 from $4.1 billion in the same period for 2001. Average investment securities, Federal funds sold and other short-term securities, increased 159.5% to $3.1 billion in the first quarter of 2002 from $1.2 billion in the same period for 2001. The impact of the increase in average assets was partially offset by a decrease in the yield earned on interest-earning assets.

The average yield on interest-earning assets decreased 229 basis points to 6.96% in the first quarter of 2002 from 9.25% in the same period of 2001 primarily reflecting the 475 basis points decline in the fed fund rate during 2001. Loans represented approximately 58.9% of total interest-earning assets in the first quarter of 2002 compared to 77.5% for the same period in 2001. The average yield on loans decreased 242 basis points to 7.54% in the same period of 2002 from 9.96% for the same period in 2001.

        Interest expense in the first quarter of 2002 decreased 19.2% to $36.9 million from $45.7 million for the same period of 2001. This decrease was due to lower interest rates paid on interest-bearing liabilities. Average interest-bearing liabilities increased 51.5% to $6.2 billion in the first quarter of 2002 from $4.1 billion in the same period for 2001. The increase was due primarily to the increase in time deposit accounts and short term borrowings.

18

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

The average yield on interest-bearing liabilities decreased 210 basis points to 2.41% in the first quarter of 2002 from 4.51% in the same period of 2001. The average yield on interest bearing deposits decreased 227 basis points to 2.06% in the same period of 2002 from 4.33% in the same period 2001.

During the first quarter of 2002, average noninterest-bearing deposits decreased to $935.4 million from $1.0 billion in the same period of 2001.

As a result of the foregoing, our interest rate spread decreased to 4.56% in the first quarter of 2002 from 4.74% in the same period of 2001. The net yield on interest-earning assets decreased in the first quarter of 2002 to 4.98% from 5.75% in the same period of 2001.

The Quarter Ended March 31, 2002 Compared to December 31, 2001

Interest income decreased 0.4% to $129.4 million in the first quarter of 2002 from $130.0 million in the previous quarter, as a result of the decline in the yields earned. Average interest-earning assets increased 4.5% to $7.5 billion in the first quarter of 2002 from $7.2 billion in the previous quarter primarily as a result of an increase in investment securities. The yield on the higher volume of average interest-earning assets declined 19 basis points to 6.96% in the first quarter of 2002 from 7.15% in the previous quarter, primarily reflecting the 125 basis points decline in the Federal funds rate during the fourth quarter of 2001. Loans represented approximately 58.9% of total interest-earning assets in the first quarter of 2002 compared to 61.3% in the previous period. The average yield on loans decreased 20 basis points to 7.54% in the first quarter of 2002 from 7.74% in the previous period.

Interest expense in the first quarter of 2002 decreased 12.4% to $36.9 million from $42.1 million in the previous quarter as a result of a decrease in the rates paid on interest-bearing liabilities, which was partially offset by the increase in the volume of interest-bearing liabilities. Corresponding to the growth in average interest-earning assets, average interest-bearing liabilities increased 6.6% to $6.2 billion in the first quarter of 2002 from $5.8 billion in the previous quarter.

The average yield on interest-bearing liabilities decreased 45 basis points to 2.41% in the first quarter of 2002 from 2.86% in the previous quarter. The average yield on interest bearing deposits decreased 42 basis points to 2.06% in the first quarter of 2002 from 2.48% in the previous quarter.

During the first quarter of 2002, average noninterest-bearing deposits decreased to $935.4 million from $945.6 million in the previous quarter.

As a result of the foregoing, our interest rate spread increased to 4.56% in the first quarter of 2002 from 4.29% in the previous quarter and the net yield on interest-earning assets increased to 4.98% in the first quarter of 2002 from 4.83% in the previous quarter.

19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

We incurred client service expenses with respect to our noninterest-bearing deposits. These expenses include courier and armored car services, check supplies and other related items that are included in operating expenses. If these expenses had been included in interest expense, our net yield on interest-earning assets would have been as follows for each of the periods presented.

	Three months ended March 31,
	2002			2001
	(Dollars in thousands)
Average noninterest-bearing demand deposits	$	935,428		$	1,016,228
Client service expenses		647			803
Client service expenses, as a percentage of average noninterest bearing demand deposits		0.28	%		0.32	%
IMPACT ON NET YIELD ON INTEREST-EARNING ASSETS:
Net yield on interest-earning assets		4.98	%		5.75	%
Impact of client service expense		(0.04	)%		(0.06	)%
Adjusted net yield on interest-earning assets		4.94	%		5.69	%

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. The cost for client service expense reflects our efforts to control interest expense.

Provision for Loan Losses

The provision for loan losses represents the current period credit cost associated with maintaining an appropriate allowance for credit losses. The loan loss provision for each period is dependent upon 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 our market area. Periodic fluctuations in the provision for loan losses result from management’s assessment of the adequacy of the allowance for loan losses; however, actual loan losses may vary from current estimates.

The provision for loan losses for the first quarter of 2002 was $16.0 million, compared to $7.3 million for the first quarter of 2001. The increase in the provision for loan losses corresponds to the increase in our net charge-offs for the first quarter of 2002 ($15.4 million as compared to $5.4 million for the first quarter of 2001). $11.1 million or 72.0% of the total for the first quarter of 2002 related to the corporate syndicated national credit portfolio (“SNC portfolio”). Our ratio of allowance for loan losses to total loans at March 31, 2002 was 2.78%, as compared to 2.77% at December 31, 2001. Non-performing assets at March 31, 2002 were $28.8 million, or 0.35% of assets, compared to $31.0 million, or 0.39% of assets, at December 31, 2001. For further information on nonperforming assets and the allowance for loan losses and a description of our systematic methodology employed in determining an adequate allowance for loan losses, see “Financial Condition—Nonperforming Assets” and “Financial Condition—Allowance for Loan Losses”.

20

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Non-Interest Income

Total recurring non-interest income increased to $22.6 million in the first quarter of 2002, compared to $9.7 million for the fourth quarter of 2001 and $11.5 million for the first quarter of 2001. The following table sets forth information by category for the periods indicated.

	At and for the three month periods ended
	March 31, 2002		December 31, 2001			September 30, 2001		June 30, 2001		March 31, 2001
	(Dollars in thousands)
Insurance agency commissions and fees	$	10,891	$	—		$	—	$	—	$	—
Service charges and other fees		2,828		3,223			2,564		2,481		2,334
Loan and international banking fees		2,527		2,243			1,987		2,085		2,541
Trust fees		906		881			865		978		886
ATM network revenue		583		656			803		766		662
Gain on sale of loans		496		347			1,684		375		835
Gain on sale of investments, net		200		(46	)		819		3,944		1,587
Other income		4,161		2,380			1,900		1,870		2,611
Total, recurring		22,592		9,684			10,622		12,499		11,456
Warrant income		—		—			77		504		—
Total	$	22,592	$	9,684		$	10,699	$	13,003	$	11,456

The increase in recurring non-interest income in the first quarter of 2002 as compared to the fourth quarter of 2001 resulted primarily from the $10.9 million in insurance agency commissions and fees resulting from the acquisition of ABD.

During the first quarter of 2002, we recorded a $496,000 gain on sale of loans, compared to $347,000 for the fourth quarter of 2001, and a $835,000 gain in the first quarter of 2001.

During the first quarter of 2002, we recorded a $200,000 gain on sale of investments, compared to a $(46,000) loss for the fourth quarter of 2001, and a $1.6 million gain in the first quarter of 2001. The gain on sale of investments in the first quarter of 2002 is primarily a result of discounts recognized on the early payoff of investment securities. The gain on sale of investments in the first quarter of 2001 was the result of sales undertaken as a part of our consolidation of the investment portfolios of our subsidiary banks.

21

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Other income for first quarter of 2002 and fourth quarter of 2001 includes $149,000 and $636,000 in income recognized on derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). These derivative instruments had previously been treated as interest rate hedges and the unrealized gains and losses on those instruments had been included in other comprehensive income.

There was no warrant income for the first quarter of 2002, fourth quarter of 2001, or first quarter of 2001. At March 31, 2002, we held approximately 117 warrant positions. We occasionally receive 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 our control, and cannot be predicted with any degree of accuracy and are likely to vary materially from period to period.

Operating Expenses

The following table sets forth the major components of operating expenses for the periods indicated.

	At and for the three month periods ended
	March 31, 2002(1)			December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
	(Dollars in thousands)
Compensation and benefits	$	28,575		$	24,696		$	22,318		$	21,639		$	21,046
Occupancy and equipment		8,838			7,817			7,036			6,642			6,261
Dividends on Trust Preferred Securities and preferred stock of real estate investment trusts		5,323			5,088			3,724			2,454			2,458
Legal and other professional fees		1,689			2,342			2,418			1,626			1,453
Client service expenses		647			645			712			805			803
Amortization of intangibles		562			376			374			366			292
FDIC insurance and regulatory assessments		463			627			406			393			336
Other		8,896			7,437			7,945			7,744			7,312
Total operating expenses excluding nonrecurring costs		54,993			49,028			44,933			41,669			39,961
Merger and other related nonrecurring costs		—			29,249			—			—			—
Total operating expenses	$	54,993		$	78,277		$	44,933		$	41,669		$	39,961
Efficiency ratio		47.77	%		80.22	%		49.01	%		46.28	%		46.17	%
Efficiency ratio (before merger, nonrecurring and extraordinary items)		47.77	%		50.25	%		49.05	%		46.54	%		46.17	%
Efficiency ratio excluding dividends paid on Trust Preferred Securities and preferred stock of real estate investment trusts (before merger and other nonrecurring cost)		43.14	%		45.03	%		44.99	%		43.80	%		43.33	%
Total operating expenses to average assets		2.78	%		4.08	%		2.49	%		2.60	%		2.82	%
Total operating expenses to average assets (before merger, nonrecurring and extraordinary items)		2.78	%		2.55	%		2.49	%		2.60	%		2.82	%

(1) With the acquisition of ABD in March of 2002, one month’s operating expenses for ABD have been included in our results. Excluding ABD, our total operating expenses would have been $47.5 million, our efficiency ratio would have been 45.64%, efficiency ratio excluding dividends paid on Trust Preferred Securities and preferred stock of real estate investment trusts (before merger and other nonrecurring cost) would have been 40.53%, and total operating expenses to average assets would have been 2.42%.

22

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Operating expenses excluding merger and nonrecurring costs totaled $55.0 million for the first quarter of 2002, compared to $49.0 million for the fourth quarter of 2001 and $40.0 million for the first quarter of 2001. The ratio of recurring operating expenses to average assets was 2.78% in the first quarter of 2002, 2.55% in the fourth quarter of 2001, and 2.82% in the first quarter of 2001.

Total operating expenses include merger and other related nonrecurring costs. Merger and other related nonrecurring costs include the direct expense related to merger transactions completed and are comprised of financial advisory and professional fees, charges to conform accounting practices and other costs, including expenses related to employee severance, retention and the vesting of certain benefit plans. These expenses totaled $29.2 million during the fourth quarter of 2001 which were related to the merger with SJNB Financial Corp. There were no such expenses during the first quarter of 2002 or first quarter of 2001.

The efficiency ratio is computed by dividing total operating expenses by net interest income and non-interest income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same (or greater) volume of income while a decrease would indicate a more efficient allocation of resources. Our efficiency ratio for the first quarter of 2002 was 47.77%, compared to 80.22% in fourth quarter of 2001 and 46.17% in first quarter of 2001. Those ratios include the $29.2 million in merger and related nonrecurring items expensed during the fourth quarter of 2001. Excluding these items, our efficiency ratio for the first quarter of 2002 was 47.77%, compared to 50.25% in fourth quarter of 2001 and 46.17% in first quarter of 2001.

Operating expenses excluding merger and nonrecurring costs increased $6.0 million during the first quarter of 2002 as compared to fourth quarter of 2001. This increase is primarily due to the one month additional operating expense of $7.5 million resulting from our purchase of ABD in March 2002. Excluding the addition of ABD, operating expenses excluding nonrecurring costs would have decreased $1.5 million. Our total operating expenses to average assets before merger, nonrecurring and extraordinary items and excluding ABD Financial Services, Inc. was 2.42% as compared to 2.55% for the fourth quarter of 2001. As compared to first quarter of 2001, operating expenses excluding merger and nonrecurring costs during the first quarter of 2002 increased $15.0 million. This increase was due to our acquisition of ABD and CAPCO and the additions in personnel made during 2001 to accommodate our growth.

Compensation and benefits expenses increased in the first quarter of 2002 to $28.6 million, compared to $24.7 million in the fourth quarter of 2001 and $21.0 million in the first quarter of 2001. This increase is primarily as a result of our purchase of ABD.

The expense for dividends on Trust Preferred Securities and preferred stock of the real estate investment trusts was $5.3 million for first quarter of 2002, compared to $5.1 million for fourth quarter of 2001 and $2.5 million for first quarter of 2001. This increase reflects the issuance of $118.5 million in Trust Preferred Securities in 2001 and $15.6 million in the preferred stock of CNB Investment Trust II, a real estate investment trust subsidiary of the Cupertino National Bank. We believe that the Trust Preferred Securities and preferred stock of the real estate investment trusts expense primarily represents a cost of capital, as opposed to the remainder of the expenses which represent traditional operating expense.

During the first quarter of 2002, legal and other professional fees decreased to $1.7 million, compared to $2.3 million in the fourth quarter of 2001 and $1.5 million in the first quarter of 2001.

23

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Our amortization of intangibles totaled $562,000 for the first quarter of 2002, compared to $292,000 for the first quarter of 2001. The amortization for 2002 primarily relates to expirations recorded with the acquisition of ABD. Amortization of other intangible assets for 2002 through 2006 is estimated to range between $5.0 million and $6.5 million annually.

Income Taxes

Our effective income tax rate for the first quarter of 2002 and 2001 was 37.5%. The effective rates were lower than the statutory rate of 42% due to state enterprise zone tax credits and tax-exempt income on municipal securities.

FINANCIAL CONDITION

Total assets increased 5.8% to $8.3 billion at March 31, 2002, compared to $7.9 billion at December 31, 2001. The increase in the first quarter of 2002 was primarily due to increases in our investment securities funded by growth in deposits and other borrowings.

Investment Securities

Investment securities increased 7.2% to $3.2 billion at March 31, 2002 compared to $3.0 billion at December 31, 2001. Our investment portfolio is managed to meet our liquidity needs through proceeds from scheduled maturities and is utilized for pledging requirements for deposits of state and local subdivisions, securities sold under repurchase agreements, and Federal Home Loan Bank (“FHLB”) advances. The portfolio is comprised of U.S. Treasury securities, U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, corporate debt instruments and a modest amount of equity securities, including Federal Reserve Bank stock and FHLB stock. We do not include Federal Funds sold and certain other short-term securities as investment securities. These other investments are included in cash and cash equivalents. Investment securities classified as available for sale are recorded at fair value, while investment securities classified as held to maturity are recorded at cost. Unrealized gains or losses on available for sale securities, net of the deferred tax effect, are reported as increases or decreases in shareholders’ equity.

Loans

Total gross loans at March 31, 2002 and December 31, 2001 were $4.5 billion compared to $4.2 billion at March 31, 2001.

Our loan portfolio is concentrated in commercial (primarily manufacturing, service and technology) and real estate lending, with the balance in leases and consumer loans. While no specific industry concentration is considered significant, our lending operations are located in a market area that is dependent on the technology and real estate industries and supporting service companies. Thus, a downturn in these sectors of the economy could adversely impact our borrowers. This could, in turn, reduce the demand for loans and adversely impact the borrowers’ abilities to repay their loans, while also decreasing our net interest margin.

24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

We have seen a softening of loan demand and loan growth in the latter part of the fourth quarter of 2001 and continuing into the first quarter of 2002. This has been the result of our focus on borrower strength and cash flow in underwriting both commercial and real estate loans, combined with the general slowdown in our markets caused by the economic downturn. Our pipeline of loans declined from the end of September 2001 through January 2002. In February 2002, we saw a slight increase in the loan pipeline and, in March, we saw signs that the pipeline was once again growing. While it takes several weeks for pipeline loans to be fully underwritten and funded, the signs indicate loan growth will be stronger in the latter part of 2002. This corresponds to the current economic outlook for the San Francisco Bay Area, which indicates we are in a slow recovery period.

However, even with the pipeline increase and more positive data on the regional economy, we are continuing to see that our corporate borrowers’ usage of their lines of credit is low compared to prior periods, since indicating they are cautious about debt levels during a period of economic uncertainty. We are also continuing to see slowing in the commercial construction market, as builders postpone or delay projects. This factor is accentuated as we continue to take a conservative posture related to credit underwriting, which we believe is a prudent course of action. We are continuing to focus our attention on our quality client relationships and avoid growth on the fringe during these uncertain times. All of these factors have combined to cause a slowing in the growth of our loan portfolio. We believe the slowdown in loan growth and demand will cause our loan growth goals for 2002 to not be as linear as they have been in previous years. While we do not currently believe we need to revise our loan growth target for 2002, we do believe the majority of the growth will occur later in the year, as the economy recovers and businesses in our market areas begin to expand. We believe that the impact on earnings of slower growth early in the year will be more than offset by the positive net interest margin expansion we are seeing. Based on our current estimates, management reaffirms its loan growth guidance for 2002 of within the range of 7% to 10% annually.

The following table presents the composition of our loan portfolio at the dates indicated.

	March 31, 2002					December 31, 2001					March 31, 2001
	Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Commercial	$	1,901,577		43.5	%	$	1,909,056		43.7	%	$	1,845,605		44.9	%
Term real estate—commercial		1,466,686		33.5			1,407,300		32.2			1,134,389		27.6
Total Commercial		3,368,263		77.0			3,316,356		75.9			2,979,994		72.5
Real estate construction and land		697,899		16.0			744,127		17.0			757,974		18.5
Real estate other		251,021		5.7			246,117		5.6			244,846		6.0
Consumer and other		196,111		4.5			204,483		4.7			232,710		5.7
Total loans, gross		4,513,294		103.2			4,511,083		103.2			4,215,524		102.7
Deferred fees and discounts, net		(14,917	)	(0.3	)		(15,362	)	(0.4	)		(14,443	)	(0.4	)
Total loans, net of deferred fees		4,498,377		102.9			4,495,721		102.8			4,201,081		102.3
Allowance for loan losses		(125,331	)	(2.9	)		(124,744	)	(2.8	)		(93,688	)	(2.3	)
Total loans, net	$	4,373,046		100.0	%	$	4,370,977		100.0	%	$	4,107,393		100.0	%

25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

The following table presents the maturity distribution of our commercial, real estate construction and land, term real estate—commercial and real estate other portfolios and the sensitivity of such loans to changes in interest rates at March 31, 2002.

	Commercial		Term real estate— commercial		Real estate construction and land		Real estate other
	(Dollars in thousands)
Loans maturing in:
One year or less:
Fixed rate	$	269,286	$	33,962	$	85,186	$	16,755
Variable rate		473,462		46,690		561,272		31,048
One to five years:
Fixed rate		324,528		292,842		6,837		4,867
Variable rate		244,875		281,074		26,463		41,096
After five years:
Fixed rate		403,359		350,289		6,793		6,971
Variable rate		186,067		461,829		11,348		150,284
Total	$	1,901,577	$	1,466,686	$	697,899	$	251,021

26

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Nonperforming Assets

We generally place loans on nonaccrual status 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 and not collected is generally reversed from income. Loans are charged off when management determines that collection has become unlikely. Restructured loans are performing loans where we 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.

The following table sets forth information regarding nonperforming assets at the dates indicated.

	March 31, 2002			December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
	(Dollars in thousands)
Nonperforming loans:
Nonaccrual loans	$	27,837		$	30,970		$	22,273		$	8,186		$	19,292
Total nonperforming loans		27,837			30,970			22,273			8,186			19,292
OREO		972			—			—			—			259
Total nonperforming assets	$	28,809		$	30,970		$	22,273		$	8,186		$	19,551
Restructured loans	$	4,500		$	—		$	—		$	—		$	—
Accruing loans past due 90 days or more	$	2,614		$	5,073		$	5,312		$	833		$	1,316
Nonperforming assets to total loans and OREO		0.64	%		0.69	%		0.51	%		0.19	%		0.47	%
Nonperforming assets to total assets		0.35	%		0.39	%		0.30	%		0.12	%		0.32	%
Nonperforming assets, restructured loans and accruing loans past due 90 days or more to total loans and OREO		0.80	%		0.80	%		0.63	%		0.21	%		0.50	%
Nonperforming assets, restructured loans and accruing loans past due 90 days or more to total assets		0.43	%		0.46	%		0.37	%		0.13	%		0.34	%

While we recognize that the economic slowdown can impact our clients’ financial performance and ultimately their ability to repay their loans, we continue to be cautiously optimistic about the key credit indicators from our loan portfolio. We have always tried to be proactive in managing credit risk and ensuring we have a strong and well-reserved balance sheet to manage through slowing economic periods. Credit quality through the first quarter of 2002 continues to be strong in the core banks, with our SNC portfolio still accounting for a significant portion of the nonperforming assets. Non-performing assets have remained at manageable levels for the first quarter with the March 31, 2002 balance totalling $28.8 million, or 0.35% of assets, compared to $31.0 million, or 0.39% of assets, at December 31, 2001. We continue to believe that our non-performing assets ratio will remain at the low end of industry averages.

27

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

At March 31, 2002, $8.2 million of the nonperforming loans were from our SNC portfolio, $6.0 million were venture banking credits and $2.4 million were related to the real estate loan portfolio.

At March 31, 2002, the non-relationship SNC portfolio has been reduced to approximately $77 million or less than 1.7% of total loans. As we have previously disclosed, we have not funded a non-relationship SNC loans in over 27 months and we do not expect to re-enter this market in the foreseeable future. In addition, no losses were incurred in our venture lending portfolio during the first quarter of 2002. This portfolio is now down to a risk portion of less than $25 million or less than 0.6% of total loans. At March 31, 2002, our SNC and venture lending portfolio combined represent less than 2.3% of total loans.

Our real estate loan portfolio continues to perform well. For the first quarter, we have $2.4 million in non-performing real estate assets, all of which we believe have adequate collateral coverage. We also have one small OREO property totaling $1.0 million, which is in escrow for sale and is expected to close in 30 days. We do not expect to incur a loss from this OREO property. We recognize that real estate lags the general economic cycle and that we are not immune to economic factors; however, we believe our relationship management focus combined with our proactive credit management strategies will minimize the impact of the real estate market on our non-performing loans, OREO and resulting net charge-offs. We anticipate the possibility of some additional risk rating migration of real estate loans, as the economy improves and the lagging real estate sector begins its delayed recovery.

We have completed a detailed stress analysis of our real estate portfolio’s loan to value and debt service coverage under current market conditions. This analysis continues to support our conclusion that we do not have any systemic areas of concern in our real estate loan portfolio.

The balance of loans past due 90 days or more and accruing decreased to $2.6 million at March 31, 2002, compared to $5.1 million at December 31, 2001. In addition to the loans disclosed above as nonaccrual or restructured, management has also identified approximately $13.5 million in loans that, on the basis of information known to us, were judged to have a higher than normal risk of becoming nonperforming. Management cannot, however, predict the extent to which economic conditions may worsen or other factors may impact our borrowers and our loan portfolio. Accordingly, there can be no assurance 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.

28

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Allowance 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 our loan portfolio. The allowance is increased by provisions charged against current earnings and reduced by net charge-offs. Loans are charged off when they are deemed to be uncollectable; recoveries are generally recorded only when cash payments are received.

The following table sets forth information concerning our allowance for loan losses at the dates and for the period indicated.

	At and for the three month periods ended
	March 31, 2002			December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
	(Dollars in thousands)
Period end loans outstanding	$	4,513,294		$	4,511,083		$	4,394,901		$	4,310,389		$	4,215,524
Average loans outstanding	$	4,464,596		$	4,454,504		$	4,333,508		$	4,244,746		$	4,118,057
Allowance for loan losses:
Balance at beginning of period	$	124,744		$	98,178		$	96,119		$	93,688		$	91,407
Allowance of entities acquired through mergers accounted for under purchase accounting method		—			—			—			—			320
Charge-offs:
Commercial		(16,219	)		(6,057	)		(7,327	)		(7,802	)		(6,057	)
Term real estate—commercial		—			—			—			—			—
Total commercial		(16,219	)		(6,057	)		(7,327	)		(7,802	)		(6,057	)
Real estate construction and land		—			—			—			—			—
Real estate other		—			—			—			—			—
Consumer and other		(135	)		(239	)		(83	)		(109	)		(61	)
Total charge-offs		(16,354	)		(6,296	)		(7,410	)		(7,911	)		(6,118	)
Recoveries:
Commercial		915			400			1,016			273			694
Term real estate—commercial		—			—			—			—			—
Total commercial		915			400			1,016			273			694
Real estate construction and land		1			—			—			—			—
Real estate other		—			—			—			—			—
Consumer and other		25			12			53			20			57
Total recoveries		941			412			1,069			293			751
Net charge-offs		(15,413	)		(5,884	)		(6,341	)		(7,618	)		(5,367	)
Provision charged to income (1)		16,000			32,450			8,400			10,049			7,328
Balance at end of period	$	125,331		$	124,744		$	98,178		$	96,119		$	93,688
Quarterly net charge-offs to average loans outstanding during the period, annualized		1.40	%		0.52	%		0.58	%		0.72	%		0.53	%
Year to date net charge-offs to average loans outstanding during the period, annualized		1.40	%		0.59	%		0.61	%		0.63	%		0.53	%
Quarterly net charge-offs excluding SNC portfolio to average loans outstanding during the period, annualized		0.39	%		0.17	%		0.06	%		0.34	%		0.38	%
Year to date net charge-offs excluding SNC portfolio to average loans outstanding during the period, annualized		0.39	%		0.23	%		0.26	%		0.36	%		0.38	%
Allowance as a percentage of average loans outstanding		2.81	%		2.80	%		2.26	%		2.27	%		2.27	%
Allowance as a percentage of period end loans outstanding		2.78	%		2.77	%		2.23	%		2.23	%		2.22	%
Allowance as a percentage of non-performing loans		435.04	%		402.79	%		440.79	%		1174.19	%		479.20	%

(1) Includes $3.5 million in fourth quarter of 2001 to conform the merged entities to our allowance methodologies which are included in mergers and related nonrecurring costs.

During the first quarter of 2002, our ratio of net charge-offs to average loans outstanding during the quarter increased to 1.40%, as compared to 0.52% for the fourth quarter of 2001 and 0.53% for the first quarter of 2001. We continue to be aggressive with net charge-offs in the SNC portfolio. $11.1 million of the $15.4 million of the net charge-offs for the first quarter were related to this portfolio.

29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

We employ a systematic methodology for determining our allowance for loan losses, which includes a monthly review process and monthly adjustment of the allowance. Our process includes a periodic loan by loan review for loans that are individually evaluated for impairment as well as detailed reviews of our other loans, either individually or in pools. This includes an assessment of known problem loans, potential problem loans, and other loans that exhibit indicators of deterioration.

Our methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan losses that management believes is appropriate at each reporting date. Quantitative factors include our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, and other factors. Quantitative factors also incorporate known information about individual loans including borrowers’ sensitivity to interest rate movements and borrowers’ sensitivity to quantifiable external factors including commodity and finished goods prices as well as acts of nature (earthquakes, fires, etc.) that occur in a particular period.

Qualitative factors include the general economic environment in our marketplace, and in particular, the state of the technology industries based in the Silicon Valley and other key industries in the San Francisco Bay Area. The size and complexity of individual credits in relation to lending officers’ background and experience levels, loan structure, extent and nature of waivers of existing loan policies and pace of portfolio growth are other qualitative factors that are considered in our methodology.

Our methodology is, and has been, consistently followed. However, as we add new products, increase in complexity, and expand our geographic coverage, we will enhance our methodology to keep pace with the size and complexity of the loan portfolio. In this regard, we have periodically engaged outside firms to independently assess our methodology, and on an ongoing basis we engage outside firms to perform independent credit reviews of our loan portfolio. Management believes that our systematic methodology continues to be appropriate given our size and level of complexity.

While this methodology utilizes historical and other objective information, the establishment of the allowance for loan losses and the classification of loans, is to some extent, based on the judgment and experience of management. Management believes that the allowance for loan losses is adequate as of March 31, 2002 to cover known and inherent risks in the loan portfolio. However, future changes in circumstances, economic conditions or other factors could cause management to increase or decrease the allowance for loan losses as necessary.

At March 31, 2002, the allowance for loan losses was $125.3 million, consisting of a $103.6 million allocated allowance and a $21.7 million unallocated allowance. The unallocated allowance recognizes the model and estimation risk associated with the allocated allowances, and management’s evaluation of various conditions, the effects of which are not directly measured in determining the allocated allowance. The evaluation of the inherent loss regarding these conditions involves a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the unallocated allowance include the following at the balance sheet date:

• The current business cycle and existing general economic and business conditions affecting our key lending areas; economic and business conditions affecting our key lending portfolios;

• Seasoning of the loan portfolio, growth in loan volumes and changes in loan terms; and

• The results of bank regulatory examinations.

30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Deposits

We emphasize developing total client relationships in order to increase our core deposit base. Deposits reached $5.0 billion at March 31, 2002, an increase of 1.0% compared to December 31, 2001. While we continue to anticipate deposit growth, we do not expect to enjoy the growth rate experienced during 2000. For 2002, we target a deposit growth rate in the range of 5% to 10%.

In this economic environment, we believe our clients are more likely to utilize deposits and cash-on-hand rather than other funding sources. This is particularly evidenced in our venture banking unit, as our business clients focus more on managing current operations rather than business expansion, which has resulted in a reduction in their borrowing needs. The economic slowdown has also impacted our Trust unit as the general market conditions have reduced investments in our money market accounts.

Our noninterest-bearing demand deposit accounts decreased 2.1% to $934.2 million at March 31, 2002 compared to $954.0 million at December 31, 2001.

Money market deposit accounts (“MMDA”), negotiable order of withdrawal accounts (“NOW”) and savings accounts were $2.3 billion at March 31, 2002 compared to $2.3 billion at December 31, 2001.

MMDA, NOW and savings accounts were 45.1% of total deposits at March 31, 2002 as compared to 45.7% at December 31, 2001. Time certificates of deposit totaled $1.8 billion, or 36.4% of total deposits at March 31, 2002 compared to $1.8 billion or 35.2% of total deposits at December 31, 2001.

Liquidity and Cash Flow

The objective of our liquidity management is to maintain each Bank’s ability to meet the day-to-day cash flow requirements of our clients who either wish to withdraw funds or require funds to meet their credit needs. We must manage our 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 our shareholders. We monitor 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 have the ability to sell securities under agreements to repurchase, obtain FHLB advances or purchase overnight Federal Funds.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Greater Bay is a company separate and apart from the Banks and therefore it must provide for its own liquidity. In addition to its own operating expenses, Greater Bay is responsible for the payment of the interest on the outstanding issues of trust preferred securities and is directly responsible for the interest on the zero coupon senior convertible contingent debt securities issued subsequent to quarter end, and the dividends paid on our common stock and the 7.25% convertible preferred stock. Substantially all of Greater Bay’s revenues are obtained from management fees, interest received on its investments and dividends declared and paid by the Banks and their subsidiaries. There are statutory and regulatory provisions that limit the ability of the Banks to pay dividends to Greater Bay. At March 31, 2002, the Banks had approximately $109.7 million in the aggregate available to be paid as dividends to Greater Bay. Management of Greater Bay believes that such restrictions will not have an impact on the ability of Greater Bay to meet our ongoing cash obligations. Subsequent to quarter end, Greater Bay agreed to raise approximately $200 million through a private offering to zero coupon senior convertible contingent debt securities. As of March 31, 2002, Greater Bay did not have any material commitments for capital expenditures.

Net cash provided by operating activities, consisting primarily of net income, totaled $45.3 million for first quarter of 2002 and $30.2 million for the same period in 2001. Cash used for investing activities totaled $294.1 million in the first quarter of 2002 and $393.8 million in the same period of 2001. The funds used for investing activities primarily represent increases in loans and investment securities for each period reported.

For the quarter ended March 31, 2002, net cash provided by financing activities was $270.2 million, compared to $205.6 million in the same period of 2001. Historically, our primary financing activity has been through deposits. For the three months ended March 31, 2002 and 2001, deposit gathering activities generated cash of $51.1 million and $62.6 million, respectively. This represents a total of 18.9% and 30.4% of the financing cash flows for the first quarter of 2001 and 2001, respectively.

32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Capital Resources

Shareholders’ equity at March 31, 2002 increased to $565.0 million from $463.7 million at December 31, 2001. Greater Bay declared dividends of $0.115, and $0.43 per share during the three months ended March 31, 2002 and the twelve months ended December 31, 2001, respectively, excluding dividends paid by subsidiaries prior to the completion of their mergers.

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 securities 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. Our major capital components are shareholders’ equity and Trust Preferred Securities in core capital, and the allowance for loan losses in supplementary capital.

At March 31, 2002, the minimum risk-based capital requirements to be considered adequately capitalized were 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 Office of the Comptroller of the Currency and the FDIC have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. Our capital levels at March 31, 2002 and the two highest levels recognized under these regulations are as follows:

	Leverage ratio		Tier 1 risk-based capital ratio		Total risk-based capital ratio
Company	7.67	%	10.31	%	11.99	%
Well-capitalized	5.00	%	6.00	%	10.00	%
Adequately capitalized	4.00	%	4.00	%	8.00	%

In addition, at March 31, 2002, each of our subsidiary banks had levels of capital that exceeded the well-capitalized guidelines.

33

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Quantitative and Qualitative Disclosures about Market Risk

Our financial performance is impacted by, among other factors, interest rate risk and credit risk. We do not utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and our allowance for loan losses. See “—Allowance for Loan Losses” herein.

Interest rate risk is the change in value due to changes in interest rates. This risk is addressed by our Asset & Liability Management Committee (“ALCO”) which includes senior management representatives. The ALCO monitors interest rate risk by analyzing the potential impact to the net portfolio of equity value and net interest income from potential changes to interest rates and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages our balance sheet in part to maintain the potential impact on net portfolio value and net interest income within acceptable ranges despite changes in interest rates.

Our 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 our change in net portfolio value in the event of hypothetical changes in interest rates. If potential changes to net portfolio value and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Board, the Board may direct management to adjust our asset and liability mix to bring interest rate risk within Board-approved limits.

In order to reduce the exposure to interest rate fluctuations, we have implemented strategies to more closely match our balance sheet composition. Although we are doing so to a lesser extent than in prior years, we have generally focused our investment activities on securities with terms or average lives averaging at approximately 3 ¹/2 years which effectively lengthens the average duration of our assets. We have utilized short-term borrowings and deposit marketing programs to shorten the effective duration of our liabilities.

Market Value of Portfolio Equity

Interest rate sensitivity is computed by estimating the changes in net portfolio of equity value, or market value over a range of potential changes in interest rates. The market value of equity is the market value of our assets minus the market value of our liabilities plus the market value of any off-balance sheet items. The market value of each asset, liability, and off-balance sheet item is our net present value of expected cash flows discounted at market rates after adjustment for rate changes. We measure the impact on market value for an immediate and sustained 100 basis point increase and decrease (shock) in interest rates. The following table shows our projected change in net portfolio value for this set of rate shocks as of March 31, 2002.

34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Change in interest rates	Net portfolio value		Projected change
			Dollars			Percentage
	(Dollars in millions)
100 basis point rise	$	1,058	$	(27	)	-2.5	%
Base scenario		1,085		—		—
100 basis point decline		1,091		6		+0.5	%

The preceding table indicates that as of March 31, 2002 an immediate and sustained 100 basis point increase in interest rates would decrease our net portfolio value by approximately 2.5%. Our net portfolio value is approximately 1.9 times our book value at March 31, 2002.

The market value of portfolio equity is based on the net present values of each product in the portfolio, which in turn is based on cash flows factoring in recent market prepayment estimates from public sources. The discount rates are based on recently observed spread relationships and adjusted for the assumed interest rate changes. Some valuations are provided directly from independent broker quotations.

Net Interest Income Simulation

The impact of interest rate changes on net interest income and net income are measured using income simulation. The various products in our balance sheet are modeled to simulate their income (and cash flow) behavior in relation to interest rates. Income for the next 12 months is calculated for current interest rates and for immediate and sustained rate shocks.

The income simulation model includes various assumptions regarding the repricing relationships for each product. Many of our assets are floating rate loans, which are assumed to reprice immediately, and to the same extent as the change in market rates according to their contracted index. Our non-term deposit products reprice more slowly, usually changing less than the change in market rates and at our discretion. As of March 31, 2002, the analysis indicates that our net interest income for the next 12 months would increase 0.90% if rates increased 100 basis points, and decrease by 2.30% if rates decreased 100 basis points.

The above +/- 100 basis points net interest income analysis is a static analysis that does not consider likely expected balance sheet mix changes in an actual rate change scenario. A 100 basis points increase in rates would be commensurate with an improving economy and is expected to increase loan and deposit growth rates.

Based on conservative estimates of balance sheet mix changes in rates up 100 basis points as discussed above, the Company expects that net interest income would increase by approximately 3.0% - 4.0%. Additionally, in rates up 200 basis points, the Company believes that net interest income would increase by approximately 6% - 8%.

This analysis indicates the impact of change in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet grows modestly, but that our structure is to remain similar to the structure at year-end. It does not account for all the factors that impact this analysis including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change. Furthermore loan and investment prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan and investment prepayment rates that will differ from the market estimates incorporated in the analysis. In addition, the proportion of adjustable-rate loans in our portfolio could decrease in future periods if market interest rates remain at or decrease below current levels. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

The results of this sensitivity analysis should not be relied upon as indicative of actual future results.

35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Gap Analysis

In addition to the above analysis, we also perform a gap analysis as part of the overall interest rate risk management process. This analysis is focused on the maturity structure of assets and liabilities and their repricing characteristics over future periods. An effective interest rate risk management strategy seeks to match the volume of assets and liabilities maturing or repricing during each period. Gap sensitivity is measured as the difference between the volume of assets and liabilities in our current portfolio that is subject to repricing at various time horizons. The main focus is usually for the one-year cumulative gap. The difference is known as interest sensitivity gaps.

The following table shows interest sensitivity gaps for different intervals as of March 31, 2002:

	Immediate or one day			2 days to 6 months			7 months to 12 months			1 year to 3 years			4 years to 5 years			More than 5 years			Total rate sensitive			Total non-rate sensitive			Total
	(Dollars in thousands)
Assets:
Cash and due from banks	$	—		$	1,816		$	—		$	—		$	—		$	—		$	1,816		$	215,015		$	216,831
Federal Funds Sold		20,000			—			—			—			—			—			20,000			—			20,000
Investment securities		104,148			700,134			459,460			919,737			249,364			744,914			3,177,758			7,009			3,184,767
Loans		2,084,693			858,153			251,590			665,628			499,029			139,284			4,498,377			—			4,498,377
Loan losses/unearned fees		—			—			—			—			—			—			—			(125,330	)		(125,330	)
Other assets		—			—			—			—			—			—			—			535,380			535,380
Total assets	$	2,208,841		$	1,560,103		$	711,050		$	1,585,365		$	748,393		$	884,198		$	7,697,951		$	632,074		$	8,330,025
Liabilities and Equity:
Deposits	$	2,271,837		$	1,334,055		$	424,807		$	67,367		$	7,645		$	1,351		$	4,107,062		$	934,150		$	5,041,212
Other borrowings		34,416			1,143,197			401,717			715,635			16,991			1,472			2,313,428			—			2,313,428
Trust preferred securities		—			—			—			—			—			218,000			218,000			—			218,000
Other liabilities		—			—			—			—			—			—			—			176,688			176,688
Shareholders’ equity		—			—			—			—			—			—			—			580,697			580,697
Total liabilities and equity	$	2,306,253		$	2,477,252		$	826,524		$	783,002		$	24,636		$	220,823		$	6,638,490		$	1,691,535		$	8,330,025
Gap	$	(97,412	)	$	(917,149	)	$	(115,474	)	$	802,363		$	723,757		$	663,375		$	1,059,461		$	(1,059,461	)	$	—
Cumulative Gap	$	(97,412	)	$	(1,014,561	)	$	(1,130,035	)	$	(327,672	)	$	396,085		$	1,059,460		$	1,059,461		$	—		$	—
Cumulative Gap/total assets		(1.17	)%		(12.18	)%		(13.57	)%		(3.93	)%		4.75	%		12.72	%		12.72	%		0.00	%		0.00	%

The foregoing table indicates that we had a one year negative gap of $(1.1) billion, or (13.6)% of total assets, at March 31, 2002. In theory, this would indicate that at March 31, 2002, $1.1 billion more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates were to decline, the gap would indicate a resulting increase in 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 our supporting liability can vary significantly while the timing of repricing of both the asset and our 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.

Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest rates decrease, basis risk, or the benefit of non-rate funding sources. The relation between product rate repricing and market rate changes (basis risk) is not the same for all products. The majority of our loan portfolio reprices quickly and completely following changes in market rates, while non-term deposit rates in general move more slowly and usually incorporate only a fraction of the change in rates. Products categorized as non-rate sensitive, such as our noninterest-bearing demand deposits, in the gap analysis behave like long term fixed rate funding sources. Both of these factors tend to make our actual behavior more assets sensitive than is indicated in the gap analysis. In fact, we experience higher net interest income when rates rise, opposite what is indicated by the gap analysis. In fact, during the recent period of declines in interest rates, our net interest earning assets has declined. See “Results of Operations Net Interest Income—The Quarter Ended March 31, 2002 Compared to December 31, 2001”. Therefore, management uses income simulation, net interest income rate shocks and market value of portfolio equity as our primary interest rate risk management tools.

36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(Continued)

Recent events

On April 18, 2002, we agreed to raise approximately $200 million in net proceeds through a private placement of Zero Coupon Senior Convertible Contingent Securities (the “CODES”). The initial purchasers have the option to purchase $40 million in additional CODES. The CODES will have a yield to maturity of 2.25% when issued. The offered notes will have a maturity of 20 years, are callable after five years and are putable by the holder at the end of 2, 5, 10 and 15 years. The CODES will be convertible to common stock of Greater Bay contingent on certain circumstances. We will use the net proceeds from the sale of CODES for general corporate purposes, which may include advances to or investments in our subsidiaries, working capital, capital expenditures, acquisitions, repayment of trust preferred securities and repayment of existing indebtedness. Pending the final utilization of the proceeds, we intend to invest the funds in investment securities that are expected to yield 3% to 4% in excess of the cost of the debt securities.

37

PART II.    OTHER INFORMATION

I TEM 1.    Legal Proceedings—Not applicable

ITEM 2.    Changes in Securities and Use of Proceeds

On March 12, 2002, we completed the acquisition of ABD for a purchase price of $193.6 million in cash and a new series of convertible preferred stock in a tax-free reorganization. This amount includes an initial payment on consummation of the merger of $72.5 million in convertible preferred stock and $59.1 million in cash, and an additional $63.6 million in convertible preferred stock (or common stock in certain instances) and cash contingent upon ABD meeting specified performance goals during 2002, 2003, 2004 and 2005. The 1,449,898 shares of convertible preferred stock were issued pursuant to Section 3(a)(10) of the Securities Act of 1933.

The purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of purchase price over the estimated fair values of the net assets acquired was $146.0 million of which $95.6 million was recorded as goodwill and $50.4 million was recorded as other intangible assets. Prospectively, goodwill will be evaluated for possible impairment under the provision of SFAS No. 142. The other intangible assets will be amortized using a method that approximates the anticipated utilization of the expirations which will cover a period of ten years.

Each share of convertible preferred stock is convertible at the option of the convertible preferred shareholder into fully paid and nonassessable shares of Greater Bay Common Stock. The number of shares of Common Stock deliverable upon conversion of a share of Series B Preferred Stock initially will be 1.67 and the conversion price initially will be $30.00, and in each case is subject to adjustment.

ITEM 3.    Defaults Upon Senior Securities—Not applicable

ITEM 4.    Submission of Matters to a Vote of Security Holders—Not applicable

ITEM 5.    Other Information—Not applicable

ITEM 6.    Exhibits and Reports on Form 8-K

The Exhibits listed below are filed or incorporated by reference as part of this Report.

(a)   Exhibits

Exhibit No.	Exhibits
4.1	Certificate of Determination of the Rights, Preferences, Privileges and Restrictions of Series B Preferred Stock of the Registrant.
10.1	Term Loan Agreement dated as of March 8, 2002, between the Registrant and U.S. Bank, National Association.

(b)  Reports on Form 8-K

During the quarter ended March 31, 2002, the Registrant filed the following Current Reports on Form 8-K: (1) Form 8-K dated January 6, 2002 (containing press release regarding year end earnings); (2) Form 8-K dated February 25, 2002 (containing slide presentation for analysts’ conference); and (3) Form 8-K dated March 12, 2002 (reporting the completion of the acquisition of ABD).

38

SIGNATURES

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.

GREATER BAY BANCORP

(Registrant)

By:	/s/    STEVEN C. SMITH
	Executive Vice President, Chief Administrative Officer and Chief Financial Officer

Date:    April 18, 2002

39

EX-4.1

                                   Exhibit 4.1

     CERTIFICATE OF DETERMINATION OF THE RIGHTS, PREFERENCES, PRIVILEGES AND
                                  RESTRICTIONS
                           OF SERIES B PREFERRED STOCK
                                       OF
                               GREATER BAY BANCORP

The undersigned, David L. Kalkbrenner and Linda M. Iannone, hereby certify that:

         1. They are the President and Secretary, respectively, of Greater Bay
Bancorp, a corporation organized and existing under the laws of the State of
California (the "Corporation").

         2. The Restated Articles of Incorporation of the Corporation authorize
the Board of Directors to designate 4,000,000 shares of preferred stock, and to
issue such preferred shares in one or more series from time to time.

         3. The board of directors has previously designated 1,200,000 shares as
Series A Preferred Stock, none of which have been issued.

         4. That, pursuant to authority conferred upon the board of directors of
the Corporation by the Restated Articles of Incorporation of the Corporation,
and pursuant to the provisions of Section 202 of the General Corporation Law of
the State of California, the board of directors has adopted resolutions on
December 18, 2001, providing for the determination, designation and issuance of
2,400,000 shares of Series B Preferred Stock, none of which have been issued,
which resolutions are as follows:

         WHEREAS, Article III (b) of the Restated Articles ("Articles")
authorizes the board of directors to designate any and all of the shares of
Preferred Stock;

         WHEREAS, the board of directors has determined that designating
2,400,000 shares of Series B Preferred Stock would be in the best interests of
the Corporation and its shareholders; and

         WHEREAS, the Series B Preferred Stock shall have the rights,
preferences, privileges and restrictions set forth below.

         NOW, THEREFORE, BE IT RESOLVED, that the board of directors designates
2,400,000 shares of the Preferred Stock as Series B Preferred Stock in accord
with Article III of the Articles.

         RESOLVED FURTHER, that the Series B Preferred Stock shall have the
following rights, preferences, privileges and restrictions and that defined
terms used hereinafter have the meanings ascribed to them in the Articles:

                                       1



         The rights, preferences, privileges and restrictions, designation and
number of shares of the Series B Preferred Stock are as follows:

         Section 1.     Designation, Amount and Ranking.
                        -------------------------------

         (A) The number of authorized shares constituting Series B Preferred
Stock is 2,400,000. The shares of Series B Preferred Stock shall have a stated
value of $50.00 per share (the "Stated Value"). No fractional shares of Series B
Preferred Stock will be issued. The number of authorized shares of Series B
Preferred Stock may be increased or reduced (but not below the number of such
shares then outstanding) by resolution duly adopted by or pursuant to authority
conferred by the board of directors without shareholder vote as authorized by
Section 203.5 of the CGCL (as defined in Section 11 below).

         (B) The Series B Preferred Stock shall rank, with respect to dividend
preference and rights as enumerated in Section 2 below and liquidation
preference and rights as enumerated in Section 5 below, senior to the Common
Stock and senior to all other classes or series of capital stock of the
Corporation now or hereafter authorized, other than any class or series of
capital stock designated as ranking on parity with or senior to the Series B
Preferred Stock as to dividend rights and rights on liquidation.

         Section 2.     Dividend Rights; Payment of Dividends.
                        -------------------------------------

         (A) Subject to the terms of this Section 2, the holders of shares of
Series B Preferred Stock shall be entitled to receive, when, as, and if declared
by the board of directors, out of funds legally available for payment, for each
share of Series B Preferred Stock noncumulative cash dividends, payable
quarterly in arrears, at the rate of 7.25% per annum of the per share Stated
Value thereof. Such noncumulative dividends, when declared on the Series B
Preferred Stock, shall accrue from the original Issue Date (as defined in
Section 11 below) or the date immediately succeeding the most recent Series B
Dividend Payment Date (as defined below) and be payable, if declared, quarterly
on the last day of March, June, September and December of each year that any
shares of the Series B Preferred Stock remain outstanding (each of such dates, a
"Series B Dividend Payment Date" whether or not a dividend is paid on such
date); provided, however, that if such day is not a Business Day ( as defined in
       --------  -------
Section 11 below), the Series B Dividend Payment Date shall be the immediately
preceding Business Day with the same force and effect as if made on the date
such payment was originally payable. Each declared dividend shall be payable to
holders of record as they appear on the stock books of the Corporation at the
close of business on such record dates, which shall be not more than 30 calendar
days and not less than 10 calendar days preceding the payment dates therefor, as
determined by the board of directors or a duly authorized committee thereof
(each of such dates, a "Record Date"). Quarterly dividend periods (each a
"Dividend Period") shall commence on and include the first day of January,
April, July, and October of each year and shall end on and include the
immediately succeeding Series B Dividend Payment Date; provided, however, that
the first Dividend Period shall commence on and include the Issue Date and end
on and include the immediately succeeding Series B Dividend Payment Date.
Dividends payable on the Series B Preferred Stock for any period less than a
full Dividend Period shall be computed on the basis of

                                       2



a 360-day year consisting of twelve 30-day months. Dividends payable on the
Series B Preferred Stock for each full Dividend Period shall be computed by
dividing the annual dividend rate by four. The Series B Preferred Stock shall
not participate in dividends with the Common Stock or Series A Preferred Stock.
Holders of the Series B Preferred Stock shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess of declared noncumulative
dividends, as herein provided, on the Series B Preferred Stock. No interest or
sum of money in lieu of interest shall be payable in respect of any declared
dividend payment or payments on the Series B Preferred Stock.

         (B) The right of holders of the Series B Preferred Stock to receive
dividend payments is not cumulative so that if the board of directors fails to
declare a dividend payable on a Series B Dividend Payment Date in respect of the
Series B Preferred Stock, then the right of holders of Series B Preferred Stock
to receive a dividend in respect of the Dividend Period ending on such payment
date will be lost, and the Corporation shall have no obligation to pay a
dividend in respect of such Dividend Period or to pay any interest thereon,
whether or not dividends on the Series B Preferred Stock are declared and
payable on any future Series B Dividend Payment Dates.

         (C) Full dividends on the Series B Preferred Stock must be declared and
paid or set apart for payment for the current Dividend Period before (i) any
dividends or other distributions (other than dividends or distributions paid in
shares of, or in options, rights, or warrants to subscribe for, or purchase
shares of, Common Stock or any capital stock of the Corporation ranking junior
to the Series B Preferred Stock as to dividend rights and rights on liquidation)
on Common Stock or any other capital stock of the Corporation ranking junior to
the Series B Preferred Stock as to dividend rights and rights or liquidation may
be declared and paid or set aside or (ii) any Common Stock or any other capital
stock of the Corporation ranking junior to or on parity with the Series B
Preferred Stock as to dividend rights or rights on liquidation may be redeemed,
purchased or otherwise acquired for any consideration (or any moneys may be paid
to or made available for a sinking fund for the redemption of any of such
shares) by the Corporation (except by conversion into or exchange for shares of
capital stock of the Corporation ranking junior to the Series B Preferred Stock
as to dividends rights and rights on liquidation and pursuant to rights granted
under the Corporation's 1996 Stock Option Plan, as amended, Stock Purchase Plan,
as amended and similar employee stock plans hereafter adopted), otherwise, in
the case of the Series B Preferred Stock and any other capital stock of the
Corporation ranking on parity with the Series B Preferred Stock as to dividend
rights and rights on liquidation, than pursuant to pro rata offers to purchase,
or a concurrent redemption of all, or a pro rata percent, of the outstanding
Series B Preferred Stock and any other capital stock of the Corporation ranking
on parity with the Series B Preferred Stock as to dividend rights and rights on
liquidation.

         (D) When dividends for any Dividend Period are not paid in full, as
provided in paragraph (C) of this Section 2, on the shares of the Series B
Preferred Stock or any shares ranking equally with the Series B Preferred Stock
as to dividend rights and rights on liquidation, dividends may be declared and
paid on any such preferred shares for any dividend period therefore, but only if
such dividends are declared and paid pro rata so that the amount of dividends
declared and paid per share on the shares of the Series B Preferred Stock and
any such equally ranking shares of preferred stock, in all cases shall bear to
each other the same ratio that

                                       3



the amount of unpaid dividends per share on the shares of the Series B Preferred
Stock for such Dividend Period and such equally ranking shares of preferred
stock for the corresponding dividend period bear to each other.

         (E) Any series of preferred stock or other capital stock ranking on a
parity as to dividend rights with the Series B Preferred Stock issued by the
Corporation shall only have dividend periods which end on the same dates as the
Dividend Periods.

         Section 3.     Voting Rights.  The  holders of the Series B Preferred
                        --------------
Stock  shall not be entitled to any voting  rights, except to the extent, if
any, required by applicable law or as set forth below in this Section 3.

         (A) Except as otherwise provided in paragraphs (B), (C) and (D) of this
Section 3, and so long as any shares of the Series B Preferred Stock are
outstanding, each share of Series B Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock voting
together as a single class with the Common Stock and any other shares entitled
to vote on matters voted on by holders of the Common Stock as a single class.
With respect to any such vote, each share of Series B Preferred Stock shall
entitle the holder thereof to cast the number of votes equal to the number of
votes which could be cast in such vote by a holder of the shares of capital
stock of the Corporation into which such share of Series B Preferred Stock is
convertible on the record date for such vote; provided, however, that if more
                                              --------  -------
than one share of Series B Preferred Stock shall be held by any holder of shares
of Series B Preferred Stock, the total number of votes which such holder shall
be entitled to cast pursuant to this Section 3(A) shall be computed on the basis
of conversion of the total number of shares of Series B Preferred Stock held by
such holder, with any then remaining fractional share disregarded for the
purposes of this Section 3(A).

         (B) (i)    So long as any shares of Series B Preferred Stock are
         outstanding, the Corporation shall not, without the consent or vote of
         the holders of at least a majority of the outstanding shares of the
         Series B Preferred Stock, voting separately as a class, in person or by
         proxy, amend, alter or repeal or otherwise change any provision of this
         Certificate of Determination, except to increase the authorized number
         of shares of Series B Preferred Stock as may be necessary to carry out
         the provisions of the Agreement and Plan of Merger and Reorganization
         dated December 18, 2001 among the Corporation, GBBK Corp. and Alburger
         Basso de Grosz Insurance Services, Inc. (which increase the Corporation
         shall authorize as may so be necessary).

              (ii)  So long as any shares of Series B Preferred Stock are
         outstanding, the Corporation shall not, without the consent or vote of
         the holders of at least a majority of the outstanding shares of the
         Series B Preferred Stock, voting separately as a class, in person or by
         proxy, amend, alter or repeal or otherwise change any provision of its
         Restated Articles of Incorporation, other than this Certificate of
         Determination, if such amendment, alteration or repeal would adversely
         affect the rights, preferences, powers or privileges of the Series B
         Preferred Stock.

             (iii)  Without limiting the amendments, alterations, or repeal of
         provisions of the Restated Articles of Incorporation that would not
         adversely affect the rights,

                                       4



          preferences, powers or privileges of the Series B Preferred Stock, an
          amendment, alteration, or repeal of or to any provision of the
          Restated Articles of Incorporation which (1) increases the number of
          authorized shares of Preferred Stock or (2) creates, authorizes or
          provides for the issuance of any capital stock ranking junior to or on
          parity with the Series B Preferred Stock as to dividend rights and
          rights on liquidation of the Corporation shall not be considered to be
          an adverse change requiring a vote of the holders of the Series B
          Preferred Stock pursuant to this Section 3(B).

               (iv) For a period of three years after the Issue Date, so long as
          any shares of Series B Preferred Stock are outstanding, the
          Corporation shall not, without the consent or vote of the holders of
          at least a majority of the outstanding shares of the Series B
          Preferred Stock, voting separately as a class, in person or by proxy,
          amend the Restated Articles of Incorporation or adopt a certificate of
          determination to create, authorize or provide for the issuance of any
          capital stock with both the right to receive cumulative cash dividends
          and the right to convert such security into the Common Stock of the
          Corporation, whether such security is senior to, junior to or on
          parity with the Series B Preferred Stock as to dividend rights and
          rights on liquidation.

         (C) Except as otherwise provided by law, so long as any shares of the
Series B Preferred Stock shall remain outstanding, in the event of any
Reorganization (as defined in Section 11 below), other than a transaction for
the primary purpose of affecting a change in the state of incorporation of the
Corporation that does not result in any amendments, alteration, repeal or other
material and adverse change in the rights, preferences, privileges or
restrictions of the Series B Preferred Stock or in which the Corporation shall
be the surviving or acquiring corporation or the Parent party if the rights,
preferences, privileges or restrictions granted to or imposed upon the Series B
Preferred Stock remain unchanged unless an amendment is made to the
Corporation's Restated Articles of Incorporation which would otherwise require
such approval, the holders of Series B Preferred Stock, shall, except as
otherwise provided by law, be entitled to vote separately as a class with all
other preferred stock entitled to vote thereon with the shares of Series B
Preferred Stock on the subject matter to be approved under this Section 3(C).
Such approval shall be deemed to have been obtained upon receiving the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon as a class.

         (D) (i) So long as any shares of Series B Preferred Stock remain
         outstanding, the Corporation shall not, without the consent or vote of
         the holders of at least a majority of the outstanding shares of the
         Series B Preferred Stock, voting separately as a class, in person or by
         proxy, consummate a transaction which would result in a Change in
         Control (as defined in Section 11 below) if the fair market value of
         Liquid Consideration (as defined in this paragraph (i) of this Section
         3(D)) payable or issuable upon the consummation of such transaction to
         the holders of Series B Preferred Stock (or, if greater, the fair
         market value of the Liquid Consideration payable or issuable upon the
         consummation of such transaction to the holder of the number of shares
         of Common Stock and/or any other securities that would be issuable to
         the holder of the Series B Preferred Stock if such holder converted the
         Series B Preferred Stock prior to the consummation of such transaction)
         is less than the Stated Value for each share of Series B Preferred
         Stock outstanding plus dividends accrued and unpaid for the then
         current Dividend Period (without accumulation of accrued and unpaid
         dividends for prior

                                       5



         Dividend Periods) to the date of consummation of such transaction.
         "Liquid Consideration" means (i) cash and/or (ii) securities which are
         part of a class (or, if designated in series, a series) of securities
         that has been for at least 90 days prior to, and will be immediately
         prior to the consummation of such transaction qualified for trading on
         the New York Stock Exchange, the Nasdaq National Market, any other
         national securities exchange or their respective successors, which
         securities will upon issuance, be likewise qualified, and subject to no
         limitations or restrictions other than restrictions arising from a
         holder's status as an affiliate or former affiliate of any of the
         parties to such transaction. The fair market value of the Liquid
         Consideration shall be determined as of the third Trading Day ending
         immediately prior to the consummation of such transaction. The fair
         market value of any securities shall be valued at the Current Market
         Price of such securities for the ten consecutive Trading Days ending on
         the third Trading Day immediately preceding consummation of such
         transaction.

         (ii) The Corporation shall give each holder of record of the
         outstanding Series B Preferred Stock written notice of any transaction
         that would result in a Change in Control at least 20 days prior to the
         stockholders' meeting called to approve the transaction that would
         result in the Change in Control, or at least 20 days prior to the
         consummation of such transaction, whichever is earlier. Such notice
         shall describe the material terms of the transaction and the provisions
         of this Section 3(D) and the Corporation shall thereafter give such
         holders prompt notice of any material changes. The transaction that
         would result in a Change in Control shall in no event be consummated
         sooner than 20 days after the Corporation has given the initial notice
         provided for in this paragraph (ii) of this Section 3(D) or sooner than
         10 days after the Corporation has given notice of any material changes
         as provided for herein; provided that such minimum periods may be
         shortened upon the written consent or approval of the holders of a
         majority of the outstanding Series B Preferred Stock.

         (E)  (i)      So long as any shares of the Series B Preferred Stock are
         outstanding, if full dividends on the shares of Series B Preferred
         Stock or on shares of Voting Parity Stock (as defined below in this
         paragraph (i) of this Section 3(E)), if any, or the equivalent thereof,
         shall fail to be declared and paid for any six consecutive Dividend
         Periods, then, subject to compliance with any requirement for
         regulatory approval of (or non-objection to) persons serving as
         directors, the holders of Series B Preferred Stock, voting together as
         a class with the holders of any other series of outstanding
         noncumulative preferred stock of the Corporation ranking on a parity
         with the Series B Preferred Stock as to dividends or upon liquidation,
         and upon which comparable voting rights as those of the Series B
         Preferred Stock have been conferred and made irrevocable ("Voting
         Parity Stock"), shall acquire the exclusive right to elect two
         directors at the Corporation's next annual meeting of shareholders or
         at a separate meeting called as described below in paragraph (iii) of
         this Section 3(E) or by written consent, and thereafter, at each
         subsequent annual meeting or by written consent, subject to the
         termination of such rights pursuant to paragraph (v) of this Section
         3(E).

              (ii)     In order to provide for the election of two directors, as
         required by the preceding paragraph in certain circumstances, the board
         of directors shall, promptly upon the occurrence of such circumstances,
         to the extent permitted by law and the Restated

                                       6



         Articles of Incorporation or bylaws of the Corporation, either increase
         the authorized number of directors by two or take such other action as
         necessary to permit the election of two representatives, including but
         not limited to, the calling of a special meeting of shareholders to
         effectuate a voting shift pursuant to Section 301(a) of the CGCL, by
         the Series B Preferred Stock and Voting Parity Stock, voting together
         as a class. To the extent the board of directors is not authorized to
         increase the number of directors of the Corporation at the time of the
         occurrence of the event specified in paragraph (i) of this Section
         3(E), but obtains such authorization on or prior to any meeting at
         which holders of the Series B Preferred Stock and Voting Parity Stock
         shall seek to elect directors pursuant to the preceding paragraph, then
         such an increase of the board of directors shall be effective for
         purposes of complying with the obligations of the Corporation in this
         paragraph.

              (iii)    Whenever the right to elect directors shall vest
         pursuant to this Section 3(E), such right may be exercised initially by
         the vote of the holders of a plurality of the shares of Series B
         Preferred Stock and Voting Parity Stock present and voting (separately
         as one class), in person or by proxy, at a duly held special meeting of
         holders of the Series B Preferred Stock and Voting Parity Stock or at
         the next annual meeting of shareholders, or by written consent without
         a meeting of the holders of record of a majority of the outstanding
         shares of Series B Preferred Stock and Voting Parity Stock voting
         separately as one class. Unless such action shall have been taken by
         written consent, a special meeting for the exercise of such right shall
         be called by the Secretary of the Corporation as promptly as possible,
         and in any event within ten days after receipt of a written request
         signed by the holders of record of at least 10% of the outstanding
         shares of the Series B Preferred Stock or Voting Parity Stock, subject
         to any applicable notice requirements imposed by law or regulation.
         Notwithstanding the provisions of this paragraph (iii) of this Section
         3(E), no such special meeting shall be required to be held during the
         90-day period preceding the date fixed for the annual meeting of
         shareholders.

              (iv)     If any meeting of the holders of the Series B Preferred
         Stock and Voting Parity Stock required under this Section 3(E) to be
         called shall not have been called within 30 days after personal service
         of a written request therefor upon the Secretary of the Corporation or
         within 30 days after mailing the same within the United States of
         America by registered mail addressed to the Secretary of the
         Corporation at its principal executive offices, subject to any
         applicable notice requirements imposed by law or regulation, then the
         holders of record of at least 10% of the outstanding shares of the
         Series B Preferred Stock or Voting Parity Stock may designate in
         writing one of their number to call such meeting at the expense of the
         Corporation, and such meeting may be called by such person so
         designated upon the notice required for annual meetings of shareholders
         or such shorter notice (but in no event shorter than permitted by law
         or regulation) as may be acceptable to the holders of a majority of the
         total number of shares of the Series B Preferred Stock and Voting
         Parity Stock, voting as a class. In addition to all rights provided by
         law, any holder of Series B Preferred Stock so designated shall have
         access to the Series B Preferred Stock and Voting Parity Stock books of
         the Corporation for the purpose of causing such meeting to be called
         pursuant to these provisions.

                                       7



              (v)      Such right of the holders of the Series B Preferred Stock
         and Voting Parity Stock entitled to vote in accordance with this
         Section 3(E) shall continue until, following the event which gave rise
         to such right, the Corporation shall have resumed the payment of full
         dividends upon the Series B Preferred Stock for the equivalent of four
         consecutive quarterly Dividend Periods, at which time such right shall
         terminate, except as by law expressly provided, subject to revesting in
         the event the conditions set forth in paragraph (i) of this Section
         3(E) are again triggered. Upon any such termination, the term of office
         of each director then in office elected by such holders voting as a
         class (hereinafter, "Preferred Director") shall immediately terminate,
         unless otherwise required by law. Any Preferred Director may be removed
         by, and shall not be removed except by, the vote of the holders of
         record of the outstanding shares of Series B Preferred Stock and Voting
         Parity Stock, voting together as a single class, at a meeting of the
         Corporation's shareholders, or of the holders of shares of Series B
         Preferred Stock and Voting Parity Stock, called for such purpose. So
         long as a default in any preference dividends on the Series A Preferred
         Stock and Voting Parity Stock shall exist, (1) any vacancy in the
         office of a Preferred Director may be filled by a person appointed by
         an instrument in writing signed by the remaining Preferred Director,
         unless there is no remaining Preferred Director, and filed with the
         Corporation and (2) in the case of the removal of any Preferred
         Director, or in the case that there is no remaining Preferred Director,
         the vacancy or vacancies may be filled by a person elected by the vote
         of the holders of the outstanding shares of Series B Preferred Stock
         and Voting Parity Stock, voting together as a single class without
         regard to series, at the same meeting at which such removal shall be
         voted or at any subsequent meeting. Each director appointed as
         aforesaid by the remaining Preferred Director shall be deemed, for all
         purposes hereof, to be a Preferred Director. Any vacancy in the office
         of a Preferred Director shall be filled only as set forth in this
         Section 3(E)(v).

              (vi)     At any meeting of the holders of the Series B Preferred
         Stock and Voting Parity Stock called in accordance with the provisions
         of this Section 3(E), for the election or removal of directors, the
         presence in person or by proxy of the holders of a majority of the
         total number of shares of the Series B Preferred Stock and Voting
         Parity Stock shall be required to constitute a quorum; in the absence
         of a quorum, a majority of the holders present in person or by proxy
         shall have power to adjourn the meeting from time to time without
         notice other than an announcement at the meeting, until a quorum shall
         be present.

         (F) In connection with any matter on which holders of the Series B
Preferred Stock and Voting Parity Stock are entitled to vote as provided in
Sections 3(B), 3(C), 3(D) and 3(E) above, or any matter on which the holders of
the Series B Preferred Stock are entitled to vote as one class or otherwise
pursuant to law or the provisions of the Restated Articles of Incorporation,
each holder of Series B Preferred Stock shall be entitled, except as otherwise
required by law, to one vote for each share of Series B Preferred Stock held by
such holder.

                                       8



         Section 4.    Redemption.
                       ----------

         (A)  Except upon the occurrence of a Change in Control Event (as
defined in Section 11 below), the shares of Series B Preferred Stock shall not
be redeemable prior to the fifth anniversary of the Issue Date. At any time
following the earlier to occur of a Change in Control Event or the fifth
anniversary of the Issue Date, the shares of Series B Preferred Stock may be
redeemed, at the option of the Corporation, as a whole or from time to time in
part, subject to the receipt of any required prior approval of the Board of
Governors of the Federal Reserve System and any restrictions or conditions which
may be contained in the Restated Articles of Incorporation or in any other
certificates of determination designating the rights, preferences, privileges
and restrictions of any other series of preferred stock, at a redemption price
in the amount of the Stated Value per share thereof plus, in each case,
dividends for the current Dividend Period ( without accumulation of accrued and
unpaid dividends for prior Dividend Periods), without interest thereon (the
"Redemption Price") to the date fixed for such redemption. If fewer than all of
the outstanding shares of Series B Preferred Stock are to be redeemed, the
number of shares to be redeemed shall be determined by the board of directors,
and such shares shall be redeemed either pro rata or by lot, or by any other
method at the discretion of the board of directors. Regardless of the method
used, the calculation of the number of shares to be redeemed shall be based upon
whole shares, such that the Corporation shall in no event be required to issue
fractional shares of Series B Preferred Stock or cash in lieu thereof. In the
event a method requiring proration is used, shares shall be rounded downward to
the nearest total number of shares.

         (B)  If the Corporation shall redeem shares of Series B Preferred Stock
pursuant to Section 4(A), notice of such redemption shall be mailed by first
class mail, postage prepaid, to each holder of the shares to be redeemed, at
such holder's address as the same appears on the stock books of the Corporation.
Such notice shall be mailed not less than 20 nor more than 60 days prior to the
date fixed for redemption and shall set forth: (i) the redemption date, (ii) the
number of shares of Series B Preferred Stock that are to be redeemed, (iii) the
Redemption Price (specifying the amount of accrued and unpaid dividends to be
included therein), (iv) the place or places where certificates for such shares
of Series B Preferred Stock are to be surrendered for payment of the Redemption
Price and (v) that dividends on the shares to be redeemed will cease to accrue
on such redemption date. If fewer than all shares held by any holder are to be
redeemed, the notice mailed to such holder shall also specify the number of
shares to be redeemed from such holder.

         (C)  On the date of any redemption being made pursuant to Section 4(A)
which is specified in a notice given pursuant to Section 4(B), the Corporation
shall, and at any time after such notice shall have been mailed and before the
date of redemption the Corporation may, deposit for the benefit of the holders
of shares of Series B Preferred Stock to be redeemed the funds necessary for
such redemption, including the amount necessary to pay all accrued and unpaid
dividends to the date of redemption, with a bank or trust company in the
Counties of Santa Clara or San Francisco having a capital and surplus of at
least $50,000,000. Any moneys so deposited by the Corporation and unclaimed at
the end of six months from the date designated for such redemption shall revert
to the general funds of the Corporation. After such reversion, any such bank or
trust company shall, upon demand, pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company shall be relieved of all
responsibility in

                                       9



respect thereof and any holder of shares of Series B Preferred Stock to be
redeemed shall look only to the Corporation for the payment of the Redemption
Price. In the event that moneys are deposited pursuant to this Section 4(C) in
respect of shares of Series B Preferred Stock that are converted in accordance
with the provisions of Section 6, such moneys shall, upon such conversion,
revert to the general funds of the Corporation and, upon demand, such bank or
trust company shall pay over to the Corporation such moneys and shall be
relieved of all responsibility to the holders of such converted shares in
respect thereof. Any interest accrued on funds deposited pursuant to this
Section 4(C) shall be paid from time to time to the Corporation for its own
account.

         (D)  Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Section 4(C) in respect of shares of Series B
Preferred Stock to be redeemed pursuant to Section 4(A), notwithstanding that
any certificates for such shares shall not have been surrendered for
cancellation, from and after the date of redemption designated in the notice of
redemption (i) the shares represented thereby shall no longer be deemed
outstanding, (ii) the rights to receive dividends thereon shall cease to accrue,
and (iii) all rights of the holders of shares of Series B Preferred Stock to be
redeemed shall cease and terminate, excepting only the right to receive the
Redemption Price therefor, and the right to convert such shares into shares of
Common Stock until the close of business on the Business Day next preceding the
date of redemption, in accordance with Section 6 hereof.

         Section 5. Liquidation Rights. In the event of any voluntary or
                    ------------------
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Series B Preferred Stock will be entitled to receive out of the
assets of the Corporation available for distribution to Corporation
shareholders, before any distribution of assets is made to the holders of the
Common Stock or any other equity security ranking junior to the Series B
Preferred Stock as to distributions on liquidation, dissolution and winding up,
liquidating distributions in the amount of the Stated Value for each share
outstanding plus dividends accrued and unpaid for the then-current Dividend
Period (without accumulation of accrued and unpaid dividends for prior Dividend
Periods) to the date fixed for such liquidation, dissolution or winding up. All
payments for which these liquidation rights are provided shall be in cash. If,
upon any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the amounts payable with respect to the Series B Preferred Stock or
any equity security of the Corporation ranking equally with the Series B
Preferred Stock as to distributions upon liquidation, dissolution or winding up
are not paid in full, the holders of the Series B Preferred Stock and any
preferred stock ranking equally with the Series B Preferred Stock as to
distributions upon liquidation, dissolution or winding up will share ratably in
any such distribution of the assets of the Corporation in proportion to the full
respective preferential amounts to which they are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of Series B Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Corporation. All
distributions made with respect to the Series B Preferred Stock in connection
with such liquidation, dissolution or winding up of the Corporation shall be
made pro rata to the holders entitled thereto. For purposes of this Section 5,
neither the voluntary sale, conveyance, exchange or transfer of all or
substantially all of the property or assets of the Corporation nor the
consolidation or merger of the Corporation with or into any other entity shall
be deemed to be a voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.

                                       10



     Section 6. Conversion Rights.
                -----------------

     (A) Subject to the provisions for adjustment hereinafter set forth, each
share of Series B Preferred Stock shall be convertible at the option of the
holder thereof into fully paid and nonassessable shares of Common Stock. The
number of shares of Common Stock deliverable upon conversion of a share of
Series B Preferred Stock, adjusted as hereinafter provided, is referred to
herein as the "Conversion Ratio." The Conversion Ratio (as defined in Section 11
below) shall initially be 1.67 and the conversion price shall initially be
$30.00 (the initial conversion price and as subsequently adjusted is referred to
herein as the "Conversion Price.") The Conversion Ratio and the Conversion Price
are subject to adjustment from time to time pursuant to Section 6(F).

     (B) Conversion of the Series B Preferred Stock may be effected by any such
holder upon the surrender to the Corporation at the principal office of the
Corporation in the State of California or at the office of any agent or agents
of the Corporation (the "Transfer Agent"), as may be designated by the board of
directors of the Corporation, of the certificate for such Series B Preferred
Stock to be converted accompanied by a written notice stating that such holder
elects to convert all or a specified whole number of such shares in accordance
with the provisions of this Section 6 and specifying the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. In case such notice shall specify a name or names other than that of
such holder, such notice shall be accompanied by payment of all transfer taxes
payable upon the issuance of shares of Common Stock in such name or names. Other
than such taxes, the Corporation will pay any and all issue and other taxes
(other than taxes based on income) that may be payable in respect of any issue
or delivery of shares of Common Stock on conversion of Series B Preferred Stock
pursuant hereto. As promptly as practicable, and in any event within five
Business Days after the surrender of such certificate or certificates and the
receipt of such notice relating thereto and, if applicable, payment of all
transfer taxes (or the demonstration to the satisfaction of the Corporation that
such taxes have been paid), the Corporation shall deliver or cause to be
delivered (i) certificates representing the number of validly issued, fully paid
and nonassessable full shares of Common Stock to which the holder of shares of
Series B Preferred Stock being converted shall be entitled and (ii) if less than
the full number of shares of Series B Preferred Stock evidenced by the
surrendered certificate or certificates is being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares being
converted. Such conversion shall be deemed to have been made at the close of
business on the date of giving such notice and of such surrender of the
certificate or certificates representing the shares of Series B Preferred Stock
to be converted so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of Common Stock in
accordance herewith, and the person entitled to receive the shares of Common
Stock shall be treated for all purposes as having become the record holder of
such shares of Common Stock at such time. The Corporation shall not be required
to convert, and no surrender of shares of Series B Preferred Stock shall be
effective for that purpose, while the transfer books of the Corporation for the
Common Stock are closed for any purpose (but not for any period in excess of
five days); but the surrender of shares of Series B Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made

                                       11



on the date such shares of Series B Preferred Stock were surrendered, and at the
Conversion Ratio in effect at the date of such surrender.

     (C)  In case any shares of Series B Preferred Stock are to be redeemed
pursuant to Section 4, such right of conversion shall cease and terminate as to
the shares of Series B Preferred Stock to be redeemed at the close of business
on the Business Day next preceding the date fixed for redemption unless the
Corporation shall default in the payment of the Redemption Price.

     (D)  Upon conversion, the holder of shares of Series B Preferred Stock
surrendered for conversion after the Record Date next preceding a Series B
Dividend Payment Date for the Series B Preferred Stock, if such dividend has
been declared and such Record Date has been established by the board of
directors, and prior to such Series B Dividend Payment Date shall be entitled to
receive an amount equal to the declared, accrued and unpaid dividend for such
current Dividend Period prorated from the first day of such current Dividend
Period to the date of conversion computed on the basis of a 360-day year
consisting of twelve 30-day months.

     (E)  No fractional share of Common Stock shall be issued upon conversion of
shares of Series B Preferred Stock, but, instead of any fraction which would
otherwise be issuable in respect of the aggregate number of shares of Series B
Preferred Stock surrendered for conversion at one time by the same holder, the
Corporation shall pay a cash adjustment in an amount equal to the same fraction
of the Current Market Price (as defined in Section 11 below) per share of the
Common Stock on the date on which the certificate or certificates for such
shares were duly surrendered for conversion, or, if such date is not a Trading
Day (as defined in Section 11 below), on the next Trading Day.

     (F)  The Conversion Price and Conversion Ratio shall be adjusted from time
to time as follows:

          (i) In the event the Corporation shall at any time after the Issue
     Date (A) declare a dividend on the Common Stock payable in shares of its
     capital stock, (B) subdivide its outstanding Common Stock, (C) combine its
     outstanding Common Stock or (D) issue pursuant to a reclassification of its
     outstanding Common Stock any shares of capital stock of the Corporation,
     the holder of any shares of Series B Preferred Stock surrendered for
     conversion after the record date for such dividend or distribution (which
     for this purpose shall be at the close of business on the date fixed by the
     board of directors as the record date), or after the close of business on
     the effective date of such subdivision, combination or reclassification, as
     the case may be (the close of business times being hereinafter referred to
     in this paragraph (i) as "such record date") shall be entitled to receive
     the aggregate number and kind of shares of capital stock of the Corporation
     which, if such shares of Series B Preferred Stock had been converted
     immediately prior to such record date at the Conversion Price and
     Conversion Ratio then in effect, he would have been entitled to receive by
     virtue of such dividend, distribution, subdivision, combination or
     reclassification; and the Conversion Price and Conversion Ratio shall be
     deemed to have been adjusted after such record date to apply to such
     aggregate number and kind of shares. If any dividend, distribution,
     subdivision, combination or reclassification is not paid or made, the
     Conversion Price and Conversion

                                       12



     Ratio then in effect shall be appropriately readjusted. Such adjustment or
     readjustments shall be made whenever any of the events listed above shall
     occur.

          (ii)  In case the Corporation shall fix after the Issue Date a record
     date for issuing to all holders of shares of Common Stock rights or
     warrants entitling them to purchase or subscribe for shares of Common Stock
     (or securities convertible into Common Stock) at a price per share of
     Common Stock (or having a conversion price per share of Common Stock, if a
     security convertible into Common Stock) less than the Current Market Price
     per share of the Common Stock on such record date, the Conversion Price in
     effect from and after such record date shall be adjusted so that it shall
     be equal to the price determined by multiplying the Conversion Price in
     effect immediately prior to the record date by a fraction, of which the
     numerator shall be the number of shares of Common Stock outstanding on such
     record date plus the number of shares of Common Stock which the aggregate
     offering price of the total number of shares of Common Stock so offered (or
     the aggregate initial conversion price of the convertible securities so
     offered) for subscription or purchase would purchase at such Current Market
     Price at such record date, and of which the denominator shall be the number
     of shares of Common Stock outstanding on such record date plus the number
     of shares of additional Common Stock so offered for subscription or
     purchase (or into which the convertible securities so offered are initially
     convertible). Such adjustment shall be made successively whenever such a
     record date is fixed. If any or all of such rights or warrants are not
     issued or any or all of such rights, warrants or conversion privileges
     expire or terminate without having been exercised, the Conversion Price
     shall be appropriately readjusted retroactively on the basis that the only
     shares of Common Stock so issued were the shares of Common Stock, if any,
     actually issued upon exercise of such rights, warrants or conversion
     privileges.

          (iii) In case the Corporation shall fix a record date after the Issue
     Date for the distribution to all holders of shares of Common Stock of
     evidence of its indebtedness or assets (excluding cash dividends if the
     amount to be paid, together with the amount of cash dividends on the Common
     Stock paid since the fourth previous Dividend Payment Date, does not exceed
     the Corporation's net earnings for the four quarterly fiscal periods most
     recently ended prior to the record date for such cash dividend) or rights
     or warrants to subscribe or purchase any of its securities (excluding those
     referred to in paragraph (ii) of this Section 6(F)), then in each such case
     the Conversion Price in effect from and after such record date shall be
     adjusted so that the same shall be equal to the price determined by
     multiplying the Conversion Price in effect immediately prior to such record
     date by a fraction, of which the numerator shall be the Current Market
     Price per share of the Common Stock on such record date less the fair
     market value (as determined by a resolution of the board of directors filed
     with each Transfer Agent for the Series B Preferred Stock, which
     determination, if made in good faith, shall be conclusive) of the portion
     of the evidences of indebtedness or assets so distributed or of such rights
     to subscribe applicable to a share of Common Stock, and of which the
     denominator shall be such Current Market Price on such record date. Such
     adjustment shall be made whenever any such a record date is fixed. If any
     such distribution is not made or any or all of such rights, warrants or
     conversion privileges expire or terminate without having been exercised,
     the Conversion Price shall be appropriately readjusted retroactively.

                                       13



          (iv)   In any case in which this Section 6(F) shall require that an
     adjustment as a result of any event become effective from and after a
     record date, the Corporation may elect to defer until after the occurrence
     of such event (1) issuing to the holder of any shares of Series B Preferred
     Stock converted after such record date and before the occurrence of such
     event the additional Common Stock issuable upon such conversion over and
     above the shares issuable on the basis of the Conversion Price in effect
     immediately prior to adjustment and (2) paying to such holder any amount in
     cash in lieu of a fractional Common Stock pursuant to Section 6(E) above.
     In lieu of the shares the issuance of which is deferred pursuant to clause
     (1) above, the Corporation shall issue or cause its transfer agent to issue
     due bills or other appropriate evidence of the right to receive such
     shares.

          (v)    Any adjustment in the Conversion Price and Conversion Ratio
     otherwise required by this Section 6 to be made may be postponed, if such
     adjustment (plus any other adjustments postponed pursuant to this paragraph
     (v) of this Section 6(F) and not theretofore made) would not require an
     increase or decrease of more than 1% in such price. All calculations under
     this Section 6(F) shall be made to the nearest cent or to the nearest 1/100
     of a share, as the case may be.

          (vi)   The board of directors may make such adjustments in the
     Conversion Price and Conversion Ratio, in addition to those required by
     this Section 6(F), as shall be determined by the board of directors, as
     evidenced by a resolution of the board of directors, to be advisable in
     order to avoid taxation so far as practicable of any dividend of stock or
     stock rights or any event treated as such for Federal income tax purposes
     to the recipients.

          (vii)  In the event that at any time, as a result of an adjustment
     made pursuant to paragraph (i) of this Section 6(F), the holder of any
     shares of Series B Preferred Stock thereafter surrendered for conversion
     shall become entitled to receive any shares of capital stock of the
     Corporation other than Common Stock, thereafter the number of such other
     shares so receivable upon conversion of such shares of Series B Preferred
     Stock shall be subject to adjustment from time to time in a manner and on
     terms as nearly equivalent as practicable to the provisions with respect to
     the Common Stock contained in paragraphs (i) to (vi), inclusive, of this
     Section 6(F), and the other provisions of this Section 6(F) with respect to
     the Common Stock shall apply on like terms to any such other shares.

          (viii) Notwithstanding the foregoing, in no event shall any
     adjustments to the Conversion Price or Conversion Ratio be made pursuant to
     this Section 6(F) in connection with the Corporation's shareholder rights
     plan, as adopted on November 17, 1998, or any amendment thereto, or any
     successor shareholder rights plan established by the Corporation for the
     benefit of the Corporation's holders of Common Stock.

     (G)  Whenever the Conversion Price and Conversion Ratio are adjusted as
herein provided:

                                       14



          (i)   The Corporation shall compute the adjusted Conversion Price and
     Conversion Ratio and shall cause to be prepared a certificate signed by the
     Corporation's chief financial officer setting forth the adjusted Conversion
     Price and Conversion Ratio and a brief statement of the facts requiring
     such adjustment and the computation thereof; such certificate shall
     forthwith be filed with its Transfer Agent for the Series B Preferred
     Stock; and

          (ii)  A notice stating that the Conversion Price and Conversion Ratio
     has been adjusted and setting forth the adjusted Conversion Price and
     Conversion Ratio shall, as soon as practicable, be mailed to the holders of
     record of outstanding shares of the Series B Preferred Stock.

     (H)  In case:

          (i)   The Corporation shall declare a dividend or other distribution
     on its Common Stock, other than in cash;

          (ii)  The Corporation shall authorize the issuance to all holders of
     its Common Stock of rights or warrants entitling them to subscribe for or
     purchase any Common Stock or any other subscription rights or warrants;

          (iii) Of any reclassification of the capital stock of the Corporation
     (other than a subdivision or combination of its outstanding Common Stock),
     or of any consolidation or merger to which the Corporation is a party and
     for which approval of any shareholders of the Corporation is required, or
     of the sale, lease, exchange or other disposition of all or substantially
     all the property and assets of the Corporation; or

          (iv)  Of the voluntary or involuntary liquidation, dissolution or
     winding up of the Corporation;

then the Corporation shall cause to be mailed to the Transfer Agent for the
Series B Preferred Stock and to the holders of record of the outstanding shares
of Series B Preferred Stock, at least 20 days (or 10 days in any case specified
in paragraphs (i) or (ii) above) prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date as of which the
holders of record of Common Stock to be entitled to such dividend, distribution,
rights or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, subdivision merger, sale, lease, exchange,
disposition, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
Common Stock shall be entitled to exchange their shares for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
sale, lease, exchange, disposition, liquidation, dissolution or winding up. The
failure to give the notice required by this Section 6(H), or any defect therein,
shall not affect the legality or validity of any such dividend, distribution,
right, warrant, reclassification, consolidation, merger, sale, lease, exchange,
disposition, liquidation, dissolution or winding up, or the vote on any action
authorizing such.

     (I)  In case of any capital reorganization or reclassification of
outstanding shares of Common Stock, or in case of any merger or consolidation of
the Corporation with or into another corporation, pursuant to which the
outstanding shares of Common Stock are by operation of law

                                       15



exchanged for, changed, converted or reclassified (other than a reclassification
covered by paragraph (i) of Section 6(F) into stock, securities, other property
(including cash) or a combination thereof ("Consideration") (each of the
foregoing being referred to as a "Transaction"), each share of Series B
Preferred Stock shall thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to consummation of such Transaction,
the Consideration so receivable upon the consummation of such Transaction by a
holder of that number of shares of Common Stock into which one share of Series B
Preferred Stock was convertible immediately prior to such Transaction.

         (J) The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock for the
purpose of issuance upon conversion of the Series B Preferred Stock, the full
number of shares of Common Stock then deliverable upon the conversion of all
shares of Series B Preferred Stock then outstanding.

         (K) The certificate of any independent firm of public accountants of
recognized standing selected by the board of directors shall be presumptive
evidence of the correctness of any computation made under this Section 6.

         Section 7.    No Sinking Fund. No sinking fund will be established for
                       ---------------
the retirement or redemption of shares of Series B Preferred Stock, unless
otherwise specifically provided herein.

         Section 8.    Preemptive Rights. No holder of shares of the Series B
                       -----------------
Preferred Stock shall have any preemptive right to subscribe to stock,
obligations, warrants, rights to subscribe to stock, or other securities of the
Corporation of any class, whether now or hereafter authorized.

         Section 9.    Reacquired Shares. Any shares of the Series B Preferred
                       -----------------
Stock which are redeemed, purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares upon their cancellation shall become
authorized but unissued shares of Preferred Stock without designation as to
series and may thereafter be reissued as part of a new series of preferred stock
to be created by resolution of the board of directors.

         Section 10.   No Other Rights. The shares of Series B Preferred Stock
                       ---------------
shall not have any preferences, voting powers or relative, participating,
optional or other special rights except as set forth above and in the Restated
Articles of Incorporation or as otherwise required by law.

         Section 11.   Definitions.  As used herein, the following terms shall
                       -----------
have the following respective meanings:

         "Business Day" shall mean any day other than Saturday, Sunday or a day
on which banking institutions in the State of California are authorized or
obligated by law or executive order to close.

         "CGCL" shall mean the California General Corporation Law, as amended.

         "Change In Control Event" shall mean the date that (A) the Corporation
enters into a definitive agreement with respect to a transaction that in the
good faith determination of the

                                       16



Board of Directors of the Corporation will result upon its consummation in a
Change of Control (as defined in the following sentence) or (B) any "person" as
such term in used in Sections 13(d) and 14(d) of the Securities Exchanges Act of
1934, as amended (the "Exchange Act"), other than the Corporation or any entity
owned, directly or indirectly, by shareholders of the Corporation in
substantially the same proportions as their ownership of the Corporation's
voting securities, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time), directly or indirectly, of Corporation securities
representing 50% or more of the Voting Power of the Corporation. A "Change in
Control" means a merger or consolidation of the Corporation with or into another
entity or any other Reorganization in which the shareholders of the Corporation
immediately prior to the execution of the definitive agreement relating to the
transaction will own immediately after consummation of such transaction equity
securities (other than any warrant or right to subscribe to or purchase those
equity securities) of the acquiring or surviving entity, or Parent of such
entity, possessing less than 50% of the Voting Power of the acquiring or
surviving entity or Parent of such entity; or the sale, transfer other
disposition of all or substantially all of the Corporation's assets. In making
the determination of ownership by the shareholders or equity holders of a
corporation or entity, immediately after a transaction, of equity securities
pursuant to the preceding sentence, equity securities which they owned
immediately before the transaction as shareholders or equity holders of another
party to the transaction shall be disregarded. The Voting Power of a corporation
shall be calculated by assuming the conversion of all equity securities
convertible (immediately or at some future time) into shares entitled to vote
but not assuming the exercise of any warrant or right to subscribe to or
purchase those shares.

         "Conversion Ratio" shall mean an amount equal to the Stated Value
divided by the Conversion Price (as adjusted pursuant to Section 6(F) hereof).

         "Current Market Price," when used with reference to shares of Common
Stock or other securities on any date, shall mean the closing price per share of
Common Stock or such other securities on such date and, when used with reference
to shares of Common Stock or other securities for any period shall mean the
average of the daily closing prices per share of Common Stock or such other
securities for such period. The closing price for each day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
the principal national securities exchange, including the Nasdaq National
Market, on which the Common Stock or such other securities are listed or
admitted to trading. If the Common Stock is not listed or admitted to trading on
any national securities exchange, including the Nasdaq National Market, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or such other
system then in use, or, if on any such date the Common Stock or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the board of directors
of the Corporation.

                                       17



         "Issue Date" shall mean the first date on which shares of Series B
Preferred Stock are issued.

         "Parent" shall have the meaning provided in Section 175 of the CGCL
with respect to Sections 1001, 1101 and 1113 of the CGCL.

         "Reorganization" shall have the meaning provided in Section 181 of the
CGCL.

         "Series A Preferred Stock" shall mean the Corporation's Series A
Preferred Stock as authorized by the Corporation's Restated Articles of
Incorporation.

         "Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Business Day.

         "Voting Power" shall have the meaning provided in Section 194.5 of the
CGCL.

         RESOLVED, FURTHER, that the President and the Secretary are hereby
authorized and directed to execute, acknowledge, file and record a certificate
of determination in accordance with the foregoing resolutions and the provisions
of California law and to take such actions as they may deem necessary or
appropriate to carry out the intent of the foregoing resolutions.

         5.   The foregoing Certificate of Determination has been duly approved
by board of directors in accordance with Section 202 of the California General
Corporations Law. No shareholder approval is required.

                                       18



         We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.

         Executed at Palo Alto, California this 12th day of March, 2002.

                                                /s/ David L. Kalkbrenner
                                                ------------------------
                                                 David L. Kalkbrenner, President


                                                /s/ Linda M. Iannone
                                                --------------------
                                                 Linda M. Iannone, Secretary

                                       19

EX-10.1

                                  Exhibit 10.1

                               TERM LOAN AGREEMENT

         This Term Loan Agreement (the "Agreement") is made and entered into as
March 8, 2002 by and between GREATER BAY BANCORP (the "Borrower") and U.S. BANK
NATIONAL ASSOCIATION (the "Bank").

                             ARTICLE I. DEFINITIONS

         1.1    Definitions. Except as otherwise provided, all accounting terms
                -----------
will be construed in accordance with generally accepted accounting principles
consistently applied and consistent with those applied in the preparation of the
financial statements referred to in paragraph 4.9, and financial data submitted
pursuant to this Agreement will be prepared in accordance with such principles.
As used herein:

                (a)  "Maturity Date" means June 30, 2002, or such earlier date
                      -------------
on which the Note becomes due and payable pursuant to section 6.2 hereof.

                (b)  "Note" means the promissory note of the Borrower, in form
                      ----
and content reasonably satisfactory to the Bank, evidencing the term loan made
by the Bank to the Borrower under the terms hereof.

                (c)  "Subsidiary" or "Subsidiaries" means any entity of which
                      ----------------------------
the Borrower owns, directly or through another Subsidiary, at the date of
determination, more than 50% of the outstanding stock having ordinary voting
power for the election of directors, irrespective of whether or not at such time
stock of any other class or classes might have voting power by reason of the
happening of any contingency.

                                ARTICLE II. LOANS

         2.1    Terms for Advance(s). On or about March 11, 2002, the Bank
                -------------------
agrees, subject to the terms and conditions hereof, to make a term loan to the
Borrower in an amount up to $25,000,000. The term loan will be evidenced by, be
repayable and bear interest in accordance with the Note. The entire unpaid
principal balance of the term loan shall be payable in one lump sum on the
Maturity Date.



         2.2    Advances and Paying Procedure. The Bank is authorized and
                -----------------------------
directed to credit any of the Borrower's accounts with the Bank (or to the
account the Borrower designates in writing) for all loans made hereunder, and
the Bank is authorized to debit such account or any other account of the
Borrower with the Bank for the amount of any principal or interest due under the
Note or other amounts due hereunder on the due date with respect thereto.
Promptly following the execution hereof, the Borrower will establish and
maintain a demand deposit account at the Bank to facilitate repayments
hereunder.

         2.3    Interest Rate.
                -------------

                (a)   The Rate. Interest on the unpaid principal balance of the
                      --------
Note outstanding from time to time shall accrue at an annual rate equal to 1.15%
(115 basis points) plus the one-month LIBOR rate quoted by the Bank from
Telerate Page 3750 or any successor thereto, which shall be that one-month LIBOR
rate in effect two New York banking days prior to the beginning of each calendar
month, such rate to be reset at the beginning of each succeeding month. If the
funding of the Note occurs other than on the first day of the month, the initial
one-month LIBOR rate shall be that one-month LIBOR rate in effect two New York
banking days prior to the date of such funding, which rate plus the percentage
described above shall be in effect for the remaining days of the month following
such funding; such one-month LIBOR rate to be reset at the beginning of the next
succeeding month. Accrued interest shall be payable on the last business day of
each calendar month commencing March 31, 2002 and continuing on the last day of
each successive month thereafter and on the Maturity Date.

                (b)   Additional Provisions. The Bank's internal records of
                      ---------------------
applicable interest rates shall be determinative in the absence of manifest
error. In the event after the date of initial funding any governmental authority
subjects the Bank to any new or additional charge, fee, withholding or tax of
any kind (other than taxes measured by the net income of the Bank) with respect
to any loans hereunder or changes the method of taxation of such loans or
changes the reserve or deposit requirements applicable to such loans, the
Borrower shall pay to the Bank such additional amounts as will compensate the
Bank for such costs or lost income resulting therefrom as reasonably determined
by the Bank.

                (c)   Default Rate. Notwithstanding the provisions of section
                      ------------
2.4(a), upon the occurrence and during the continuance of an Event of Default
the unpaid principal balance of the Note shall, upon notice from the Bank to the
Borrower, bear interest at an annual rate equal to the rate otherwise in effect
plus

                                       2



three percentage points (3.00%) (the "Default Rate"), payable upon demand. On
and after the Maturity Date, the unpaid principal balance of the Note and all
accrued interest thereon shall bear interest at the Default Rate and shall be
payable upon demand.

                (d)   Calculation.  Interest shall be calculated for the actual
                      -----------
number of days elapsed on the basis of a 360-day year.

                      ARTICLE III. CONDITIONS TO BORROWING

         3.1    Conditions to Borrowing. The Bank will not be obligated to make
                -----------------------
         advances hereunder unless (i) the Bank has received executed copies of
         this Agreement, the Note and all other documents or agreements
         applicable to the loans described herein (collectively with this
         Agreement the "Loan Documents"), in form and content satisfactory to
         the Bank; (ii) the Bank has received certified copies of the Articles
         of Incorporation and By-Laws and a certificate of status of the
         Borrower and the Subsidiaries; (iii) the Bank has received a certified
         copy of a resolution or authorization in form and content reasonably
         satisfactory to the Bank authorizing the loan and all acts contemplated
         by this Agreement and all related documents, and confirmation of proper
         authorization of all guaranties and other acts of third parties
         contemplated hereunder; (iv) the Bank has been provided with an opinion
         of the Borrower's in-house counsel in form and content reasonably
         satisfactory to the Bank confirming the matters outlined in paragraph
         4.1 and such other matters as the Bank requests; (v) no default exists
         under this Agreement or under any other Loan Documents, or under any
         other agreements by and between the Borrower and the Bank and no
         condition or event will exist or have occurred which with the passage
         of time, the giving of notice or both would constitute a default under
         this Agreement or under any other Loan Documents or under any other
         agreements by and between the Borrower and the Bank; (vi) the closing
         of the Borrower's acquisition of Alburger Basso de Grosz Insurance
         Services, Inc. ("ABD") shall occur either (a) simultaneously with the
         closing of the transactions contemplated by this Agreement or (b)
         within 2 business days following notice from the Borrower to the Bank
         setting forth the closing date for the ABD acquisition; and (vii) all
         proceedings taken in connection with the transactions contemplated by
         this Agreement and all instruments, authorizations and other documents
         applicable thereto, will be reasonably satisfactory to the Bank and its
         counsel.

                      ARTICLE IV. WARRANTIES AND COVENANTS

                                       3



         During the term of this Agreement, and while any part of the credit
granted the Borrower is available or any obligations under any of the Loan
Documents are unpaid or outstanding, the Borrower warrants and agrees as
follows:

         4.1    Organization and Authority; Subsidiaries. The Borrower is a
                ----------------------------------------
validly existing corporation in good standing under the laws of its state of
organization, and has all requisite power and authority, corporate or otherwise,
and possesses all licenses necessary, to conduct its business and own its
properties. The execution, delivery and performance of this Agreement and the
other Loan Documents (i) are within the Borrower's power; (ii) have been duly
authorized by proper corporate action; (iii) do not require the approval of any
governmental agency; and (iv) will not violate any law, agreement or restriction
by which the Borrower is bound. This Agreement and the other Loan Documents are
the legal, valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their terms. Each of the Borrower's Subsidiaries
is validly existing in good standing under the laws of its jurisdiction of
organization, and each Subsidiary has all requisite power and authority,
corporate or otherwise, and possesses all licenses necessary, to conduct its
business and own its properties.

         4.2    Litigation and Compliance with Laws. The Borrower and the
                -----------------------------------
Subsidiaries have complied in all material respects with and will continue to so
comply with all applicable federal and state laws and regulations: (i) that
regulate or are concerned in any way with its or their banking and trust
business, including without limitation those laws and regulations relating to
the investment of funds, lending of money, collection of interest, extension of
credit, and location and operation of banking facilities; or (ii) otherwise
relate to or affect the business or assets of Borrower or any of the
Subsidiaries or the assets owned, used or occupied by them. Except to the extent
previously disclosed to Bank, there are no claims, actions, suits, or
proceedings pending, or to the best knowledge of Borrower, threatened or
contemplated against or affecting Borrower or any of the Subsidiaries, at law or
in equity, or before any federal, state or other governmental authority, or
before any arbitrator or arbitration panel, whether by contract or otherwise,
and there is no decree, judgment or order of any kind in existence against or
restraining Borrower or any of the Subsidiaries, or any of their officers,
employees or directors, from taking any action of any kind in connection with
the business of Borrower or any of the Subsidiaries. Except to the extent
previously disclosed to the Bank, neither Borrower nor any of the Subsidiaries
has (i) received from any regulatory authority any criticisms, recommendations
or suggestions of a material nature, and Borrower has no reason to believe that
any such is contemplated, concerning the

                                       4



capital structure of any of the Subsidiaries, loan policies or portfolio, or
other banking and business practices of any of the Subsidiaries that have not
been resolved to the satisfaction of such regulatory authorities or (ii) entered
into any memorandum of understanding or similar arrangement with any federal or
state regulator relating to any unsound or unsafe banking practice or conduct or
any violation of law respecting the operations of the Borrower or the operations
of any of the Subsidiaries.

         4.3    F.D.I.C. Insurance. Each of the Borrower's subsidiary banks is
                ------------------
insured as to deposits by the Federal Deposit Insurance Corporation and no act
has occurred which could adversely affect the status of the such banks as an
insured bank.

         4.4    Corporate Existence; Business Activities; Assets. The Borrower
                ------------------------------------------------
will (i) preserve its corporate existence, rights and franchises; (ii) carry on
its business activities in substantially the manner such activities are
conducted as of the date of this Agreement; (iii) not liquidate, dissolve, merge
or consolidate with or into another entity; and (iv) not sell, lease, transfer
or otherwise dispose of all or substantially all of its assets.

         4.5    Use of Proceeds; Margin Stock; Speculation. (i) Advances by the
                ------------------------------------------
Bank hereunder will be used exclusively by the Borrower to acquire the capital
stock of ABD; and (ii) for working capital purposes. The Borrower will not use
any of the loan proceeds to purchase or carry "margin" stock (as defined in
Regulation U of the Board of Governors of the Federal Reserve System). No part
of any of the proceeds will be used for speculative investment purposes,
including, without limitation, speculating or hedging in the commodities and/or
futures market.

         4.6    Restriction on Liens. The Borrower will not create, incur,
                --------------------
assume or permit to exist any mortgage, pledge, encumbrance or other lien or
levy upon or security interest in any of the Borrower's property now owned or
hereafter acquired, except (i) taxes and assessments which are either not
delinquent or which are being contested in good faith with adequate reserves
provided; (ii) easements, restrictions and minor title irregularities which do
not, as a practical matter, have an adverse effect upon the ownership and use of
the affected property; (iii) liens in favor of the Bank; (iv) other liens
disclosed in writing to the Bank prior to the date hereof which are fully
subordinated to any security interest or other lien held by the Bank; and (v)
liens or pledges of specific investment assets of the Borrower pledged to one or
more of the Borrower's subsidiary banks.

                                       5



         4.7    Insurance. The Borrower will maintain and cause each Subsidiary
                ---------
to maintain insurance to such extent, covering such risks and with such insurers
as is usual and customary for businesses operating similar properties, and as is
satisfactory to the Bank, including insurance for fire and other risks insured
against by extended coverage, public liability insurance and workers'
compensation insurance.

         4.8    Taxes and Other Liabilities. The Borrower will pay and
                ---------------------------
discharge, and cause each Subsidiary to pay and discharge when due, all of its
taxes, assessments and other liabilities, except when the payment thereof is
being contested in good faith by appropriate procedures which will avoid
foreclosure of liens securing such items, and with adequate reserves provided
therefor.

         4.9    Financial Statements and Reporting. The financial statements and
                ----------------------------------
other information previously provided to the Bank or provided to the Bank in the
future are or will be complete and accurate and prepared in accordance with
generally accepted accounting principles. There has been no material adverse
change in the Borrower's financial condition since such information was provided
to the Bank. The Borrower will, and will cause each Subsidiary to (i) maintain
accounting records in accordance with generally recognized and accepted
principles of accounting consistently applied throughout the accounting periods
involved; (ii) provide the Bank with such information concerning its business
affairs and financial condition (including insurance coverage) as the Bank may
reasonably request.

         4.10   Information. The Borrower will make available for review by the
                -----------
Bank, promptly upon Bank's request, financial statements, call reports and any
other records or documents of the Borrower or any subsidiary bank. The Borrower
and the Subsidiaries will obtain the consent of any person or regulator which it
deems necessary or appropriate for disclosure of the information described
above.

         4.11   Inspection of Properties and Records; Fiscal Year. The Borrower
                -------------------------------------------------
will permit representatives of the Bank to visit and inspect any of the
properties and examine any books and records of the Borrower and the
Subsidiaries, at any reasonable time and as often as the Bank may reasonably
desire.

                                ARTICLE V. SETOFF

         5.1      Credit Balances; Setoff.  As security for the payment of the
                  -----------------------
obligations described in the Loan Documents and any other obligations of the

                                       6



Borrower to the Bank of any nature whatsoever (collectively the "Obligations"),
the Borrower hereby grants to the Bank a security interest in, a lien on and an
express contractual right to set off against all depository account balances,
cash and any other property of the Borrower now or hereafter in the possession
of the Bank. The Bank may, at any time upon the occurrence of a default
hereunder (notwithstanding any notice requirements or grace/cure periods under
this or other agreements between the Borrower and the Bank) set off against the
Obligations whether or not the Obligations (including future installments) are
then due or have been accelerated, all without any advance or contemporaneous
notice or demand of any kind to the Borrower, such notice and demand being
expressly waived.

                              ARTICLE VI. DEFAULTS

         6.1     Defaults. Notwithstanding any cure periods described below, the
                 --------
Borrower will immediately notify the Bank in writing when the Borrower obtains
knowledge of the occurrence of any default specified below. Regardless of
whether the Borrower has given the required notice, the occurrence of one or
more of the following will constitute a default:

                 (a)  Nonpayment. The Borrower fails to pay (i) any interest due
                      ----------
on the Note or any fees, charges, costs or expenses under the Loan Documents by
5 days after the same becomes due; or (ii) any principal amount of the Note when
due.

                 (b)  Nonperformance. The Borrower fails to perform or observe
                      --------------
any agreement, term, provision, condition, or covenant (other than a default
referred to in (a), (c), (d), (e) or (f) of this paragraph 6.1) required to be
performed or observed by the Borrower hereunder or under any other Loan Document
or other agreement with or in favor of the Bank.

                 (c)  Misrepresentation. Any financial information, statement,
                      -----------------
certificate, representation or warranty given to the Bank by the Borrower (or
any of its representatives) in connection with entering into this Agreement or
the other Loan Documents and/or any borrowing thereunder, or required to be
furnished under the terms thereof, proves untrue or misleading in any material
respect (as determined by the Bank in the exercise of its judgment) as of the
time when given.

                 (d)  Default on Other Obligations.  The Borrower will be in
                      ----------------------------
default under the terms of any loan agreement, promissory note, lease,
conditional sale contract or other agreement, document or instrument evidencing,
governing or

                                       7



securing any indebtedness owing by the Borrower to the Bank or any indebtedness
in excess of $1,000,000 owing by the Borrower to any third party, and the period
of grace, if any, to cure said default will have passed.

                  (e)   Inability to Perform; Bankruptcy/Insolvency. (i) The
                        -------------------------------------------
Borrower ceases to exist; or (ii) any bankruptcy, insolvency or receivership
proceedings, or an assignment for the benefit of creditors, is commenced under
any Federal or state law by or against the Borrower; or (iv) the Borrower
becomes the subject of any out-of-court settlement with its creditors; or (v)
the Borrower is unable or admits in writing its inability to pay its debts as
they mature; or (vi) the Borrower or any Subsidiary is closed or taken over by a
Regulatory Agency.

                  (f)   Regulatory Orders.  Any governmental or regulatory
                        -----------------
authority takes any formal enforcement action against the Borrower or any
Subsidiary.

          6.2     Termination of Loan; Additional Bank Rights. Upon the
                  -------------------------------------------
occurrence of any of the events identified in paragraph 6.1, the Bank may at any
time (notwithstanding any notice requirements or grace/cure periods under this
or other agreements between the Borrower and the Bank) (i) immediately terminate
its obligation, if any, to make additional loans to the Borrower; and (ii) set
off.

          6.3     Acceleration of Obligations. Upon the occurrence of any of the
                  ---------------------------
events identified in paragraphs 6.1(a) through 6.1(d) and 6.1(f), and the
passage of any applicable cure periods, the Bank may at any time thereafter, by
written notice to the Borrower, declare the unpaid principal balance of any
Obligations, together with the interest accrued thereon and other amounts
accrued hereunder and under the other Loan Documents, to be immediately due and
payable; and the unpaid balance will thereupon be due and payable, all without
presentation, demand, protest or further notice of any kind, all of which are
hereby waived, and notwithstanding anything to the contrary contained herein or
in any of the other Loan Documents. Upon the occurrence of any event under
paragraph 6.1(e), the unpaid principal balance of any Obligations, together with
all interest accrued thereon and other amounts accrued hereunder and under the
other Loan Documents, will thereupon be immediately due and payable, all without
presentation, demand, protest or notice of any kind, all of which are hereby
waived, and notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents. Nothing contained in paragraph 6.1, paragraph 6.2
or this section will limit the Bank's right to set off as provided in paragraph
5.1 or otherwise in this Agreement.

                                       8



         6.4     Other Remedies.  Nothing in this Article VI is intended to
                 --------------
restrict the Bank's rights under any of the Loan Documents or at law, and the
Bank may exercise all such rights and remedies as and when they are available.

                           ARTICLE VII. MISCELLANEOUS

         7.1     Delay; Cumulative Remedies. No delay on the part of the Bank in
                 --------------------------
exercising any right, power or privilege hereunder or under any of the other
Loan Documents will operate as a waiver thereof, nor will any single or partial
exercise of any right, power or privilege hereunder preclude other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein specified are cumulative and are not exclusive of any
rights or remedies which the Bank would otherwise have.

         7.2     Relationship to Other Documents. The warranties, covenants and
                 -------------------------------
other obligations of the Borrower (and the rights and remedies of the Bank) that
are outlined in this Agreement and the other Loan Documents are intended to
supplement each other. In the event of any inconsistencies in any of the terms
in the Loan Documents, all terms will be cumulative so as to give the Bank the
most favorable rights set forth in the conflicting documents, except that if
there is a direct conflict between any preprinted terms and specifically
negotiated terms (whether included in an addendum or otherwise), the
specifically negotiated terms will control.

         7.3     [RESERVED]

         7.4     Expenses and Attorneys' Fees. The Borrower will reimburse the
                 ----------------------------
Bank for all reasonable attorneys' fees and all other costs, fees and
out-of-pocket disbursements (including reasonable fees and disbursements of both
inside counsel and outside counsel) incurred by the Bank in connection with the
preparation, execution, delivery, administration, defense and enforcement of
this Agreement or any of the other Loan Documents, including fees and costs
related to any waivers or amendments with respect thereto. The Borrower will
also reimburse the Bank for all costs of collection before and after judgment,
and the costs of preservation and/or liquidation of any collateral (including
reasonable fees and disbursements of both inside and outside counsel).

         7.5     Successors.  The rights, options, powers and remedies granted
                 ----------
in this Agreement and the other Loan Documents will extend to the Bank and to
its

                                       9



successors and assigns, will be binding upon the Borrower and its successors and
assigns and will be applicable hereto and to all renewals and/or extensions
hereof.

         7.6    Indemnification. Except for harm arising from the Bank's gross
                ---------------
negligence or willful misconduct, the Borrower hereby indemnifies and agrees to
defend and hold the Bank harmless from any and all losses, costs, damages,
claims and expenses of any kind suffered by or asserted against the Bank
relating to claims by third parties arising out of the financing provided under
the Loan Documents or related to any collateral. This indemnification and hold
harmless provision will survive the termination of the Loan Documents and the
satisfaction of the Obligations due the Bank.

         7.7    Notice of Claims Against Bank; Limitation of Certain Damages. In
                ------------------------------------------------------------
order to allow the Bank to mitigate any damages to the Borrower from the Bank's
alleged breach of its duties under the Loan Documents or any other duty, if any,
to the Borrower, the Borrower agrees to give the Bank immediate written notice
of any claim or defense it has against the Bank, whether in tort or contract,
relating to any action or inaction by the Bank under the Loan Documents, or the
transactions related thereto, or of any defense to payment of the Obligations
for any reason. The requirement of providing timely notice to the Bank
represents the parties' agreed-to standard of performance regarding claims
against the Bank. Notwithstanding any claim that the Borrower may have against
the Bank, and regardless of any notice the Borrower may have given the Bank, the
Bank will not be liable to the Borrower for consequential and/or special damages
arising therefrom, except those damages arising from the Bank's willful
misconduct.

         7.8    Notices. Although any notice required to be given hereunder or
                -------
under any of the other Loan Documents might be accomplished by other means,
notice will always be deemed given when placed in the United States Mail, with
postage prepaid, or sent by overnight delivery service, or sent by telex or
facsimile, in each case to the address set forth below or as amended.

         7.9    Payments. Payments due under the Note and other Loan Documents
                --------
will be made in lawful money of the United States, and the Bank is authorized to
charge payments due under the Loan Documents against any account of the
Borrower. All payments may be applied by the Bank to principal, interest and
other amounts due under the Loan Documents in any order which the Bank elects.

         7.10   Applicable Law and Jurisdiction; Interpretation; Joint
                ------------------------------------------------------
Liability. This Agreement and all other Loan Documents will be governed by and
- ---------
interpreted

                                       10



in accordance with the internal laws of the state where the Bank's main office
is located, except to the extent superseded by Federal law. Invalidity of any
provisions of this Agreement will not affect any other provision. THE BORROWER
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
SITUATED IN THE COUNTY OR FEDERAL JURISDICTION WHERE THE BANK'S OFFICE WHICH IS
DESIGNATED IN THE NOTE AS THE PLACE FOR PAYMENT IS LOCATED (OR, IN THE ABSENCE
OF SUCH DESIGNATION, THE BANK'S MAIN OFFICE), AND WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR
- --------------------
PROCEEDINGS RELATING TO THIS AGREEMENT, THE NOTES, THE COLLATERAL, ANY OTHER
LOAN DOCUMENT, OR ANY TRANSACTIONS ARISING THEREFROM, OR ENFORCEMENT AND/OR
INTERPRETATION OF ANY OF THE FOREGOING. Nothing herein will affect the Bank's
rights to serve process in any manner permitted by law, or limit the Bank's
right to bring proceedings against the Borrower in the competent courts of any
other jurisdiction or jurisdictions. This Agreement, the other Loan Documents
and any amendments hereto (regardless of when executed) will be deemed effective
and accepted only upon the Bank's receipt of the executed originals thereof. If
there is more than one Borrower, the liability of the Borrowers will be joint
and several, and the reference to "Borrower" will be deemed to refer to all
Borrowers.

     7.11  Copies; Entire Agreement; Modification. The Borrower hereby
           --------------------------------------
acknowledges the receipt of a copy of this Agreement and all other Loan
Documents.

IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS
NOW IN EFFECT BETWEEN YOU AND THIS LENDER. A MODIFICATION OF ANY OTHER CREDIT
AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER, WHICH OCCURS AFTER RECEIPT
BY YOU OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR
IMPLIED MODIFICATIONS TO SUCH

                                       11



CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD NOT BE RELIED UPON.

         7.12 Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY JOINTLY AND
              --------------------
SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
RELATING TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS THEREUNDER, ANY
COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM OR
CONNECTED THERETO. THE BORROWER AND THE BANK EACH REPRESENTS TO THE OTHER THAT
THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.

IN WITNESS WHEREOF, the undersigned have executed this TERM LOAN AGREEMENT as of
March 8, 2002.

                                              GREATER BAY BANCORP

                                              By: /s/ Steven C. Smith
                                              Name: Steven C. Smith
                                              Title: EVP, CAO and CFO

                                              By: /s/ Kamran F. Husain
                                              Name: Kamran F. Husain
                                              Title: Senior Vice President
                                                     Finance & Risk Management
                                              Address:
                                              2860 West Bayshore Road
                                              Palo Alto, CA 94303
                                              Attn: Chief Financial Officer

                                              U.S. BANK NATIONAL ASSOCIATION

                                              By: /s/ Jon B. Beggs
                                              Name: Jon B. Beggs
                                              Title:   Vice President
                                              Address:
                                              777 East Wisconsin Avenue
                                              Milwaukee, WI, 53202
                                              Attn: Jon B. Beggs, Vice President

                                       12