10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT

TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark one)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934 (Fee Required)

For the fiscal year ended December 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 No. 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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value

Guarantee of Greater Bay Bancorp with respect to the

9.00% Cumulative Trust Preferred Securities of GBB Capital V

Preferred Share Purchase Rights

(Title of classes)

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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x  No  ¨

The aggregate market value of the Common Stock held by non-affiliates, based upon the closing sale price of the Common Stock on June 28, 2002, as reported on the Nasdaq National Market System, was approximately $1,416,142,000. Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. Such determination of affiliate status is not necessarily a conclusive determination for other purposes. Registrant has no non-voting common stock.

As of February 28, 2003, 51,772,700 shares of the Registrant’s Common Stock were outstanding.

Document Incorporated By Reference:	Part Of Form 10-K Into Which Incorporated:
Definitive Proxy Statement for Annual Meeting of Shareholders to be filed within 120 days of the fiscal year ended December 31, 2002	Part III

ANNUAL REPORT ON FORM 10-K

PART I

Discussions of certain matters contained in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which Greater Bay Bancorp (referred to as “we” or “our” when such reference includes Greater Bay Bancorp and its subsidiaries, collectively, “Greater Bay” when referring only to the parent company and “the Banks” when referring only to Greater Bay’s banking 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) operates, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. Our actual results, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. For a discussion of some of the factors that might cause such a difference, see “ITEM 1. BUSINESS—Factors That May Affect Future Results of Operations”.

ITEM 1.    BUSINESS.

Greater Bay Bancorp

Greater Bay Bancorp (“Greater Bay”, on a parent-only basis, and “we” or “our”, on a consolidated basis) is a financial holding company with 11 bank subsidiaries (individually a “Bank” and collectively 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. We also have a commercial insurance brokerage subsidiary, ABD Insurance and Financial Services (“ABD”). 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.

In addition to these divisions, we have the following subsidiaries which issued trust preferred securities and purchased Greater Bay’s junior subordinated deferrable interest debentures: GBB Capital II, GBB Capital III, GBB Capital IV, GBB Capital V, GBB Capital VI, and GBB Capital VII. We also created CNB Investment Trust I (“CNBIT I”), CNB Investment Trust II (“CNBIT II”), MPB Investment Trust (“MPBIT”), and SJNB Investment Trust (“SJNBIT”), all of which are Maryland real estate investment trusts and wholly owned subsidiaries of Cupertino National Bank, Mid-Peninsula Bank, and San Jose National Bank, respectively. These entities were formed in order to provide flexibility in raising capital.

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 the Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay, Santa Cruz, Marin, Monterey, and Sonoma Counties. ABD provides commercial insurance brokerage, employee benefits consulting and risk management solutions to business clients throughout the United States. We also own a broker-dealer, which executes mutual fund transactions. CAPCO’s office is located in Bellevue, Washington and operates in the Pacific Northwest. Matsco markets its dental and veterinarian financing services nationally.

At December 31, 2002, we had total assets of $8.1 billion, total loans, net, of $4.7 billion and total deposits of $5.3 billion.

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History

Greater Bay Bancorp was formed as the result of the November 1996 merger of Cupertino National Bancorp and Mid-Peninsula Bancorp. Mid-Peninsula Bancorp was incorporated in 1984 under the name San Mateo County Bancorp as the bank holding company of WestCal National Bank. In 1994, WestCal National Bank was merged with Mid-Peninsula Bank, which commenced operations in October 1987. Concurrently San Mateo County Bancorp changed its name to Mid-Peninsula Bancorp. On consummation of the November 1996 merger between Cupertino National Bancorp and Mid-Peninsula Bancorp, Mid-Peninsula Bancorp changed its name to Greater Bay Bancorp and Cupertino National Bank became a wholly-owned subsidiary.

Greater Bay has continued to expand its presence within its market area by affiliating with other quality banking organizations, and select niche financial services companies. In addition we have been successful in opening key regional bank locations to respond to market and client demands, while also selectively opening key new businesses that expand our product offerings.

The following provides a chronological listing of significant mergers and acquisitions that we have completed since November 27, 1996:

Date of merger	Entity	Former bank holding company	Year commenced operations
December 23, 1997	Peninsula Bank of Commerce	none	1981
May 8, 1998	Golden Gate Bank	Pacific Rim Bancorporation	1976
August 31, 1998	Pacific Business Funding Corporation(1)	n/a	1995
May 21, 1999	Bay Area Bank	Bay Area Bancshares	1979
October 15, 1999	Bay Bank of Commerce	Bay Commercial Services	1981
January 31, 2000	Mt. Diablo National Bank	Mt. Diablo Bancshares	1993
May 18, 2000	Coast Commercial Bank	Coast Bancorp	1982
July 21, 2000	Bank of Santa Clara	none	1973
October 13, 2000	Bank of Petaluma	none	1987
November 30, 2000	The Matsco Companies, Inc.(2)	n/a	1983
March 30, 2001	CAPCO Financial Company Inc.(3)	n/a	1990
October 23, 2001	San Jose National Bank	SJNB Financial Corp.	1982
March 12, 2002	ABD Insurance and Financial Services	n/a	1946

(1) Operates as a division of Cupertino National Bank and conducts business under the name Pacific Business Funding.

(2) Operates as a division of Cupertino National Bank and conducts business under the name Matsco.

(3) Operates as a division of Cupertino National Bank and conducts business under the name CAPCO.

The acquisitions of The Matsco Companies, Inc., CAPCO, and ABD were accounted for using the purchase accounting method. All of the other acquisitions were accounted for as a pooling-of-interests and, accordingly, all of our financial information for the periods prior to the acquisitions has been restated as if these acquisitions had occurred at the beginning of the earliest reporting period presented.

Our Goals

We strive toward six primary goals. These goals are:

· High Credit Quality.    Non-performing asset levels continue to be below our peer group. We have also implemented tighter underwriting standards and more aggressive management of non-accruals to adjust for the current economy.

· Core Deposit Growth.    We strive to expand our deposit franchise internally through market penetration and cross-selling as part of our relationship banking model.

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· Net Interest Margin.    Though declining rates have resulted in margin compression, we have eased the compression with our interest rate risk mitigation strategy and client relationship pricing initiatives. We manage our allocation of assets and liabilities so as to take advantage of anticipated changes in interest rates without putting either our future earnings or the market value of our portfolio equity at risk from unanticipated interest rate changes.

· Non-interest Income.    We want to increase the percentage of our total revenue derived from fee income. The ABD acquisition increased our non-interest income as a percentage of revenues from 12.9% during 2001 to 31.4% during 2002.

· Efficiency.    We continue to actively manage our efficiency ratio by reducing expenses and increasing individual productivity while always ensuring quality client service levels are maintained.

· Relationship Management.    This value proposition continues to benefit our clients and our shareholders. As a market differentiator, the close relationship with a knowledgeable banker who has the expertise and authority to make client decisions appeals to business owners, managers and executives who demand a greater level of service.

Regional Community Banking Philosophy

In order to meet the demands of the increasingly competitive banking and financial services industries, we operate under a “Regional Community Banking Philosophy”. Our Regional Community Banking Philosophy is based on our belief that banking clients value doing business with locally managed banking offices that can provide a full service commercial banking relationship through an understanding of the clients’ financial needs and the flexibility to deliver customized solutions through our menu of products and services. We also believe that banks which affiliate with Greater Bay and implement our Regional Community Banking Philosophy are better able to build successful client relationships, as the holding company provides cost effective administrative support services while promoting local autonomy and flexibility in serving client needs.

Our banking subsidiaries have established strong reputations and client followings in their market areas through attention to client service and an understanding of client needs. The Banks’ reputations are the result of our relationship managers’ service efforts. The primary focus for the Banks' relationship managers is to cultivate and nurture their client relationships. Relationship managers are assigned to each borrowing client to provide continuity in the relationship. This emphasis on personalized relationships requires that all of the relationship managers maintain close ties to the communities in which they serve, so they are able to capitalize on their efforts through expanded business opportunities for the Banks.

While client service decisions and day-to-day operations are locally maintained, Greater Bay provides our banking offices expanded client support services, such as increased client lending capacity, business cash management, international trade finance services, and business insurance products. In addition, Greater Bay provides centralized administrative functions, including support in credit policy formulation and review, investment management, data processing, accounting, loan servicing and other specialized support functions. All of these centralized services are designed to enhance the ability of the relationship manager to expand their client relationship base.

Corporate Growth Strategy

Our primary goal is to become the preeminent independent financial services company in Northern California. Our primary business strategy is to focus on increasing our market share within the communities we serve through continued internal growth.

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Greater Bay Bancorp’s Family of Companies

We are organized primarily along community banking and insurance brokerage services business segments. We have aggregated 14 operating divisions into the community banking business segment. Our insurance brokerage services business segment consists of a single operating division, ABD, our insurance brokerage subsidiary. The services that our business segments provide are described further below.

Community Banking

We provide a wide range of commercial banking and financial services to small and medium-sized businesses, real estate developers and property managers, business executives, professionals and other individuals.

The Banks engage in the full complement of lending activities, including commercial, real estate and consumer loans. The Banks provide commercial loans for working capital and business expansion to small and medium-sized businesses with annual revenues generally in the range of $1.0 million to $100.0 million. We also provide an array of specialty finance products including international letters of credit and trade financing, loans to smaller businesses on which the Small Business Administration (“SBA”) generally provides guarantees, asset-based lending and accounts receivable factoring and loans and lease products tailored to the dental and veterinary health professions.

The Banks offer a wide range of deposit products, including personal and business checking and savings accounts, time deposits and individual retirement accounts. The Banks also offer a wide range of specialized services designed to attract and service the needs of clients and include cash management and international trade finance services for business clients, traveler’s checks, safe deposit and MasterCard and Visa merchant deposit services.

Through the Greater Bay Trust Company, a division of Cupertino National Bank, we provide trust services to support the trust needs of the Banks’ business and private banking clients. These services include, but are not limited to, custodial, investment management, estate planning resources and employee benefit plan services.

A summary of our banking subsidiaries’ assets, loans, deposits and banking offices at December 31, 2002 is as follows:

	Assets		Loans		Deposits		Number of banking offices
	(Dollars in millions)
Bank of Petaluma	$	372.2	$	139.5	$	244.4	4
Bank of Santa Clara		550.7		219.8		336.3	8
Bay Area Bank		400.4		182.8		232.0	1
Bay Bank of Commerce		298.1		133.7		188.4	3
Coast Commercial Bank		582.5		241.8		394.9	7
Cupertino National Bank		2,253.6		1,735.3		1,210.3	7
Golden Gate Bank		465.4		206.9		262.8	1
Mid-Peninsula Bank		1,554.0		1,079.5		1,201.1	5
Mt. Diablo National Bank		501.0		187.9		355.8	4
Peninsula Bank of Commerce		534.5		217.3		329.1	1
San Jose National Bank		727.4		426.9		531.2	4

Insurance Brokerage Services

ABD is a commercial insurance brokerage and employee benefits consulting firm operating throughout the western United States. ABD is engaged in selling commercial, personal property, casualty, employee benefits,

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life and retirement insurance products and providing consulting services to consumers of those products, enabling their clients to strengthen their risk management programs. At December 31, 2002, ABD had over $1.1 billion of insurance premiums serviced and $88.5 million in gross revenues for the ten-month period ended December 31, 2002.

Market Area

The Banks concentrate on marketing their services to small and medium-sized businesses, professionals and individuals in Alameda, Contra Costa, Marin, Monterey, Santa Clara, San Francisco, San Mateo, Santa Cruz, and Sonoma Counties. All population data is as of January 2002 and was obtained from the State of California Department of Finance Demographic Research Unit.

· Bank of Petaluma’s primary base of operations is in Petaluma, California and extends through Sonoma County. Sonoma County has a population of approximately 471,000.

· Bank of Santa Clara’s primary base of operations is in Santa Clara, California, which is located in the geographic area referred to as the “Silicon Valley”. Bank of Santa Clara’s operation extends throughout Santa Clara County. Santa Clara County has a population of approximately 1,719,000.

· Bay Area Bank’s primary base of operations is in Redwood City, California and includes central San Mateo County. San Mateo County has a population of approximately 717,000.

· Bay Bank of Commerce’s primary base of operations is San Leandro, California and extends through Alameda and Southern Contra Costa Counties. Alameda County and Contra Costa County have populations of approximately 1,487,000 and 982,000, respectively.

· Coast Commercial Bank’s primary base of operations is in Santa Cruz, California and extends through Santa Cruz County. Coast Commercial Bank also maintains a banking office in Monterey County. Santa Cruz County and Monterey County have populations of approximately 260,000 and 410,000, respectively.

· Cupertino National Bank’s primary base of operations is in Cupertino, California, which is in the center of the geographic area referred to as the “Silicon Valley”. Cupertino National Bank’s operations extend throughout Santa Clara County.

· Golden Gate Bank’s primary base of operations is centered in the City and County of San Francisco. San Francisco County has a population of approximately 794,000.

· Mt. Diablo National Bank’s primary base of operations is Danville, California and extends through Contra Costa and northern Alameda Counties.

· Mid-Peninsula Bank’s primary base of operations is centered in Palo Alto, California and extends from northern Santa Clara County through San Mateo County. Mid-Peninsula Bank also maintains banking offices in Alameda, Contra Costa, and Marin Counties. Marin County has a population of approximately 250,000.

· Peninsula Bank of Commerce’s primary base of operations is centered in Millbrae, California, and includes northern San Mateo County and extends into San Francisco County.

· San Jose National Bank’s primary base of operations is centered in San Jose, California, and includes Santa Clara County.

The commercial base of Alameda, Contra Costa, Marin, Monterey, Santa Clara, Santa Cruz, San Francisco, San Mateo and Sonoma Counties is diverse and includes computer and semiconductor manufacturing, professional services, biotechnology, printing and publishing, aerospace, defense and real estate construction, as well as wholesale and retail trade. As a result of our geographic concentration, our results depend largely upon economic conditions in these areas, which exhibited weakness in 2002. No assurance can be given that significant improvement in the economy will occur in 2003. A prolonged economic downturn could have a

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material adverse impact on the quality of our loan portfolio and the demand for our products and services, and accordingly on our results of operations. See “Item 1. Business—Factors That May Affect Future Results of Operations.”

We market our dental and veterinarian financing services nationally through our Matsco division. At December 31, 2002, approximately $487.7 million of Matsco’s outstanding loans and leases are with borrowers located outside of California. Those loans and leases are distributed throughout the United States, with the largest volume having been originated in Florida, where Matsco has outstanding loans and leases totaling approximately $38.4 million. Our asset based lending services are marketed through our offices in California and Bellevue, Washington, which covers the Pacific Northwest.

ABD provides commercial insurance brokerage, employee benefits consulting and risk management solutions to business clients throughout the United States.

Lending Activities

Underwriting and Credit Administration

Each Bank’s lending activities are guided by the basic lending policies established by Greater Bay and our Credit Policy Committee and approved by each Bank’s Board of Directors. Each loan must meet minimum underwriting criteria established in the Bank’s lending policy. Loan requests are approved on a pooled-authority basis up to a maximum limit for each Bank. Loan requests exceeding these limits are submitted to our Officers’ Loan Committee, which consists of the Executive Vice President and Chief Lending Officer of Greater Bay, the Executive Vice President and Chief Credit Officer of Mid-Peninsula Bank, the Senior Vice President and Chief Credit Officer of Greater Bay, and three Regional Credit Administrators. All members of the Officers’ Loan Committee are also officers of the individual Banks. Loan requests which exceed the limits of our Officers’ Loan Committee are submitted to the Directors’ Loan Committee. Each of these committees meets on a regular basis in order to provide timely responses to the Banks’ clients.

Our credit administration function includes an internal loan review and the regular use of an outside loan review firm. In addition, our Directors’ Loan Committee, Credit Risk Management Committee, Chief Administrative Officer/Chief Financial Officer and Controller review information at least once a month related to delinquencies, nonperforming assets, classified assets and other pertinent information to evaluate credit risk within each Bank’s loan portfolio and to review our allowance for loan losses. Additionally, our Credit Policy Committee reviews nonperforming assets and our allowance for loan losses quarterly.

Loan Portfolio

The composition of our gross loan portfolio at December 31, 2002 was as follows:

· Approximately 43.0% were commercial loans;

· Approximately 33.5% were commercial term real estate loans;

· Approximately 14.8% were in real estate construction and land loans;

· Approximately 5.2% were other real estate term loans, primarily secured by residential real estate; and

· The balance of the portfolio consists of consumer loans.

The interest rates the Banks charge varies with the degree of risk, size and maturity of the loans. In addition, competition from other financial services companies and analyses of the client’s deposit relationship with the Bank and the Bank’s cost of funds impact the interest rate charged on loans.

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Commercial Loans.    In their commercial loan portfolios, the Banks provide personalized financial services to the diverse commercial and professional businesses in their market areas. Commercial loans, including those made by the Venture Banking Group, consist primarily of short-term loans (normally with a maturity of up to one year) to support business operations. The Banks focus on businesses with annual revenues generally between $1.0 million and $100.0 million with borrowing needs generally between $2.0 million and $10.0 million. The Banks’ commercial clients are drawn from a wide variety of manufacturing, technology, real estate, wholesale and service businesses. Commercial loans also include those loans made by the Greater Bay Corporate Finance Group.

Commercial loans typically include revolving lines of credit collateralized by inventory, accounts receivable and equipment. In underwriting commercial loans, we emphasize the borrower's earnings history, capitalization and secondary sources of repayment. In some instances, we require third party guarantees or highly liquid collateral (such as time deposits and investment securities). Commercial loan pricing is generally at a rate tied to the prime rate, as quoted in the Wall Street Journal, or the Banks' reference rates.

The Venture Banking Group provides innovative lending products and other financial services, tailored to the needs of start-up and development-stage companies. The Venture Banking Group’s typical clients include venture capital and technology companies, ranging from multimedia, software and telecommunications providers to biotechnology and medical device firms. Borrowings are generally secured by minimum cash balances, accounts receivable, intellectual property rights, inventory and equipment of the companies. The financial strength of these companies also tends to be bolstered by the presence of venture capital investors among their shareholders. Because many of these technology companies are in the start-up or development phase, they may not generate any revenues for several years. We often receive warrants from these companies as part of the compensation for our services. As of December 31, 2002, the Venture Banking Group had loans outstanding to start-up and development stage companies of approximately $4.8 million.

We participate as a preferred lender in many SBA programs through the Greater Bay Bank SBA Lending Group. As a preferred lender, we have authority to authorize, on behalf of the SBA, the SBA guaranty on loans under the 7A program. This can represent a substantial savings to the customer as this status results in more rapid turnaround of loan applications submitted to the SBA for approval. The SBA Lending Group utilizes both the 504 program, which is focused toward longer-term financing of buildings and other long-term assets, and the 7A program, which is primarily used for financing of the equipment, inventory and working capital needs of eligible businesses generally over a three-to-seven-year term. The collateral position in the SBA loans is enhanced by the SBA guaranty in the case of 7A loans, and by lower loan-to-value ratios under the 504 program. The SBA Lending Group generally sells the guaranteed portion of its SBA loans in the secondary market.

We offer a complete range of financial products and services through our Matsco division to meet the needs of dentists and veterinarians throughout their professional careers. Matsco’s principal financial products include practice start-up financing, practice expansion financing, practice acquisition financing, working capital and financing for retirement planning. These products are structured as either equipment leases or loans.

We offer asset-based lending and accounts receivable factoring products through our Pacific Business Funding and CAPCO divisions that provide alternative funding and support programs designed to enhance our small business banking services.

Commercial Real Estate Term Loans.    The Banks provide medium-term commercial real estate loans secured by commercial or industrial buildings where the owner either uses the property for business purposes or derives income from tenants. Our loan policies require the principal balance of the loan, generally between $400,000 and $15.0 million, to be no more than 70% of the lower of actual or stabilized appraised value of the underlying real estate collateral. The loans, which are typically secured by first deeds of trust only, generally have terms of no more than seven to ten years and are amortized over 20-25 years. Most of these loans have rates tied to the prime rate, with many adjusting whenever the prime rate changes; the remaining loans adjust every two or three years depending on the term of the loan.

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Real Estate Construction and Land Loans.    The Banks’ real estate construction loan activity focuses on providing short-term (generally less than one year maturity) loans to individuals and developers with whom the Banks have established relationships for the construction primarily of single family residences in the Banks’ market areas. Real estate construction loans for single family residences typically range between approximately $500,000 and $1.0 million, and for multi-unit projects typically ranging between approximately $1.5 million and $5.0 million.

Residential real estate construction loans are typically secured by first deeds of trust and require guarantees of the borrower. The economic viability of the project and the borrower’s creditworthiness are primary considerations in the loan underwriting decision. Generally, these loans provide an attractive yield, but may carry a higher than normal risk of loss or delinquency, particularly if general real estate values decline. The Banks utilize approved independent local appraisers and loan-to-value ratios which generally do not exceed 65% to 75% of the appraised value of the property. The Banks monitor projects during the construction phase through regular construction inspections and a disbursement program tied to the percentage of completion of each project.

The Banks also occasionally make land loans to borrowers who intend to construct a single family residence on the lot generally within twelve months. In addition, the Banks also make commercial real estate construction loans to high net worth clients with adequate liquidity for construction of office and warehouse properties. Such loans are typically secured by first deeds of trust and require guarantees of the borrower.

Other Real Estate Loans.    Other real estate loans include equity lines of credit secured primarily by second deeds of trust on single-family residences. Most of these loans bear interest rates based on the prime rate and have terms of no more than ten years. The other significant component included in other real estate is comprised of SBA loans participated under the 7a program. Such loans may be revolving and have maturities up to one year, or they may be amortizing over terms up to 25 years. In most cases, 7a loans are secured by both business assets and deeds of trust.

Consumer and Other Loans.    The Banks’ consumer and other loan portfolio is divided between installment loans secured by automobiles and aircraft, and home improvement loans and lines of credit which are often secured by residential real estate. Installment loans tend to be fixed rate and longer-term (one-to-five year maturity), while the equity lines of credit and home improvement loans are generally at a floating rate and are reviewed for renewal on an annual basis. The Banks also have a minimal portfolio of credit card loans, issued as an additional service to its clients.

We also provide a wide range of financial services to support the international banking needs of the Banks’ clients, including identifying certain risks of conducting business abroad and providing international letters of credit, documentary collections and other trade finance services. In 2001, the Export-Import Bank of the United States increased our International Banking Division’s delegated authority status from the “Medium” level to the “High” level to provide foreign receivable financing to local exporters. The Export-Import Bank allows “High” level delegated authority lenders to approve working capital loans up to $5.0 million per exporter, and to approve an aggregate total of up to $75.0 million in loans.

Deposits

The Banks obtain deposits primarily from small and medium-sized businesses, business executives, professionals and other individuals. Each of the Banks offers the usual and customary range of depository products that commercial banks provide to customers. The Banks’ deposits are not received from a single depositor or group of affiliated depositors, the loss of any one of which would have a material adverse effect on our business or any of the Banks. Rates paid on deposits vary among the categories of deposits due to different terms, the size of the individual deposit, and rates paid by competitors on similar deposits.

Cupertino National Bank has two business units that provide significant support to its deposit base. The Greater Bay Trust Company has approximately 10.2% of its trust assets under management in liquid funds that

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are retained in Cupertino National Bank savings accounts. At December 31, 2002, these funds totaled $62.2 million. The Venture Banking Group is another source of deposits as most of the start-up phase companies have significant liquidity that is deposited in Cupertino National Bank as part of the banking relationship. At December 31, 2002, the Venture Banking Group’s clients had $287.1 million in deposits at Cupertino National Bank.

Competition

The banking and financial services industry in California generally, and in the Banks’ market areas specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. The Banks compete for loans, deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than the Banks.

In order to compete with other financial services providers, the Banks principally rely upon local promotional activities, personal relationships established by officers, directors, and employees with their customers, and specialized services tailored to meet the needs of the communities served. In those instances where the Banks are unable to accommodate a customer’s needs, the Banks may arrange for those services to be provided by their correspondents. The Banks have 45 offices located in Alameda, Contra Costa, Marin, Monterey, San Francisco, San Mateo, Santa Clara, Santa Cruz and Sonoma counties in California.

As of June 30, 2002, the latest date for which the FDIC branch data is available, the Banks’ deposits represented 3.05% of the deposits for all financial service companies in the San Francisco Bay Area, which includes Napa and Solano Counties in addition to the nine counties shown below. At that same date, the Banks’ deposits represented:

· 1.23% of the deposits for all financial service companies in Alameda County;

· 1.96% of the deposits for all financial service companies in Contra Costa County;

· 5.41% of the deposits for all financial service companies in San Mateo County;

· 8.12% of the deposits for all financial service companies in Santa Clara County;

· 10.45% of the deposits for all financial service companies in Santa Cruz County;

· 3.05% of the deposits for all financial service companies in Sonoma County; and

· Less than 1.00% of the deposits for all financial service companies in Marin, Monterey, and San Francisco Counties.

Economic Conditions, Government Policies, Legislation, and Regulation

Our profitability, like most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by the Banks on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Banks on their interest-earning assets, such as loans extended to their clients and securities held in their investment portfolios, comprise the major portion of our earnings. These rates are highly sensitive to many factors that are beyond the control of Greater Bay and the Banks, such as inflation, recession and unemployment, and the impact which future changes in domestic and foreign economic conditions might have on Greater Bay and the Banks cannot be predicted.

The monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System (the “Federal Reserve”) influence our

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business. The Federal Reserve implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities. We cannot fully predict the nature and impact on Greater Bay and the Banks of any future changes in monetary and fiscal policies.

From time to time, legislative acts, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. See “Item 1. Business—Supervision and Regulation.”

Supervision and Regulation

General

Bank holding companies and banks are extensively regulated under both federal and state law. This regulation is intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of shareholders of Greater Bay. Set forth below is a summary description of the material laws and regulations which relate to the operations of Greater Bay and the Banks and recent regulatory developments affecting Greater Bay. The description is qualified in its entirety by reference to the applicable laws and regulations.

Greater Bay

Greater Bay is a registered bank holding company, and subject to regulation under the Bank Holding Company Act of 1956, as amended (the “BHCA”). In addition, and as further described below, effective on February 1, 2002, Greater Bay became a financial holding company under the BHCA as amended by the Gramm-Leach Bliley Act of 1999. See “—Financial Services Modernization Legislation.” Greater Bay is required to file with the Federal Reserve periodic reports and such additional information as the Federal Reserve may require pursuant to the BHCA. The Federal Reserve may conduct examinations of Greater Bay and its subsidiaries.

The Federal Reserve may require that Greater Bay terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments when the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal Reserve also has the authority to regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, Greater Bay must file written notice and obtain approval from the Federal Reserve prior to purchasing or redeeming its equity securities. Furthermore, Greater Bay is required by the Federal Reserve to maintain certain levels of capital. See “—Capital Standards.”

As a bank holding company, Greater Bay is required, except in certain statutorily prescribed instances, to seek the prior approval of the Federal Reserve for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or furnishing services to its subsidiaries. When a bank holding company makes an effective election to become a financial holding company, the Federal Reserve Board’s prior approval is not required to acquire ownership or control of entities engaged in specified financial activities (not including other banks, bank holding company or savings associations). The existing restrictions on directly or indirectly acquiring a bank or bank holding

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company are applicable to all bank holding companies and financial holding companies. Prior approval of the Federal Reserve is also required for the merger or consolidation of Greater Bay and another bank holding company.

Under Federal Reserve regulations, a holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve’s policy that a holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital raising capacity to obtain additional resources for assisting its subsidiary banks. A holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve’s regulations or both.

Bank holding companies that elect to become a financial holding company, like Greater Bay, may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or are incidental or complementary to activities that are financial in nature. "Financial in nature" activities include:

· securities underwriting;

· dealing and market making;

· sponsoring mutual funds and investment companies;

· insurance underwriting and brokerage;

· merchant banking; and

· activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines from time to time to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

Prior to filing a declaration of its election to become a financial holding company, all of the bank holding company's depository institution subsidiaries must be well capitalized, well managed, and, except in limited circumstances, in satisfactory compliance with the Community Reinvestment Act.

Failure to sustain compliance with the financial holding company election requirements or correct any noncompliance within a fixed time period could lead to divestiture of subsidiary banks or require all activities of such company to conform to those permissible for a bank holding company. Moreover, low examination ratings, regulatory concerns regarding management, controls, assets, operations or other factors can all potentially result in practical limitations on the ability of a bank or holding company to engage in new activities, acquire new businesses, repurchase its stock or pay dividends, or continue to conduct existing activities. A bank holding company that is not also a financial holding company can only engage in banking and such other activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

Cure Agreement

On January 3, 2003, Greater Bay received a notice from the Federal Reserve that followed the completion of the most recent regulatory examinations of Greater Bay and the Banks. In response to the notice, Greater Bay delivered to the Federal Reserve a corrective action plan designed to enhance its enterprise wide risk management program. Prior to receipt of the notice from the Federal Reserve, Greater Bay had already dedicated significant time and resources to addressing these items, and commenced many of the action items contained within the corrective action plan, including the appointment in December 2002 of a Chief Risk Officer to oversee Greater Bay’s Enterprise Wide Risk Management Group.

On February 17, 2003, Greater Bay entered into a cure agreement with the Federal Reserve which incorporates the terms of Greater Bay’s corrective action plan. To improve Greater Bay’s risk management

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program, the action plan requires enhancements to policies and procedures relating to interest rate sensitivity, liquidity and capital management, asset risk management, and compliance. In the area of interest rate sensitivity, Greater Bay will perform additional stress testing of its interest rate risk exposure under best case and worse case scenarios, review its interest rate risk limits and test its core deposit assumptions. Liquidity management will be augmented by stress testing the liquidity position under various scenarios and by developing a more sophisticated monitoring system for Greater Bay’s funding strategy. In addition, Greater Bay will establish a process to quantify and support the appropriateness of established capital limits relative to its risk profile. In the area of asset risk management, Greater Bay will establish commercial real estate concentration limits, improve the documentation supporting the allowance for loan and lease losses and strengthen systems relating to loan and investment policies. Greater Bay will also enhance the processes for identifying and monitoring legal risks to ensure future compliance with all applicable laws and regulations, including the Bank Secrecy Act and anti-money laundering laws.

To maintain its financial holding company status, Greater Bay must complete the corrective action plan by July 7, 2003 or such additional time as the Federal Reserve may permit. During this period, Greater Bay may not engage in new financial holding company activities or acquire nonbank subsidiaries engaged in financial activities without the prior written approval of the Federal Reserve. If the corrective action is not completed within the relevant time period, the Federal Reserve could impose additional limitations or conditions on our conduct or activities, require Greater Bay to divest its subsidiary Banks, or, at Greater Bay’s election, engage only in activities permissible for bank holding companies. Such a development would potentially adversely impact Greater Bay’s insurance brokerage activities conducted through Greater Bay’s subsidiary, ABD, although Greater Bay believes it could mitigate the impact of this development through alternative means of conducting these activities.

As part of its enterprise wide risk management program, Greater Bay continually evaluates the impact of its multi-bank charter structure on its operations, business, clients and regulatory compliance. While no decision has been made, we are exploring whether a simplified structure might enhance our risk management program and alleviate some of the issues addressed in the cure agreement. By maintaining our individual bank names, local bank management, our relationship style of banking and strong community involvement, a simplified structure may enable us to continue to operate under our Regional Community Banking Philosophy and, at the same time, enhance our risk management program.

The Banks

We have three national banking subsidiaries and eight bank subsidiaries which are California chartered banks and members of the Federal Reserve. The national banks are subject to primary supervision, regulation and periodic examination by the Office of the Comptroller of the Currency (the “Comptroller”) and are also subject to regulations of the Federal Deposit Insurance Corporation (the “FDIC”) and the Federal Reserve. The state-chartered banks are subject to primary supervision, regulation and periodic examination by the California Commissioner of Financial Institutions (“Commissioner”) and the Federal Reserve, and are subject to the regulations of the FDIC.

If, as a result of a bank examination, the Comptroller or the Federal Reserve should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of one of the Bank’s operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, various remedies are available to these regulatory agencies. Such remedies include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank’s deposit insurance, which for a California chartered bank would result in a revocation of the Bank’s charter. The Commissioner separately has many of the same remedial powers.

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The Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law The Sarbanes-Oxley Act of 2002. This new legislation addresses accounting oversight and corporate governance matters, including:

· the creation of a five-member oversight board appointed by the Securities & Exchange Commission that will set standards for accountants and have investigative and disciplinary powers;

· the prohibition of accounting firms from providing various types of consulting services to public clients and requiring accounting firms to rotate partners among public client assignments every five years;

· increased penalties for financial crimes;

· expanded disclosure of corporate operations and internal controls and certification of financial statements;

· enhanced controls on and reporting of insider trading; and

· statutory separations between investment bankers and analysts.

We have implemented procedures to comply with the requirements for expanded disclosure of internal controls and the certification of the financial statements. A significant portion of the remaining items in the new legislation will become effective during 2003. We are currently evaluating what impacts the new legislation and its implementing regulations will have upon our operations, including a likely increase in certain outside professional costs.

USA Patriot Act of 2001

On October 26, 2001, President Bush signed the USA Patriot Act of 2001 (“Patriot Act”). The Patriot Act is intended to strengthen the U.S law enforcement and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws in addition to current requirements and requires various regulations, including:

· due diligence requirements for financial institutions that administer, maintain, or manage private banks accounts or correspondent accounts for non-US persons;

· standards for verifying customer identification at account opening;

· rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; and

· reports by non-financial trades and businesses filed with the Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000, and filing of suspicious activities reports by securities brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

On July 23, 2002, the U.S. Treasury proposed regulations requiring institutions to incorporate into their written money laundering plans a customer identification program implementing reasonable procedures for:

· verifying the identity of any person seeking to open an account, to the extent reasonable and practicable;

· maintaining records of the information used to verify the person’s identity; and

· determining whether the person appears on any list of known or suspected terrorists or terrorist organizations.

Account is defined as a formal banking or business relationship established to provide ongoing services, dealings, or other financial transactions. We do not expect the proposed regulations will have a material impact on our operations.

Financial Services Modernization Legislation

General.    On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the “GLBA”). The general effect of the law is to establish a comprehensive framework to permit affiliations

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among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company.

The law also:

· Broadened the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries;

· Provided an enhanced framework for protecting the privacy of consumer information;

· Adopted a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system;

· Modified the laws governing the implementation of the Community Reinvestment Act; and

· Addressed a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

Greater Bay and the Banks do not believe that the GLBA will have a material adverse effect on operations in the near-term. However, to the extent that it permits banks, securities firms, and insurance companies to affiliate, the financial services industry may experience further consolidation. The GLBA is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis. Nevertheless, this act may have the result of increasing the amount of competition that Greater Bay and the Banks face from larger institutions and other types of companies offering financial products, many of which may have substantially more financial resources than Greater Bay and the Banks.

Expanded Bank Activities.    The GLBA also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a financial holding company. Financial activities include all activities permitted under new sections of the BHCA or permitted by regulation. Because California permits commercial banks chartered by the state to engage in any activity permissible for national banks, Greater Bay’s state-chartered bank subsidiaries will be permitted to form subsidiaries to engage in the activities authorized by the GLBA, to the same extent as a national bank.

A national bank seeking to have a financial subsidiary, and each of its depository institution affiliates, must be “well-capitalized,” “well-managed” and in compliance with the Community Reinvestment Act. The total assets of all financial subsidiaries may not exceed the lesser of 45% of a bank’s total assets, or $50 billion. A national bank must exclude from its assets and equity all equity investments, including retained earnings, in a financial subsidiary. The assets of the subsidiary may not be consolidated with the bank’s assets. The bank must also have policies and procedures to assess financial subsidiary risk and protect the bank from such risks and potential liabilities.

Dividends and Other Transfers of Funds

Dividends from the Banks constitute the principal source of income to Greater Bay. Greater Bay is a legal entity separate and distinct from the Banks. The Banks are subject to various statutory and regulatory restrictions on their ability to pay dividends to Greater Bay. Under such restrictions, the amount available for payment of dividends to Greater Bay by the Banks totaled $87.2 million at December 31, 2002. In addition, the Banks’ regulators have the authority to prohibit any one of the Banks from paying dividends, depending upon the Bank’s respective financial condition, if such payment is deemed to constitute an unsafe or unsound practice.

Cross Guarantees

Our insured depository institution subsidiaries are also subject to cross-guaranty liability under federal law. This means that if one FDIC-insured depository institution subsidiary of a multi-institution bank holding

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company fails or requires FDIC assistance, the FDIC may assess commonly controlled depository institutions for the estimated losses suffered by the FDIC. Such a liability could have a material adverse effect on the financial condition of any assessed subsidiary institution and on Greater Bay as the common parent. While the FDIC’s cross-guaranty claim is generally junior to the claim of depositors, holders of secured liabilities, general creditors and subordinated creditors, it is generally superior to the claims of shareholders and affiliates.

Transactions with Affiliates

The Banks are subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, Greater Bay or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of Greater Bay or other affiliates. Such restrictions prevent Greater Bay and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Banks to or in Greater Bay or to or in any other affiliate are limited, individually, to 10.0% of the respective bank’s capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20.0% of the Bank’s capital and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving Greater Bay and other controlling persons of the Banks. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law. See “ITEM 1. BUSINESS—Supervision and Regulation—Prompt Corrective Action and Other Enforcement Mechanisms.”

Capital Standards

The federal banking agencies have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk to 100% for assets with relatively high credit risk.

The guidelines require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

Prompt Corrective Action and Other Enforcement Mechanisms

Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2002, each of the Banks and Greater Bay exceeded the required ratios for classification as “well capitalized”.

An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an

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unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency. Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory examination score or is considered undercapitalized—without the express permission of the institution’s primary regulator.

Safety and Soundness Standards

The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation, fees and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets, (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses, (iii) compare problem asset totals to capital, (iv) take appropriate corrective action to resolve problem assets, (v) consider the size and potential risks of material asset concentrations, and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These new guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

Premiums for Deposit Insurance

Through the Bank Insurance Fund (“BIF”), the FDIC insures the deposits of Greater Bay’s depository institution subsidiaries up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category. An institution's capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution's supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.

The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. Due to continued growth in deposits and some recent bank failures, the BIF is nearing its minimum ratio of 1.25% of insured deposits as mandated by law. If the ratio drops below 1.25%, it is likely the FDIC will be required to assess premiums on all banks for the first time since 1996. Any increase in assessments or the assessment rate could have a material adverse effect on Greater Bay’s earnings, depending on the amount of the increase.

The FDIC is authorized to terminate a depository institution's deposit insurance upon a finding by the FDIC that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance for one or more of Greater Bay’s subsidiary depository institutions could have a material adverse effect on Greater Bay's earnings, depending on the collective size of the particular institutions involved.

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Community Reinvestment Act and Fair Lending Developments

The Banks are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act (“CRA”) activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities. Furthermore, financial institutions are subject to annual reporting and public disclosure requirements for certain written agreements that are entered into between insured depository institutions or their affiliates and nongovernmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the CRA.

A bank’s compliance with its CRA obligations is based on a performance-based evaluation system which bases CRA ratings on an institution’s lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the Federal Reserve will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. The results of the most recent exam for each of the Banks are as follows

Bank	Date of most recent examination	CRA rating
Bay Area Bank	November 1999	Satisfactory
Bay Bank of Commerce	December 2001	Satisfactory
Bank of Petaluma	September 1998	Outstanding
Bank of Santa Clara	December 2002	Satisfactory
Coast Commercial Bank	December 2001	Satisfactory
Cupertino National Bank	October 1999	Outstanding
Golden Gate Bank	December 2002	Satisfactory
Mt. Diablo National Bank	February 1999	Satisfactory
Mid-Peninsula Bank	December 2001	Outstanding
Peninsula Bank of Commerce	December 2001	Satisfactory
San Jose National Bank	October 1999	Satisfactory

The regulatory agencies Cupertino National Bank and San Jose National Bank completed examinations of those institutions in December 2002. The regulatory agencies have not yet issued any reports on those examinations. Management does not expect any significant changes in these banks’ ratings.

Federal Reserve System

The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. At December 31, 2002, the Banks were in compliance with these requirements.

Nonbank Subsidiaries

Many of Greater Bay's nonbank subsidiaries also are subject to regulation by the Federal Reserve and other applicable federal and state agencies. Greater Bay's insurance brokerage subsidiary is subject to regulation by applicable state insurance regulatory agencies. Greater Bay's securities brokerage subsidiary is regulated by the SEC, the National Association of Securities Dealers, Inc. and state securities regulators. Other nonbank subsidiaries of Greater Bay are subject to the laws and regulations of both the federal government and the various states in which they conduct business.

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Employees

At December 31, 2002, we had 1,735 full-time employees. None of the employees are covered by a collective bargaining agreement. We consider our employee relations to be satisfactory.

Website

Our website address is www.gbbk.com. We make available free of charge on our website our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K as soon as reasonably practicable after we file such reports with the SEC. None of the information on or hyperlinked from our website is incorporated into this Annual Report on Form 10-K.

Factors That May Affect Future Results of Operations

In addition to the other information contained in this report, the following risks may affect us. If any of these risks occurs, our business, financial condition or operating results could be adversely affected.

Changes in market interest rates may adversely affect our performance.

Our earnings are impacted by changing interest rates. Changes in interest rates impact the demand for new loans, the credit profile of existing loans, the rates received on loans and securities and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

Our financial holding company status may be revoked if we fail to implement the corrective action plan incorporated as part of our cure agreement with the Federal Reserve.

As a result of the most recent regulatory examination of Greater Bay and the Banks, Greater Bay entered into a cure agreement with the Federal Reserve requiring Greater Bay to enhance its enterprise wide risk management program. To maintain its financial holding company status, Greater Bay must complete a corrective action plan required by the cure agreement. If Greater Bay fails to complete the corrective action plan in the time the Federal Reserve permits, Greater Bay may, at its option, divest itself of its subsidiary banks or limit its activities to those permissible for a bank holding company. This could adversely affect Greater Bay’s insurance brokerage activities conducted through ABD. See “Item 1—Supervision and Regulation”. Further regulatory action by the Federal Reserve or any other regulator may adversely affect our operations and our ability to pursue our business strategy.

We are subject to government regulation that could limit or restrict our activities, which in turn could adversely impact our operations.

The financial services industry is regulated extensively. Federal and state regulation is designed primarily to protect the deposit insurance funds and consumers, and not primarily for the benefit our shareholders. These regulations can sometimes impose significant limitations on our operations. In addition, these regulations are constantly evolving and may change significantly over time. Significant new laws or changes in existing laws or repeal of existing laws may cause our results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for us.

Our Bay Area business focus and economic conditions in the Bay Area could adversely affect our operations.

Our Bay Area business focus could adversely affect our operations if economic conditions in the Bay Area deteriorated. Our operations are located in Northern California and concentrated primarily in Alameda, Contra

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Costa, Marin, Monterey, San Francisco, San Mateo, Santa Cruz, Santa Clara and Sonoma counties, which includes the area known as the “Silicon Valley.” As a result of this geographic concentration, our results depend largely upon economic and business conditions in these areas. The economy in our market areas has exhibited weakness.

Many publicly and privately held technology firms have experienced a decline in their stock prices and valuations. At the same time, firms in the technology industry have experienced greater difficulty than in the past in obtaining capital and funding. The inability of such firms to obtain necessary capital and funding has adversely affected existing business and resulted in a slowdown in the growth of the technology industry. A prolonged or further decline in economic and business conditions in our market areas, particularly in the technology and real estate industries on which the Bay Area depends, could have a material impact on the quality of our loan portfolio or the demand for our products and services, which in turn may have a material adverse effect on our results of operations. A continued weakening in the national economy might further exacerbate local economic conditions. The extent of the future impact of these events on economic and business conditions cannot be predicted.

Competition may adversely affect our performance.

The financial services business in our market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in making loans. We compete for loans principally through the interest rates and loan fees we charge and the efficiency and quality of services we provide. Increasing levels of competition in the banking and financial services businesses may reduce our market share or cause the prices we charge for our services to fall. Our results may differ in future periods depending upon the nature or level of competition.

If a significant number of borrowers, guarantors and related parties fail to perform as required by the terms of their loans, we will sustain losses.

A significant source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our results of operations.

Failure to successfully execute our growth strategy or to integrate recently acquired subsidiaries could adversely affect our performance.

Our financial performance and profitability will depend on our ability to execute our corporate growth strategy and manage our recent and possible future growth. Although management believes that it has substantially integrated the business and operations of recently acquired subsidiaries, there can be no assurance that unforeseen issues relating to the assimilation of these subsidiaries will not adversely affect us. In addition, any future acquisitions and our continued growth may present operating and other problems that could have an adverse effect on our business, financial condition and results of operations. Our financial performance will also depend on our ability to maintain profitable operations through implementation of our Regional Community Banking Philosophy, which is described earlier. Accordingly, there can be no assurance that we will be able to execute our growth strategy or maintain the level of profitability that we have recently experienced.

Our future warrant income can not be predicted.

We have historically obtained rights to acquire stock, in the form of warrants, in certain clients as part of negotiated credit facilities. We may not be able to realize gains from these equity instruments in future periods

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due to fluctuations in the market prices of the underlying common stock of these companies. The timing and amount of income, if any, from the disposition of client warrants typically depend upon factors beyond our control, including the general condition of the public equity markets, levels of mergers and acquisitions activity, and legal and contractual restrictions on our ability to sell the underlying securities. Therefore, future gains cannot be predicted and are likely to vary materially from period to period.

ITEM 2.    PROPERTIES.

We occupy our administrative offices under a lease which, including options to renew, expires in 2007. The Banks own nine of their offices and lease 70 additional offices throughout the San Francisco Bay Area. Those leases expire under various dates, including options to renew, through December 2017.

We believe our present facilities are adequate for our present needs but anticipate the need for additional facilities as we continue to grow. We believe that, if necessary, we could secure suitable alternative facilities on similar terms without adversely affecting operations.

ITEM 3.    LEGAL PROCEEDINGS.

From time to time, we are involved in certain legal proceedings arising in the normal course of our business. Management believes that the outcome of these matters will not have a material adverse effect on us.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no submission of matters to a vote of securities holders during the fourth quarter of the year ended December 31, 2002.

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PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock is traded on the Nasdaq National Market (“Nasdaq”) under the symbol “GBBK”. The quotations shown reflect for the periods indicated the high and low closing sales prices for our common stock as reported by Nasdaq.

For the period indicated	High		Low		Cash dividends declared
2002
Fourth quarter	$	18.98	$	13.62	$	0.125
Third quarter		29.06		17.69		0.125
Second quarter		36.77		28.78		0.125
First quarter		34.63		26.04		0.115
2001
Fourth quarter	$	29.73	$	19.98	$	0.115
Third quarter		28.45		21.30		0.115
Second quarter		27.46		21.00		0.10
First quarter		42.88		24.81		0.10

We estimate that there were approximately 3,650 common shareholders and 95 convertible preferred shareholders of record at February 7, 2003.

For information on the ability of the Banks’ to pay dividends and make loans to Greater Bay, see “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Financial Condition—Liquidity and Cash Flow” and Note 24 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA.

Information regarding Selected Consolidated Financial Data appears on page A-1 under the caption “Selected Financial Highlights” and is incorporated herein by reference.

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Information regarding MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS appears on pages A-2 through A-32 under the caption “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and is incorporated herein by reference.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Information regarding Quantitative and Qualitative Disclosures About Market Risk appears on pages A-25 through A-29 under the caption “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Quantitative and Qualitative Disclosures About Market Risk” and is incorporated herein by reference.

21

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Information regarding Financial Statements and Supplementary Data appears on A-33 through A-78 under the caption “CONSOLIDATED BALANCE SHEETS,” “CONSOLIDATED STATEMENTS OF OPERATIONS,” “CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME,” “CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY,” “CONSOLIDATED STATEMENTS OF CASH FLOWS” and “NOTES TO CONSOLIDATED FINANCIAL STATEMENTS” and is incorporated herein by reference.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

22

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

We intend to file a definitive proxy statement for the 2003 Annual Meeting of Shareholders (the “Proxy Statement”) with the SEC within 120 days of December 31, 2002. Information regarding directors of Greater Bay will appear under the caption “DISCUSSION OF THE PROPOSALS RECOMMENDED BY THE BOARD—Proposal 1: “Election of Directors” in the Proxy Statement and is incorporated herein by reference. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, and executive officers will appear under the captions “INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS—Section 16(a) Beneficial Ownership Reporting Compliance by Directors and Executive Officers” and “—Executive Officers” in the Proxy Statement and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION.

Information regarding executive compensation will appear under the captions “INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS—How We Compensate Executive Officers,” “—How We Compensate Directors,” “—Employment Contracts, Termination of Employment and Change of Control Arrangements,” “—Executive Committee’s Report on Executive Compensation,” “—Compensation Committee Interlocks and Insider Participation” and “—Performance Graph” in the Proxy Statement and is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table summarizes information as of December 31, 2002 relating to equity compensation plans of Greater Bay pursuant to which grants of options, restricted stock, or other rights to acquire shares may be granted from time to time.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	6,438,483	$	22.17	2,850,791
Equity compensation plans not approved by security holders(1)	15,110		9.54	—
Total	6,453,593		22.14	2,850,791

(1) The sole equity compensation plan not previously submitted to Greater Bay shareholders for approval is the Mt. Diablo Bancshares 1992 Stock Option Plan, as amended, which was assumed by Greater Bay in January 2000 in connection with Greater Bay’s acquisition of Mt. Diablo Bancshares and Mt. Diablo National Bank. Pursuant to this plan, options were originally available for grant to original Mt. Diablo employees, directors and organizers at no less than the fair market value of the stock subject to the option at the date of grant. As of December 31, 2002, no additional shares of Greater Bay were available for issuance under the plan.

Information regarding security ownership of certain beneficial owners and management and related stockholder matters will appear under the caption “INFORMATION ABOUT GREATER BAY STOCK OWNERSHIP” in the Proxy Statement and is incorporated herein by reference.

23

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information regarding certain relationships and related transactions will appear under the caption “INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS—Certain Relationships and Related Transactions” in the Proxy Statement and is incorporated herein by reference.

24

PART IV

ITEM 14.    CONTROLS AND PROCEDURES

Within the 90 days prior to the date of filing this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14(c) of the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure of controls and procedures are effective.

There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of our evaluation.

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)    1.    Financial Statements

The following documents are filed as part of this report:

Consolidated Balance Sheets at December 31, 2002 and 2001	A-33
Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2002	A-34
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2002	A-35
Consolidated Statements of Shareholders’ Equity for each of years in the three-year period ended December 31, 2002	A-36
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2002	A-37
Notes to the Consolidated Financial Statements	A-38
Report of Independent Accountants	A-79

2.    Financial Statement Schedules

Not applicable.

3.    Exhibits

See Item 14(c) below.

(b)    Reports on Form 8-K

During the fourth quarter of 2002, the Company filed the following Current Reports on Form 8-K: (1) December 16, 2002 (reporting under Item 5, 7, and 9 the appointment of Kenneth Shannon as Executive Vice President and Chief Risk Officer and the declaration of the fourth quarter cash dividend); (2) November 8, 2002, (reporting under Item 5, 7, and 9 Greater Bay Bancorp’s slide presentation); (3) October 16, 2002 (reporting under Item 5, 7, and 9) release of 2002 third quarter financial results and 2002 and 2003 guidance).

(c)    Exhibits Required by Item 601 of Regulation S-K

Reference is made to the Exhibit Index on pages 30 through 32 for exhibits filed as part of this report.

(d)    Additional Financial Statements

Not applicable.

25

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 4th day of March, 2003.

GREATER BAY BANCORP
By	/s/    DAVID L. KALKBRENNER
	David L. Kalkbrenner President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/    DAVID L. KALKBRENNER         David L. Kalkbrenner	President, Chief Executive Officer and Director (Principal Executive Officer)	March 4, 2003
/s/    STEVEN C. SMITH         Steven C. Smith	Executive Vice President, Chief Administrative Officer and Chief Financial Officer (Principal Financial and Accounting Officer)	March 4, 2003
/s/    ROBERT A. ARCHER         Robert A. Archer	Director	March 4, 2003
/s/    FREDERICK J. DE GROSZ         Frederick J. de Grosz	Director	March 4, 2003
/s/    SUSAN B. FORD         Susan B. Ford	Director	March 4, 2003
/s/    JOHN M. GATTO         John M. Gatto	Director	March 4, 2003
/s/    JAMES E. JACKSON         James E. Jackson	Director	March 4, 2003
/s/    STANLEY A. KANGAS         Stanley A. Kangas	Director	March 4, 2003
/s/    DANIEL G. LIBARLE         Daniel G. Libarle	Director	March 4, 2003
/s/    REX D. LINDSAY         Rex D. Lindsay	Director	March 4, 2003

26

Signature	Title	Date
/s/    ARTHUR K. LUND         Arthur K. Lund	Director	March 4, 2003
/s/    GEORGE M. MARCUS         George M. Marcus	Director	March 4, 2003
/s/    DUNCAN L. MATTESON         Duncan L. Matteson	Director	March 4, 2003
/s/    GLEN MCLAUGHLIN         Glen McLaughlin	Director	March 4, 2003
/s/    LINDA R. MEIER         Linda R. Meier	Director	March 4, 2003
/s/    DONALD H. SEILER         Donald H. Seiler	Director	March 4, 2003
/s/    WARREN R. THOITS         Warren R. Thoits	Director	March 4, 2003
/s/    JAMES C. THOMPSON         James C. Thompson	Director	March 4, 2003
/s/    THADDEUS J. WHALEN, JR.         Thaddeus J. Whalen, Jr.	Director	March 4, 2003

27

CERTIFICATION

I, David L. Kalkbrenner, certify that:

1. I have reviewed this annual report on Form 10-K of Greater Bay Bancorp;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective action with regard to significant deficiencies and material weaknesses.

/s/    DAVID L. KALKBRENNER

David L. Kalkbrenner

President and Chief Executive Officer

Date: March 4, 2003

28

CERTIFICATION

I, Steven C. Smith, certify that:

1. I have reviewed this annual report on Form 10-K of Greater Bay Bancorp;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective action with regard to significant deficiencies and material weaknesses.

/s/    STEVEN C. SMITH

Steven C. Smith

Executive Vice President, Chief Administrative

Officer and Chief Financial Officer

Date: March 4, 2003

29

EXHIBIT INDEX

Exhibit No.	Exhibit
2	Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of March 11, 2002, by and among Greater Bay Bancorp, ABD Insurance and Financial Services, ABD Acquisition Corp. and Alburger Basso deGrosz Insurance Services Inc. (16)
3.1	Articles of Incorporation of Greater Bay Bancorp, as amended and restated (1)
3.2	Bylaws of Greater Bay Bancorp, as amended and restated (15)
3.3	Certificate of Determination of Series A Preferred Stock of Greater Bay Bancorp (filed as Exhibit A to Exhibit 4.1 hereto)
3.4	Certificate of Determination of the Rights, Preferences, Privileges and Restrictions of Series B Preferred Stock of the Registrant (17)
4.1	Rights Agreement (2)
4.2	Certificate of Determination of the Rights, Preferences, Privileges and Restrictions of Series A Preferred Stock of the Registrant (See Exhibit 4.1 hereto)
4.3	Certificate of Determination of the Rights, Preferences, Privileges and Restrictions of Series B Preferred Stock of the Registrant (See Exhibit 3.4 hereto)
4.4	Indenture dated as of April 24, 2002 between Greater Bay Bancorp and Wilmington Trust Company, as trustee (18)
4.5	Form of Zero Coupon Senior Convertible Contingent Debt Securities (CODES) due 2002 (included in Exhibit 4.30) (18)
4.6	Resale Registration Rights Agreement among Greater Bay Bancorp, Lehman Brothers Inc. and Sandler O’Neill & Partners, L.P. dated as of April 24, 2002 (18)
4.7	Indenture between Greater Bay Bancorp and Wilmington Trust Company, as Debenture Trustee, dated as of August 12, 1998 (5)
4.8	Amended and Restated Trust Agreement of GBB Capital II, among Greater Bay Bancorp, Wilmington Trust Company and the Administrative Trustees named therein dated as of August 12, 1998 (5)
4.9	Common Securities Guarantee Agreement of Greater Bay Bancorp, dated as of August 12, 1998 (5)
4.10	Series B Capital Securities Guarantee Agreement of Greater Bay Bancorp and Wilmington Trust Company dated as of November 27, 1998 (4)
4.11	Amended and Restated Declaration of Trust of GBB Capital III, dated as of March 23, 2000 (6)
4.12	Indenture, dated as of March 23, 2000, between Greater Bay Bancorp and The Bank of New York, as Trustee (6)
4.13	Guarantee Agreement, dated as of March 23, 2000, by and between Greater Bay Bancorp and The Bank of New York, as Trustee (6)
4.14	Amended and Restated Declaration of Trust of GBB Capital IV, dated as of May 19, 2000 (7)
4.15	Indenture, dated as of May 19, 2000, between Greater Bay Bancorp and Wilmington Trust Company, as Trustee (7)
4.16	Common Securities Guarantee Agreement, dated as of May 19, 2000 between Greater Bay Bancorp and Wilmington Trust Company, as Trustee (7)
4.17	Capital Securities Guarantee Agreement, dated as of November 20, 2000, between Greater Bay Bancorp and Wilmington Trust Company, as Trustee (1)

30

Exhibit No.	Exhibit
4.18	Form of Amended and Restated Declaration of Trust of GBB Capital V (8)
4.19	Form of Indenture between Greater Bay Bancorp and Wilmington Trust Company, as trustee (8)
4.20	Form of Capital Securities Guarantee Agreement (8)
4.21	Form of Common Securities Guarantee Agreement (8)
4.22	Amended and Restated Declaration of Trust of GBB Capital VI dated July 16, 2001 (8)
4.23	Indenture, dated as of July 16, 2001, between Greater Bay Bancorp and The Bank of New York, as trustee (8)
4.24	Guarantee Agreement, dated as of July 16, 2001, between Greater Bay Bancorp and The Bank of New York, as trustee (8)
4.25	Amended and Restated Declaration of Trust of GBB Capital VII, dated as of April 10, 2002 (19)
4.26	Indenture, dated as of April 10, 2002, between Greater Bay Bancorp and Wilmington Trust Company as Trustee (19)
4.27	Guarantee Agreement, dated as of April 10, 2002, between Greater Bay Bancorp and Wilmington Trust Company, as Guarantee Trustee (19)
10.1 (a)	Employment Agreement with David L. Kalkbrenner, dated as of January 1, 1999 (9) (10)
10.1 (b)	Amendment No. 1 to Employment Agreement with David L. Kalkbrenner, dated as of December 11, 2000 (1) (9)
10.2	Employment Agreement with Byron Scordelis, dated March 26, 2001, effective as of May 15, 2001 (9) (11)
10.3	Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Greater Bay Bancorp and David L. Kalkbrenner (9) (10)
10.4	Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Mid-Peninsula Bank and Susan K. Black (9) (10)
10.5	Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Cupertino National Bank and David R. Hood (9) (10)
10.6	Employee Supplemental Compensation Benefits Agreement, dated as of April 6, 1998, between Greater Bay Bancorp and Gregg A. Johnson (9) (10)
10.7	Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between Greater Bay Bancorp and Steven C. Smith (9) (10)
10.8	Greater Bay Bancorp 401(k) Profit Sharing Plan (9) (15)
10.9	Greater Bay Bancorp Employee Stock Purchase Plan, as amended (9) (20)
10.10	Greater Bay Bancorp Change in Control Pay Plan I, as amended and restated (9)
10.11	Greater Bay Bancorp Change in Control Pay Plan II, as amended and restated (9)
10.12	Greater Bay Bancorp Termination and Layoff Pay Plan I (9) (12)
10.13(a)	Greater Bay Bancorp Termination and Layoff Pay Plan II (9) (12)
10.13(b)	Amendment No. 1 to Greater Bay Bancorp Termination and Layoff Pay Plan II (9) (13)
10.14	Greater Bay Bancorp 1997 Elective Deferred Compensation Plan, as amended (1) (9)
10.15	Greater Bay Bancorp Amended and Restated 1996 Stock Option Plan (9) (14)

31

Exhibit No.	Exhibit
10.16	Form of Indemnification Agreement between Greater Bay Bancorp and with directors and certain executive officers (3)
10.17(a)	Term Loan and Security Agreement between Greater Bay Bancorp and US Bank, N.A. dated July 31, 2002, and form of Promissory Note
10.17(b)	First Amendment to Term Loan and Security Agreement between Greater Bay Bancorp and US Bank, N.A. dated December 16, 2002
10.18(a)	364 Day Revolving Credit Agreement among Greater Bay Bancorp, Initial Lenders (identified therein) and Wells Fargo Bank, National Association, dated as of December 16, 2002 and form of Promissory Note
10.18(b)	Pledge Agreement between Greater Bay Bancorp and Wells Fargo Bank, dated as of December 16, 2002
10.18(c)	Amendment No. 1 to Credit Agreement, dated as of March 3, 2003, among Greater Bay Bancorp, Initial Lenders (identified therein) and Wells Fargo Bank, National Association, including form of Security Agreement
12.1	Statement re Computation of Ratios of Earnings to Fixed Charges
21	Subsidiaries of the Registrant
23.1	Consent of PricewaterhouseCoopers LLP
99.1	Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act

  1. Incorporated by reference from Greater Bay Bancorp’s 2000 Annual Report on Form 10-K filed with the SEC on February 1, 2001

  2. Incorporated by reference from Greater Bay Bancorp's Form 8-A12G filed with the SEC on November 25, 1998

  3. Incorporated by reference from Greater Bay Bancorp's Current Report on Form 8-K dated June 5, 1997

  4. Incorporated by reference from Greater Bay Bancorp’s 1998 Annual Report on Form 10-K filed with the SEC on February 17, 1999

  5. Incorporated by reference from Greater Bay Bancorp’s Current Report on Form 8-K filed with the SEC on August 28, 1998

  6. Incorporated herein by reference from Greater Bay Bancorp’s Quarterly Report on Form 10-Q filed with the SEC on May 12, 2000

  7. Incorporated by reference from Greater Bay Bancorp’s Quarterly Report on Form 10-Q filed with the SEC on August 1, 2000

  8. Incorporated by reference from Greater Bay Bancorp’s Registration Statement on Form S-3 (File Nos. 333-65772 and 333-65772-01) filed with the SEC on July 25, 2001

  9. Represents executive compensation plans and arrangements of Greater Bay Bancorp

10. Incorporated by reference from Greater Bay Bancorp’s 1999 Annual Report on Form 10-K filed with the SEC on January 31, 2000

11. Incorporated by reference from Greater Bay Bancorp’s Quarterly Report on Form 10-Q filed with the SEC on August 3, 2001

12. Incorporated by reference from Greater Bay Bancorp's Annual Report on Form 10-K filed with the SEC on March 31, 1998

13. Incorporated by reference from Greater Bay Bancorp's Quarterly Report on Form 10-Q filed with the SEC on May 4, 1999

14. Incorporated by reference from Greater Bay Bancorp’s Registration Statement on Form S-8 (File No. 333-76004) filed with the SEC on December 27, 2001

32

15. Incorporated by reference from Greater Bay Bancorp’s Annual Report on Form 10-K filed with the SEC on February 15, 2002

16. Incorporated by reference from Greater Bay Bancorp’s Current Report on Form 8-K filed with the SEC on March 24, 2002

17. Incorporated by reference from Greater Bay Bancorp’s Quarterly Report on Form 10-Q filed with the SEC on April 23, 2002

18. Incorporated by reference from Greater Bay Bancorp’s Registration Statement on Form S-3 (File No. 33-96909) filed with the SEC on July 22, 2002

19. Incorporated by reference from Greater Bay Bancorp’s Quarterly Report on Form 10-Q filed with the SEC on August 6, 2002

20. Incorporated by reference from Greater Bay Bancorp’s Form S-8 (File No. 33-98943) filed with the SEC on August 29, 2002

33

SELECTED FINANCIAL INFORMATION

The following table represents the selected financial information at and for the five years ended December 31, 2002:

	2002			2001			2000*			1999*			1998*
	(Dollars in thousands, except per share amounts)
Statement of Operations Data
Interest income	$	505,412		$	507,241		$	423,639		$	298,634		$	244,269
Interest expense		159,418			199,956			165,892			110,710			90,219
Net interest income		345,994			307,285			257,747			187,924			154,050
Provision for loan losses		59,776			54,727			28,821			14,901			8,715
Net interest income after provision for loan losses		286,218			252,558			228,926			173,023			145,335
Non-interest income(1)		155,510			44,842			47,131			44,845			23,765
Operating expenses(1)		245,401			191,116			165,228			140,106			104,669
Income before income tax expense		196,327			106,284			110,829			77,762			64,431
Income tax expense		72,053			26,468			43,665			26,461			23,158
Net income	$	124,274		$	79,816		$	67,164		$	51,301		$	41,273
Per Share Data(2)
Net income per common share
Basic	$	2.35		$	1.61		$	1.40		$	1.15		$	0.95
Diluted		2.30			1.57			1.33			1.09			0.88
Cash dividends per common share(3)		0.49			0.43			0.35			0.24			0.19
Book value per common share		11.64			9.31			7.92			6.63			5.73
Common shares outstanding at year end		51,577,795			49,831,682			48,748,713			46,174,308			43,876,750
Average common shares outstanding		51,056,000			49,498,000			47,899,000			44,599,000			43,664,000
Average common and common equivalent shares outstanding		54,135,000			50,940,000			50,519,000			47,078,000			46,741,000
Performance Ratios
Return on average assets		1.50	%		1.18	%		1.34	%		1.33	%		1.36	%
Return on average shareholders’ equity		20.29	%		17.77	%		19.21	%		18.92	%		17.69	%
Net interest margin		4.54	%		4.86	%		5.56	%		5.29	%		5.50	%
Dividend payout ratio(3)		23.61	%		27.88	%		27.82	%		20.80	%		20.93	%
Equity to assets ratio		8.43	%		5.89	%		6.63	%		7.11	%		7.50	%
Balance Sheet Data—At Period End
Assets	$	8,075,727		$	7,877,054		$	5,818,155		$	4,304,811		$	3,351,982
Loans, net		4,791,160			4,370,977			3,973,329			2,813,329			2,070,607
Investment securities		2,562,986			2,970,630			1,091,064			863,590			754,035
Deposits		5,272,273			4,990,071			4,750,404			3,736,621			2,869,341
Borrowings		1,737,243			2,095,896			463,267			150,577			135,095
Trust Preferred Securities		204,000			218,000			99,500			49,000			49,000
Preferred stock of real estate investment trust subsidiaries of the Banks		15,650			15,000			—			—			—
Convertible preferred stock		80,900			—			—			—			—
Common shareholders’ equity		600,159			463,684			385,948			306,114			251,436
Asset Quality Ratios
Nonperforming assets** to total loans and other real estate owned		0.80	%		0.69	%		0.32	%		0.26	%		0.25	%
Nonperforming assets** to total assets		0.47	%		0.39	%		0.22	%		0.17	%		0.15	%
Allowance for loan losses to total loans		2.70	%		2.77	%		2.24	%		1.89	%		1.82	%
Allowance for loan losses to nonperforming assets**		339.77	%		402.79	%		702.37	%		762.84	%		917.04	%
Net charge-offs to average loans		1.19	%		0.59	%		0.33	%		0.07	%		0.11	%
Regulatory Capital Ratios
Leverage Ratio		8.61	%		8.01	%		8.79	%		8.32	%		8.36	%
Tier 1 Capital		11.71	%		10.49	%		9.57	%		9.92	%		10.86	%
Total Capital		12.97	%		12.79	%		10.87	%		11.23	%		12.66	%

* Restated on a historical basis to reflect the mergers described in notes 1 and 2 of the Company’s annual report on a pooling-of-interest basis.

** Excludes accruing loans past due 90 days or more and restructured loans.

(1) As a result of the ABD acquisition in March 2002, our 2002 results included insurance agency commissions and fees totaling $88.5 million and operating expenses totaling $73.6 million. There were no such insurance agency commissions and fees or expenses for prior years.

(2) Restated to reflect 2-for-1 stock split effective as of April 30,1998 and the 2-for-1 stock split effective as of October 4, 2000.

(3) Includes only those dividends declared by Greater Bay, and excludes those dividends paid by Greater Bay’s subsidiaries prior to the completion of their mergers with Greater Bay.

A-1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Overview

Greater Bay Bancorp (“Greater Bay”, on a parent-only basis, and “we” or “our”, on a consolidated basis) is a bank 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. We also have a commercial insurance brokerage subsidiary, ABD Insurance and Financial Services (“ABD”). 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.

In addition to these divisions, we have the following subsidiaries which issued trust preferred securities and purchased Greater Bay’s junior subordinated deferrable interest debentures: GBB Capital II, GBB Capital III, GBB Capital IV, GBB Capital V, GBB Capital VI, and GBB Capital VII. We also created CNB Investment Trust I (“CNBIT I”), CNB Investment Trust II (“CNBIT II”), MPB Investment Trust (“MPBIT”), and SJNB Investment Trust (“SJNBIT”), all of which are Maryland real estate investment trusts and wholly owned subsidiaries of Cupertino National Bank, Mid-Peninsula Bank, and San Jose National Bank, respectively. These entities were formed in order to provide flexibility in raising capital.

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. ABD provides commercial insurance brokerage, employee benefits consulting and risk management solutions to business clients throughout the United States. We also own a broker-dealer, which executes mutual fund transactions. CAPCO’s office is located in Bellevue, Washington and operates in the Pacific Northwest. Matsco markets its dental and veterinarian financing services nationally.

We have participated in eight acquisitions during the three-year period ended December 31, 2002, as described in Note 2 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. With the exception of the acquisitions of The Matsco Companies, Inc., CAPCO, and ABD, all of these acquisitions were accounted for as a pooling-of-interests and, accordingly, all of our financial information for the periods prior to such acquisitions has been restated as if the acquisitions had occurred at the beginning of the earliest period presented. The acquisitions with The Matsco Companies, Inc., CAPCO, and ABD were accounted for using the purchase accounting method and, accordingly, their results of operations have been included in the consolidated financial statements since the dates of acquisition.

All outstanding and weighted average share amounts presented in this report have been restated to reflect the 2-for-1 stock splits effective as of April 30, 1998 and as of October 4, 2000.

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 the information under “Selected Financial Information” and 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 the annual report on

A-2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

Form 10-K for the year ended December 31, 2002 under ITEM 1. “BUSINESS—Factors That May Affect Future Results of Operations”.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Allowance for Loan Losses

The allowance for loan losses represents management’s best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The allowance for loan losses is determined based on management’s assessment of several factors: reviews and evaluation of individual loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experiences and the level of classified and nonperforming loans.

Loans are considered impaired if, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. In measuring the fair value of the collateral, management uses assumptions and methodologies consistent with those that would be utilized by unrelated third parties.

Changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for loan losses and the associated provision for loan losses.

Available for Sale Securities

The fair value of most securities classified as available for sale are based on quoted market prices. If quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments.

Goodwill and Other Intangible Assets

As discussed in Note 3 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, we must assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows were materially less than the recorded goodwill and other intangible assets balances, we would be required to take a charge against earnings to write down the assets to the lower value.

Deferred Tax Assets

We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within

A-3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

the tax years to which they may be applied, the asset may not be realized and our net income will be reduced. Our deferred tax assets are described further in Note 15 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Supplemental Employee Compensation Benefits Agreements

As described in detail in Note 17 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, we have entered into supplemental employee compensation benefits agreements with certain executive and senior officers. The measurement of the liability under these agreements includes estimates involving life expectancy, length of time before retirement, and the expected returns on the bank owned life insurance policies used to fund those agreements. Should these estimates prove materially wrong, we could incur additional or reduced expense to provide the benefits.

Results of Operations

The following table summarizes net income, earnings per share and key financial ratios for the periods indicated using key measurements. These measurements are based on our net income, as reported on the face of our financial statements that are prepared in accordance with generally accepted accounting principles.

	Net income
	Year ended December 31, 2002			Year ended December 31, 2001			Year ended December 31, 2000
	(Dollars in thousands, except per share amounts)
Net income	$	124,274		$	79,816		$	67,164
Earnings per common share:
Basic	$	2.35		$	1.61		$	1.40
Diluted	$	2.30		$	1.57		$	1.33
Return on average assets		1.50	%		1.18	%		1.34	%
Return on average shareholders’ equity		20.29	%		17.77	%		19.21	%

Net income for 2002 increased 55.7% to $124.3 million, or $2.30 per diluted share, compared to net income of $79.8 million, or $1.57 per diluted share, for 2001.

The 55.7% increase in net income during 2002 as compared to 2001 was primarily the result of significant growth in average loans and investments and insurance agency commissions and fees resulting from the acquisition of ABD in March 2002 and absence of merger and other related costs, and was partially offset by a decrease in our net yield on interest earning assets and increases in our operating expenses. For 2002, net interest income increased 12.6% as compared to 2001. This increase was primarily due to a 20.4% increase in average interest-earning assets for 2002 as compared to 2001. Increases in operating expenses were required due to the acquisition of ABD and, to a lesser degree, to service and support our growth. Also, our 2002 results has $0 in merger and other related costs, as compared to $29.2 million ($17.6 million, net of taxes) in 2001. As a result, increases in revenue were partially offset for 2002 by a 28.4% increase in operating expenses, as compared to 2001.

Net income for 2001 increased 18.8% to $79.8 million, or $1.57 per diluted share, compared to net income of $67.2 million, or $1.33 per diluted share, for 2000.

The 18.8% increase in net income during 2001 as compared to 2000 was also primarily the result of significant growth in loans and investments. For 2001, net interest income increased 19.2% as compared to 2000. This increase was primarily due to a 36.4% increase in average interest-earning assets for 2001 as compared to

A-4

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

2000. The increases in loans, trust assets and deposits also contributed to the 8.5% increase in loan and international banking fees, service charges and other fees, and trust fees. Increases in operating expenses were required to service and support our growth. As a result, increases in revenue were partially offset for 2001 by a 15.7% increase in operating expenses, as compared to 2000. Results for 2001 included warrant income of $581,000 ($337,000, net of taxes) compared to $13.0 million ($7.6 million, net of taxes) during 2000. In addition, 2001 results included merger and other related costs of $29.2 million ($17.6 million, net of taxes) compared to $33.5 million ($21.9 million, net of taxes) in 2000.

Net Interest Income—Overview

Our interest rate risk (“IRR”) strategy focuses on mitigating IRR in our balance sheet. We primarily use on balance sheet matching techniques and, to a very limited extent, derivatives to manage IRR. Two years ago, our balance sheet had substantial IRR in a falling rate environment, as the majority of our loans had interest rates tied to the prime rate. Interest rates on those loans move downward immediately upon a market interest rate decrease, compared to our interest-bearing liabilities, which did not reprice as quickly, nor did they reprice to the same levels, as the interest rate sensitive loans. At that time, we initiated a program to shift the funding source for our specialty finance businesses, which consist of the CAPCO, Corporate Finance, Matsco and Pacific Business Funding divisions, from a core deposit base to a wholesale funding strategy. This funding shift corresponded with our original strategy for financing these niche specialty finance businesses. This strategy also changed our balance sheet to a more leveraged position that was designed to protect our net interest income in a declining interest rate environment.

Over the course of the last 24 months, interest rates have declined as reflected by the fed funds rate that has declined by over 525 basis points. The impact of the rapid decline in rates was substantially mitigated by our IRR strategy, while also protecting our net interest income. For 2002, our net interest margin declined 32 basis points from the net interest margin for 2001.

While in the short term market rates may continue to decline, we anticipate interest rates will rise in the future and believe we will benefit from a more asset-sensitive balance sheet over the next two to three years. To take advantage of this opportunity, we began a process to de-leverage the balance sheet by reducing the size of the investment portfolio and wholesale borrowings in the latter part of 2002. This de-leveraging strategy seeks to capture value on securities where prepayments are accelerating and to create a more asset-sensitive balance sheet by using investment cash flows to repay borrowings rather than be reinvested. In the short-term, we anticipate that increased core deposit and loan growth will mitigate loss of net interest income. However, even if core growth does not completely offset the net interest income shortfall in the short term, we believe this strategy will position us to take advantage of a rising rate environment with an asset-sensitive balance sheet. We will continue this process in 2003, with a target of approximately $2.0 billion for our investment securities portfolio, a reduction of $1.2 billion, or 37%, from its peak in early 2002. While $2.0 billion is currently the target for our investment portfolio, market conditions or a different mix of fixed rate versus variable rate assets could change the ultimate portfolio size and composition.

Net Interest Income

Net interest income increased 12.6% to $346.0 million in 2002 from $307.3 million in 2001. This increase was primarily due to the $1.3 billion, or 20.4%, increase in average interest-earning assets which was partially offset by a 32 basis point decrease in our net yield on interest-earning assets.

Net interest income increased 19.2% in 2001 from $257.7 million in 2000. This increase was primarily due to the $1.7 billion, or 36.4%, increase in average interest-earning assets and was partially offset by a 70 basis point decrease in our net yield on interest-earning assets.

A-5

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

The following table presents, for the years 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.

	Years ended December 31,
	2002						2001						2000
	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	$	87,204	$	2,532	2.90	%	$	91,139	$	3,660	4.02	%	$	214,133	$	13,080	6.11	%
Other short term securities		17,562		913	5.20	%		1,389		84	6.05	%		44,841		2,978	6.64	%
Investment securities:
Taxable		2,811,890		161,269	5.74	%		1,780,194		120,491	6.77	%		871,627		62,250	7.14	%
Tax-exempt(2)		124,540		6,032	4.84	%		184,897		7,455	4.03	%		185,879		9,632	5.18	%
Loans(3)		4,580,154		334,666	7.31	%		4,270,878		375,551	8.79	%		3,321,682		335,699	10.11	%
Total interest-earning assets		7,621,350		505,412	6.63	%		6,328,497		507,241	8.02	%		4,638,162		423,639	9.13	%
Noninterest-earning assets		663,890						418,216						372,575
Total assets	$	8,285,240		505,412			$	6,746,713		507,241			$	5,010,737		423,639
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings	$	2,573,098		38,025	1.48	%	$	2,331,147		64,860	2.78	%	$	2,346,598		91,643	3.91	%
Time deposits over $100,000		548,968		13,925	2.54	%		697,806		31,277	4.48	%		780,505		43,101	5.52	%
Other time deposits		1,235,711		30,797	2.49	%		814,808		36,517	4.48	%		214,634		11,525	5.37	%
Total interest-bearing deposits		4,357,777		82,747	1.90	%		3,843,761		132,654	3.45	%		3,341,737		146,269	4.38	%
Borrowings		1,993,488		58,503	2.93	%		1,225,036		53,577	4.37	%		192,728		11,781	6.11	%
Trust Preferred Securities		212,712		18,168	8.54	%		142,093		13,725	9.66	%		81,913		7,842	9.57	%
Total interest-bearing liabilities		6,563,977		159,418	2.43	%		5,210,890		199,956	3.84	%		3,616,378		165,892	4.59	%
Noninterest-bearing deposits		951,538						976,666						965,131
Other noninterest-bearing liabilities		141,777						109,906						79,529
Shareholders’ equity		627,948						449,251						349,699
Total shareholders’ equity and liabilities	$	8,285,240		159,418			$	6,746,713		199,956			$	5,010,737		165,892
Net interest income			$	345,994					$	307,285					$	257,747
Including Trust Preferred Securities
Interest rate spread					4.20	%					4.18	%					4.55	%
Contribution of interest-free funds					0.34	%					0.68	%					1.01	%
Net yield on interest-earning assets(4)					4.54	%					4.86	%					5.56	%
Excluding Trust Preferred Securities
Interest rate spread					4.41	%					4.34	%					4.66	%
Contribution of interest-free funds					0.37	%					0.73	%					1.06	%
Net yield on interest-earning assets(4)					4.78	%					5.07	%					5.73	%

(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 7.23% and 5.80% for the years ended December 31, 2002 and 2001, respectively, using the federal statutory rate of 35%.

(3) Loan fees amortization totaling $6.1 million and $11.1 million is included in loan interest income for 2002 and 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.

A-6

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. The table below sets forth, for the years indicated, a summary of the changes in average asset and liability balances (“volume”) and changes in average interest rates (“rate”). 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.

	Year ended December 31, 2002 compared with December 31, 2001 favorable / (unfavorable)									Year ended December 31, 2001 compared with December 31, 2000 favorable / (unfavorable)
	Volume			Rate			Net			Volume			Rate			Net
	(Dollars in thousands)
INTEREST EARNED ON INTEREST-EARNING ASSETS
Federal funds sold	$	(152	)	$	(976	)	$	(1,128	)	$	(5,901	)	$	(3,519	)	$	(9,420	)
Other short term investments		843			(14	)		829			(2,650	)		(244	)		(2,894	)
Investment securities:
Taxable		61,393			(20,615	)		40,778			61,658			(3,417	)		58,241
Tax-exempt		(2,736	)		1,313			(1,423	)		(51	)		(2,126	)		(2,177	)
Loans		25,817			(66,702	)		(40,885	)		87,361			(47,509	)		39,852
Total interest income		85,163			(86,992	)		(1,829	)		140,419			(56,817	)		83,602
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits:
MMDA, NOW and savings		(6,160	)		32,995			26,835			600			26,183			26,783
Time deposits over $100,000		5,717			11,635			17,352			4,257			7,567			11,824
Other time deposits		(14,360	)		20,080			5,720			(27,196	)		2,204			(24,992	)
Total interest-bearing deposits		(14,803	)		64,710			49,907			(22,339	)		35,954			13,615
Other borrowings		(26,356	)		21,430			(4,926	)		(46,054	)		4,258			(41,796	)
Trust Preferred Securities		(6,181	)		1,738			(4,443	)		(5,812	)		(71	)		(5,883	)
Total interest expense		(47,339	)		87,877			40,538			(74,205	)		40,141			(34,064	)
Net increase (decrease) in net interest income	$	37,824		$	885		$	38,709		$	66,214		$	(16,676	)	$	49,538

Interest income in 2002 decreased 0.3% or $1.8 million to $505.4 million from $507.2 million in 2001. This was primarily due to the decline in interest rates offset by an increase in interest-earning assets. Loans increased as a result of business development efforts by our relationship managers. Investment securities increased as a result of our IRR strategy described above. Average interest-earning assets increased $1.3 billion, or 20.4%, to $7.6 billion in 2002, compared to $6.3 billion in 2001. Average loans increased $309.3 million, or 7.2%, to $4.6 billion in 2002 from $4.3 billion in 2001. Average investment securities, Federal funds sold and other short-term securities, increased 47.8% to $3.0 billion in 2002 from $2.1 billion in 2001. Loans represented approximately 60.1% of total interest-earning assets in 2002 compared to 67.5% in 2001.

The average yield on interest-earning assets decreased 139 basis points to 6.63% in 2002 from 8.02% in 2001 primarily reflecting the 525 basis points decline in the fed funds rate during 2002 and 2001. The average yield on loans decreased 148 basis points to 7.31% in 2002 from 8.79% in 2001.

Interest expense in 2002 decreased 20.3%, or $40.5 million, to $159.4 million from $200.0 million in 2001, reflecting the decline in interest rates. Average interest-bearing liabilities increased 26.0% to $6.6 billion in 2002 from $5.2 billion in 2001. The increase was due primarily to the increase in wholesale funding resulting from our IRR strategy and short-term borrowings.

A-7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

During 2002, average noninterest-bearing deposits decreased to $951.5 million from $976.7 million in 2001.

As a result of the foregoing, our interest rate spread increased to 4.20% in 2002 from 4.18% in 2001, and the net yield on interest-earning assets decreased in 2002 to 4.54% from 4.86% in 2001.

Interest income increased 19.7% to $507.2 million in 2001 from $423.6 million in 2000. This was primarily due to the significant increase in loans and investment securities. Loans increased as a result of significant business development efforts by our relationship managers. Investment securities increased as a result of our IRR strategy. Average interest-earning assets increased $1.7 billion, or 36.4% to $6.3 billion in 2001 from $4.6 billion in 2000. Average investment securities, Federal funds sold and other short-term securities, increased 56.3% to $2.1 billion in 2001 from $1.3 billion in 2000. Loans represented approximately 67.5% of total interest-earning assets in 2001 compared to 71.6% in 2000.

The average yield on interest-earning assets decreased 111 basis points to 8.02% in 2001 from 9.13% in 2000, primarily reflecting the 475 basis points decline in the fed funds rate during the year. The average yield on loans decreased 132 basis points to 8.79% in 2001 from 10.11% in 2000.

Interest expense in 2001 increased 20.5% to $200.0 million from $165.9 million in 2000 primarily as a result of the increase in the volume of interest-bearing liabilities which was partially offset by the rates paid on interest-bearing liabilities. Average interest-bearing liabilities increased 44.1% to $5.2 billion in 2001 from $3.6 billion in 2000. The increase was due primarily to the increase in wholesale funding resulting from our IRR strategy, short-term borrowings, and Trust Preferred Securities.

During 2001, average noninterest-bearing deposits increased to $976.7 million from $965.1 million in 2000.

As a result of the foregoing, our interest rate spread decreased to 4.18% in 2001 from 4.55% in 2000 and the net yield on interest-earning assets decreased to 4.86% in 2001 from 5.56% in 2000.

We incurred certain client service expenses with respect to our noninterest-bearing liabilities. 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 years presented.

	Years ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Average noninterest-bearing demand deposits	$	951,538		$	976,666		$	965,131
Client service expenses		2,117			2,965			2,694
Client service expenses, as a percentage of average noninterest-bearing demand deposits		0.22	%		0.30	%		0.28	%
Impact on net yield on interest-earning assets:
Net yield on interest-earning assets		4.54	%		4.86	%		5.56	%
Impact of client service expense		(0.03	)%		(0.05	)%		(0.06	)%
Adjusted net yield on interest-earning assets		4.51	%		4.81	%		5.50	%

The impact on the net yield on interest-earning assets is determined by offsetting net interest income by the cost of client service expenses, which reduces the yield on interest-earning assets. The cost for client service expenses reflects our efforts to control our interest expense.

A-8

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

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, assessment by management, third parties and regulators of the quality of the loan portfolio, the value of the underlying collateral on problem loans and the general economic conditions in our market areas. 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 in 2002 was $59.8 million, compared to $58.2 million in 2001 and $36.9 million in 2000. The provision for 2001 and 2000 also includes $3.5 million and $8.1 million, respectively, to conform to our allowance methodologies which are included in mergers and other related costs. There was no provision related to our ABD acquisition in 2002. The increase in the provision for loan losses was due to several factors including increases in loan charge-offs, the adequacy of our allowance for loan losses and our levels of non-performing assets. For further information on the allowance for loan losses and nonperforming assets 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”.

Non-Interest Income

Total non-interest income increased to $155.5 million in 2002, compared to $44.8 million in 2001 and $47.1 million in 2000. The following table sets forth information by category of non-interest income for the years indicated.

	Years ended December 31,
	2002			2001		2000
	(Dollars in thousands)
Insurance agency commissions and fees	$	88,515		$	—	$	—
Gain (loss) on investments, net		12,058			6,304		(521	)
Service charges and other fees		11,147			10,602		9,661
Loan and international banking fees		9,233			8,856		8,162
Gain on early retirement of CODES		8,375			—		—
Gain on sale of loans		4,754			3,241		2,190
Trust fees		3,566			3,610		3,450
ATM network revenue		2,414			2,887		2,891
Warrant income		(89	)		581		12,986
Other income		15,537			8,761		8,312
Total non-interest income	$	155,510		$	44,842	$	47,131

The increase in non-interest income in 2002 as compared to 2001 resulted primarily from increases in insurance agency commissions and fees, gain on sale of investments, net, gain on early retirement of Zero Coupon Senior Convertible Contingent Debt Securities (the “CODES”), other income, and gain on sale of loans. The decrease in non-interest income in 2001 as compared to 2000 resulted primarily from the decline in warrant income. This decline was offset by the increase in the gain on sale of investments, service charges and other fees, gain on sale of loans, and loan and international banking fees. The increases in service charges and other fees and loan and international banking fees were a result of growth in our loan portfolio and fee-based deposit products and services.

A-9

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

As a result of the ABD acquisition in March 2002, our 2002 results included insurance agency commissions and fees totaling $88.5 million. There were no such insurance agency commissions and fees for 2001 or 2000.

During 2002, we recorded a $12.1 million gain on sale of investments, compared to a $6.3 million gain for 2001, and a $521,000 loss in 2000. The gain on sale of investments in 2002 was primarily the result of sales undertaken to de-leverage the balance sheet by reducing the investment portfolio and in anticipation of forthcoming increases in prepayment rates. During 2001, we consolidated the investment portfolios of our subsidiary banks (see “FINANCIAL CONDITION—Investment Securities” below for further details). As a result of this program, we liquidated a number of our smaller investment positions. Also, the gain on sale of investments for 2002 and 2001 includes a $2.2 million loss and $636,000 gain, respectively, recognized on derivative instruments marked to market through earnings as well as hedging ineffectiveness 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.

During 2002, we retired 63.8% of the CODES that we issued earlier in 2002 which resulted in a gain of $8.4 million. We retired these securities to take advantage of a unique market situation which allowed us to retire them at a substantial discount, thus relieving us of the put obligation in April 2004. As a result of this put obligation, there was a high probability that we would have been required to repay these CODES at par at that time. This opportunity, coupled with the availability of cash resulting from sale of investment securities, made the retirement of these CODES an attractive opportunity to add value for our shareholders.

During 2002, we recorded a $4.8 million gain on sale of loans, compared to $3.2 million for 2001 and $2.2 million for 2000. Of the 2002 gain, $2.6 million relates to the sale of $23.5 million of Matsco’s loan production. Of the 2001 gain, $1.2 million relates to the sale of $15.0 million of Matsco’s loan production. There were no sales of Matsco’s loan production for 2000. The remaining gain on sale of loans relates to the sale of SBA loans. The gain on sale of SBA loans decreased slightly from $2.2 million during 2000, as compared to $2.0 million during 2001 and $2.1 million during 2002.

During 2002, our trust fees declined $44,000 as compared to 2001. The decline was a result of a decrease in assets under management by the Greater Bay Trust Company, which were $607.2 million at December 31, 2002 as compared to $629.7 million at December 31, 2001. The decline in assets was a result of investment losses outpacing cash inflows from clients.

During 2002, we recorded a warrant loss of $89,000, net of related employee incentives of $23,000, as compared to warrant income of $581,000 in 2001 and $13.0 million in 2000 net of related employee incentives of $249,000 and $4.5 million, respectively. At December 31, 2002, we held approximately 122 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 depends upon factors beyond our control, and cannot be predicted with any degree of accuracy and is likely to vary materially from period to period.

Other income included a gain of $3.1 million in 2002 and $2.1 million in 2001 on an agreement with a borrower which entitled us to receive additional income based upon any increase in that borrower’s stock valuation between specific dates. This $5.2 million was realized in cash during 2002. There was no such other income during 2000. Other income also includes $6.1 million in appreciation of the cash surrender values on bank-owned life insurance policies during 2002, as compared to $4.1 million during 2001 and $3.2 million during 2000. Other income in 2000 includes $2.1 million in appreciation recognized on the conversion of equity securities received in the settlement of a loan into a publicly-traded equity security.

A-10

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

Operating Expenses

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

	Years ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Compensation and benefits	$	148,724		$	89,699		$	73,966
Occupancy and equipment		39,365			27,756			23,192
Legal and other professional fees		8,901			7,839			5,345
Amortization of intangibles		5,520			1,408			439
Client service expenses		2,117			2,965			2,694
Dividends paid on real estate investment trusts		1,814			—			—
FDIC insurance and regulatory assessments		1,780			1,762			1,472
Trust Preferred Securities early retirement expense		975			—			—
Contribution to the Greater Bay Bancorp Foundation and related expenses		479			—			—
Expenses on other real estate owned		139			—			56
Merger and other related costs		—			29,249			33,526
Other		35,587			30,438			24,538
Total operating expenses	$	245,401		$	191,116		$	165,228
Efficiency ratio		48.93	%		54.27	%		54.19	%
Total operating expenses to average assets		2.96	%		2.83	%		3.30	%

Operating expenses totaled $245.4 million for 2002, compared to $191.1 million for 2001 and $165.2 million for 2000. The ratio of operating expenses to average assets was 2.96% in 2002, 2.83% in 2001, and 3.30% in 2000. Operating expenses increased $54.3 million during 2002 as compared to 2001. This increase was primarily due to including ABD’s operating expenses in our results commencing with its acquisition in March 2002. Additional increases in operating expenses reflected the increases in amortization of intangibles, dividends paid on the real estate investment trusts, the Trust Preferred Securities early retirement expenses and an increase in general operating expenses to accommodate our growth. The increases in operating expenses during 2002 were net of approximately $5.0 million in reductions to accrual estimates to reflect the current economic environment and the actual expenses anticipated to be paid which were recorded during the fourth quarter. These increases were partially offset by a $29.2 million decrease in merger and other related costs. The increase in operating expenses in 2001 as compared to 2000 was also primarily as a result of additional expenses incurred to accommodate our growth. The additions of Matsco and CAPCO in our results were also a contributing factor to the increase in 2001.

We computed the efficiency ratio by dividing total operating expenses by net interest income and other income. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same (or greater) volume of income while a decrease would indicate a more efficient allocation of resources. Our efficiency ratio for 2002 was 48.93%, compared to 54.27% in 2001 and 54.19% in 2000.

Operating expenses for ABD during 2002 were $73.6 million. Excluding ABD’s operating expenses, our total operating expenses to average assets ratio would have been 2.12% during 2002.

Compensation and benefits expenses increased in 2002 to $148.7 million, compared to $89.7 million in 2001 and $74.0 million in 2000. Of the increase, $53.3 million was due to the ABD acquisition. Additional increases were a result of additions in personnel made in 2002 and 2001 to accommodate our growth. As a result of our substantial growth, we anticipate hiring additional personnel and committing additional resources to

A-11

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

enhance our compliance and enterprise-wide risk management programs and processes during 2003. These additions to staff and systems will result in increases to salary and other expense over the next several quarters.

Occupancy and equipment expenses increased in 2002 to $39.4 million, compared to $27.8 million in 2001 and $23.2 million in 2000. The ABD acquisition accounts for $7.5 million of the increase during 2002. Additional increases were a result of our growth.

During 2002, legal and other professional fees increased to $8.9 million, compared to $7.8 million in 2001 and $5.3 million for 2000. This increase relates to our growth and ongoing projects designed to improve efficiency and the enhancement of our risk management.

Our amortization of intangibles totaled $5.5 million for 2002, compared to $1.4 million for 2001 and $439,000 for 2000. The amortization for 2002 primarily relates to expirations representing ABD’s book of business recorded in connection with the ABD acquisition. Amortization for 2001 and 2000 relates primarily to the amortization of a core deposit intangible. We estimate amortization of other intangible assets for 2003 through 2007 will range from $5.0 million and $6.5 million annually.

The expense for dividends on the preferred stock of the real estate investment trusts was $1.8 million for 2002, compared to $0 for 2001 and 2000. The increase reflects the issuance of $15.6 million in the preferred stock of CNB Investment Trust II in 2002.

During 2002, we incurred $975,000 in trust preferred securities early retirement expense as a result of the retirement of those securities.

During 1998, Greater Bay established the Greater Bay Bancorp Foundation (the “Foundation”). The Foundation was formed to provide a vehicle through which its officers and directors can provide support to the communities in which we do business. The Foundation focuses its support on initiatives related to education, health and economic growth. In support of the Foundation, we will periodically contribute appreciated securities to the Foundation. During 2002, these contributions resulted in the deduction of $479,000 in donation expense. In connection with this contribution, we recognized $479,000 of warrant income and a $262,000 tax benefit resulting from the contribution of appreciated securities. No such contributions were made during 2001 and 2000.

Merger and other related costs include the direct expense related to pooling-of-interests 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. See Note 16 to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for more detail.

Income Taxes

Our effective income tax rate for 2002 was 36.7%, compared to 24.9% in 2001 and 39.4% in 2000. The effective rates were lower than the statutory rate of 42% due to benefits regarding the California bad debt deduction, California enterprise zone interest income exclusion, and tax-exempt income on municipal securities, and in 2001, the realization of certain capital losses for tax purposes on the formation of CNB Investment Trust II. During 2002, California made changes to its tax laws applicable to banks and, effective January 1, 2002, requires banks, in lieu of using a reserve method, to deduct actual charge-offs net of recoveries in determining their California taxable income. Banks must include in taxable income 50 percent of their existing bad debt reserves at the end of 2001. As a concession, recapture of 50 percent of the reserve is not required to be recaptured in the current or future years and, as a result, we recognized a permanent tax benefit of approximately $1.5 million in 2002. See Note 15 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional information on our income tax provision.

A-12

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

Income of Business Segments

We are organized along community banking and insurance brokerage services business segments. The net income before income taxes for the community banking business segment was $247.3 million in 2002, $180.0 million in 2001 and $183.2 million in 2000. The net income before income taxes for the insurance brokerage services business segment was $15.8 million for the year ended December 31, 2002. There was no such income during 2001 and 2000. For additional information regarding our results by business segment see Note 26 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

FINANCIAL CONDITION

Total assets increased 2.5% to $8.1 billion at December 31, 2002, compared to $7.9 billion at December 31, 2001. Total assets increased 35.4% in 2001 from $5.8 billion at December 31, 2000. The increase in 2002 was due to increases in the loan portfolio that we funded through deposit growth, principally in wholesale funding, and retained earnings.

Investment Securities

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 Federal Home Loan Bank (“FHLB”) stock. 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. Portions of the portfolio are utilized for pledging requirements for deposits of state and local subdivisions, securities sold under repurchase agreements, and FHLB advances. 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.

For the amortized cost and estimated fair value of the investment securities, the maturity of investment securities by security type and additional information concerning the investments portfolio, see Note 4 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Investment securities decreased 13.3% to $2.6 billion at December 31, 2002, compared to $3.0 billion at December 31, 2001. As previously discussed, we commenced a process to de-leverage the balance sheet by reducing the size of the investment portfolio and wholesale borrowings during 2002. This de-leveraging strategy seeks to capture value on securities where prepayments are accelerating. We will continue this process in 2003, with an estimated $2 billion target for our investment securities portfolio, a reduction of $1.2 billion, or 37%, from its peak in early 2002. While $2.0 billion is currently the target for our investment portfolio, market conditions or a different mix of fixed rate versus variable rate investment securities could change the ultimate size and composition of the portfolio.

During 2001, we transferred our entire portfolio of held to maturity debt securities to the available for sale category. The amortized cost of these securities at the time of transfer was $345.8 million and when transferred the securities had an unrealized gain of $11.0 million ($6.4 million, net of taxes). Although we intend to continue to hold a majority of our debt securities to maturity, we transferred the securities to increase our flexibility in responding to future economic changes and to increase efficiency in managing our investment portfolio. Subsequent to the transfer, we sold securities which had been classified as held to maturity at December 31, 2000 with an amortized cost of $107.1 million for a gain of $5.5 million.

During 2001, we also reduced the number of positions in our subsidiary banks’ investment portfolios, and therefore liquidated a number of our smaller investment positions. We reduced the number of positions to

A-13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

improve our operating efficiencies and the overall yield in our portfolio. During 2001, we sold securities with an amortized cost of $262.9 million for a recognized gain of $6.3 million. In total, these sales resulted in an insignificant reduction in the yield on our investment portfolio despite the declining interest rate environment.

At December 31, 2002, $2.0 billion, or 78.1%, of our total investment securities were invested in mortgage and asset-backed securities, as compared to $2.6 million, or 89.8% at December 31, 2001. Although the stated maturity of these securities is as long as 30 years into the future, due to periodic principal payments and anticipated prepayments, we estimate that the average remaining life of these securities is approximately three and a half years.

Loans

Total gross loans increased 6.6% to $4.8 billion at December 31, 2002, compared to $4.5 billion at December 31, 2001. Total gross loans increased 10.1% in 2001 from $4.1 billion at year-end 2000.

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, adversely impact the borrowers’ abilities to repay their loans, reduce the demand for loans and decrease our net interest margin.

During 2002, the commercial loan portfolio increased $158.1 million and term commercial real estate loans and other real estate loans increased $208.5 million. The growth was offset by a decline of $33.1 million in construction and land loans and $38.2 million in consumer and other loans. During the recent economic downturn, we have seen super regional and money center banks decide not to serve certain market segments, including real estate loan markets in parts of the San Francisco Bay Area. This created an opportunity for community banks to attract quality credits which might not be available to them at other times. We believe that our Regional Community Banking Philosophy enables us to take advantage of this opportunity to originate new real estate loans while also continuing our focus on growing our commercial loan portfolio.

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

	As of December 31,
	2002					2001					2000					1999					1998
	Amount			%		Amount			%		Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Commercial	$	2,067,142		44.3	%	$	1,909,056		43.7	%	$	1,807,117		45.5	%	$	1,130,635		40.2	%	$	817,934		39.5	%
Term Real Estate—Commercial		1,610,277		34.5			1,407,300		32.2			1,096,576		27.6			883,749		31.4			665,595		32.1
Total Commercial		3,677,419		78.8			3,316,356		75.9			2,903,693		73.1			2,014,384		71.6			1,483,529		71.6
Real estate construction and land		710,990		15.3			744,127		17.0			753,936		19.0			531,529		18.9			356,931		17.2
Real estate other		251,665		5.4			246,117		5.6			187,173		4.7			156,284		5.6			121,480		5.9
Consumer and other		166,331		3.6			204,483		4.7			234,721		5.9			179,705		6.4			160,126		7.7
Total loans, gross		4,806,405		103.1			4,511,083		103.2			4,079,523		102.7			2,881,902		102.5			2,122,066		102.4
Deferred fees and discounts, net		(15,245	)	(0.3	)		(15,362	)	(0.4	)		(14,787	)	(0.4	)		(14,114	)	(0.5	)		(12,870	)	(0.6	)
Total loans, net of deferred fees		4,791,160		102.8			4,495,721		102.8			4,064,736		102.3			2,867,788		102.0			2,109,196		101.8
Allowance for loan losses		(129,613	)	(2.8	)		(124,744	)	(2.8	)		(91,407	)	(2.3	)		(54,459	)	(2.0	)		(38,589	)	(1.8	)
Total loans, net	$	4,661,547		100.0	%	$	4,370,977		100.0	%	$	3,973,329		100.0	%	$	2,813,329		100.0	%	$	2,070,607		100.0	%

A-14

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 December 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	$	292,784	$	64,111	$	186,338	$	5,097
Variable rate		432,819		45,979		420,135		20,833
One to five years:
Fixed rate		457,967		295,313		34,234		24,185
Variable rate		290,519		253,494		58,501		20,470
After five years:
Fixed rate		425,427		439,939		6,771		137,818
Variable rate		167,626		511,441		5,011		43,262
Total	$	2,067,142	$	1,610,277	$	710,990	$	251,665

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 those where the Banks have granted a concession on the interest paid or original repayment terms due to financial difficulties of the borrower. Other real estate owned (“OREO”) consists of real property acquired through foreclosure on the related collateral underlying defaulted loans.

The following table sets forth information regarding the following risk elements at the dates indicated.

	As of December 31,
	2002			2001			2000			1999			1998
	(Dollars in thousands)
Nonperforming loans:
Nonaccrual loans	$	37,750		$	30,970		$	13,014		$	7,139		$	4,208
Total nonperforming loans		37,750			30,970			13,014			7,139			4,208
OREO		397			—			—			271			966
Total nonperforming assets	$	38,147		$	30,970		$	13,014		$	7,410		$	5,174
Restructured loans	$	4,500		$	—		$	—		$	807		$	840
Accruing loans past due 90 days or more	$	944		$	5,073		$	4,463		$	908		$	244
Nonperforming assets to total loans and OREO		0.80	%		0.69	%		0.32	%		0.26	%		0.25	%
Nonperforming assets to total assets		0.47	%		0.39	%		0.22	%		0.17	%		0.15	%
Nonperforming assets, accruing loans past due 90 days or more and restructured loans to total loans and OREO		0.91	%		0.80	%		0.43	%		0.32	%		0.30	%
Nonperforming assets, accruing loans past due 90 days or more and restructured loans to total assets		0.54	%		0.46	%		0.30	%		0.21	%		0.19	%

A-15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

At December 31, 2002, 2001 and 2000, we had $37.8 million, $31.0 million, and $13.0 million in nonperforming loans, respectively. Our ratio of nonperforming assets to total assets at December 31, 2002 was 0.47%, as compared to 0.39% at December 31, 2001 and 0.22% at December 31, 2000. As of September 30, 2002, our peer group average ratio of nonperforming asset to total assets was 0.68% based on the Uniform Bank Performance Report. 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 believe we are proactive in managing credit risk to ensure we have a strong and properly-reserved balance sheet to manage through slowing economic periods.

At December 31, 2002, $9.5 million of the nonperforming loans were from our shared national credit (“SNC”) portfolio, $12.0 million were related to the real estate loan portfolio and $6.3 million were Matsco credits, which represent 0.89% of Matsco’s total portfolio. The balance of the nonperforming loans are commercial credits totaling approximately $9.7 million.

At December 31, 2002, the non-relationship SNC portfolio has been reduced to $43.0 million, or 0.90% of total loans. We are exploring options to reduce this portfolio either through individual loan sales or a bulk portfolio sale. We have not funded a non-relationship SNC loan since January 2000 and we do not expect to re-enter this market in the foreseeable future.

Loans past due 90 days or more and still accruing represent loans management believes are both well secured and are in the process of collection. Loans past due 90 days or more and accruing decreased to $944,000 at December 31, 2002, compared to $5.1 million at December 31, 2001. During 2002, we restructured a single loan with a principal balance of $4.5 million. No principal was forgiven on this loan.

See Note 5 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional information regarding our nonperforming assets, restructured loans and loans past due 90 days or more, including information regarding interest income earned and forgone on those loans.

In addition to the loans disclosed above as nonaccrual or restructured, management has also identified five loans totaling $17.7 million that on the basis of information known to us were judged to have a higher than normal risk of becoming nonperforming. $3.8 million are real estate secured loans and the balance of $13.9 million are commercial credits. Management cannot, however, predict the extent to which economic conditions may worsen or other factors that 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.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of incurred losses 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.

A-16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

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

	2002			2001			2000			1999			1998
	(Dollars in thousands)
Period end gross loans outstanding	$	4,806,405		$	4,511,083		$	4,079,523		$	2,881,902		$	2,122,066
Average gross loans outstanding	$	4,619,819		$	4,288,751		$	3,330,147		$	2,463,215		$	1,821,553
Allowance for loan losses:
Balance at beginning of period	$	124,744		$	91,407		$	54,459		$	38,589		$	31,677
Allowance of entities acquired through acquisitions accounted for under purchase method of accounting		—			320			10,927			—			—
Charge-offs:
Commercial(2)		(49,484	)		(27,243	)		(11,747	)		(3,006	)		(2,389	)
Term Real Estate—Commercial		(9,531	)		—			—			(16	)		(51	)
Total Commercial		(59,015	)		(27,243	)		(11,747	)		(3,022	)		(2,440	)
Real estate construction and land		—			—			(376	)		—			(7	)
Real estate other		—			—			—			—			—
Consumer and other		(746	)		(492	)		(371	)		(536	)		(462	)
Total charge-offs		(59,761	)		(27,735	)		(12,494	)		(3,558	)		(2,909	)
Recoveries:
Commercial		4,605			2,383			946			1,337			757
Term Real Estate—Commercial		20			—			—			5			11
Total Commercial		4,625			2,383			946			1,342			768
Real estate construction and land		1			—			379			11			—
Real estate other		—			—			—			7			—
Consumer and other		228			142			291			423			155
Total recoveries		4,854			2,525			1,616			1,783			923
Net charge-offs		(54,907	)		(25,210	)		(10,878	)		(1,775	)		(1,986	)
Provision charged to income(1)		59,776			58,227			36,899			17,645			8,898
Balance at end of period	$	129,613		$	124,744		$	91,407		$	54,459		$	38,589
Net charge-offs to average loans outstanding during the period		1.19	%		0.59	%		0.33	%		0.07	%		0.11	%
Net charge-offs excluding SNC portfolio to average loans outstanding excluding SNC portfolio loans outstanding during the period(2)		0.92	%		0.24	%		0.13	%		0.07	%		0.11	%
Allowance as a percentage of average loans outstanding		2.81	%		2.91	%		2.74	%		2.21	%		2.12	%
Allowance as a percentage of period end loans outstanding		2.70	%		2.77	%		2.24	%		1.89	%		1.82	%
Allowance as a percentage of non-performing assets		339.77	%		402.79	%		702.37	%		734.94	%		745.83	%

(1) Includes $3.5 million, $8.1 million, $2.7 million, and $183,000 in 2001, 2000, 1999, and 1998, respectively, to conform to our allowance methodologies which are included in mergers and related nonrecurring costs.

(2) Net charge-offs on SNC portfolio loans, included in commercial charge-offs totaled $13.8 million, $15.2 million and $6.8 million for 2002, 2001 and 2000, respectively. Average SNC portfolio loans totaled $128.6 million, $198.3 million, and $205.5 million for 2002, 2001 and 2000, respectively.

During the year ended December 31, 2002, our ratio of net charge-offs to average loans outstanding was 1.19%, as compared to 0.59% for 2001 and 0.33% for 2000.

Our nonrelationship shared national credit portfolio totaled $43.0 million at December 31, 2002 compared to $99.7 million at December 31, 2001. In January 2000, we decided to stop lending in this market segment. For 2002, losses approximated $13.8 million or 25.1% of our net charge-offs, as compared to $15.2 million or 60.3% of our net charge-offs for 2001.

Charge-offs in the Matsco division were approximately $17.5 million for 2002 as compared to $2.2 million for 2001. Two relationships accounted for $5.2 million of these 2002 losses. These relationships were a product of Matsco’s attempt to expand its portfolio outside of its historical expertise of dental and veterinary equipment leasing through the acquisition of a significant non-medical equipment lease portfolio and a medical group acquisition loan. Matsco has discontinued its lending in these areas and does not anticipate any further significant

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

losses in them. During the fourth quarter of 2002, Matsco experienced a reduction in loan charge-offs. Therefore, we do not believe that Matsco’s future losses will continue at 2002 levels.

We employ a systematic methodology for determining our allowance for loan losses that 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 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, collateral values, and other factors. Our historical loss experience analysis considers our five year loss experience with our experience over the prior two years weighted most heavily, and is stratified by loan type. Qualitative factors include the general economic environment in our marketplace, and in particular, the state of the real estate market in the San Francisco Bay Area and technology industries based in the Silicon Valley. Credit concentration, trends in credit quality and pace of portfolio growth are other qualitative factors that are considered in our methodology. These qualitative factors are evaluated in connection with the unallocated portion of the allowance for loan losses.

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 current methodology is 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 is, to some extent, based on the judgment and experience of management. Management believes that the allowance for loan losses is adequate as of December 31, 2002 to cover incurred losses 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 December 31, 2002, the allowance for loan losses was $129.6 million, consisting of a $102.0 million allocated allowance and a $27.6 million unallocated allowance. The unallocated allowance recognizes the model and estimation risk associated with the allocated allowance, 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

The following table provides a summary of the allocation of the allowance for loan losses for specific loan categories at the dates indicated. The allocation presented should not be interpreted as an indication that charges to the allowance for loan losses will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each loan category represents the total amounts available for charge-offs that may occur within these categories. The allocated and unallocated portions of the allowance for loan losses are available to the entire loan portfolio.

	As of December 31,
	2002				2001				2000				1999				1998
	Amount		% of Category to Gross Loans		Amount		% of Category to Gross Loans		Amount		% of Category to Gross Loans		Amount		% of Category to Gross Loans		Amount		% of Category to Gross Loans
	(Dollars in thousands)
Commercial	$	66,480	43.01	%	$	66,246	42.32	%	$	37,896	44.30	%	$	20,454	39.23	%	$	15,758	38.54	%
Term real estate—commercial		20,715	33.50	%		19,872	31.20	%		15,844	26.88	%		8,821	30.67	%		4,631	31.37	%
Total commercial		87,195	76.51	%		86,118	73.52	%		53,740	71.18	%		29,275	69.90	%		20,389	69.91	%
Real estate construction and land		10,233	14.79	%		9,904	16.50	%		10,935	18.48	%		5,590	18.44	%		4,047	16.82	%
Real estate other		2,920	5.24	%		6,010	5.46	%		1,866	4.59	%		2,239	5.42	%		1,639	5.72	%
Consumer and other		1,604	3.46	%		2,238	4.53	%		5,732	5.75	%		4,214	6.24	%		3,056	7.55	%
Total allocated		101,952				104,270				72,273				41,318				29,131
Unallocated		27,661				20,474				19,134				13,141				9,458
Total	$	129,613	100.00	%	$	124,744	100.00	%	$	91,407	100.00	%	$	54,459	100.00	%	$	38,589	100.00	%

Deposits

We emphasize developing total client relationships in order to increase our core deposit base. Deposits reached $5.3 billion at December 31, 2002, an increase of 5.7% from December 31, 2001. The majority of the increase was related to money market demand accounts as a result of the success of the promotion of two new programs to attract new deposits.

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 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 increased 7.8% to $1.0 billion at December 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 $2.7 billion at December 31, 2002 compared to $2.3 billion at December 31, 2001.

MMDA, NOW and savings accounts were 50.7% of total deposits at December 31, 2002 as compared to 45.7% at December 31, 2001. Time certificates of deposit totaled $1.6 billion, or 29.8% of total deposits at December 31, 2002 compared to $1.8 billion or 35.2% of total deposits at December 31, 2001.

For information regarding the maturity distribution of our time deposits see Note 8 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. See “Net Interest Income” above for additional information regarding the average balances and interest expense on deposits.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

As of December 31, 2002 and 2001, we had $569.9 million and $686.6 million, respectively in brokered deposits outstanding.

Borrowings

Borrowings as of December 31, 2002 and 2001 were $1.7 billion and $2.1 billion, respectively. At December 31, 2002, borrowings consisted of securities sold under agreements to repurchase, FHLB advances, Zero Coupon Senior Convertible Contingent Debt Securities, a term loan and other notes payable. The growth in the borrowings during 2002 was a result of our loan growth exceeding deposit gathering activities and the wholesale funding strategy. See Note 10 and Note 13 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional information concerning borrowings.

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.

Greater Bay is a company separate and apart from the Banks and ABD 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 its bank credit facilities and on the outstanding trust preferred securities and is directly responsible for the contingent interest on the zero coupon senior convertible contingent debt securities, and the dividends paid on our common stock and the 7.25% noncumulative 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 our subsidiaries. There are statutory and regulatory provisions that limit the ability of the Banks and ABD to pay dividends to Greater Bay. At December 31, 2002, the subsidiaries had approximately $96.3 million in the aggregate available to be paid as dividends to Greater Bay. We do not believe that such restrictions will adversely impact Greater Bay’s ability to meet its ongoing cash obligations.

During 2002, Greater Bay raised approximately $200 million through a private offering of Zero Coupon Senior Convertible Contingent Debt Securities. The debt securities were offered at an original offering price of $639.23 per $1,000 principal amount at maturity. The debt securities may not be redeemed for five years from their date of issue, but Greater Bay may be required to repurchase these securities at their accreted value, at the option of the holders, on April 24, 2004, 2007, 2012 or 2017. Greater Bay pays no interest on these securities unless contingent interest or additional amounts become payable or a tax event occurs and semi-annual interest payments are paid. The debt securities accrete interest at an annual rate of 2.25%. Each $1,000 in principal amount at maturity of the debt securities is convertible into 15.3699 shares of Greater Bay common stock if the closing price of Greater Bay’s common stock exceeds the contingent conversion price or in certain other circumstances.

During 2002, Greater Bay retired $126.4 million of these debt securities. We retired these securities to take advantage of a unique market situation which allowed us to retire them at a substantial discount, thus relieving us of the put obligation with respect to the repurchased debt securities in April 2004. In addition, on July 22, 2002, we redeemed all $20.0 million outstanding trust preferred securities of GBB Capital I which had an interest rate of 9.75%. As a result of the redemption and retirement of outstanding debt securities and trust preferred

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

securities, we have begun pursuing replacement funding sources. We believe we can obtain alternative funding on more favorable terms than the terms of the securities we retired and redeemed. Alternative sources of funding may include the public or private debt markets or additional bank lines of credit.

As of December 31, 2002, Greater Bay had $30.0 million outstanding under a term loan that matures in 2007. The interest rate on this term loan was 3.20%. The term loan is secured by a pledge of all of the stock of Coast Commercial Bank. The term loan also requires Greater Bay to comply with certain debt covenants, including (a) prohibitions on the imposition of any encumbrance or lien on certain of Greater Bay’s property; and (b) the maintenance of certain capital and financial performance ratios. There were no such loans outstanding at December 31, 2001. In addition, as of December 31, 2002, Greater Bay had a short-term, secured credit facility totaling $60.0 million. At December 31, 2002, we had no advances outstanding under this facility. The credit facility provides for an interest rate based approximately on LIBOR + 0.50%. This credit facility is secured by a pledge of all of the stock of Mid-Peninsula Bank and, during the period that Greater Bay is subject to the cure agreement with the Federal Reserve, investment securities in an amount not less than the aggregate principal amount of outstanding advances under the facility. The credit facility also requires Greater Bay to comply with certain debt covenants, including (a) prohibitions on the imposition of any encumbrance or lien on certain of Greater Bay’s or its subsidiaries’ properties; (b) the merger or consolidation of Greater Bay or any of its subsidiaries with any other person, subject to certain exceptions; (c) incurrence of additional debt; (d) the maintenance of certain capital and financial performance ratios; and (e) the maintenance of a minimum net worth of Mid-Peninsula Bank. Greater Bay was in compliance with all related financial covenants for these notes and credit facilities.

As of December 31, 2002, Greater Bay did not have any material commitments for capital expenditures.

Net cash provided by operating activities totaled $113.9 million in 2002, $93.8 million in 2001 and $110.8 million in 2000. Cash provided by investing activities totaled $55.3 million in 2002, compared to cash used for investing activities of $2.3 billion in 2001, and $1.4 billion in 2000. The comparatively large balance of cash used for investing purposes during 2001 primarily reflects our program to leverage the balance sheet. The significant comparative decrease during the same period of 2002 reflects our effort to de-leverage the balance sheet as described in “Net Interest Income—Overview” above.

For 2002, net cash used by financing activities was $70.2 million, compared to cash provided by financing activities of $2.0 billion in 2001 and $1.4 billion in 2000. Historically, our primary financing activity has been through deposits. For 2002, 2001, and 2000, deposit gathering activities generated cash of $282.2 million, $239.7 million and $1.0 billion, respectively. This represents a total of 402.27%, 12.1% and 73.2% of the financing cash flows for the year ended 2002, 2001 and 2000, respectively. Short-term and long-term borrowings decreased to $432.2 million in 2002 as compared to $1.6 billion and $312.7 million for 2001 and 2000, respectively. The decrease in borrowings for 2002 was the result of the implementation of our process to de-leverage the balance sheet by reducing the size of the investment portfolio and wholesale borrowings in the third quarter.

Capital Resources

Shareholders’ equity at December 31, 2002 increased to $681.1 million from $463.7 million at December 31, 2001 and from $385.9 million at December 31, 2000. Greater Bay paid dividends of $0.49, $0.43 and $0.35 per common share in 2002, 2001 and 2000, respectively, excluding dividends paid by subsidiaries prior to the completion of their mergers.

In 2002 and 2001, Greater Bay completed trust preferred securities offerings in the aggregate amounts of $5.0 million and $118.5 million, respectively, to enhance our regulatory capital base and to add liquidity. As set

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

forth above, on July 22, 2002, we redeemed all $20.0 million outstanding trust preferred securities of GBB Capital I. This redemption did not have a significant change in our subsidiary banks’ capital levels. Under applicable regulatory guidelines, the trust preferred securities qualify as Tier I capital up to a maximum of 25% of Tier I capital. Any additional portion of trust preferred securities would qualify as Tier 2 capital. As of December 31, 2002, we have $204.0 million in trust preferred securities outstanding, all of which qualifies as Tier I Capital.

During 2002, we issued 1,673,898 shares of 7.25% noncumulative convertible preferred stock. The shares were issued as part of our acquisition of ABD.

During 2002, we formed and funded MPB Investment Trust (“MPBIT”) and SJNB Investment Trust (“SJNBIT”), both of which are Maryland real estate investment trusts and wholly-owned subsidiaries of Mid-Peninsula Bank and San Jose National Bank, respectively. These entities were formed in order to provide flexibility in raising capital.

During 2001, we formed and funded CNB Investment Trust I (“CNBIT I”) and CNB Investment Trust II (“CNBIT II”), both of which are Maryland real estate investment trusts. CNBIT I and CNBIT II provide Cupertino National Bank with flexibility in raising capital. During 2001, Cupertino National Bank sold 15,000 shares of the 12% Series B Preferred Stock of CNBIT II for $15.0 million (See Note 12 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further information regarding this transaction).

On March 23, 2000, Greater Bay completed a private offering of 648,648 shares of common stock to institutional investors. Proceeds from the offering were $12,000,000 less placement agent’s fees of $514,000. On December 22, 1999, Greater Bay completed a private offering of 1,070,000 shares of common stock to institutional investors. Proceeds from the offering were $19,795,000 less placement agent’s fees of $834,000. Greater Bay used the net proceeds from both offerings for general corporate purposes.

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 December 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 most banking organizations are expected to exceed that amount by 1.0% or more, depending on their circumstances.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

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 December 31, 2002 and the two highest levels recognized under these regulations are as follows:

	Tangible equity		Leverage ratio		Tier 1 risk-based capital ratio		Total risk-based capital ratio
Greater Bay Bancorp	6.40	%	8.61	%	11.71	%	12.97	%
Well-capitalized	N/A		5.00	%	6.00	%	10.00	%
Adequately capitalized	N/A		4.00	%	4.00	%	8.00	%

In addition, at December 31, 2002, each of the Banks maintained capital levels that exceeded the well-capitalized guidelines. For additional information on each Banks and our capital levels and capital ratios, see Note 21 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Our strong earnings during 2002, when combined with our de-leveraging strategy, substantially improved our tangible equity to asset ratio from 5.76% at December 31, 2001 to 6.40% at December 31, 2002. In evaluating our tangible equity ratio, we believe it is important to consider the composition of the goodwill and other intangibles that is deducted from total equity to arrive at tangible equity. At December 31, 2002, total goodwill and other intangibles was $191.9 million, the majority of which is related to the ABD acquisition. Based on ABD’s performance and current comparable valuations based upon the recent sales of peer insurance agencies, we believe that ABD is worth more than the recorded goodwill and other intangibles value.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

The definition of “off-balance sheet arrangements” includes any transaction, agreement or other contractual arrangement to which an entity is a party under which we have:

· Any obligation under a guarantee contract that has the characteristics as defined in paragraph 3 of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness to Others” (“FIN 45”);

· A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets, such as a subordinated retained interest in a pool of receivables transferred to an unconsolidated entity;

· Any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, except that it is both indexed to the registrant’s own stock and classified in stockholders’ equity; or

· Any obligation, including contingent obligations, arising out of a material variable interest, as defined in FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with the registrant.

In the ordinary course of business, we have issued certain guarantees which qualify as off-balance sheet arrangements. As of December 31, 2002, those guarantees include the following:

· Financial standby letters of credit and financial guarantees are conditional lending commitments issued by us to guarantee the performance of a customer to a third party in borrowing arrangements. At December 31, 2002, the maximum undiscounted future payments that we could be required to make was $95.9 million. 84.3% of these arrangements mature within one year. We generally have recourse to recover from the customer any amounts paid under these guarantees;

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

· We may be required to make contingent payments to the former shareholders of ABD and The Matsco Companies, Inc based on their future operating results. As of December 31, 2002, under the acquisition agreement with ABD, the maximum gross future earn-out payments to ABD’s former shareholders is $56.4 million plus 65% of the EBITDA (as defined in the acquisition agreement) in excess of the Forecast EBITDA, payable through 2005 in a combination of cash, preferred stock and common stock. The Forecast EBITDA for ABD, as defined in the acquisition agreement, is $29.6 million, $34.6 million and $40.3 million for the years ended December 31, 2003, 2004 and 2005, respectively. As of December 31, 2002, under the acquisition agreement with The Matsco Companies, Inc, the maximum gross future earn-out payments to the former shareholders is $6.5 million, payable through 2006 in a combination of cash and common stock; and

· Several of our Banks have guaranteed credit cards issued to our clients by an unaffiliated financial institution. As of December 31, 2002, the combined credit limits on those accounts are $10.5 million.

FIN 46 defines variable interest entities as a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other activities on behalf of another company. FIN 46 requires that a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that we are not required to consolidate but in which it has a significant variable interest. As of December 31, 2002, we do not have an interest in any variable interest entities.

The following table provides the amounts due under specified contractual obligations for the periods indicated as of December 31, 2002.

	Less than one year		One to three years		Four to five years		More than five years		Total
	(Dollars in thousands)
Commitment to fund loans	$	1,181,620	$	—	$	—	$	—	$	1,181,620
Commitments under letters of credit		109,336		—		—		—		109,336
Deposits		3,046,700		92,456		17,743		1,060		3,157,959
Borrowings		1,390,856		345,608		—		779		1,737,243
Trust Preferred Securities		—		—		—		204,000		204,000
Capital lease obligations		—		—		—		—		—
Operating lease obligations		19,198		34,870		27,989		38,243		120,300
Purchase obligations		12,478		—		—		—		12,478
Other liabilities		148,564		—		—		16,938		165,502

The obligations are categorized by their contractual due dates. Approximately $283.0 million of the commitments to fund loans relate to real estate construction and are expected to fund within the next 12 months. However, the remainder relates primarily to revolving lines of credit or other commercial loans, and many of these commitments are expected to expire without being drawn upon. Therefore the total commitments do not necessarily represent future cash requirements. We may, at our option, prepay certain borrowings and trust preferred securities prior to their maturity date. Furthermore, the actual payment of certain current liabilities may be deferred into future periods. For purposes of this schedule, liabilities for our Supplemental Employee Compensation Benefits Agreements and Deferred Compensation Plan, described in Note 17 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, are included in the category more than five years.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

A “purchase obligation” is an agreement to purchase goods or services that is enforceable and legally binding on the registrant and that specifies all significant terms including (1) fixed or minimum quantities to be purchased, (2) fixed, minimum or variable price provisions, and (3) the approximate timing of the transaction. The definition of “purchase obligations” includes capital expenditures for purchases of goods or services over a five-year period. At December 31, 2003, we have a future venture capital funding requirements of $10.0 million and a commitment to construct an headquarters building for one of our Banks for $2.5 million.

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 risk of a change in market value of portfolio equity due to changes in interest rates. This risk is addressed by our Management Asset & Liability 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 ALCO and the Management 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 Board-approved limits, the Board may direct management to adjust its asset and liability mix to bring interest rate risk within Board-approved limits.

In order to reduce the exposure to interest rate fluctuations, 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 approximately three and a half 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. In addition, we have utilized two interest rate swaps and an interest rate collar to manage the interest rate risk of certain long term debt instruments and deposit liabilities. When these derivative instruments were acquired, they were determined to be highly effective and were accounted for as hedges under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 138, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133 and 138”). During 2001, we determined that the designation of these derivatives as hedges was no longer appropriate. Subsequent to that determination, changes in the value of the derivative contracts were recorded to current income. During 2002, we elected to reassert our designation of one of the interest rate swaps as a cash flow hedge. Subsequent to that designation, changes to the fair value of that hedge are included in other comprehensive income to the extent that the swap is deemed effective. Changes in value attributed to ineffectiveness are recorded in current income. See Note 14 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further information regarding our derivative instruments.

Market Value of Portfolio Equity

Interest rate sensitivity is computed by estimating the changes in net market value of portfolio equity, or market value over a range of potential changes in interest rates. The market value of equity is the market value of

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

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 its 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 December 31, 2002 and 2001.

	2002							2001
Change in interest rates	Net portfolio value		Projected change					Net portfolio value		Projected change
			Dollars			Percentage				Dollars			Percentage
	(Dollars in thousands)
100 basis point rise	$	911,463	$	36,834		4.21	%	$	1,037,277	$	(8,750	)	-0.84	%
Base scenario		874,629		—		—			1,046,027		—		—
100 basis point decline		825,398		(49,231	)	-5.63	%		1,037,455		(8,571	)	-0.82	%

The preceding table indicates that as of December 31, 2002 an immediate and sustained 100 basis point decrease in interest rates would decrease our net portfolio value by 5.6%. The foregoing analysis attributes significant value to our noninterest-bearing deposit balances.

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.

The net portfolio value of equity as of December 31, 2002 was $874.6 million as compared to $1,046.0 million as of December 31, 2001. The major reason for the decrease was the overall decline in interest rates which reduced the discount rate used in the calculation of the net present value. The reduced discount rate most significantly impacted non-term deposits, resulting in a significant reduction in their contribution to the calculation of the net portfolio value of equity as of December 31, 2002 as compared to December 31, 2001. The second reason for the change in the market value of equity relates to a significant shift within the non-term deposits to shorter duration liabilities also reducing their contribution to the calculation of the net portfolio value of equity.

In addition there has been a significant change in the amount of the net portfolio value of equity that is projected for a 100 basis point rise or decline in interest rates between December 31, 2002 and 2001. This is primarily due to two factors. During 2002, we substantially reduced our aggregate fixed income investment portfolio and shortened its average life (and modified duration). Due to this decrease in the fixed income investment portfolio’s average life, its interest rate sensitivity decreased as compared to the prior year. In addition, in 2002 we reclassified our Trust Preferred Securities to a debt security classification which caused the Trust Preferred Securities to be included in the calculation, whereas previously in 2001 the Trust Preferred Securities were treated as equity securities and therefore not included.

Net Interest Income

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

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 December 31, 2002, the analysis indicates that our net interest income for the next 12 months would increase 2.4% if rates increased 100 basis points, and decrease by 3.0% if rates decreased 100 basis points.

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 its composition remains similar to the composition at year-end. It does not account for all the factors that impact this analysis including changes that management may make in the balance sheet composition 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 prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan 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.

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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

The following table shows interest sensitivity gaps for different intervals as of December 31, 2002 and 2001:

	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)
As of December 31, 2002
Assets:
Cash and due from banks	$	—		$	15,672		$	—		$	—		$	—		$	—		$	15,672		$	284,842		$	300,514
Short-term investments		14,000			—			—			—			—			—			14,000			—			14,000
Investment securities		95,806			838,151			536,172			655,520			138,203			278,464			2,542,316			20,670			2,562,986
Loans		2,069,905			880,372			372,358			765,501			570,702			132,322			4,791,160			—			4,791,160
Loan losses/unearned fees		—			—			—			—			—			—			—			(129,613	)		(129,613	)
Other assets		—			—			—			—			—			—			—			536,680			536,680
Total assets	$	2,179,711		$	1,734,195		$	908,530		$	1,421,021		$	708,905		$	410,786		$	7,363,148		$	712,579		$	8,075,727
Liabilities and Equity:
Deposits	$	2,659,715		$	1,206,170		$	266,368		$	92,546		$	17,743		$	1,060		$	4,243,601		$	1,028,672		$	5,272,273
Other borrowings		3,869			1,021,258			400,280			311,058			—			779			1,737,243			—			1,737,243
Trust preferred securities		—			20,000			—			—			—			184,000			204,000			—			204,000
Other liabilities		—			—			—			—			—			—			—			165,502			165,502
Shareholders’ equity		—			—			—			—			—			—			—			696,709			696,709
Total liabilities and equity	$	2,663,584		$	2,247,428		$	666,648		$	403,604		$	17,743		$	185,839		$	6,184,844		$	1,890,883		$	8,075,727
Gap	$	(483,873	)	$	(513,233	)	$	241,882		$	1,017,417		$	691,162		$	224,947		$	1,178,304		$	(1,178,304	)	$	—
Cumulative Gap	$	(483,873	)	$	(997,106	)	$	(755,224	)	$	262,193		$	953,355		$	1,178,302		$	1,178,304		$	—		$	—
Cumulative Gap/total assets		–6.00	%		–12.30	%		–9.40	%		3.20	%		11.80	%		14.60	%		14.60	%		0.00	%		0.00	%
As of December 31, 2001
Gap	$	(69	)	$	(1,010,528	)	$	(75,394	)	$	930,948		$	714,639		$	582,157		$	1,141,753		$	(1,141,453	)	$	300
Cumulative Gap	$	(69	)	$	(1,010,597	)	$	(1,085,991	)	$	(155,043	)	$	559,596		$	1,141,753		$	1,141,753		$	—		$	—
Cumulative Gap/total assets		0.00	%		–12.83	%		–13.79	%		–1.97	%		7.10	%		14.49	%		14.49	%		0.00	%		0.00	%

The foregoing table indicates that we had a one year cumulative negative gap of $(755.2) million, or (9.4)% of total assets, at December 31, 2002. In theory, this would indicate that at December 31, 2002, $755.2 million more in liabilities than assets would reprice if there were a change in interest rates over the next 365 days. Thus, if interest rates on assets and liabilities were to increase in equal amounts, the gap would tend to result in a lower net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and its supporting liability can vary significantly while the timing of repricing of both the asset and its supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposit.

The cumulative gap for the immediate or one-day period decreased approximately $483.9 million between December 31, 2001 and 2002. This decrease in the immediate or one-day period was due to an increase in non-term deposits which are included in this category (see below for a further discussion regarding non-term deposits) and a decrease in variable rate loans on a period-to-period basis. The cumulative gap for the 2 days to 6 months category remained relatively stable but the composition of the cumulative gap changed due to the

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

shorter duration of the fixed income investment portfolio offset by the increase in the amount of deposits. The cumulative gap for the 12-months period as of December 31, 2002 showed a decline in interest rate sensitivity as compared to December 31, 2001. This decline is mainly due to the shorter duration of the fixed income investment portfolio at December 31, 2002 as compared to December 31, 2001 offset slightly by an increase in deposits.

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 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 asset sensitive than is indicated in the Gap analysis. In fact we expect to experience higher net interest income when rates rise, opposite of what is indicated by the Gap analysis. Therefore, management uses income simulation, net interest income rate shocks and market value of portfolio equity as its primary interest rate risk management tools.

Recent Accounting Developments

Business Combinations

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” (“SFAS No. 141”). SFAS No. 141 requires that all business combinations within the scope of SFAS No. 141 to be accounted for using the purchase method. Previously, the pooling-of-interests method was allowed whenever certain criteria were met. Because those criteria did not distinguish economically dissimilar transactions, similar business combinations were accounted for using different methods that produced dramatically different financial statement results. SFAS No. 141 requires separate recognition of intangible assets apart from goodwill if they meet one of two criteria, the contractual-legal criterion or the separability criterion. SFAS No. 141 also requires the disclosure of the primary reasons for a business combination and the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet caption.

The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001. SFAS No. 141 also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. Our definitive merger agreement with SJNB Financial Corp. was signed on June 25, 2001 before the required implementation date and therefore we accounted for that merger as a pooling-of-interests since all the criteria for pooling were met.

We adopted SFAS No. 141 on July 1, 2001 and account for acquisitions thereafter under the purchase method.

Goodwill and Other Intangible Assets

In June 2001, the FASB also issued SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 142 addresses how intangible assets that are acquired individually or within a group of assets, but not those acquired in a business combination, should be accounted for in the financial statements upon their acquisition. SFAS No. 142 adopts a more aggregate view of goodwill and bases the accounting on the units of the combined entity into which an acquired entity is aggregated. SFAS No. 142 also prescribes that goodwill and intangible assets that have indefinite useful lives will not be amortized but rather tested at least annually for impairment. Intangible assets that have definite lives will continue to be amortized over their useful lives. SFAS

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

No. 142 provides specific guidance for the testing of goodwill for impairment, which may require re-measurement of the fair value of the reporting unit. Additional ongoing financial statement disclosures are also required.

We adopted SFAS 142 on January 1, 2002 as discussed in Note 3 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Accounting for Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.

SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. We do not expect adoption of SFAS No. 143 to have a material impact on our financial condition or operating results.

Accounting for Impairment or Disposal of Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS No. 144 superseded SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and APB Opinion No. 30 (“APB No. 30”), “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”

We adopted SFAS No. 144 on January 1, 2002. The implementation of this standard had no material impact on our financial condition or operating results.

Gains and Losses from Extinguishment of Debt

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS No. 145”). Among other provisions, SFAS No. 145 rescinds SFAS 4, “Reporting Gains and Losses from Extinguishment of Debt.” Accordingly, gains or losses from extinguishment of debt shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of APB No. 30. Gains or losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations in all prior periods presented.

SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. We elected early adoption of SFAS No. 145. Gains and losses on the extinguishment of debt are recorded as other income in the Consolidated Statement of Operations.

Accounting for Costs Associated with Exit or Disposal Activities

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and nullifies the guidance of EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

Costs Incurred in Restructuring)”, which recognized a liability for an exit cost at the date of an entity’s commitment to an exit plan. SFAS No. 146 requires that the initial measurement of a liability be at fair value.

SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect adoption of SFAS No. 146 to have a material impact on our financial condition or operating results.

Acquisitions of Certain Financial Institutions

In July 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial Institutions” (“SFAS No. 147”). SFAS No. 147 provides interpretive guidance on the application of the purchase method to acquisitions of financial institutions. Except for transactions between two or more mutual enterprises, SFAS No. 146 requires that transactions involving the acquisition of financial institutions be accounted for in accordance with SFAS 141. In addition, SFAS No. 147 amends SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that SFAS No. 144 requires for other long-lived assets that are held and used.

Provisions of SFAS No. 147, which relate to the application of the purchase method of accounting, are effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The adoption of SFAS No. 147 did not have a material impact on our financial condition or operating results.

Accounting for Stock-Based Compensation—Transition and Disclosure

In January 2003, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation” (“SFAS No. 148”). SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. If awards of stock-based employee compensation were outstanding and accounted for under the intrinsic value method of APB Opinion No. 25, “Accounting for Stock” (“APB No. 25”) issued to employees, certain disclosures have to be made for any period for which an income statement is presented.

SFAS No. 148 shall be effective for financial statements for fiscal years ending after December 15, 2002. We continue to apply APB No. 25 in accounting for stock based compensation and have adopted the disclosure requirements of SFAS No. 123 and SFAS No. 148.

Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34” (“FIN 45”). FIN 45 addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. FIN 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS (Continued)

The initial recognition and initial measurement of a liability of a guarantor shall be applied only on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The guarantor’s previous accounting for guarantees issued prior to the date of this Interpretation’s initial application shall not be revised or restated to reflect the effect of the recognition and measurement provisions of the Interpretation.

The disclosure requirements in Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The disclosure requirements of FIN 45 are discussed in Note 27 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. The implementation of the initial recognition provisions of FIN 45 did not have a significant impact on our financial condition or operating results. We do not expect the full adoption of FIN 45 to have a material impact on our financial condition or operating results.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed.

FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.

FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated.

We do not expect the adoption of FIN 46 to have a material impact on our financial condition or operating results.

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GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2002			2001
	(Dollars in thousands)
A S S E T S
Cash and due from banks	$	300,514		$	189,404
Federal funds sold		14,000			26,000
Cash and cash equivalents		314,514			215,404
Investment securities:
Available for sale, at fair value		2,458,421			2,863,009
Other securities		104,565			107,621
Investment securities		2,562,986			2,970,630
Total loans:
Commercial		2,067,142			1,909,056
Term real estate—commercial		1,610,277			1,407,300
Total commercial		3,677,419			3,316,356
Real estate construction and land		710,990			744,127
Real estate other		251,665			246,117
Consumer and other		166,331			204,483
Deferred loan fees and discounts		(15,245	)		(15,362	)
Total loans, net of deferred fees		4,791,160			4,495,721
Allowance for loan losses		(129,613	)		(124,744	)
Total loans, net		4,661,547			4,370,977
Property, premises and equipment, net		52,069			48,883
Goodwill		144,181			24,681
Other intangible assets		47,722			1,920
Interest receivable and other assets		292,708			244,559
Total assets	$	8,075,727		$	7,877,054
L I A B I L I T I E S  A N D  S H A R E H O L D E R S’  E Q U I T Y
Total deposits	$	5,272,273		$	4,990,071
Borrowings		1,737,243			2,095,896
Company obligated mandatorily redeemable cumulative trust preferred securities of subsidiary trusts holding solely junior subordinated debentures		204,000			218,000
Other liabilities		165,502			94,403
Total liabilities		7,379,018			7,398,370
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: 4,000,000 shares authorized		—			—
7.25% convertible preferred stock; par value $50.00: 2,400,000 reserved shares; 1,673,898 and 0 shares issued and outstanding as of December 31, 2002 and December 31, 2001, respectively		80,900			—
Common stock, no par value: 80,000,000 shares authorized; 51,577,795 and 49,831,682 shares issued and outstanding as of December 31, 2002 and 2001, respectively		234,627			207,287
Unearned compensation		(1,450	)		(993	)
Accumulated other comprehensive income		18,624			3,967
Retained earnings		348,358			253,423
Total shareholders’ equity		681,059			463,684
Total liabilities and shareholders’ equity	$	8,075,727		$	7,877,054

See notes to consolidated financial statements.

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GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years ended December 31,
	2002			2001		2000*
	(Dollars in thousands, except per share amounts)
Interest Income
Loans	$	334,666		$	375,551	$	335,699
Investment securities:
Taxable		156,740			120,491		62,250
Tax-exempt		6,032			7,455		9,632
Total interest on investment securities		162,772			127,946		71,882
Other interest income		7,974			3,744		16,058
Total interest income		505,412			507,241		423,639
Interest Expense
Deposits		82,747			132,655		146,269
Long-term borrowings		23,450			15,158		1,203
Trust Preferred Securities		18,168			13,724		7,842
Other borrowings		35,053			38,419		10,578
Total interest expense		159,418			199,956		165,892
Net interest income		345,994			307,285		257,747
Provision for loan losses		59,776			54,727		28,821
Net interest income after provision for loan losses		286,218			252,558		228,926
Non-Interest Income
Insurance agency commissions and fees		88,515			—		—
Gain (loss) on sale of investments, net		12,058			6,304		(521	)
Service charges and other fees		11,147			10,602		9,661
Loan and international banking fees		9,233			8,856		8,162
Gain on early retirement of Zero Coupon Senior Convertible Contingent Debt Securities		8,375			—		—
Gain on sale of loans		4,754			3,241		2,190
Trust fees		3,566			3,610		3,450
ATM network revenue		2,414			2,887		2,891
Warrant income (loss), net		(89	)		581		12,986
Other income		15,537			8,761		8,312
Total non-interest income		155,510			44,842		47,131
Operating Expenses
Compensation and benefits		148,724			89,699		73,966
Occupancy and equipment		39,365			27,756		23,192
Amortization of intangibles		5,520			1,408		439
Dividends paid on preferred stock of real estate investment trusts		1,814			—		—
Merger and other related costs		—			29,249		33,526
Contribution to the Foundation and related expenses, net		479			—		—
Other expenses		49,499			43,004		34,105
Total operating expenses		245,401			191,116		165,228
Income before provision for income taxes		196,327			106,284		110,829
Provision for income taxes		72,053			26,468		43,665
Net income	$	124,274		$	79,816	$	67,164
Net income per share—basic**	$	2.35		$	1.61	$	1.40
Net income per share—diluted**	$	2.30		$	1.57	$	1.33
Cash dividends per share of common stock	$	0.49		$	0.43	$	0.35

  * Restated to historical basis to reflect the merges described in notes 1 and 2 on a pooling of interests basis.

** Restated to reflect 2-for-1 stock split effective on October 4, 2000.

See notes to consolidated financial statements.

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GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Years ended December 31,
	2002			2001			2000*
	(Dollars in thousands)
Net income	$	124,274		$	79,816		$	67,164
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during period (net of taxes of $15,471, $9,691 and $3,960 for the years ended December 31, 2002, 2001 and 2000, respectively)		22,125			13,860			5,664
Less: reclassification adjustment for gains (losses) included in net income (net of taxes of $4,962, $(2,594) and $214 for the years ended December 31, 2002, 2001 and 2000, respectively)		7,096			(3,710	)		307
Net change		15,029			10,150			5,971
Cash flow hedge:
Change in market value of hedge during the period (net of taxes of $428, $(131) and $(908) for the years ended December 31, 2002, 2001 and 2000, respectively)		612			(187	)		(1,298	)
Less: reclassification adjustment for swap settlements in net income (net of taxes of $(168), $(50) and $(41) for the years ended December 31, 2002, 2001 and 2000, respectively)		(240	)		(73	)		(58	)
Loss recognized on derecognition of derivative instruments as cash flow hedge		—			112			—
Net change		(372	)		(148	)		(1,356	)
Other comprehensive income		14,657			10,002			4,615
Comprehensive income	$	138,931		$	89,818		$	71,779

* Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling-of-interests basis.

See notes to consolidated financial statements.

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GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the years ended December 31, 2002, 2001 and 2000

	Common stock					Unearned compensation			Accumulated other comprehensive income / (loss)			Retained earnings			Convertible Preferred Stock		Total shareholders’ equity
	Shares **		Amount
	(Dollars in thousands, except per share amounts)
Greater Bay Bancorp, prior to pooling	28,841,935		$	107,903		$	—		$	(11,564	)	$	109,457		$	—	$	205,796
Shares issued to, and retained earnings of, acquired entities:
Coast Bancorp	5,978,185			20,066			—			693			4,354			—		25,113
Bank of Santa Clara	3,658,332			17,003			—			—			7,878			—		24,881
Bank of Petaluma	1,531,516			7,854			—			315			3,044			—		11,213
SJNB Financial Corp.	6,164,340			16,554			—			(94	)		22,651			—		39,111
Balance, December 31, 1999, restated to reflect pooling-of-interests	46,174,307			169,380			—			(10,650	)		147,384			—		306,114
Net income	—			—			—			—			67,164			—		67,164
Other comprehensive income, net of taxes	—			—			—			4,615			—			—		4,615
Stock options exercised, including related tax benefits	1,731,594			11,309			—			—			—			—		11,309
Stock issued in Employee Stock Purchase Plan	93,356			1,538			—			—			—			—		1,538
401(k) employee stock purchases	82,015			1,982			—			—			—			—		1,982
Stock issued in Dividend Reinvestment Plan	18,792			465			—			—			—			—		465
Stock issued through private placement	648,648			11,476			—			—			—			—		11,476
Cash paid in-lieu of fractional shares	—			(29	)		—			—			—			—		(29	)
Cash dividend $0.39 per share***	—			—			—			—			(18,686	)		—		(18,686	)
Balance, December 31, 2000*	48,748,712			196,121			—			(6,035	)		195,862			—		385,948
Net income	—			—			—			—			79,816			—		79,816
Other comprehensive income, net of taxes	—			—			—			10,002			—			—		10,002
Stock options exercised, including related tax benefits	950,110			8,471			—			—			—			—		8,471
Restricted stock grants	58,000			993			(993	)		—			—			—		—
Stock issued in Employee Stock Purchase Plan	114,860			2,521			—			—			—			—		2,521
Stock issued in Dividend Reinvestment Plan	25,179			648			—			—			—			—		648
Stock issued in purchase accounting transaction	44,820			1,376			—			—			—			—		1,376
Stock retired by Greater Bay Bancorp	(110,000	)		(2,830	)		—			—			—			—		(2,830	)
Cash paid in-lieu of fractional shares	—			(13	)		—			—			—			—		(13	)
Cash dividend $0.45 per share***	—			—			—			—			(22,255	)		—		(22,255	)
Balance, December 31, 2001	49,831,681			207,287			(993	)		3,967			253,423			—		463,684
Net income	—			—			—			—			124,274			—		124,274
Other comprehensive income, net of taxes	—			—			—			14,657			—			—		14,657
7.25% convertible preferred stock issued in purchase	—			—			—			—			—			80,900		80,900
Stock options exercised, including related tax benefits	1,569,404			23,441			—			—			—			—		23,441
Restricted stock grants	16,500			457			(457	)		—			—			—		—
Stock issued in Employee Stock Purchase Plan	129,862			2,701			—			—			—			—		2,701
Stock issued in Dividend Reinvestment Plan	30,348			741			—			—			—			—		741
Cash dividend on convertible preferred series B	—			—			—			—			(4,206	)		—		(4,206	)
Cash dividend $0.49 per share	—			—			—			—			(25,133	)		—		(25,133	)
Balance, December 31, 2002	51,577,795		$	234,627		$	(1,450	)	$	18,624		$	348,358		$	80,900	$	681,059

* Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling-of-interests basis.

** Restated to reflect 2-for-1 stock split effective on October 4, 2000.

*** Excluding dividends paid by Greater Bay’s subsidiaries prior to the completion of their mergers with Greater Bay, Greater Bay paid dividends of $0.43, and $0.35 per share for the years ended December 31, 2001, and 2000, respectively.

See notes to consolidated financial statements.

A-36

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2002			2001			2000*
	(Dollars in thousands)
Cash flows—operating activities
Net income	$	124,274		$	79,816		$	67,164
Reconcilement of net income to net cash from operations:
Provision for loan losses		59,776			58,547			47,826
Depreciation and amortization		22,407			15,228			14,540
Amortization of goodwill		—			1,408			—
Amortization of intangible assets		5,520			—			—
Accretion of discount on CODES		1,106			—			—
Deferred income taxes		(2,004	)		(13,565	)		(13,601	)
(Gain) loss on sale of investments, net		(12,058	)		(6,304	)		521
Gain on early retirement of CODES		(8,375	)		—			—
Changes in assets and liabilities net of effects from purchase of ABD:
Accrued interest receivable and other assets		(70,191	)		1,088			(65,433	)
Accrued interest payable and other liabilities		(6,404	)		(43,063	)		59,016
Deferred loan fees and discounts, net		(117	)		663			746
Operating cash flows, net		113,934			93,818			110,779
Cash flows—investing activities
Maturities and partial paydowns on investment securities:
Held to maturity		—			18,627			125,433
Available for sale		1,959,773			295,689			87,882
Purchase of investment securities:
Held to maturity		—			—			(246,226	)
Available for sale		(2,915,540	)		(2,344,828	)		(269,000	)
Other securities		(3,056	)		(77,970	)		(5,051	)
Proceeds from sale of available for sale securities		1,429,012			262,856			79,556
Loans, net		(380,729	)		(458,240	)		(934,438	)
Loans acquired from business acquisition		—			(14,671	)		(274,292	)
Proceeds from sale of portfolio loans		33,787			34,768			10,931
Payment for business acquisition		(40,793	)		(8,668	)		(6,500	)
Cash acquired in business acquisition		—			517			10,498
Purchase of property, premises and equipment		(6,268	)		(31,761	)		(11,973	)
Sale of banking building		—			—			5,502
Proceeds from sale of other real estate owned		1,105			259			224
Purchase of bank owned life insurance		(21,962	)		(8,811	)		(21,819	)
Investing cash flows, net		55,329			(2,332,233	)		(1,449,273	)
Cash flows—financing activities
Net change in deposits		282,202			239,667			1,013,783
Net change in other borrowings—short-term		(249,784	)		1,570,673			196,381
Proceeds from other borrowings—long-term		225,000			83,200			126,309
Principal repayment—long term borrowings		(407,449	)		(21,501	)		(10,000	)
Proceeds of issuance of company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures		5,000			118,500			50,500
Early retirement of company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures		(20,000	)		—			—
Proceeds from Zero Coupon Senior Convertible Contingent Debt Securities		200,000			—			—
Early retirement of Zero Coupon Senior Convertible Contingent Debt Securities		(117,666	)		—			—
Proceeds from issuance of preferred stock of real estate investment trust		15,000			—			—
Proceeds from sale of common stock		26,883			12,390			26,222
Repurchase of common stock		—			(2,830	)		—
Cash dividends on convertible preferred stock		(4,206	)		—			—
Cash dividends on common stock		(25,133	)		(22,255	)		(18,686	)
Financing cash flows, net		(70,153	)		1,977,844			1,384,509
Net change in cash and cash equivalents		99,110			(260,571	)		46,015
Cash and cash equivalents at beginning of period		215,404			475,975			429,960
Cash and cash equivalents at end of period	$	314,514		$	215,404		$	475,975
Cash flows—supplemental disclosures
Cash paid during the period for:
Interest	$	145,154		$	172,863		$	162,283
Income taxes	$	76,577		$	80,557		$	26,384
Non-cash transactions:
Additions to other real estate owned	$	2,830		$	3,147		$	—
Transfer of appreciated securities to the Greater Bay Bancorp Foundation	$	479		$	—		$	7,200

* Restated on a historical basis to reflect the mergers described in notes 1 and 2 on a pooling-of-interests basis.

See notes to consolidated financial statements.

A-37

GREATER BAY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2002, 2001 and 2000

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Greater Bay Bancorp (“Greater Bay”, on a parent-only basis, and “we” or “our”, on a consolidated basis) is a bank 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. We also have a commercial insurance brokerage subsidiary, ABD Insurance and Financial Services (“ABD”). 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.

In addition to these divisions, we have the following subsidiaries which issued trust preferred securities and purchased Greater Bay’s junior subordinated deferrable interest debentures: GBB Capital II, GBB Capital III, GBB Capital IV, GBB Capital V, GBB Capital VI, and GBB Capital VII. We also created CNB Investment Trust I (“CNBIT I”), CNB Investment Trust II (“CNBIT II”), MPB Investment Trust (“MPBIT”), and SJNB Investment Trust (“SJNBIT”), all of which are Maryland real estate investment trusts and wholly owned subsidiaries of Cupertino National Bank, Mid-Peninsula Bank, and San Jose National Bank, respectively. These entities were formed in order to provide flexibility in raising capital.

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 the Silicon Valley, San Francisco and the San Francisco Peninsula, the East Bay, Santa Cruz, Marin, Monterey, and Sonoma Counties. ABD provides commercial insurance brokerage, employee benefits consulting and risk management solutions to business clients throughout the United States. We also own a broker-dealer, which executes mutual fund transactions. CAPCO’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 eight acquisitions during the three-year period ended December 31, 2002, as described in Note 2. With the exception of the acquisitions with The Matsco Companies, Inc., CAPCO and ABD all of these acquisitions were accounted for as a pooling-of-interests and, accordingly, all our financial information for the periods prior to the acquisitions has been restated as if the acquisitions had occurred at the beginning of the earliest period presented. The acquisitions of The Matsco Companies, Inc., CAPCO, and ABD were accounted for using the purchase accounting method and accordingly their results of operations have been included in the consolidated financial statements since the date of acquisition.

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 2002 presentation. Our accounting and reporting policies conform to generally accepted accounting principles and the prevailing practices within the banking industry.

A-38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

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 our 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.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, Federal Funds sold and agency securities with original maturities of less than ninety days. Generally, Federal Funds are sold for one-day periods. The Banks are required by the Federal Reserve System to maintain noninterest-earning cash reserves against certain of their deposit accounts. At December 31, 2002, the required combined reserves totaled approximately $314.5 million.

Investment Securities

We classify our investment securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Investment securities classified as held to maturity are reported at amortized cost; available for sale securities are reported at fair value with net unrealized gains and losses reported, net of taxes, as a component of shareholders’ equity. We do not have any trading securities.

A decline in the fair value of any available for sale or held to maturity security below cost that is deemed other than temporary, results in a charge to earnings and the corresponding establishment of a new cost basis for the security.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income is recognized when earned. Realized gains and losses for securities classified as available for sale and held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

Required investments in Federal Reserve Bank and FHLB stocks for the Banks and investments in venture funds are classified as other securities and are recorded at cost.

Loans

Loans held for investment are carried at amortized cost. Our loan portfolio consists primarily of commercial and real estate loans generally collateralized by first and second deeds of trust on real estate as well as business assets and personal property.

Interest income is accrued on the outstanding loan balances using the interest method prescribed in the loan agreement. Loans are generally placed on nonaccrual status when the borrowers are past due 90 days unless the loan is well secured and in the process of collection. Loans are also placed on nonaccrual status when full payment of principal or interest is not expected. At the time a loan is placed on nonaccrual status, any interest

A-39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

income previously accrued but not collected is generally reversed and amortization of deferred loan fees is discontinued. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

We charge loan origination and commitment fees. Net loan origination fees and costs are deferred and amortized to interest income over the life of the loan, using the effective interest method. Loan commitment fees are amortized to interest income over the commitment period.

When a loan is sold, unamortized fees and capitalized direct costs are recognized in the consolidated statements of operations. Other loan fees and charges representing service costs for the repayment of loans, for delinquent payments or for miscellaneous loan services are recognized when earned.

Sale and Servicing of Small Business Administration Loans

We originate loans to customers under Small Business Administration (“SBA”) programs that generally provide for SBA guarantees of 70% to 90% of each loan. We generally sell the guaranteed portion of the majority of the loans to an investor and retain the unguaranteed portion and servicing rights in our own portfolio. Funding for the SBA programs depend on annual appropriations by the U.S. Congress.

Gains on these sales are earned through the sale of the guaranteed portion of the loan for an amount in excess of the adjusted carrying value of the portion of the loan sold. We allocate the carrying value of such loans between the portion sold, the portion retained and a value assigned to the right to service the loan. The difference between the adjusted carrying value of the portion retained and the face amount of the portion retained is amortized to interest income over the life of the related loan using a method which approximates the interest method.

Accounting for Direct Financing Leases

Lease contracts are categorized as direct financing leases for financial reporting purposes if they conform to the definition of direct financing leases set out in statement of SFAS No. 13 “Accounting for Leases.” At the time a leasing transaction is executed, we record on our balance sheet the gross lease receivable, estimated residual value of leased equipment, and unearned lease income. Unearned lease income represents the excess of the gross lease receivable plus the estimated residual value over the cost of the equipment leased. Unearned lease income is recognized as leasing income over the term of the lease so as to reflect an approximate constant periodic rate of return on the net investment in the lease.

Allowance for Loan Losses

In accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS No. 118, a loan is considered impaired, based on current information and events, if it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Under these standards, any allowance on impaired loans is generally based on one of three methods. It requires that impaired loans be measured at either, (1) the present value of expected cash flows at the loan’s effective interest rate, (2) the loan’s observable market price, or (3) the fair value of the collateral of the loan. Large groups of smaller-balance homogenous loans such as credit cards, residential mortgage, consumer installment loans and certain small business loans are collectively evaluated for impairment. Income recognition on impaired loans conforms to the method we use for income recognition on nonaccrual loans.

A-40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

The allowance for loan losses is maintained at a level deemed appropriate by management to adequately provide for known and probable losses and inherent risks in the loan portfolio. We have a systematic methodology for determining an appropriate allowance for loan losses. The allowance is based upon a number of factors, including prevailing and anticipated economic trends, industry experience, estimated collateral values, management’s assessment of credit risk inherent in the portfolio, delinquency trends, historical loss experience, specific problem loans and other relevant factors.

Additions to the allowance, in the form of provisions, are reflected in current operating results, while charge-offs to the allowance are made when a loss is determined to have occurred. Because the allowance for loan losses is based on estimates, ultimate losses may vary from the current estimates.

Other Real Estate Owned

OREO consists of properties acquired through foreclosure and is stated at the lower of carrying value or fair value less estimated costs to sell. Development and improvement costs relating to the OREO are capitalized. Operating expenses of such properties, net of related income, are included in other expenses. Estimated losses that result from the ongoing periodic valuation of these properties are charged to current earnings with a provision for losses on foreclosed property in the period in which they are identified. The resulting allowance for OREO losses is decreased when the property is sold. Any remaining gains and losses on the disposition of OREO are included in other income.

Property, Premises and Equipment

Property, premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which is determined by asset classification, as follows:

Buildings	40 years
Building improvements	10 years
Furniture and fixtures	7 years
Automobiles	5 years
Computer equipment	2–5 years
Other equipment	2–7 years

Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the lease term or the estimated useful lives of the asset, which is generally 10 years.

Goodwill and Other Intangible Assets

Goodwill generated from purchase business combinations consummated prior to the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), was amortized on a straight-line basis 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 annually or more frequently upon the occurrence of certain events. During the second quarter of 2002, we completed the required initial impairment tests of goodwill. We completed our annual analysis of goodwill during the fourth quarter of 2002. Other than

A-41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

goodwill, we have no indefinite-lived intangible assets. Based upon these evaluations, our goodwill was not impaired at June 30, 2002 nor December 31, 2002.

Income Taxes

Deferred incomes taxes reflect the estimated future tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations.

Derivatives and Hedging Activities

All derivatives are recorded on the balance sheet at their fair value. On the date that we enter into a derivative contract, we designate the derivative as (1) a hedge of (a) a forecasted transaction or (b) the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge); or (2) an instrument that is held for trading or non-hedging purposes (a “trading” or “non-hedging” instrument). Changes in the fair value of a derivative that is highly effective as and that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction (e.g., until periodic settlements of a variable-rate asset or liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivatives exceed the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings. Changes in the fair value of derivative trading and non-hedging instruments are reported in current-period earnings.

We occasionally enter into a financial transaction in which a derivative instrument is “embedded.” Upon entering into the financial transaction, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When we determine that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a trading or non-hedging derivate instrument.

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to (1) specific assets and liabilities on the balance sheet or (2) specific forecasted transactions. We also formally assess (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively, as discussed below.

We discontinue hedge accounting prospectively when (1) we determine that the derivative is no longer effective in offsetting changes in the fair value of cash flows of a hedged item (including hedged items such as forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When we discontinue hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings.

A-42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, we will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.

Cash flows from hedges are classified in the same category as the cash flows of the items being hedged.

Earnings Per Share and Share Amounts

Basic net earnings per common share is computed by dividing net earnings by the weighted-average number of common shares outstanding during the period. Diluted net earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options.

All outstanding and weighted average share amounts presented in this report have been restated to reflect the 2-for-1 stock split effective as of October 4, 2000.

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, 1999	$	(12,154	)	$	1,504		$	(10,650	)
Other comprehensive income 2000		5,971			(1,356	)		4,615
Balance—December 31, 2000		(6,183	)		148			(6,035	)
Other comprehensive income 2001		10,150			(148	)		10,002
Balance—December 31, 2001		3,967			—			3,967
Other comprehensive income 2002		15,029			(372	)		14,657
Balance—December 31, 2002	$	18,996		$	(372	)	$	18,624

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

Pooling-of-Interests Accounting Transactions

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

A-43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

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 October 13, 2000, Bank of Petaluma merged with and into DKSS Corp., as a result of which, Bank of Petaluma became a wholly-owned subsidiary of Greater Bay. Upon consummation of the merger, the outstanding shares of Bank of Petaluma were converted into an aggregate of approximately 1,667,000 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 Bank of Petaluma on a pooling-of-interests basis.

On July 21, 2000, Bank of Santa Clara merged with and into GBB Merger Corp., as a result of which, Bank of Santa Clara became a wholly-owned subsidiary of Greater Bay. Upon consummation of the merger, the outstanding shares of Bank of Santa Clara were converted into an aggregate of 4,002,000 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 Bank of Santa Clara on a pooling-of-interests basis.

On May 18, 2000, Coast Bancorp, the holding company of Coast Commercial Bank, was merged with and into Greater Bay. Upon consummation of the merger, the outstanding shares of Coast Bancorp were converted into an aggregate of approximately 6,140,000 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 Coast Bancorp on a pooling-of-interests basis.

On January 31, 2000, Mt. Diablo Bancshares, the former holding company of Mt. Diablo National Bank, merged with and into Greater Bay. Upon consummation of the merger, the outstanding shares of Mt. Diablo Bancshares were converted into an aggregate of 2,790,998 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 Mt. Diablo Bancshares on a pooling-of-interests basis.

On January 5, 2000, Saratoga Bancorp, the parent of Saratoga National Bank, merged with and into SJNB Financial Corp. Upon consummation of the merger, the outstanding shares of Saratoga Bancorp were converted into an aggregate of 1,174,249 shares of SJNB Financial Corp’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 Saratoga Bancorp on a pooling-of-interests basis.

In all mergers, certain reclassifications were made to conform to the our financial presentation. The results of operations previously reported by the separate enterprises for the periods before the merger was consummated and that are included in the current combined amounts presented in the accompanying consolidated financial statements are summarized below.

	SJNB Financial Corp nine months ended September 30, 2001		Bank of Petaluma nine months ended September 30, 2000		Bank of Santa Clara six months ended June 30, 2000
	(Dollars in thousands)
Net interest income:
Greater Bay Bancorp	$	207,739	$	154,013	$	89,047
Acquired entity		25,378		7,101		10,195
Combined	$	233,117	$	161,114	$	99,242
Net income:
Greater Bay Bancorp	$	64,039	$	38,608	$	23,850
Acquired entity		8,262		1,982		2,613
Combined	$	72,301	$	40,590	$	26,463

A-44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

	Coast Bancorp three months ended March 31, 2000		Mt. Diablo Bancshares twelve months ended December 31, 1999
	(Dollars in thousands)
Net interest income:
Greater Bay Bancorp	$	36,378	$	103,732
Acquired entity		5,538		10,009
Combined	$	41,916	$	113,741
Net income:
Greater Bay Bancorp	$	13,473	$	27,711
Acquired entity		2,035		2,827
Combined	$	15,508	$	30,538

The following table sets forth the separate results of operations for Greater Bay and SJNB Financial Corp. for the year ended December 31, 2000:

	Net interest income		Net income
	(Dollars in thousands)
Greater Bay	$	231,963	$	58,540
SJNB Financial Corp.		33,626		8,624
Combined	$	265,589	$	67,164

There were no significant transactions between us and any of the acquired entities prior to the mergers. All intercompany transactions have been eliminated.

Purchase Accounting Transactions

On March 12, 2002, we completed the acquisition of ABD for a purchase price of approximately $195.2 million in cash and shares of a new series of convertible preferred stock in a tax-free reorganization. This amount included an initial payment on consummation of the merger of $72.5 million in convertible preferred stock and $59.1 million in cash, and the present value of an earn-out payment of approximately $63.6 million in convertible preferred stock (or common stock in certain instances) and cash contingent upon ABD meeting specified performance goals annually through 2005. In addition, we capitalized merger and other related costs of $1.6 million which was recorded as goodwill. 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 $30.0 million term loan and available cash.

We have allocated the purchase price 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 $95.6 million, which was recorded as goodwill. Assets acquired included other intangibles of $50.4 million, representing the fair value of ABD’s book of business at the acquisition date. Goodwill is evaluated annually for possible impairment under the provisions of SFAS No. 142. Based upon our evaluation, as of December 31, 2002, no impairment exists. The other intangible assets will be amortized using a method that approximates the anticipated utilization of the expirations that will cover a period of seven years and nine months.

A-45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

The following table presents pro forma financial information as if the acquisition of ABD had occurred on January 1, 2001.

	2002							2001
	Greater Bay Bancorp		ABD (1)			Pro forma		Greater Bay Bancorp		ABD			Pro forma
	(Dollars in thousands, except per share amounts)
Net interest income and non-interest income	$	501,504	$	15,665		$	517,169	$	352,127	$	97,639		$	449,766
Income before provision for income taxes		196,327		(611	)		195,716		106,284		(4,897	)		101,387
Net income		124,274		(667	)		123,607		79,816		(5,060	)		74,756
Net income per share—basic						$	2.32						$	1.41
Net income per share—diluted						$	2.27						$	1.37

(1) Includes only ABD’s results through March 11, 2002. ABD’s post-acquisition results, including revenues of $89.4 million, income before provision for income taxes of $15.8 million and net income of $9.1 million, are included in the Greater Bay Bancorp column for 2002.

On March 30, 2001, we completed the 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 acquisition. The source of funds for the acquisition was a $6.0 million advance on an existing credit line and our available cash.

We have allocated the purchase price for the CAPCO merger 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 $6.0 million, was recorded as goodwill, and through December 31, 2001 amortized using the straight-line method over 20 years. Goodwill is evaluated annually for possible impairment under the provisions of SFAS No. 142. Based upon our evaluation, as of December 31, 2002, no impairment exists.

On November 30, 2000, we completed the acquisition of The Matsco Companies, Inc. for a purchase price of $6.5 million in cash. We may also be required to pay future contingent cash payment of up to $6.0 million based on the performance of Matsco subsequent to the acquisition. The acquisition was accounted for using the purchase method of accounting and, accordingly, The Matsco Companies, Inc.’s results of operations have been included in the consolidated financial statements since the date of acquisition. The source of funds for the acquisition was our available cash.

We have allocated the purchase price for The Matsco Companies, Inc. 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 $15.9 million, was recorded as goodwill, and through December 31, 2001 amortized on the straight-line method over 20 years. Goodwill is evaluated annually for possible impairment under the provision of SFAS No. 142. Based upon our evaluation, as of December 31, 2002, no impairment exists.

Pro forma financial information for the CAPCO and Matsco acquisitions have not been provided, as these are not deemed to be significant subsidiaries as defined by the Securities and Exchange Commission.

A-46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

NOTE 3—GOODWILL AND OTHER INTANGIBLE ASSETS

As of December 31, 2002, we had goodwill of $144.2 million. Based on ABD’s achieving its specified performance goals for 2002, we have accrued for the earn-out payment as of December 31, 2002. The accrual resulted in a $21.6 million increase to the goodwill recorded for this transaction and we expect to pay ABD’s former shareholders $13.2 million in cash and approximately 240,000 shares (subject to adjustment) of convertible preferred stock valued at $8.4 million. Also included in the balance of goodwill recorded in connection with the CAPCO and Matsco acquisitions is additional goodwill of $1.9 million that was recognized during 2002 upon satisfaction of certain contingencies. Goodwill and other intangible assets by business segment are as follows:

	Goodwill		Other intangible assets
	(Dollars in thousands)
Community banking:
CAPCO	$	6,054	$	140
Matsco		18,207		—
Other		2,360		2,140
Total community banking		26,621		2,280
Insurance brokerage services:
ABD		117,560		45,442
Total	$	144,181	$	47,722

We adopted SFAS No. 142 on January 1, 2002. Upon adoption of SFAS No. 142, goodwill was no longer amortized. Prior to the adoption of SFAS No. 142, goodwill was amortized using the straight-line method over 20 years. Net income and income excluding amortization of goodwill was as follows:

	Years ended December 31,
	2002		2001
	(Dollars in thousands, except per share amounts)
Reported net income	$	124,274	$	79,816
Add back: goodwill amortization (net of tax)		—		781
Adjusted net income	$	124,274	$	80,597
Basic earnings per share:
Reported net income	$	2.35	$	1.61
Goodwill amortization (net of tax)		—		0.02
Adjusted net income	$	2.35	$	1.63
Diluted earnings per share:
Reported net income	$	2.30	$	1.57
Goodwill amortization (net of tax)		—		0.02
Adjusted net income	$	2.30	$	1.59

We recorded expirations of $45.4 million in connection with the ABD acquisition. Expirations represent the estimated fair value of ABD’s existing customer list (or “book of business”) that ABD has developed over a period of years as of the date of acquisition by Greater Bay. The expirations are estimated to have a life of seven years and nine months. Amortization for intangibles for 2002 and each of the next five years is estimated to range between $5.0 million and $6.5 million per year.

A-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

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

	Gross carrying amount		Accumulated amortization			Total
	(Dollars in thousands)
ABD expirations	$	50,375	$	(4,933	)	$	45,442
CAPCO customer base		200		(60	)		140
Core deposits		3,461		(1,321	)		2,140
Total intangible assets	$	54,036	$	(6,314	)	$	47,722

SFAS No. 142 also requires an analysis of impairment of goodwill annually or more frequently upon the occurrence of certain events. During 2002, we completed the required impairment tests of goodwill and an annual update. We have no indefinite-lived intangible assets. Based upon these evaluations, our goodwill was not impaired at December 31, 2002.

NOTE 4—INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities is summarized below:

As of December 31, 2002	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(Dollars in thousands)
Available for Sale Securities:
U.S. Treasury obligations	$	147,894	$	415	$	(2	)	$	148,307
U.S. agency notes		93,554		1,777		—			95,331
Mortgage and asset-backed securities		1,972,543		34,230		(4,412	)		2,002,361
Tax-exempt securities		99,030		5,598		(10	)		104,618
Taxable municipal securities		4,725		233		(20	)		4,938
Corporate securities		107,630		361		(5,125	)		102,866
Total securities available for sale		2,425,376		42,614		(9,569	)		2,458,421
Other securities		104,568		—		(3	)		104,565
Total investment securities	$	2,529,944	$	42,614	$	(9,572	)	$	2,562,986
As of December 31, 2001	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(Dollars in thousands)
Available for Sale Securities:
U.S. Treasury obligations	$	19,123	$	381	$	—		$	19,504
U.S. agency notes		36,762		1,112		—			37,874
Mortgage and asset-backed securities		2,556,557		25,292		(11,097	)		2,570,752
Tax-exempt securities		120,883		2,300		(595	)		122,588
Taxable municipal securities		7,768		272		(17	)		8,023
Corporate securities		117,025		59		(12,816	)		104,268
Total securities available for sale		2,858,118		29,416		(24,525	)		2,863,009
Other securities		107,640		5		(24	)		107,621
Total investment securities	$	2,965,758	$	29,421	$	(24,549	)	$	2,970,630

A-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

The following table shows amortized cost and estimated fair value of our investment securities by year of maturity as of December 31, 2002.

	2003			2004 through 2007			2008 through 2012			2013 and thereafter			Total
	(Dollars in thousands)
Available for Sale Securities:
U.S. Treasury obligations	$	147,298		$	497		$	—		$	98		$	147,893
U.S. agency notes(1)		13,161			72,975			7,419			—			93,555
Mortgage and asset-backed securities(2)		343			846			41,257			1,930,097			1,972,543
Tax-exempt securities		2,594			9,143			24,855			62,438			99,030
Taxable municipal securities		1,920			2,268			—			537			4,725
Corporate securities		—			3,014			5,000			99,616			107,630
Total securities available for sale	$	165,316		$	88,743		$	78,531		$	2,092,786		$	2,425,376
Fair value	$	167,023		$	91,163		$	81,108		$	2,119,127		$	2,458,421
Weighted average yield—total portfolio		2.33	%		4.80	%		6.02	%		5.43	%		5.23	%

(1) Certain notes issued by U.S. agencies may be called, without penalty, at the discretion of the issuer. This may cause the actual maturities to differ significantly from the contractual maturity dates.

(2) Mortgage and asset-backed securities are shown at contractual maturity; however, the average life of these mortgage and asset-backed securities may differ due to principal prepayments.

Investment securities with a carrying value of $1.7 billion and $2.4 billion were pledged to secure deposits, borrowings and for other purposes as required by law or contract at December 31, 2002 and 2001, respectively.

Other securities includes investments in the Federal Reserve Bank and the FHLB required in order to maintain membership and support activity levels as well as unsold shares received through the exercise of warrants received from clients, equity securities received in settlement of loans and investments in funds managed by outside venture capital funds.

Proceeds and realized losses and gains on sales of investment securities for the years ended December 31, 2002, 2001 and 2000 are presented below:

	2002			2001			2000
	(Dollars in thousands)
Proceeds from sale of available for sale securities	$	1,429,012		$	262,856		$	79,556
Available for sale securities—gains	$	14,876		$	6,526		$	548
Available for sale securities—losses	$	(421	)	$	(222	)	$	(1,069	)

In addition to the net gains on sale recorded on available for sale securities, we recorded a $2.4 million loss on derivative instruments during 2002.

Classification of Investment Portfolio

During 2001, we transferred our entire portfolio of held to maturity debt securities to the available for sale category. The amortized cost of these securities at the time of transfer was $345.8 million and the securities had an unrealized gain of $11.0 million ($6.4 million, net of taxes) at the time of the transfer. Although our intention to hold a majority of our debt securities to maturity has not changed, the transfer was made to increase our flexibility in responding to future economic changes and to increase our efficiency in managing our investment

A-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

portfolio. Subsequent to the transfer, we sold securities which had been classified as held to maturity at December 31, 2000 with an amortized cost of $107.1 million for a gain of $5.5 million.

NOTE 5—LOANS AND ALLOWANCE FOR LOAN LOSSES

The following summarizes the activity in the allowance for loan losses for the years ended December 31, 2002, 2001 and 2000:

	2002			2001			2000
	(Dollars in thousands)
Balance, January 1	$	124,744		$	91,407		$	54,459
Allowance of entities acquired through mergers accounted for under purchase accounting method		—			320			10,927
Provision for loan losses(1)		59,776			58,227			36,899
Loan charge-offs		(59,761	)		(27,735	)		(12,494	)
Recoveries		4,854			2,525			1,616
Balance, December 31	$	129,613		$	124,744		$	91,407

(1) Includes $3.5 million and $8.1 million of charges in 2001 and 2000 respectively, to conform the practices of acquired entities to our reserve methodologies, which are included in mergers and related nonrecurring costs.

The following table sets forth information regarding the following risk elements as of December 31, 2002, 2001 and 2000. Nonperforming loans are defined as loans which are on nonaccrual status. The table also provides the balances of loans which have been restructured and loans which are 90 days past due but are still accruing interest. Interest income foregone on nonperforming loans totaled $1.6 million, $1.2 million and $1.3 million for the years ended December 31, 2002, 2001 and 2000, respectively. Interest income recognized on the nonperforming loans approximated $1.8 million, $227,000 and $16,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

	2002		2001		2000
	(Dollars in thousands)
Nonaccrual loans	$	37,750	$	30,970	$	13,014
Restructured loans	$	4,500	$	—	$	—
Accruing loans past due 90 days or more	$	944	$	5,073	$	4,463

At December 31, 2002 and 2001, the recorded investment in loans, for which impairment has been recognized in accordance with SFAS No. 114 and No. 118, was approximately $37.8 million and $31.0 million, respectively, with corresponding valuation allowances of $17.3 million and $16.5 million respectively. For the years ended December 31, 2002 and 2001, the average recorded investment in impaired loans was approximately $41.4 million and $17.9 million, respectively. We recognized interest income of $1.8 million, $227,000, and $72,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

At December 31, 2002, we had $4.5 million in restructured loans. We had no restructured loans as of December 31, 2001. There were no principal reduction concessions allowed on restructured loans during 2002, 2001 and 2000. Interest income from restructured loans totaled $159,000, $0 and $0 for the years ended December 31, 2002, 2001 and 2000, respectively. There was no foregone interest income for the restructured loans for the years ended December 31, 2002, 2001 and 2000.

A-50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

NOTE 6—OTHER REAL ESTATE OWNED

At December 31, 2002, 2001 and 2000, we hold an OREO value at $397,000, $0, and $51,000, respectively, which consists of properties acquired through foreclosure.

The following summarizes OREO operations, which are included in operating expenses, for the years ended December 31, 2002, 2001 and 2000.

	2002		2001		2000
	(Dollars in thousands)
Real estate operations, net	$	139	$	—	$	51
Loss on sale of OREO		—		—		5
Provision for estimated losses		—		—		—
Net loss from other real estate operations	$	139	$	—	$	56

NOTE 7—PROPERTY, PREMISES AND EQUIPMENT

Property, premises and equipment at December 31, 2002 and 2001 are composed of the following:

	2002			2001
	(Dollars in thousands)
Land	$	4,300		$	4,300
Buildings and premises		12,076			11,909
Furniture and equipment		51,625			51,470
Leasehold improvements		32,302			17,692
Vehicles		867			855
Total		101,170			86,226
Accumulated depreciation and amortization		(49,101	)		(37,343	)
Premises and equipment, net	$	52,069		$	48,883

Depreciation and amortization amounted to $11.8 million, $9.2 million and $8.5 million for the years ended December 31, 2002, 2001 and 2000, respectively, and have been included in occupancy and equipment expense in the accompanying consolidated statements of operations.

During 2000, we sold one bank premises building with a carrying value of $4.8 million for $5.4 million in a sale-lease back transaction. No gain was recognized on the transaction. Gains of $535,000 were deferred and are being recognized over the term of our lease.

NOTE 8—DEPOSITS

Deposits as of December 31, 2002 and 2001 are as follows:

	2002		2001
	(Dollars in thousands)
Demand, noninterest-bearing	$	1,028,672	$	953,989
MMDA, NOW and Savings		2,673,973		2,280,119
Time certificates, $100,000 and over		829,717		827,756
Other time certificates		739,911		928,207
Total deposits	$	5,272,273	$	4,990,071

A-51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

The following table sets forth the maturity distribution of time certificates of deposit at December 31, 2002.

	December 31, 2002
	Three months or less		Four to six months		Seven to twelve months		One to three years		More than three years		Total
	(Dollars in thousands)
Time deposits, $100,000 and over	$	448,508	$	150,009	$	100,387	$	115,530	$	15,283	$	829,717
Other time deposits		282,061		285,000		135,165		32,891		4,794		739,911
Total	$	730,569	$	435,009	$	235,552	$	148,421	$	20,077	$	1,569,628

NOTE 9—COMPANY OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES

GBB Capital II, GBB Capital III, GBB Capital IV, GBB Capital V, GBB Capital VI and GBB Capital VII (the “Trusts”) are Delaware business trusts of which all the common securities are owned by Greater Bay and were formed for the purpose of issuing Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Debentures (“Trust Preferred Securities”). The Trust Preferred Securities are individually described below. Dividends on the Trust Preferred Securities are payable either quarterly or semi-annually and are deferrable, at our option, for up to five years. As of December 31, 2002, all dividends are current. Following the issuance of each Trust Preferred Securities, the Trusts used the proceeds from the Trust Preferred Securities offerings to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (the “Debentures”) of Greater Bay. The Debentures bear the same terms and interest rates as the related Trust Preferred Securities. The Debentures are the sole assets of the Trusts and are eliminated, along with the related income statement effects, in the consolidated financial statements. Greater Bay has fully and unconditionally guaranteed all of the obligations of the Trusts. Under applicable regulatory guidelines, a portion of the Trust Preferred Securities will qualify as Tier I capital, and the remaining portion will qualify as Tier II capital.

On July 22, 2002, we redeemed all $20.0 million outstanding trust preferred securities, of GBB Capital I, a trust subsidiary. As a result, during the second quarter of 2002, there was a $975,000 cost related to this early extinguishment of GBB Capital I. This redemption will reduce our Trust Preferred Securities expense by $488,000 per quarter on a prospective basis. As of December 31, 2002, we have a total of $204.0 million Trust Preferred Securities outstanding. Under applicable regulatory guidelines, all $204.0 million of the outstanding Trust Preferred Securities qualify as Tier I Capital.

A-52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

The following Trust Preferred Securities were outstanding at December 31, 2002.

Security title	Issuer	Amount outstanding		Date of original issue	Stated maturity	Optional redemption date
Floating Rate Trust Preferred     Securities, Series B	GBB Capital II	$	30,000,000	August 12, 1998	Sept. 15, 2028	Sept. 15, 2008
10.875% Fixed Rate Capital Trust     Pass-Through Securities	GBB Capital III		9,500,000	March 23, 2000	March 8, 2030	March 8, 2010
10.75% Capital Securities,     Series B	GBB Capital IV		41,000,000	May 18, 2000	June 1, 2030	June 1, 2010
9% Cumulative Trust     Preferred Securities	GBB Capital V		103,500,000	August 14, 2001	August 14, 2031	August 14, 2006
Floating Rate Trust Preferred     Pass-Through Securities	GBB Capital VI		15,000,000	July 27, 2001	July 27, 2031	July 27, 2011
Floating Rate Trust Preferred     Pass-Through Securities	GBB Capital VII		5,000,000	April 10, 2002	April 22, 2032	April 22, 2007
Total TPS outstanding		$	204,000,000

The Trust Preferred Securities are mandatorily redeemable, in whole or in part, upon repayment of their underlying Debentures at their respective stated maturities or their earlier redemption. The Debentures are redeemable prior to maturity at our option on or after their respective optional redemption dates.

The Trust Preferred Securities issued by GBB Capital III, GBB Capital IV and GBB Capital V accrue interest at an annual rate of 10.875%, 10.75% and 9.00 %, receptively. The Floating Rate Trust Preferred Securities, Series B issued by GBB Capital II accrue interest at a variable rate of interest, initially at 7.1875% on the outstanding securities. The interest rate resets quarterly and is equal to the 3-month LIBOR rate plus 150 basis points. The Floating Rate Trust Preferred Pass-Through Securities issued by GBB Capital VI accrue interest at a variable rate of interest, initially at 7.57% on the outstanding securities. The interest rate resets quarterly and is equal to 6-month LIBOR plus 375 basis points. The Floating Rate Trust Preferred Pass-Through Securities issued by GBB Capital VII accrue interest at a variable rate of 6-month LIBOR plus 370 basis points payable semi-annually.

On the date of original issue, GBB Capital II and GBB Capital IV completed the issuance of Series A securities. The Series A securities issued in the offering were sold in private transactions pursuant to an applicable exemption from registration under the Securities Act. GBB Capital II and GBB Capital IV completed an offer to exchange the Series A securities for a like amount of its registered Series B securities. The exchange offerings were completed in November 1998 and November 2000, respectively. The exchange offerings were conducted in accordance with the terms of the initial issuance of the Series A securities.

The total amount of Trust Preferred Securities outstanding at December 31, 2002 and 2001 was $204.0 million and $218.0 million, respectively. The dividends paid on Trust Preferred Securities were $18.2 million, $13.7 million and $7.8 million in 2002, 2001 and 2000, respectively.

NOTE 10—ZERO COUPON SENIOR CONVERTIBLE CONTINGENT DEBT SECURITIES (“CODES”)

On April 24, 2002, we received approximately $195 million in net proceeds through a private placement of Zero Coupon Senior Convertible Contingent Debt Securities (the “CODES”). The CODES have a yield to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

maturity of 2.25%. The offered notes have a maturity of 20 years, are callable after five years and are putable by the holder at the end of years 2, 5, 10 and 15. The CODES are convertible into common stock of Greater Bay contingent on certain circumstances. We used the net proceeds from the sale of the CODES for general corporate purposes, which included working capital, capital expenditures, acquisitions, repayment of trust preferred securities and repayment of existing indebtedness. On July 22, 2002, we filed a registration statement on Form S-3 with the SEC to register the CODES and the underlying common stock for resale. The registration statement, which was amended on October 1, 2002, became effective on October 4, 2002

During the later part of 2002, we repurchased CODES with an accreted value of $128.8 million. As of December 31, 2002, $72.5 million in CODES remain outstanding. This repurchase resulted in a net pre-tax gain of $8.4 million for the year ended December 31, 2002.

NOTE 11—LEASE SECURITIZATION

During 1997, Matsco Lease Finance Inc. III, a special purpose corporation wholly-owned by The Matsco Companies, Inc., issued the following lease-backed notes; $55 million Series 1997-1A, $45 million Series 1997-2A, $1.6 million Series 1997-1B and $4.5 million 1997-2B. All Class B certificates, which were subordinate to the Class A certificates, were paid off as of December 31, 2000. As of December 31, 2002, the note balances on the Series 1997-1 and Series 1997-2 were approximately $9.7 million and $10.5 million, respectively. As of December 31, 2001, the note balances on the Series 1997-1 and Series 1997-2 were approximately $17.9 million and $19.7 million, respectively. All of the transactions placed in Series 1997-2 were treated as a sale in accordance with SFAS No. 125 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” subsequently replaced by SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. The weighted average rate on the combined series of 1997 notes was 5.68% and 5.77% at December 31, 2002 and 2001, respectively. The underlying leases had a carrying value of $9.7 million and $10.5 million for Series 1997-1 and Series 1997-2, respectively, at December 31, 2002. The underlying leases have a carrying value of $16.9 million and $20.7 million for Series 1997-1 and Series 1997-2, respectively, at December 31, 2001. At December 31, 2002 and 2001, 0.06% and 0.02% of those leases were 90 days or more past due, respectively. The start-up expenses and private placement fees associated with the issuance of the 1997-2 lease-backed notes are expensed at funding. Such amounts related to the 1997-1 notes are amortized over the life of the notes to approximate a constant periodic rate of interest. The Class A certificates are rated “AAA” by Standards and Poor’s Rating Services and “Aaa” by Moody’s Investors Service and are fully insured by Municipal Bond Insurance Corporation pursuant to the terms of a note guarantee policy.

We, as servicer of the underlying leases, remit funds collected on Matsco Lease Finance Inc. III to the trustee on a weekly basis. We receive a flat fee per lease as the servicer. In the event an account is delinquent or terms are modified, the servicer has the option to repurchase the transaction or to substitute with a similar account.

Pursuant to the acquisition of The Matsco Companies, Inc., Matsco Lease Finance Inc. III became a wholly-owned subsidiary of Greater Bay and Matsco Lease Finance Inc. III is included in our consolidated results.

NOTE 12—FORMATION OF SUBSIDIARY INVESTMENT TRUSTS

During 2002, we formed and funded SJNBIT, a Maryland real estate investment trust, as a wholly-owned subsidiary of San Jose National Bank. SJNBIT provides SJNB with flexibility in raising capital. San Jose National Bank contributed loans with a net book value of $206.6 million, and $500,000 in cash to SJNBIT, in exchange for 100% of the common and preferred stock of SJNBIT. As of December 31, 2002, the net income, assets and equity of SJNBIT are eliminated in consolidation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

During 2002, we formed and funded MPBIT, a Maryland real estate investment trust, as a wholly-owned subsidiary of Mid-Peninsula Bank. MPBIT provides MPB with flexibility in raising capital. Mid Peninsula Bank 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 December 31, 2002, the net income, assets and equity of MPBIT are eliminated in consolidation.

During 2001, we formed and funded CNBIT I and CNBIT II, both of which are Maryland real estate investment trusts, as a wholly-owned subsidiary of Cupertino National Bank. CNBIT I and CNBIT II provide Cupertino National Bank with flexibility in raising capital. As of December 31, 2002, the net income and assets of CNBIT I and CNBIT II are eliminated in consolidation. Cupertino National Bank contributed participation interests in loans with a net book value of $311.3 million and $500,000 in cash to CNBIT I, in exchange for 100% of the common and preferred stock of the CNBIT I.

Cupertino National Bank contributed participation interests in loans with a book value of $133.4 million, net of reserves, and $15.4 million in investment securities to CNBIT II, in exchange for 100% of the preferred stock of the CNBIT II. The assets contributed to CNBIT II had built in losses of $33.2 million for federal income tax purposes. CNBIT I contributed participation interests in loans with a book value of $200.8 million, net of reserves in exchange for 100% of the common stock of CNBIT II. CNBIT I owns all the common stock of CNBIT II. During 2001, Cupertino National Bank sold 15,000 shares of the 12% Series B Preferred Stock of CNBIT II for $15.0 million. These transactions resulted in recognition of a tax benefit of $11.4 million. As of December 31, 2002, the net income, asset and equity of CNBIT I and CNBIT II are eliminated in consolidation.

NOTE 13—BORROWINGS

Borrowings are detailed as follows:

	2002		2001
	(Dollars in thousands)
Short term borrowings:
FHLB advances	$	1,279,565	$	1,334,711
Securities sold under agreements to repurchase		111,291		264,727
Other short term notes payable		—		41,202
Total short term borrowings		1,390,856		1,640,640
Long term borrowings:
FHLB advances		206,834		379,828
Zero Coupon Senior Convertible
Contingent Debt Securities		73,580		—
Term loan		30,000		—
Securities sold under agreements to repurchase		20,000		57,700
Other long term notes payable		15,973		17,728
Total long term borrowings		346,387		455,256
Total borrowings	$	1,737,243	$	2,095,896

Short term borrowings

During the years ended December 31, 2002 and 2001, the average balance of short term FHLB advances was $1.2 billion and $848.5 million, respectively, and the average interest rates during those periods were 2.78% and 4.17%, respectively. The maximum amounts outstanding at any month-end during the years ended December 31, 2002 and 2001 were $1.4 billion and $1.3 billion, respectively. The FHLB advances are

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

collateralized by loans and securities pledged to the FHLB. At December 31, 2002 and 2001, we had investment securities with a carrying value of $1.5 billion and $1.6 billion, respectively and loans with a carrying value of $322.8 million and $255.1 million, respectively pledged to the FHLB for both short-and long-term borrowings.

During the years ended December 31, 2002 and 2001, the average balance of securities sold under short term agreements to repurchase was $236.8 million and $188.4 million, respectively, and the average interest rates during those periods were 2.05% and 3.40%, respectively. The maximum amounts outstanding at any month-end during the years ended December 31, 2002 and 2001 were $400.9 million and $307.2 million, respectively. Securities sold under short term agreements to repurchase generally mature within 90 days of dates of purchase.

During the years ended December 31, 2002 and 2001, the average balance of federal funds purchased was $314,000 and $120,000, respectively, and the average interest rates during those periods were 1.82% and 4.37%, respectively. There were no maximum amounts outstanding at any month-end during the years ended December 31, 2002 and 2001. There was no such balance outstanding at December 31, 2002 and 2001.

In addition, as of December 31, 2002, we had a short-term, secured credit facility totaling $60.0 million. At December 31, 2002 we had no advances outstanding under this facility. During the years ended December 31, 2002 and 2001, the average balances under our short-term credit facilities were $16.5 million and $24.0 million, respectively, and the average interest rates during those periods were 2.81% and 4.86%, respectively. The maximum amounts outstanding at any month-end during the years ended December 31, 2002 and 2001 were $45.0 and $48.0, respectively. The credit facility provides for an interest rate based approximately on LIBOR + 0.50%. We were in compliance with all related financial covenants for this credit facility.

Long-term borrowings

The long-term FHLB advances mature between 2004 and 2011. We paid an average interest rate of 3.73% on these advances.

In addition, as of December 31, 2002, we had a term loan outstanding of $30.0 million that matures in 2007. There were no such loans outstanding at December 31, 2001. We paid an average rate of 3.20% on this loan. We were in compliance with all related financial covenants for this credit facility.

NOTE 14—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We elected early adoption of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” in 1998.

We maintain an overall interest rate risk-management strategy that occasionally incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. Our goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net-interest margin is not, on a material basis, adversely affected by movements in interest rates. Furthermore, our strategy includes the desire for cost certainty of instruments issued primarily for capital raising purposes, and as such we have, in the past, converted variable rate trust preferred securities into fixed rate instruments using cash flow hedges. As a result of interest rate fluctuations, the interest income and interest expense of hedged variable-rate assets and liabilities, respectively, will increase or decrease. The effect of this variability in earnings is expected to be substantially offset by our gain and losses on the derivative instruments that are linked to these hedged assets and liabilities. We consider our limited use of derivatives to be a prudent method of managing interest rate sensitivity on certain variable rate liabilities, as we prevent earnings from being exposed to undue risk posed by changes in interest rates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

Derivative instruments that are used as part of our interest rate risk-management strategy include interest rate swaps, and option contracts that have indices related to the pricing of specific balance sheet assets and liabilities. As a matter of policy, we do not use highly leveraged derivative instruments for interest rate risk-management. Interest rate swaps generally involved the exchange of fixed- and variable-rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate options represent contracts that allow the holder of the option to (1) receive cash or (2) purchase, sell, or enter into a financial instrument at a specified price within a specified period.

We also enter into various interest rate derivative contracts for trading and macro risk-management purposes. Trading activities (which include derivative transactions that are entered into for risk-management purposes and do not otherwise qualify for hedge accounting) primarily involve providing various derivative products to customers.

By using derivative instruments, we expose ourselves to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, our credit risk will equal the fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counter party owes us, thus creating a repayment risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and therefore, assume no repayment risk. We minimize the credit (or repayment) risk in derivative instruments by entering into transactions with high quality or highly rated counterparties. Further, when the circumstances are deemed appropriate, we may request that collateral be provided by the counterparty.

We also maintain a policy of requiring that all derivative contracts be governed by an International Swaps and Derivative Association Master Agreement; depending on the nature of the derivative transaction, bilateral collateral arrangements may be required as well. When we are engaged in more than one outstanding derivative transaction with the same counterparty and also have a legally enforceable master netting agreement with that counterparty, the “net” mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty. When there is a net negative exposure, we regard our credit exposure to the counterparty as being zero. The net mark-to-market position with a particular counterparty represents a reasonable measure of credit risk when there is a legally enforceable master netting agreement (i.e., a legal right of a setoff of receivable and payable derivative contracts) between us and that counterparty. Our policy is to use master netting agreements with all counterparties.

Market risk is the adverse effect that a change in interest rates, currency, or implied volatility rates might have on the value of a financial instrument. We manage the market risk associated with interest rate and foreign-exchange contracts by establishing and monitoring limits for the types and degree of risk that my be undertaken. We regularly measure this risk by using a value-at-risk methodology.

Our derivative activities are monitored by our risk-management committee as part of that committee’s oversight of our asset/liability and treasury functions. Our asset/liability committee is responsible for approving hedging strategies that are developed through its analysis of data derived from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into our overall interest rate risk-management and trading strategies. Responsibility for the implementation of hedging strategies is delegated to our risk management committee.

Cash Flow Hedges

We use an interest rate swap to convert floating-rate debt to fixed-rate debt. A swap, with notional amount is $30.0 million with a term of up to 10 years expiring on September 15, 2008 was entered into with the intention of fixing the interest payments on the trust preferred securities issued by GBB Capital II. This derivative instrument possesses a term equal to the non-callable term of the hedged instrument, with a fixed pay rate and a receive rate

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

indexed to rates paid on the instrument and a notional amount equal to the amount of the instrument being hedged. As the specific terms and notional amount of the derivative instrument exactly matched those of the instrument being hedged, we meet the “no ineffectiveness” criteria of SFAS No. 133 and 138. As such, the derivative instrument was assumed to be 100% effective and all changes in the fair value of the hedge were recorded in other comprehensive income with no impact on the income statement for any ineffective portion through September 30, 2001. During 2001, we determined that the designation of this derivative as a hedge was no longer appropriate as the hedged liability no longer qualified for hedge treatment. Subsequent to that determination, changes in the value of the derivative contracts were recorded to current income. On October 1, 2002 we elected to reassert the designation of 29/30^th of this interest rate swap as a cash flow hedge. Subsequent to that designation, changes to the fair value of that hedge is included in other comprehensive income to the extent that the swap is deemed effective. Changes in value attributed to ineffectiveness are recorded in current income.

For the year ended December 31, 2002, we did not recognized any loss which represented ineffectiveness of cash flow hedges, including the time value of option contracts. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness, except for the time value of option contacts.

For cash flow hedges, gains and losses on derivative contracts that are reclassified from accumulated other comprehensive income to current-period earnings are include in the line item in which the hedged items is recorded in the same period the forecasted transaction affects earnings.

Trading and Non-Hedging Activities

We also entered into an interest rate collar to reduce the embedded cap in trust preferred securities. The interest rate cap, with a notional amount of $15.0 million and a term of ten years expiring in July 2011, was entered into with the intention of lowering the cap of the interest payments on the trust preferred securities issued by GBB Capital VI. During 2001, we determined that the designation of this derivative as a hedge was no longer appropriate as the hedged liability no longer qualified for hedge treatment. Subsequent to that determination, changes in the value of the derivative contracts were recorded to current income.

Additionally, we have a $20.0 million prime/fixed interest rate swap with a term expiring in 2003 that was entered into with the intention of tying to prime the interest paid on certain long term certificates of deposit and the derivative instrument used was a fair value hedge. During 2001, we also determined that the designation of these derivatives as hedges was no longer appropriate as they no longer were effective. Subsequent to that determination, changes in the value of the derivative contracts were recorded to current income.

Other

We enter into various interest rate and foreign-exchange derivative contracts as part of our other trading activities, which primarily focus on providing customers with derivative products. We intermediate these contracts with another counterparty. While the exposure to interest rate and foreign-exchange risk has been mitigated, we remain exposed to counterparty credit risk.

Derivatives that we enter into for trading purposes included interest rate swaps, foreign-currency spot contracts and forward contracts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

NOTE 15—INCOME TAXES

Income tax expense was comprised of the following for the years ended December 31, 2002, 2001 and 2000:

	2002			2001			2000
	(Dollars in thousands)
Current:
Federal	$	62,760		$	33,908		$	45,742
State		12,905			14,103			16,052
Total current		75,665			48,011			61,794
Deferred:
Federal		(2,190	)		(16,102	)		(13,476	)
State		(1,422	)		(5,441	)		(4,653	)
Total deferred		(3,612	)		(21,543	)		(18,129	)
Total expense	$	72,053		$	26,468		$	43,665

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at December 31, 2002 and 2001 are as follows:

	Years ended December 31,
	2002			2001
	(Dollars in thousands)
Allowance for loan losses	$	59,422		$	43,124
State income taxes		3,225			16,853
Deferred compensation		13,988			11,195
Unrealized gains losses on securities		(13,757	)		(2,057	)
Accumulated depreciation		3,058			1,681
Purchase allocation adjustments		113			214
Leasing operations		(8,940	)		(8,225	)
Other		(3,005	)		(202	)
Net deferred tax asset	$	54,104		$	62,583

Management believes that we will fully realize the total deferred tax assets as of December 31, 2002 based upon our recoverable taxes from prior carryback years, and our current level of operating income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

A reconciliation from the statutory income tax rate to the consolidated effective income tax rate follows, for the years ended December 31, 2002, 2001 and 2000:

	Years Ended December 31,
	2002		2001		2000
	(Dollars in thousands)
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
California franchise tax expense, net of federal income tax benefit	3.8	%	6.1	%	6.7	%
	38.8	%	41.1	%	41.7	%
Tax exempt income	–1.0	%	–2.2	%	–2.7	%
Contribution of appreciated securities to GBB Foundation	–0.1	%	—		—
Nondeductible merger costs	—		0.5	%	1.3	%
Recognition of losses of CNBIT II in connection with sale of preferred securities (note 12)	—		–10.7	%	—
Life insurance cash surrender value	–0.9	%	–1.6	%	–1.2	%
Other, net	–0.1	%	–2.2	%	0.3	%
Effective income tax rate	36.7	%	24.9	%	39.4	%

NOTE 16—OTHER INCOME AND OPERATING EXPENSES

For the year ended December 31, 2002, we recorded a loss of $89,000 in warrant income net of related employee incentives expense of $23,000. For the year ended December 31, 2001 and 2000 we recorded warrant income of $581,000 and $13.0 million net of related employee incentives of $249,000 and $4.5 million, respectively. 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. Agreements with certain of our employees award them a percentage of the income earned on the warrants that they or their group originate. The related incentives expense represents payment for these awards.

To support the Greater Bay Bancorp Foundation (the “Foundation”), we contributed appreciated securities to the Foundation. In 2002, these contributions resulted in the deduction of $479,000 in donation expense. In connection with this contribution, we recognized $479,000 of warrant income and a $262,000 tax benefit resulting from the contribution of appreciated securities.

Merger and other related costs for the years ended December 31, 2002, 2001 and 2000 were comprised of the following:

	2002		2001		2000
	(Dollars in thousands)
Financial advisory and professional fees	$	—	$	6,088	$	8,229
Charges to conform accounting practices		—		4,241		8,156
Other costs		—		18,920		17,141
Total	$	—	$	29,249	$	33,526

Other costs include severance and other compensation expenses, charges for the write-off of assets retired as a result of the merger, and other expenses including printing costs and filing fees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

Other expenses for the years ended December 31, 2002, 2001 and 2000 were comprised of the following:

	2002		2001		2000
	(Dollars in thousands)
Legal and other professional fees	$	8,901	$	7,839	$	5,345
Telephone, postage and supplies		7,398		6,027		5,410
Correspondent bank and ATM network fees		6,083		3,622		2,122
Marketing and promotion		5,355		5,648		5,017
Data processing		4,820		4,448		2,879
Insurance		3,385		1,135		631
Client services		2,117		2,965		2,694
FDIC insurance and regulatory assessments		1,780		1,762		1,472
Directors fees		1,107		1,585		1,758
Trust Preferred Securities early retirement expense		975		—		—
Other real estate owned		139		—		56
Other		7,439		7,973		6,721
	$	49,499	$	43,004	$	34,105

Occupancy costs for the years ended December 31, 2002, 2001 and 2000 were $27.3 million, $17.4 million and $13.5 million, respectively.

NOTE 17—EMPLOYEE BENEFIT PLANS

Stock Option Plan

At December 31, 2002 the total authorized shares issuable under the Greater Bay Bancorp Amended and Restated 1996 Stock Option Plan (the “Bancorp Plan”) was approximately 13,832,000 shares and the number of shares available for future grants was approximately 2,851,000 shares.

Options and shares of restricted stock may be granted to employees, nonemployee directors, and consultants. Options may be either incentive or nonqualified stock options as defined under current tax laws. The exercise price of each option must equal the market price of our stock on the date of grant. The term of an option may not exceed ten years and generally vests over a five-year period. The restrictions on shares of restricted stock generally lapse over a five-year period.

On November 19, 1997, our shareholders approved an amendment of the Bancorp Plan, to increase by 1,825,304 the number of shares of Greater Bay stock issuable under the Bancorp Plan. On May 17, 2000, our shareholders approved an additional amendment of the Bancorp Plan to increase by 5,000,000 the number of shares issuable under the Bancorp Plan. On October 23, 2001, our shareholders approved an additional amendment of the Bancorp Plan to increase by 4,000,000 the number of shares issuable under the Bancorp Plan to accommodate the increased number of eligible employees as a result of the mergers and as a result of internal growth.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

A summary of our stock options as of December 31, 2002, 2001 and 2000 and changes during the years ended on those dates is presented below:

	2002				2001				2000
	Shares (000’s)		Weighted average exercise price		Shares (000’s)		Weighted average exercise price		Shares (000’s)		Weighted average exercise price
Outstanding at beginning of year	7,420		$	20.07	7,094		$	17.54	7,489		$	11.45
Granted	649			27.60	1,411			27.07	1,602			33.05
Exercised	(1,261	)		11.44	(826	)		9.04	(1,493	)		6.54
Forfeited	(354	)		26.99	(259	)		25.15	(504	)		9.03
Outstanding at end of year	6,454			22.13	7,420			20.07	7,094			17.54
Options exercisable at year-end	3,495			18.09	3,771			14.52	3,259			10.60
Weighted average fair value of options granted during the year			$	9.44			$	8.43			$	12.01

The following table summarizes information about stock options outstanding at December 31, 2002.

	Options outstanding				Options exercisable
Exercise price range	Number outstanding (000’s)	Weighted average remaining life (years)	Weighted average exercise price		Number exercisable (000’s)	Weighted average exercise price
$ 0.00–$ 9.00	550	3.29	$	5.55	546	$	5.58
$ 9.20–$19.25	2,801	6.26		16.45	1,967		15.84
$19.50–$29.72	1,603	8.52		24.77	517		23.36
$30.00–$40.31	1,499	8.24		36.02	464		36.52

Under the terms of the respective mergers, the stock option plans of Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Bancorp and SJNB Financial Corp. were terminated at the time of merger and substitute options were issued under the Bancorp Plan. Option holders under the Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of Commerce, Coast Bancorp and SJNB Financial Corp. plans received substitute option grants to purchase 239,880 shares, 471,840 shares, 59,668 shares, 216,636 shares, and 1,228,511 shares of Greater Bay stock, respectively. During 2000, we assumed the Mt. Diablo National Bank Stock Option Plan. Options outstanding from the Mt. Diablo National Bank plan were converted to options to purchase 15,110 shares of Greater Bay stock.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Under the provisions of SFAS No. 123, we are encouraged, but not required, to measure compensation costs related to our employee stock compensation plans under the fair value method. If we elect not to recognize compensation expense under this method, we are required to disclose the pro forma net income and net income per share effects based on the SFAS No. 123 fair value methodology. We implemented the requirements of SFAS No. 123 in 1997 and have elected to adopt the disclosure provisions of this statement.

We apply Accounting Principles Board (“APB”) Opinion No. 25 and related interpretations in our accounting for stock options. Accordingly, no compensation cost has been recognized for our stock option plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

Had compensation for our stock option plan been determined consistent with SFAS No. 123, our net income per share would have been reduced to the pro forma amounts indicated below:

	December 31,
	2002		2001		2000
	(Dollars in thousands, except per share amounts)
Stock based employee compensation cost, net of tax, that would have been included in the determination of net income if the fair value method had been applied to all awards	$	4,864	$	3,764	$	1,923
Net income:
As reported	$	124,274	$	79,816	$	67,164
Pro forma	$	119,410	$	76,052	$	65,241
Basic net income per share:
As reported	$	2.35	$	1.61	$	1.40
Pro forma	$	2.26	$	1.54	$	1.36
Diluted net income per share:
As reported	$	2.30	$	1.57	$	1.33
Pro forma	$	2.21	$	1.49	$	1.29

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2002, 2001, and 2000, respectively; dividend yield of 1.9%, 1.6% and 1.3%; expected volatility of 37.5%, 35.0% and 27.0%; risk free rates of 3.8%, 4.5% and 6.0%; weighted average expected life of five years and nine months, five years and five years. No adjustments have been made for forfeitures. The actual value, if any, that the option holder will realize from these options will depend solely on the increase in the stock price over the option price when the options are exercised.

401(k) Savings Plan

We have a 401(k) tax deferred savings plan under which eligible employees may elect to defer a portion of their salary (up to 15%) as a contribution to the plan. We match the employees’ contributions at a rate set by the Board of Directors (currently 62.5% of the first 8% of deferral of an individual’s total compensation). Our matching contributions are made in cash. The matching contribution vests ratably over the first four years of employment. Our employees are not required to maintain any portion of their 401(k) savings in our stock.

ABD has a profit-sharing 401(k) plan which was in place prior to our acquisition. ABD employees could elect to defer a maximum of 12% of their eligible compensation, not to exceed Internal Revenue Service limitations. ABD agreed to match 50% of employee contributions up to $3,000 per employee per year.

For the years ended December 31, 2002, 2001 and 2000, we contributed $3.3 million, $2.4 million and $1.8 million, respectively to the 401(k) plan.

Employee Stock Purchase Plan

We have established an Employee Stock Purchase Plan, as amended, under section 423(b) of the Internal Revenue Code which allows eligible employees to set aside up to 15% of their compensation toward the purchase of our stock for an aggregate total of 923,738 shares. Under the plan, the purchase price is 85% of the lower of the fair value at the beginning or end of each three-month offering period. During 2002, 2001 and 2000,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

employees purchased 129,862, 114,860 and 93,356 shares of common stock, respectively. There were 187,938 shares remaining in the plan available for purchase by employees at December 31, 2002.

Supplemental Employee Compensation Benefits Agreements

We have entered into supplemental employee compensation benefits agreements with certain executive and senior officers. Under these agreements, we are generally obligated to provide for each such employee or their beneficiaries, during their life for a period of up to 15 to 20 years after the employee’s disability or retirement, benefits as defined in each specific agreement. The agreement also provides for a death benefit for the employee. The estimated present value of future benefits to be paid is being accrued over the vesting period of the participants. The related accumulated accrued liability at December 31, 2002 and 2001 is approximately $18.2 million and $16.7 million, respectively. The actuarial assumptions used for determining the present value of the projected benefit obligation include a 7% discount rate. Expenses accrued for this plan for the years December 31, 2002, 2001 and 2000 totaled $5.6 million, $8.2 million and $3.3 million, respectively. In 2001 and 2000, an additional $6.7 million and $1.4 million, respectively, was recorded as part of merger and other related costs in connection with the change in control provisions under the SJNB Financial Corp. and Saratoga supplemental employee compensation benefits agreements programs. No such costs were incurred in 2002. Depending on the agreement, the employees and we are beneficiaries of life insurance policies that have been purchased as a method of financing the benefits under the agreements. At December 31, 2002 and 2001, our cash surrender value of these policies was approximately $124.9 million and $96.8 million, respectively and is included in other assets. The income recognized on these polices was $6.1 million, $4.1 million and $3.2 million in 2002, 2001 and 2000, respectively, and is included in other income.

Deferred Compensation Plan

Effective November 19, 1997, we adopted the Greater Bay Bancorp 1997 Elective Deferral Compensation Plan (the “Deferred Plan”) that allows our eligible officers to defer a portion of their salary, bonuses and certain other compensation. The deferred compensation will earn interest calculated annually based on a short-term interest reference rate. All participants are fully vested at all times in their contributions to the Deferred Plan. At December 31, 2002 and 2001, $11.0 million and $6.1 million, respectively, of deferred compensation under this plan is included in other liabilities in the accompanying consolidated balance sheets.

Additionally, under deferred compensation agreements that were established at Bank of Petaluma, Coast Commercial Bank and Peninsula Bank of Commerce prior to their mergers with us, there was approximately $338,000 and $1.6 million of deferred compensation which is included in other liabilities at December 31, 2002 and 2001, respectively.

Change in Control

In the event of a change in control, the supplemental employee compensation benefits agreements with certain executive and senior officers may require us to make certain payments under those agreements. We also have plans in place, which would require certain payments to be made to any employee whose employment is terminated pursuant to a change in control. These potential liabilities are currently not recognized in the accompanying consolidated financial statements.

NOTE 18—RELATED PARTY TRANSACTIONS

We have, and expect to have in the future, banking transactions in the ordinary course of business with directors, executive officers and their affiliates. These transactions are entered into under terms and conditions equal to those entered into in arms length transactions and are made subject to approval by the Directors’ Loan

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

Committee and the Board of Directors of the Bank extending the credit. An analysis of total loans to related parties for the years ended December 31, 2002 and 2001 is shown below:

	2002			2001			2000
	(Dollars in thousands)
Balance, January 1	$	20,907		$	51,323		$	28,851
Additions		64,224			40,184			51,839
Repayments		(41,383	)		(70,600	)		(29,367	)
Balance, December 31	$	43,748		$	20,907		$	51,323
Undisbursed commitments, at year end	$	46,026		$	63,724		$	39,744

We are a party to three leases for buildings owned in part by directors of Greater Bay or one of its subsidiary banks. The ABD headquarters building is partially owned by two directors of Greater Bay. We pay a monthly rent of $204,000, subject to annual rent adjustments of 3% on a lease which expires in November 2010. The Mid-Peninsula Bank headquarters building is partially owned by two directors of Greater Bay and two directors of Mid-Peninsula Bank. We pay a monthly rent of $51,084, subject to annual rent adjustments of 3.5% on a lease which expires in November 2010. ABD has also signed a lease for an administrative building under construction which is partially owned by a director of Greater Bay. Once the building is completed we will pay a base monthly rent of $55,800, subject to annual rent adjustments of up to 3% on a lease which expires in September 2013.

The Bank of Petaluma is currently building a new headquarters building. The general contractor for the building’s construction is a director of the Bank of Petaluma. Total payments to the general contractor are expected to total $2.15 million.

NOTE 19—COMMITMENTS AND CONTINGENCIES

Lease Commitments

We lease certain facilities at which we conduct our operations. Future minimum lease commitments under all non-cancelable operating leases as of December 31, 2002 are below:

	Years ended December 31,
	(Dollars in thousands)
2003	$	19,198
2004		18,222
2005		16,648
2006		15,040
2007		12,949
Thereafter		38,243
Total	$	120,300

We sublease that portion of the available space that is not utilized. Sublease rental income for the years ended December 31, 2002, 2001 and 2000 was $1.3 million, $1.3 million and $1.5 million, respectively. Gross rental expense for the years ended December 31, 2002, 2001 and 2000 was $18.3 million, $11.2 million, and $8.3 million, respectively.

Other Commitments and Contingencies

In the normal course of business, we become contractually obligated under various commitments and contingent liabilities, such as guarantees and commitments to extend credit, that are not reflected in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

accompanying consolidated financial statements. Generally accepted accounting principles prohibit the recognition of these items in our consolidated balance sheet, but require these amounts to be disclosed. Commitments to fund loans were $1.2 billion and $1.3 billion and letters of credit were $109.3 million and $130.0 million, at December 31, 2002 and 2001, respectively. Our exposure to credit loss is limited to amounts funded or drawn; however, at December 31, 2002, no losses are anticipated as a result of these commitments based on current information.

Loan commitments which have fixed expiration dates and require the payment of a fee are typically contingent upon the borrower meeting certain financial and other covenants. Approximately $283.0 million of these commitments relate to real estate construction and are expected to fund within the next 12 months. However, the remainder relates primarily to revolving lines of credit or other commercial loans, and many of these commitments are expected to expire without being drawn upon, therefore the total commitments do not necessarily represent future cash requirements. The Banks evaluate each potential borrower and the necessary collateral on an individual basis. Collateral varies, but may include real property, bank deposits, debt or equity securities, or business assets.

Stand-by letters of credit are conditional commitments written by the Banks to guarantee the performance of a client to a third party. These guarantees are primarily related to purchases of inventory by the Banks’ commercial clients, and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients, and the Banks accordingly use evaluation and collateral requirements similar to those for loan commitments.

In the ordinary course of business there are various assertions, claims and legal proceedings pending against us. Management is of the opinion that the ultimate resolution of these proceedings will not have a material adverse effect on the consolidated financial position or our results of operations.

NOTE 20—SHAREHOLDERS’ RIGHTS PLAN

In 1998, Greater Bay adopted a shareholder rights plan designed to maximize our long-term value and to protect our shareholders from improper takeover tactics and takeover bids that are not fair to all shareholders.

In accordance with the plan, preferred share purchase rights were distributed as a dividend at the rate of one right for each common share held of record as of the close of business on November 28, 1998. The rights, which are not immediately exercisable, entitle the holders to purchase one one-hundredth of a share of Series A Preferred Stock at a price of $145.00 (subject to adjustment) upon the occurrence of certain triggering events. In the event of an acquisition not approved by the Board, each right enables its holder (other than the acquirer) to purchase the Preferred Stock at 50% of the market price. Further, in the event we are acquired in an unwanted merger or business combination, each right enables the holder to purchase shares of the acquiring entity at a similar discount. Under certain circumstances, the rights may be exchanged for our common shares. The Board may, in its sole discretion, redeem the rights at any time prior to any of the triggering events.

The rights can be exercised and separate rights certificates distributed only if any of the following events occur: acquisition by a person of 10% or more of our common shares; a tender offer for 10% or more of our common shares; or ownership of 10% or more of our common shares by a shareholder whose actions are likely to have a material adverse impact on us or shareholder interests. The rights will initially trade automatically with the common shares. The rights are not deemed by the Board of Directors to be presently exercisable.

NOTE 21—REGULATORY MATTERS

On January 3, 2003, Greater Bay received a notice from the Federal Reserve that followed the completion of the most recent regulatory examinations of Greater Bay and the Banks. In response to the notice, Greater Bay delivered to the Federal Reserve a corrective action plan designed to enhance its enterprise wide risk management program. Prior to receipt of the notice from the Federal Reserve, Greater Bay had already dedicated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

significant time and resources to addressing these items, and commenced many of the action items contained within the corrective action plan, including the appointment in December 2002 of a Chief Risk Officer to oversee Greater Bay’s Enterprise Wide Risk Management Group.

On February 17, 2003, Greater Bay entered into a cure agreement with the Federal Reserve which incorporates the terms of Greater Bay’s corrective action plan. To improve Greater Bay’s risk management program, the action plan requires enhancements to policies and procedures relating to interest rate sensitivity, liquidity and capital management, asset risk management, and compliance. In the area of interest rate sensitivity, Greater Bay will perform additional stress testing of its interest rate risk exposure under best case and worse case scenarios, review its interest rate risk limits and test its core deposit assumptions. Liquidity management will be augmented by stress testing the liquidity position under various scenarios and by developing a more sophisticated monitoring system for Greater Bay’s funding strategy. In addition, Greater Bay will establish a process to quantify and support the appropriateness of established capital limits relative to its risk profile. In the area of asset risk management, Greater Bay will establish commercial real estate concentration limits, improve the documentation supporting the allowance for loan and lease losses and strengthen systems relating to loan and investment policies. Greater Bay will also enhance the processes for identifying and monitoring legal risks to ensure future compliance with all applicable laws and regulations, including the Bank Secrecy Act and anti-money laundering laws.

To maintain its financial holding company status, Greater Bay must complete the corrective action plan by July 7, 2003. During this period, Greater Bay may not engage in new financial holding company activities or acquire nonbank subsidiaries engaged in financial activities without the prior written approval of the Federal Reserve. If the corrective action is not completed within the relevant time period, the Federal Reserve could impose additional limitations or conditions on our conduct or activities, require Greater Bay to divest its subsidiary Banks, or, at Greater Bay’s election, engage only in activities permissible for bank holding companies. Such a development would potentially adversely impact Greater Bay’s insurance brokerage activities conducted through Greater Bay’s subsidiary, ABD, although Greater Bay believes it could mitigate the impact of this development through alternative means of conducting these activities.

As part of its enterprise wide risk management program, Greater Bay continually evaluates the impact of its multi-bank charter structure on its operations, business, clients and regulatory compliance. While no decision has been made, we are exploring whether a simplified structure might enhance our risk management program and alleviate some of the issues addressed in the cure agreement. By maintaining our individual bank names, local bank management, our relationship style of banking and strong community involvement, a simplified structure may enable us to continue to operate under our Regional Community Banking Philosophy and, at the same time, enhance our risk management program.

The Banks and Greater Bay are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks’ assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum capital amounts and ratios (as defined in the regulations). At December 31, 2002 and 2001 the Banks and we met all capital adequacy requirements to which they are subject. Under the FDICIA prompt corrective action provisions applicable to banks, the most recent notification from the FDIC or OCC categorized each of the Banks as well-capitalized. To be categorized as well-capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. There are no

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

conditions or events since that notification that management believes have changed the risk-based capital category of any of the Banks.

The Banks’ and our actual 2002 and 2001 capital amounts and ratios are as follows:

	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
As of December 31, 2002	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Total Capital (To Risk Weighted Assets):
Greater Bay Bancorp	$	765,526	12.97	%	$	472,183	8.00	%	$	590,228	N/A
Bank of Petaluma		28,883	15.17	%		15,232	8.00	%		19,040	10.00	%
Bank of Santa Clara		47,021	16.08	%		23,394	8.00	%		29,242	10.00	%
Bay Area Bank		28,349	12.26	%		18,499	8.00	%		23,123	10.00	%
Bay Bank of Commerce		25,598	14.99	%		13,661	8.00	%		17,077	10.00	%
Coast Commercial Bank		50,675	15.67	%		25,871	8.00	%		32,339	10.00	%
Cupertino National Bank		224,855	11.80	%		152,444	8.00	%		190,555	10.00	%
Golden Gate Bank		32,857	12.56	%		20,928	8.00	%		26,160	10.00	%
Mid-Peninsula Bank		139,873	11.00	%		101,726	8.00	%		127,157	10.00	%
Mt. Diablo National Bank		39,359	15.04	%		20,936	8.00	%		26,170	10.00	%
Peninsula Bank of Commerce		44,836	14.92	%		24,041	8.00	%		30,051	10.00	%
San Jose National Bank		73,198	14.13	%		41,443	8.00	%		51,803	10.00	%
Tier 1 Capital (To Risk Weighted Assets):
Greater Bay Bancorp	$	691,048	11.71	%	$	236,054	4.00	%	$	354,081	N/A
Bank of Petaluma		26,488	13.91	%		7,617	4.00	%		11,425	6.00	%
Bank of Santa Clara		43,338	14.82	%		11,697	4.00	%		17,546	6.00	%
Bay Area Bank		25,420	11.00	%		9,244	4.00	%		13,865	6.00	%
Bay Bank of Commerce		23,445	13.73	%		6,830	4.00	%		10,245	6.00	%
Coast Commercial Bank		43,604	13.48	%		12,939	4.00	%		19,408	6.00	%
Cupertino National Bank		193,380	10.15	%		76,209	4.00	%		114,313	6.00	%
Golden Gate Bank		29,564	11.30	%		10,465	4.00	%		15,698	6.00	%
Mid-Peninsula Bank		123,919	9.74	%		50,891	4.00	%		76,336	6.00	%
Mt. Diablo National Bank		36,067	13.78	%		10,469	4.00	%		15,704	6.00	%
Peninsula Bank of Commerce		40,522	13.49	%		12,015	4.00	%		18,023	6.00	%
San Jose National Bank		66,649	12.87	%		20,715	4.00	%		31,072	6.00	%
Tier 1 Capital Leverage (To Average Assets):
Greater Bay Bancorp	$	691,048	8.61	%	$	321,044	4.00	%	$	321,044	N/A
Bank of Petaluma		26,488	7.32	%		14,474	4.00	%		18,093	5.00	%
Bank of Santa Clara		43,338	7.80	%		22,225	4.00	%		27,781	5.00	%
Bay Area Bank		25,420	6.65	%		15,290	4.00	%		19,113	5.00	%
Bay Bank of Commerce		23,445	7.68	%		12,211	4.00	%		15,264	5.00	%
Coast Commercial Bank		43,604	7.21	%		24,191	4.00	%		30,239	5.00	%
Cupertino National Bank		193,380	8.57	%		90,259	4.00	%		112,824	5.00	%
Golden Gate Bank		29,564	6.33	%		18,682	4.00	%		23,352	5.00	%
Mid-Peninsula Bank		123,919	7.90	%		62,744	4.00	%		78,430	5.00	%
Mt. Diablo National Bank		36,067	6.87	%		21,000	4.00	%		26,250	5.00	%
Peninsula Bank of Commerce		40,522	7.42	%		21,845	4.00	%		27,306	5.00	%
San Jose National Bank		66,649	8.94	%		29,821	4.00	%		37,276	5.00	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
As of December 31, 2002	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Total Capital (To Risk Weighted Assets):
Greater Bay Bancorp	$	740,653	12.79	%	$	463,270	8.00	%	$	579,088	N/A
Bank of Petaluma		23,893	12.10	%		15,797	8.00	%		19,746	10.00	%
Bank of Santa Clara		42,225	13.46	%		25,097	8.00	%		31,371	10.00	%
Bay Area Bank		24,373	10.97	%		17,774	8.00	%		22,218	10.00	%
Bay Bank of Commerce		20,414	11.63	%		14,042	8.00	%		17,553	10.00	%
Coast Commercial Bank		45,520	15.14	%		24,053	8.00	%		30,066	10.00	%
Cupertino National Bank		190,715	10.74	%		142,060	8.00	%		177,574	10.00	%
Golden Gate Bank		29,697	11.18	%		21,250	8.00	%		26,563	10.00	%
Mid-Peninsula Bank		113,565	10.20	%		89,071	8.00	%		111,338	10.00	%
Mt. Diablo National Bank		32,769	12.10	%		21,665	8.00	%		27,082	10.00	%
Peninsula Bank of Commerce		31,571	11.43	%		22,097	8.00	%		27,621	10.00	%
San Jose National Bank		65,401	10.62	%		49,266	8.00	%		61,583	10.00	%
Tier 1 Capital (To Risk Weighted Assets):
Greater Bay Bancorp	$	607,820	10.49	%	$	231,771	4.00	%	$	347,657	N/A
Bank of Petaluma		21,414	10.85	%		7,895	4.00	%		11,842	6.00	%
Bank of Santa Clara		38,278	12.20	%		12,550	4.00	%		18,825	6.00	%
Bay Area Bank		21,581	9.71	%		8,890	4.00	%		13,335	6.00	%
Bay Bank of Commerce		18,211	10.38	%		7,018	4.00	%		10,527	6.00	%
Coast Commercial Bank		41,741	13.89	%		12,020	4.00	%		18,031	6.00	%
Cupertino National Bank		155,173	8.74	%		71,017	4.00	%		106,526	6.00	%
Golden Gate Bank		26,342	9.92	%		10,622	4.00	%		15,933	6.00	%
Mid-Peninsula Bank		99,570	8.94	%		44,550	4.00	%		66,826	6.00	%
Mt. Diablo National Bank		29,364	10.84	%		10,835	4.00	%		16,253	6.00	%
Peninsula Bank of Commerce		28,082	10.16	%		11,056	4.00	%		16,584	6.00	%
San Jose National Bank		57,656	9.36	%		24,639	4.00	%		36,959	6.00	%
Tier 1 Capital Leverage (To Average Assets):
Greater Bay Bancorp	$	607,820	8.01	%	$	303,531	4.00	%	$	379,413	N/A
Bank of Petaluma		21,414	6.03	%		14,205	4.00	%		17,756	5.00	%
Bank of Santa Clara		38,278	7.03	%		21,780	4.00	%		27,225	5.00	%
Bay Area Bank		21,581	5.91	%		14,606	4.00	%		18,258	5.00	%
Bay Bank of Commerce		18,211	6.12	%		11,903	4.00	%		14,878	5.00	%
Coast Commercial Bank		41,741	7.75	%		21,544	4.00	%		26,930	5.00	%
Cupertino National Bank		155,173	6.36	%		97,593	4.00	%		121,991	5.00	%
Golden Gate Bank		26,342	6.00	%		17,561	4.00	%		21,952	5.00	%
Mid-Peninsula Bank		99,570	6.89	%		57,806	4.00	%		72,257	5.00	%
Mt. Diablo National Bank		29,364	6.02	%		19,511	4.00	%		24,389	5.00	%
Peninsula Bank of Commerce		28,082	6.32	%		17,773	4.00	%		22,217	5.00	%
San Jose National Bank		57,656	8.03	%		28,720	4.00	%		35,900	5.00	%

NOTE 22—EARNINGS PER SHARE

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted net income per share is

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

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 years ended December 31, 2002, 2001 and 2000.

	For the year ended December 31, 2002
	Income (numerator)			Shares (denominator)	Per share amount
	(Dollars in thousands, except per share amounts)
Basic net income per share:
Net income	$	124,274
Dividends on preferred stock		(4,206	)
Income available to common shareholders		120,068		51,056,000	$	2.35
Effect of dilutive securities:
Convertible preferred stock		4,206		2,012,000
Stock options		—		1,067,000
Diluted net income per share:
Income available to common shareholders after assumed conversions	$	124,274		54,135,000	$	2.30
	For the year ended December 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	$	79,816		49,498,000	$	1.61
Effect of dilutive securities:
Stock options		—		1,442,000
Diluted net income per share:
Income available to common shareholders after assumed conversions	$	79,816		50,940,000	$	1.57
	For the year ended December 31, 2000
	Income (numerator)			Shares (denominator)	Per share amount
	(Dollars in thousands, except per share amounts)
Basic net income per share:
Income available to common shareholders	$	67,164		47,899,000	$	1.40
Effect of dilutive securities:
Stock options		—		2,620,000
Diluted net income per share:
Income available to common shareholders after assumed conversions	$	67,164		50,519,000	$	1.33

There were options outstanding to purchase 2,177,125, 1,531,000 shares and 66,000 shares that were considered anti-dilutive whereby the options’ exercise price was greater than the average market price of the common shares, during the years ended December 31, 2002, 2001 and 2000, respectively, and were not included in the calculation of diluted net income per share.

All years presented have been restated to reflect the 2-for-1 stock split effective as of October 4, 2000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

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 2001 merger with SJNB Financial Corp. at a 1.82 conversion ratio and 2000 mergers with Bank of Petaluma at a 0.5731 conversion ratio, Bank of Santa Clara at a 0.8499 conversion ratio, Coast Bancorp at a 0.6338 conversion ratio and Mt. Diablo Bancshares at a 0.9532 conversion ratio.

NOTE 23—PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS

The financial statements of Greater Bay Bancorp (parent company only) are presented below:

PARENT COMPANY ONLY—BALANCE SHEETS

	December 31,
	2002		2001
	(Dollars in thousands)
ASSETS:
Cash and cash equivalents	$	18,567	$	59,347
Investment in subsidiaries		798,789		594,660
Other investments		69,213		18,658
Other assets		145,715		48,448
Total assets	$	1,032,284	$	721,113
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Subordinated debt	$	210,311	$	225,775
Other borrowings		103,580		6,800
Other liabilities		37,334		24,854
Total liabilities		351,225		257,429
Shareholders’ equity:
Convertible preferred stock		80,900		—
Common stock		233,177		206,294
Accumulated other comprehensive income		18,624		3,967
Retained earnings		348,358		253,423
Total shareholders’ equity		681,059		463,684
Total liabilities and shareholders’ equity	$	1,032,284	$	721,113

A-71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

PARENT COMPANY ONLY—STATEMENTS OF OPERATIONS

	Years ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Income:
Interest income	$	5,182		$	3,098		$	3,694
Cash dividends from subsidiaries		17,396			19,585			11,060
Non-interest income		432			2,856			1,379
Total		23,010			25,539			16,133
Expenses:
Interest expense		21,419			15,343			16,378
Salaries		41,952			34,588			22,280
Occupancy and equipment		12,283			8,782			6,416
Merger expenses		—			10,034			12,479
Other expenses		10,787			10.920			(58	)
Less: rentals and fees received from Banks		(77,198	)		(62,113	)		(41,480	)
Total		9,243			17,554			16,015
Income before taxes and equity in undistributed net income of subsidiaries		13,767			7,985			118
Income tax benefit		(1,690	)		(4,765	)		(3,548	)
Income before equity in undistributed net income of subsidiaries		15,457			12,750			3,666
Equity in undistributed net income of subsidiaries		108,817			67,066			63,498
Net income	$	124,274		$	79,816		$	67,164

A-72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

PARENT COMPANY ONLY—STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Cash flows—operating activities
Net income	$	124,274		$	79,816		$	67,164
Reconciliation of net income to net cash from operations:
Equity in undistributed net income of subsidiaries		(103,278	)		(67,066	)		(63,498	)
Net change in other assets		(2,815	)		(4,111	)		(7,939	)
Net change in other liabilities		11,016			(20,942	)		43,941
Operating cash flow, net		29,197			(12,303	)		39,668
Cash flows—investing activities
Purchases of available for sale securities		(95,258	)		(43,693	)		(51,517	)
Proceeds from sale and maturities of available for sale securities		(50,555	)		6,976			3,123
Proceeds from sale of TPS		1,000			—			—
Proceeds from sale of OREO		1,105			259			224
Dividends from subsidiaries		17,396			19,585			10,560
Capital contribution to the subsidiaries		(17,450	)		(33,526	)		(47,736	)
Investing cash flows, net		(149,301	)		(50,399	)		(85,346	)
Cash flows—financing activities
Net change in other borrowings		14,446			(4,534	)		2,562
Proceeds from Zero Coupon Senior Convertible Contingent Debt Securities		200,000			—			—
Early retirement of Zero Coupon Senior Convertible Contingent Debt Securities		(117,666	)		—			—
Stock retired by Greater Bay and SJNB Financial Corp.		—			(2,830	)		—
Proceeds from private placement of stock		—			—			11,476
Proceeds from issuance of subordinated debt		5,000			118,500			50,500
Early retirement of subordinated debt		(20,000	)		—			—
Proceeds from sale of common stock		26,883			11,640			15,294
Stock issued in purchase accounting transaction		—			1,376			—
Payment of convertible preferred stock cash dividends		(4,206	)		—			—
Payment of common stock cash dividends		(25,133	)		(22,255	)		(18,686	)
Financing cash flows, net		79,324			101,897			61,146
Net increase in cash and cash equivalents		(40,780	)		39,195			15,468
Cash and cash equivalents at the beginning of the year		59,347			20,152			4,684
Cash and cash equivalents at end of the year	$	18,567		$	59,347		$	20,152

NOTE 24—RESTRICTIONS ON SUBSIDIARY TRANSACTIONS

Total dividends which may be declared by the Banks without receiving prior approval from regulatory authorities are limited to the lesser of the Banks’ retained earnings or the net income of the Banks for the latest three fiscal years, less dividends previously declared during that period.

The Banks are subject to certain restrictions under the Federal Reserve Act, including restrictions on the extension of credit to affiliates. In particular, the Banks are prohibited from lending to Greater Bay or its

A-73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

affiliates unless the loans are secured by specified types of collateral. Such secured loans and other advances from the Banks are limited, in the aggregate to 20% of each Bank’s capital and surplus, as defined by federal regulations, or a maximum of $164.1 million at December 31, 2002. No such advances were made during 2002 or exist as of December 31, 2002.

NOTE 25—FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates, methods and assumptions are set forth below for our financial instruments. Our estimated fair values of financial instruments as of December 31, 2002 and 2001 are as follows:

	2002				2001
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Financial assets:
Cash and due from banks	$	300,514	$	300,514	$	189,404	$	189,404
Short term investments and Fed Funds Sold		14,000		14,000		26,000		26,000
Investment securities		2,562,986		2,562,986		2,970,630		2,970,630
Loans, net		4,661,546		4,713,406		4,370,977		4,413,079
Financial liabilities:
Deposits:
Demand, noninterest-bearing		1,028,672		1,028,672		953,989		953,989
MMDA, NOW and Savings		2,673,973		2,673,973		2,280,119		2,280,119
Time certificates, $100,000 and over		829,717		832,141		827,756		829,934
Other time certificates		739,911		742,300		928,207		932,047
Other borrowings		1,737,243		1,757,802		2,095,896		2,110,751
Company obligated mandatory redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures		204,000		221,369		218,000		218,000

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Cash and Cash Equivalents

The carrying value reported in the balance sheet for cash and cash equivalents approximates fair value.

Investment Securities

The carrying amounts for short-term investments approximate fair value because they mature in 90 days or less and do not present unanticipated credit concerns. The fair value of long-term investments, except certain state and municipal securities, is estimated based on quoted market prices or bid quotations from securities dealers.

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. The fair value of performing fixed rate loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The fair value of performing variable rate loans is judged to approximate book value for those loans whose rates reprice in less than 90 days. Rate floors and rate ceilings are not considered for fair value purposes as the number of loans with such limitations is not significant.

A-74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.

Deposit Liabilities and Borrowings

The fair value for all deposits without fixed maturities and short-term borrowings is considered to be equal to the carrying value. The fair value for fixed rate time deposits are estimated by discounting future cash flows using interest rates currently offered on time deposits with similar remaining maturities. The fair value of core deposits does not reflect the market core deposits premium of approximately 10%—12%. Additionally, the fair value of deposits does not include the benefit that results from the low cost of funding provided by our deposits as compared to the cost of borrowing funds in the market.

Commitments to Extend Credit and Standby Letters of Credit

The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the borrower or us, they only have value to the borrower and us. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the above table.

Limitations

These fair value disclosures represent management’s best estimates, based on relevant market information and information about the financial instruments. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale, at one time, our entire holdings of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic condition, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have significant effect on fair value estimates and have been considered in many of the estimates.

NOTE 26—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 its 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 performance of our segments and allocate resources to them based on net interest income, other income, net income before income taxes, total assets and deposits.

We are organized primarily along community banking and insurance brokerage services business segments. We have aggregated 14 operating divisions 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 insurance brokerage services

A-75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

segment provides commercial insurance brokerage and employee benefits consulting services. We conduct our business within the United States; foreign operations are not material.

The following table shows each segments key operating results and financial position for the years ended or as of December 31, 2002, 2001 and 2000:

	2002						2001						2000
	Community banking		Insurance brokerage services		Total		Community banking		Insurance brokerage services		Total		Community banking		Insurance brokerage services		Total
	(Dollars in thousands)
Net interest income	$	343,175	$	888	$	344,063	$	305,807	$	—	$	305,807	$	262,650	$	—	$	262,650
Non-interest income		49,167		88,515		137,682		41,985		—		41,985		60,789		—		60,789
Operating expenses:
Direct operating expense		85,311		73,649		158,960		121,302		—		121,302		144,740		—		144,740
Intercompany allocation		77,198		—		77,198		62,332		—		62,332		41,448		—		41,448
Total operating expenses		162,509		73,649		236,158		183,634		—		183,634		186,188		—		186,188
Net income before income taxes(1)		247,255		15,754		263,009		179,996		—		179,996		183,185		—		183,185
Total assets		6,797,182		246,261		7,043,443		7,155,941		—		7,155,941		5,335,716		—		5,335,716
Deposits		5,271,856		—		5,271,856		4,990,022		—		4,990,022		4,750,404		—		4,750,404

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

A reconciliation of total segment net interest income and other income combined, net income before income taxes, and total assets to the consolidated numbers in each of these categories for the years ended December 31, 2002, 2001 and 2000 is presented below.

	As of and for year ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Net interest income and non-interest income
Total segment net interest income and non-interest income	$	481,745		$	347,792		$	323,439
Parent company net interest income and non-interest income		19,759			4,335			(18,561	)
Consolidated net interest income and other income	$	501,504		$	352,127		$	304,878
Net income before taxes
Total segment net income before income taxes	$	263,009		$	179,996		$	183,185
Parent company net income before income taxes		(66,682	)		(73,712	)		(72,356	)
Consolidated net income before income taxes	$	196,327		$	106,284		$	110,829
Total assets
Total segment assets	$	7,043,443		$	7,155,941		$	5,335,716
Parent company segment assets		1,032,284			721,113			482,439
Consolidated total assets	$	8,075,727		$	7,877,054		$	5,818,155

A-76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

NOTE 27—GUARANTEES

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness to Others” (“FIN 45”), which requires us to disclose information about obligations under certain guarantee arrangements. FIN 45 defines a guarantee as a contract that contingently requires us to pay a guaranteed party based on:

1) changes in underlying asset, liability, or equity security of the guaranteed party or

2) a third party’s failure to perform under an obligating guarantee (performance guarantee).

We consider the following off-balance sheet lending arrangements to be guarantees under FIN 45:

· Financial standby letters of credit and financial guarantees are conditional lending commitments issued by us to guarantee the performance of a customer to a third party in borrowing arrangements. At December 31, 2002, the maximum undiscounted future payments that we could be required to make was $95.9 million. 84.3% of these arrangements mature within one year. We generally have recourse to recover from the customer any amounts paid under these guarantees;

· We may be required to make contingent payments to the former shareholders of ABD and The Matsco Companies, Inc based on their future operating results. As of December 31, 2002, under the acquisition agreement with ABD, the maximum gross future earn-out payments to ABD’s former shareholders is $56.4 million plus 65% of the EBITDA (as defined in the acquisition agreement) in excess of the Forecast EBITDA, payable through 2005 in a combination of cash, preferred stock and common stock. The Forecast EBITDA for ABD, as defined in the acquisition agreement, is $29.6 million, $34.6 million and $40.3 million for the years ended December 31, 2003, 2004 and 2005, respectively. As of December 31, 2002, under the acquisition agreement with The Matsco Companies, Inc, the maximum gross future earn-out payments to the former shareholders is $6.5 million, payable through 2006 in a combination of cash and common stock; and

· Several of our Banks have guaranteed credit cards issued to our clients by an unaffiliated financial institution. As of December 31, 2002, the combined credit limits on those accounts are $10.5 million.

A-77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2002, 2001 and 2000

NOTE 28—QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents the summary results for the stated eight quarters:

	For the quarter ended
	December 31, 2002		September 30, 2002		June 30, 2002		March 31, 2002
	(Dollars in thousands, except per share data)
Interest income	$	116,936	$	128,259	$	130,792	$	129,425
Net interest income		81,427		87,941		88,951		87,675
Provision for loan losses		7,000		27,776		9,000		16,000
Non-interest income		38,011		55,397		39,510		22,592
Other expenses		65,513		63,961		65,793		50,134
Income before taxes		46,925		51,601		53,668		44,133
Net income		30,666		32,470		33,536		27,602
Net income per share:
Basic	$	0.57	$	0.61	$	0.64	$	0.54
Diluted	$	0.57	$	0.60	$	0.62	$	0.52
	For the quarter ended
	December 31, 2001		September 30, 2001		June 30, 2001		March 31, 2001
	(Dollars in thousands, except per share data)
Interest income	$	129,946	$	131,856	$	124,669	$	120,770
Net interest income		82,804		77,253		74,587		72,641
Provision for loan losses		28,950		8,400		10,049		7,328
Non-interest income		9,684		10,699		13,003		11,456
Other expenses		43,940		41,209		39,215		37,503
Income before taxes		19,598		38,343		38,326		39,266
Net income		7,515		23,826		23,943		24,532
Net income per share:
Basic	$	0.15	$	0.48	$	0.48	$	0.50
Diluted	$	0.15	$	0.46	$	0.47	$	0.48

A-78

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Greater Bay Bancorp:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Greater Bay Bancorp and its subsidiaries (the “Company”) at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3 of the Notes to the Consolidated Financial Statements, the Company changed its method of accounting for goodwill effective January 1, 2002.

/s/    PricewaterhouseCoopers LLP

San Francisco, California

February 10, 2003, except for Note 21, 

as to which the date is February 18, 2003

A-79

EX-10.10

Exhibit 10.10

GREATER BAY BANCORP CHANGE IN CONTROL PAY PLAN I

(Amended and Restated Effective August 21, 2001)

ARTICLE I

PURPOSE

GREATER BAY BANCORP (hereinafter referred to as the “Company”) hereby establishes a change in control pay plan to provide severance benefits to eligible Employees whose employment terminates in connection with a Change in Control in accordance with the terms set forth hereunder. The intent of the plan is to ensure all eligible Employees have reasonable protection related to any event as specified in this plan.

ARTICLE II

EFFECTIVE DATE

All of the policies and practices of each Member Company regarding severance, or similar payments upon employment termination on account of a Change in Control are hereby superseded by this plan which shall be known as the GREATER BAY BANCORP Change in Control Pay Plan I (the “Plan”).

ARTICLE III

DEFINITIONS

Section 3.1 Affiliated Company means:

(a) Any corporation (other than the Company) that is included in a controlled group of corporations, within the meaning of Code Section 414(b), that includes the Company, and

(b) Any trade or business (other than the Company) that is under common control with the Company within the meaning of Code Section 414(c), and

(c) Any member (other than the Company) of an affiliated service group, within the meaning of Code Section 414(m), that includes the Company, and

(d) Any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o).

Section 3.2 Base Benefit means the severance benefit payable to a Participant in accordance with Articles IV and V of the Plan, the amount of which is based upon such Participant’s Pay and his or her title or position in a Member Company as of the date he terminates employment with the Member Company on account of a Change in Control.

1

Section 3.3 Board of Directors means the board of directors of the Company.

Section 3.4 Change in Control means the first to occur of any of the following events:

(A) Any “person” (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 25% or more of the Company’s capital stock entitled to vote in the election of directors;

(B) During any period of not more than two consecutive years, not including any period prior to the adopting of this Plan, individuals who, at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C), (D) and (E) of this Article) whose appointment to the Board of Directors or nomination for election to the Board of Directors was approved by a vote of at least three-fourths ( ³/4ths) of the directors then still in office, either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(C) The shareholders of the Company approve any consolidation or merger of the Company, other than a consolidation or merger of the Company on which the holders of the common stock of the Company immediately prior to the consolidation or merger hold more than 50% of the common stock of the surviving corporation immediately after the consolidation or merger;

(D) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or

(E) The shareholders of the Company approve the sale or transfer of substantially all of the Company’s assets to parties that are not within a “controlled group of corporations” (as defined in Code Section 1563) in which the Company is a member.

Section 3.5 Code means the Internal Revenue Code of 1986, as amended.

Section 3.6 Committee means the administrative committee appointed by the Chief Executive Officer and Chief Operating Officer of the Company pursuant to Section 6.1 hereof.

Section 3.7 Company means GREATER BAY BANCORP.

Section 3.8 Effective Date means January 1, 1998.

Section 3.9 Employee means (1) any full-time employee of a Member Company or (2) any regular part-time employee of a Member Company. For purposes of this Section 3.10, “full-time employee” shall mean an employee of a Member Company who is regularly scheduled

to work at least forty (40) hours per week for twelve (12) months each year. Notwithstanding the foregoing, with respect to employees of a Member Company which requires fewer than forty (40) hours per week for classification as a full-time employee, “full-time employee” shall be defined according to such Member Company’s administrative policy and practice. “Regular part-time” employee shall mean any employee of a Member Company who is regularly scheduled to work at least twenty-four (24) hours per week for twelve (12) months each year, but fewer hours than necessary to classify him as a full-time employee.

Section 3.10 ERISA means the Employee Retirement Income Security Act of 1974, as amended.

Section 3.11 Leave of Absence means a period of absence from regular employment which is approved by the Board of Directors or the Committee in a non-discriminatory manner for reasons such as, but not limited to, sickness, disability, education, jury duty, convenience to a Member Company, maternity or paternity leave, family leave, or for periods of military duty during which the Employee’s reemployment rights are protected by law.

Section 3.12 Member Company means the Company or an Affiliated Company, provided that the Company consents to the participation of any such Affiliated Company in the Plan with respect to eligible Employees of such Affiliated Company.

Section 3.13 Participant means an Employee who satisfies the requirements under Section 4.1 of the Plan.

Section 3.14 Pay means an Employee’s current annual rate of regular salary or wages on his/her date of termination of employment with a Member Company and the average of the annual and/or incentive bonuses paid to the Employee over the three years immediately preceding the date of his termination of employment on account of a Change in Control, excluding all other extra pay such as overtime, commissions, premiums and living or other allowances.

Section 3.15 Plan means the Greater Bay Bancorp Change in Control Pay Plan I.

Section 3.16 Plan Year means each twelve (12) consecutive month period from January 1 through December 31.

Section 3.17 Year of Service means a twelve (12)-continuous month period beginning on an Employee’s most recent date of hire (or rehire), and each twelve (12)-continuous month period beginning on the anniversary of such hire (or rehire) date, during which the Employee remains continuously employed by a Member Company.

ARTICLE IV

ELIGIBILITY FOR BENEFITS

Section 4.1 Employees Eligible for Severance Benefits. Except as provided in this Section 4.1 and in Section 4.2 and subject to Section 5.6, an Employee whose employment is

terminated by a Member Company on or after the Effective Date shall be eligible for a Base Benefit if:

(a) Subject to Section 4.2, the Employee’s employment is terminated as a result of a Change in Control within two years of the effective time of the Change in Control (the “effective time” of the Change in Control will have the same meaning provided in Section 7.2); and

(b) The Employee’s employment is not terminated for cause for personal conduct; and

(c) The Employee executes a waiver and release agreement in such form as determined by the Committee (the “Waiver and Release Agreement”) and returns the Waiver and Release Agreement to the Member Company within the time period specified in the Waiver and Release Agreement.

Section 4.2 Employees Not Eligible For Severance Benefits. An Employee shall not be entitled to a Base Benefit set forth in Article V if:

(a) The Employee has in force an employment contract or executive severance agreement with a Member Company which includes provision for the payment of severance benefits upon the termination of his or her employment with the Member Company upon a Change in Control, unless such severance benefits are less than the Base Benefit provided for in the Plan; or

(b) The Employee is offered employment by the successor employer in the same position or in another position of comparable pay and status to the position he held immediately prior to the effective date of the Change in Control, or the Employee is offered employment by a Member Company in another position of comparable pay and status to the position held immediately prior to the Change in Control, regardless of whether he accepts the offer; or

(c) The Employee’s employment is involuntarily terminated for cause for personal conduct (an Employee whose employment is terminated for cause related to his/her work performance may be eligible to receive severance benefits under the Plan as the Committee in its sole discretion may determine); or

(d) The Employee fails to perform his/her regular assigned job duties through the date specified by a Member Company as his/her termination date; or

(e) The Employee fails to return a properly executed Waiver and Release Agreement on a timely basis.

For purposes of this Section 4.2, a “position of comparable pay and status” shall mean a position with not less than one hundred percent (100%) of the Pay, bonus opportunity and benefits of the

position held by the Employee prior to his/her termination of employment and with a similar scope of duties and responsibilities to such prior position. In addition, a position will not be considered a position of comparable pay and status if (i) an Employee is required to increase his/her normal commuting miles to reach a new worksite, and (ii) the normal commuting from his/her home to the new worksite exceeds 30 miles each way. Notwithstanding the foregoing, the Committee reserves the right to make decisions based on the facts and circumstances of individual cases as to whether a position is of comparable pay and status to that held by an Employee prior to his/her employment termination, provided that the Employee may appeal any such decision pursuant to the provisions of Section 6.5.

ARTICLE V

SEVERANCE BENEFITS

Section 5.1 Calculation of Severance Benefit. Subject to the provisions of Section 4.1, 4.2 and 5.6, a Participant whose employment is terminated (or constructively terminated by not being offered a “position of comparable pay and status” as defined in Section 4.2) as a result of a Change in Control, shall be entitled to receive a Base Benefit under this Plan as follows:

(a) Senior Management Council. A Participant who is a member of the Senior Management Council of a Member Company (other than those members who would receive benefits under the Company’s Change in Control Pay Plan II) shall be entitled to receive a Base Benefit equal to eighteen (18) months of Pay.

(b) Senior Vice Presidents and Executive Vice Presidents. A Participant who is a Senior Vice President or Executive Vice President of a Member Company who is not a member of the Senior Management Council shall be entitled to receive a Base Benefit equal to 12 months of Pay.

(c) Vice Presidents and Assistant Vice Presidents. A Participant who is a Vice President or Assistant Vice President of a Member Company shall be entitled to receive a Base Benefit equal to six (6) months of Pay.

(d) Exempt and Non-Exempt Staff. Employees of a Member Company who are either exempt or non-exempt staff shall be entitled to receive a Base Benefit equal to the greater of (i) three (3) months of Pay or (ii) two weeks of Pay for each full Year of Service.

Participants entitled to a Base Benefit shall also receive the following severance benefits: (1) for the length of the applicable severance period, health (or COBRA coverage) and life insurance benefits under the Company’s group plans then in effect on terms offered to current employees; (2) outplacement services deemed appropriate by the Committee; and (3) a pro-rated bonus for work performed during the year in which the Change in Control occurs. The pro-rated bonus shall be an amount equal to the average of the annual incentive bonuses for the three-year period immediately preceding the date of termination, pro-rated for the number of months the

Participant was employed during the year of termination, subject to the Participant receiving at least a satisfactory performance evaluation.

For purposes of calculating a Participant’s severance benefits under Section 5.1(d), the Plan shall take into account only consecutive Years of Service beginning with the Participant’s most recent date of hire or rehire and it shall not take into account partial Years of Service, nor shall a Participant receive severance benefits for years of Service for which he/she previously received severance benefits under the Plan.

Section 5.2 Golden Parachute Restriction.

(a) Reduction for “Parachute Payment.” Notwithstanding anything above in this Article V, if a Participant is a “disqualified individual” (as defined in Section 280G(c) of the Code), and the severance benefit provided for in Section 5.1, together with any other payments which the Participant has the right to receive from a Member Company would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), the severance benefit shall be reduced. The reduction shall be in an amount so that the present value of the total amount received by the Participant from a Member Company will be One Dollar ($1.00) less than three (3) times the Participant’s base amount (as defined in Section 280G of the Code) and so that no portion of the amounts received by the Participant shall be subject to the excise tax imposed by Section 4999 of the Code.

(b) Deferred Compensation and Reimbursements Exception. In no circumstances will a Member Company reduce the severance benefits payable to a Participant on account of the restrictions of this Section 5.2 by the amounts the Participant has the right to receive under an executive deferred compensation plan of the Member Company (Deferred Compensation Plan), amounts paid or payable to the Participant to reimburse him/her either fully or partially for excise tax and/or income tax on the reimbursement (gross up amounts), or amounts paid or payable to the Participant as indemnification for attorney’s fees and legal expenses.

(c) Determination of Reduction. The determination as to whether any reduction in the severance benefit is necessary shall be made by a Participant’s Member Company in good faith, and the determination shall be conclusive and binding on the Participant.

(d) Repayment of Excess Amount. If through error or otherwise the Participant should receive payments under this Plan, together with other payments the Participant has the right to receive from a Member Company, excluding Deferred Compensation Plan payments in excess of one dollar ($1.00) less than three times his/her base amount, the Participant shall immediately repay the excess to the Member Company upon notification that an overpayment has been made.

Section 5.3 Payment of Benefits. The Plan shall pay severance benefits to a Participant whose employment is terminated on account of a Change in Control in the form of a lump sum or equal installments payable over a period not to exceed twenty-four (24) months, as the Committee in its sole discretion may determine. The Plan shall make lump sum distributions as soon as administratively practicable and in no event later than thirty (30) days following the receipt by the Committee of a timely and properly executed Waiver and Release Agreement. Subject to the Committee’s receipt of a properly executed Waiver and Release Agreement on a timely basis, the Plan shall make payments of severance benefits in equal installments as of the first payday following the Participant’s termination of employment.

Section 5.4 Payment Offset. A Member Company reserves the right to offset the benefits payable under Section 5.1 by any advance, loan or other monies a Participant owes the Member Company. Employment taxes shall be withheld from all severance payments.

Section 5.5 Unfunded Plan. The obligations of a Member Company under this Plan may be funded through contributions to a trust or otherwise, but the obligations of the Member Company are not required to be funded under this Plan unless required by law. Nothing contained in this Plan shall give a Participant any right, title or interest in any property of the Member Company.

Section 5.6 Prohibition Against Golden Parachute Payments. Notwithstanding any provision of the Plan to the contrary, no Participant who is an institution affiliated party as the term is defined in Section 359.1(h) of the Federal Deposit Insurance Corporation Rules and Regulations (“FDIC Rules and Regs”) shall be entitled to the payment of any severance benefit under the Plan to the extent that such payment shall be deemed a “golden parachute payment” as the term is defined in FDIC Rules and Regs. Section 359.1(f)(i)(ii) or (iii).

ARTICLE VI

ADMINISTRATION

Section 6.1 Plan Administration. The Company shall be the administrator of the Plan for purposes of Section 3(16) of ERISA and shall have responsibility for complying with any ERISA reporting and disclosure rules applicable to the Plan for any Plan Year.

Section 6.2 Plan Committee. In all respects other than as provided in Section 6.1, the Plan shall be administered and operated by the Committee which shall consist of one or more individuals appointed by the Chief Executive Officer and Chief Operating Officer of the Company who may also revoke any such appointment and subsequently appoint other individuals. The Committee shall have all powers necessary to supervise the administration of the Plan and control its operations. In addition to any powers and authority conferred to the Committee elsewhere in the Plan or by law, the Committee shall have, by way of illustration but not by way of limitation, the following discretionary powers and authority:

(a) To allocate fiduciary responsibilities among the named fiduciaries and to designate one or more other persons to carry out fiduciary responsibilities. However, no allocation or delegation under this Section 6.2(a) shall be

effective until the person or persons to whom the responsibilities have been allocated or delegated agree to assume the responsibilities;

(b) To designate agents to carry out responsibilities relating to the Plan, other than fiduciary responsibilities;

(c) To employ such legal, accounting, clerical, and other assistance as it may deem appropriate in carrying out the provisions of this Plan, including one or more persons to render advice with regard to any responsibility any fiduciary may have under the Plan;

(d) To establish rules and procedures from time to time for the conduct of the Committee’s business and the administration and effectuation of this Plan;

(e) To administer, interpret, construe and apply this Plan. To decide all questions which may arise or which may be raised under this Plan by any Employee, Participant, former Participant or other person whatsoever, including but not limited to all questions relating to eligibility to participate in the Plan, the amount of service of any Participant, and the amount of benefits to which any Participant may be entitled;

(f) To determine the manner in which the severance benefits of this Plan, or any part thereof, shall be administered; and

(g) To perform or cause to be performed such further acts as it may deem to be necessary, appropriate or convenient in the efficient administration of the Plan.

Any action taken in good faith by the Committee in the exercise of discretionary authority conferred upon it by this Plan shall be conclusive and binding upon the Participants. All discretionary powers conferred upon the Committee shall be absolute. However, all discretionary powers shall be exercised in a uniform and nondiscriminatory manner.

Section 6.3 Named Fiduciary. The members of the Committee shall be named fiduciaries with respect to this Plan for purposes of Section 402 of ERISA.

Section 6.4 Indemnification of Committee. The Company shall, to the extent permitted by law, by the purchase of insurance or otherwise, indemnify and hold harmless each member of the Committee and each other fiduciary with respect to this Plan for liabilities or expenses they and each of them incur in carrying out their respective duties under the Plan, other than for any liabilities or expenses arising out of such fiduciary’s gross negligence or willful misconduct. A fiduciary shall not be responsible for any breach of responsibility of any other fiduciary except to the extent provided in Section 405 of ERISA.

Section 6.5 Claims Procedure. If any request for benefits under this Plan is denied, in whole or in part, the claimant shall be so notified by the Committee within five (5) calendar days of the date such person’s claim is delivered to the person designated in writing by the Chief Executive Officer and Chief Operating Officer of the Company. At the same time, the

Committee shall notify the claimant of his/her right to a review by the Committee and shall set forth, in a manner calculated to be understood by the claimant, specific reasons for such decision, specific references to pertinent information necessary for the claimant to perfect his/her request for review, an explanation of why such material or information is necessary, and an explanation of the Plan’s review procedure.

Any person or a duly authorized representative may appeal from such decision by submitting to the Committee within sixty (60) calendar days after receiving a notice of the Committee’s decision a written statement:

(a) Requesting a review of the claim for a termination allowance by the Committee;

(b) Setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and

(c) Setting forth any issues or comments which the claimant deems relevant to the claim.

The Committee shall act upon such appeal within sixty (60) calendar days after the later of receipt of the claimant’s request for review by the Committee or receipt of all additional materials reasonably requested by the Committee from such claimant.

The Committee shall make a full and fair review of an appeal and all written materials submitted by the claimant in connection therewith and may require the claimant to submit, within ten (10) calendar days’ written notice by the Committee therefor, such additional facts, documents or other evidence as the Committee, in its sole discretion, deems necessary or advisable in making such a review. On the basis of its review, the Committee shall make an independent determination of the claimant’s eligibility for an allowance and the amount of such allowance, if any, under this Plan. The decision of the Committee on any appeal shall be final and conclusive upon all persons if supported by substantial evidence in the record.

If the Committee denies a claim in whole or in part, the Committee shall give written notice of its decision to the claimant setting forth, in a manner calculated to be understood by the claimant, the specific reasons for such denial and specific references to the pertinent Plan provisions on which the Committee’s decision was based.

ARTICLE VII

AMENDMENT AND TERMINATION

Section 7.1 Before Change in Control. This Plan may be amended from time to time, or terminated at any time at the discretion of the Board of Directors by a written resolution adopted by a majority of the Board of Directors, provided, however, that no amendment or termination shall adversely affect the right of a Participant to receive a severance benefit that the Participant has accrued on account of his or her termination of employment as a result of a Change in Control.

Section 7.2 After Change in Control. Notwithstanding the foregoing, the Plan may not be amended or participation discontinued after the effective time of a Change in Control. For purposes of this Plan, the “effective time” of a Change in Control shall have the same meaning provided in the agreement governing the transaction(s) which give rise to the Change in Control.

ARTICLE VIII

GENERAL

Section 8.1 Payment Out of General Assets. The benefits and costs of this Plan shall be paid by the Company and each Member Company out of their general assets.

Section 8.2 Welfare Benefit Plan. This Plan is intended to be an employee welfare benefit plan, as defined in Section 3(1), Subtitle A of Title 1 of ERISA. The Plan will be interpreted to effectuate this intent. Notwithstanding any other provision of this Plan, no Participant shall receive hereunder any payment exceeding twice that Participant’s annual compensation during the year immediately preceding the termination of his or her service, within the meaning of 29 C.F.R. § 2510.3-2 as the same was in effect on the effective date of this Plan.

Section 8.3 Gender. The masculine pronoun shall include the feminine pronoun and the feminine pronoun shall include the masculine pronoun and the singular pronoun shall include the plural pronoun and the plural pronoun shall include the singular pronoun, unless the context clearly indicates otherwise.

Section 8.4 Limitation on Participant’s Rights. Nothing in this Plan shall be construed to guarantee terminated Employees any right to be recalled or rehired by a Member Company.

Section 8.5 Severability. If any provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts, which shall be enforced as if the illegal or invalid provision had not been included in this Plan.

EX-10.11

Exhibit 10.11

GREATER BAY BANCORP

CHANGE IN CONTROL PAY PLAN II

(Amended and Restated Effective August 21, 2001)

ARTICLE I

PURPOSE

GREATER BAY BANCORP (hereinafter referred to as the “Company”) hereby establishes a change in control pay plan to provide severance benefits to selected executives who are deemed Eligible Employees and whose employment terminates in connection with a Change in Control in accordance with the terms set forth hereunder. The intent of the plan is to ensure all Eligible Employees (as the term is defined herein) have reasonable protection related to any event as specified in this plan.

ARTICLE II

EFFECTIVE DATE

All of the policies and practices of the Company regarding severance, or similar payments to Eligible Employees upon their employment termination on account of a Change in Control are hereby superseded by this plan which shall be known as the GREATER BAY BANCORP Change in Control Pay Plan II (the “Plan”).

ARTICLE III

DEFINITIONS

Section 3.1 Affiliated Company means:

(a) Any corporation (other than the Company) that is included in a controlled group of corporations, within the meaning of Code Section 414(b), that includes the Company, and

(b) Any trade or business (other than the Company) that is under common control with the Company within the meaning of Code Section 414(c), and

(c) Any member (other than the Company) of an affiliated service group, within the meaning of Code Section 414(m), that includes the Company, and

(d) Any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o).

Section 3.2 Base Benefit means the severance benefit payable to a Participant in accordance with Articles IV and V of the Plan, the amount of which is based upon such

Participant’s Pay and his or her title or position in the Company as of the date he terminates employment with the Company on account of a Change in Control.

Section 3.3 Board of Directors means the board of directors of the Company.

Section 3.4 Change in Control means the first to occur of any of the following events:

(A) Any “person” (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 25% or more of the Company’s capital stock entitled to vote in the election of directors;

(B) During any period of not more than two consecutive years, not including any period prior to the adopting of this Plan, individuals who, at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C), (D) and (E) of this Article) whose appointment to the Board of Directors or nomination for election to the Board of Directors was approved by a vote of at least three-fourths ( ³/4ths) of the directors then still in office, either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(C) The shareholders of the Company approve any consolidation or merger of the Company, other than a consolidation or merger of the Company on which the holders of the common stock of the Company immediately prior to the consolidation or merger hold more than 50% of the common stock of the surviving corporation immediately after the consolidation or merger;

(D) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or

(E) The shareholders of the Company approve the sale or transfer of substantially all of the Company’s assets to parties that are not within a “controlled group of corporations” (as defined in Code Section 1563) in which the Company is a member.

Section 3.5 Code means the Internal Revenue Code of 1986, as amended.

Section 3.6 Committee means the administrative committee appointed by the Chief Executive Officer and Chief Operating Officer of the Company pursuant to Section 6.1 hereof.

Section 3.7 Company means GREATER BAY BANCORP.

Section 3.8 Effective Date means January 1, 1998.

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Section 3.9 Employee means (1) any full-time employee of the Company or (2) any regular part-time employee of the Company. For purposes of this Section 3.10, “full-time employee” shall mean an employee of the Company who is regularly scheduled to work at least forty (40) hours per week for twelve (12) months each year. Notwithstanding the foregoing, with respect to employees of the Company which requires fewer than forty (40) hours per week for classification as a full-time employee, “full-time employee” shall be defined according to the Company’s administrative policy and practice. “Regular part-time” employee shall mean any employee of the Company who is regularly scheduled to work at least twenty-four (24) hours per week for twelve (12) months each year, but fewer hours than necessary to classify him as a full-time employee.

Section 3.10 Eligible Employee means an Employee who is a key executive of the Company and who is eligible to participate in the Plan. The only Employees who are deemed “Eligible Employees” for purposes of the Plan are the officers of the Company who are members or ex-officio members of the Company’s Strategy and Policy Committee.

Section 3.11 ERISA means the Employee Retirement Income Security Act of 1974, as amended.

Section 3.12 Leave of Absence means a period of absence from regular employment which is approved by the Board of Directors or the Committee in a non-discriminatory manner for reasons such as, but not limited to, sickness, disability, education, jury duty, convenience to the Company, maternity or paternity leave, family leave, or for periods of military duty during which the Employee’s reemployment rights are protected by law.

Section 3.13 Participant means an Employee who satisfies the requirements under Section 4.1 of the Plan.

Section 3.14 Pay means an Eligible Employee’s current annual rate of regular salary or wages on his/her date of termination of employment with the Company and the average of the annual and/or incentive bonuses paid to an Eligible Employee over the three years immediately preceding the date of his termination of employment on account of a Change in Control, excluding all other extra pay such as overtime, commissions, premiums and living or other allowances.

Section 3.15 Plan means the Greater Bay Bancorp Change in Control Pay Plan II.

Section 3.16 Plan Year means each twelve (12) consecutive month period from January 1 through December 31.

ARTICLE IV

ELIGIBILITY FOR BENEFITS

Section 4.1 Employees Eligible for Severance Benefits. Except as provided in this Section 4.1 and in Section 4.2 and subject to Section 5.6, an Eligible Employee whose employment is terminated by the Company on or after the Effective Date shall be eligible for a Base Benefit if:

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(a) Subject to Section 4.2, the Eligible Employee’s employment is terminated as a result of a Change in Control within three (3) years of the effective time of the Change in Control (the “effective time” of the Change in Control will have the same meaning provided in Section 7.2); and

(b) The Eligible Employee’s employment is not terminated for cause for personal conduct; and

(c) The Eligible Employee executes a waiver and release agreement in such form as determined by the Committee (the “Waiver and Release Agreement”) and returns the Waiver and Release Agreement to the Company within the time period specified in the Waiver and Release Agreement.

Section 4.2 Employees Not Eligible For Severance Benefits. An Eligible Employee shall not be entitled to a Base Benefit set forth in Article V if:

(a) The Eligible Employee has in force an employment contract or executive severance agreement with the Company which includes provision for the payment of severance benefits upon the termination of his or her employment with the Company upon a Change in Control, unless such severance benefits are less than the Base Benefit provided for in the Plan; or

(b) The Eligible Employee is offered employment by the successor employer in the same position or in another position of comparable pay and status to the position he held immediately prior to the effective date of the Change in Control, or the Eligible Employee is offered employment by the Company in another position of comparable pay and status to the position held immediately prior to the Change in Control, regardless of whether he accepts the offer; or

(c) The Eligible Employee’s employment is involuntarily terminated for cause for personal conduct (an Eligible Employee whose employment is terminated for cause related to his/her work performance may be eligible to receive severance benefits under the Plan as the Committee in its sole discretion may determine); or

(d) The Eligible Employee fails to perform his/her regular assigned job duties through the date specified by the Company as his/her termination date; or

(e) The Eligible Employee fails to return a properly executed Waiver and Release Agreement on a timely basis.

For purposes of this Section 4.2, a “position of comparable pay and status” shall mean a position with not less than one hundred percent (100%) of the Pay, bonus opportunity and benefits of the position held by the Eligible Employee prior to his/her termination of employment and with a similar scope of duties and responsibilities to such prior position. In addition, a position will not

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be considered a position of comparable pay and status if (i) an Eligible Employee is required to increase his/her normal commuting miles to reach a new worksite, and (ii) the normal commuting from his/her home to the new worksite exceeds 30 miles each way. Notwithstanding the foregoing, the Committee reserves the right to make decisions based on the facts and circumstances of individual cases as to whether a position is of comparable pay and status to that held by an Eligible Employee prior to his/her employment termination, provided that the Eligible Employee may appeal any such decision pursuant to the provisions of Section 6.5.

ARTICLE V

SEVERANCE BENEFITS

Section 5.1 Calculation of Severance Benefit. Subject to the provisions of Section 4.1 and 4.2, a Participant whose employment is terminated (or constructively terminated by not being offered a “position of comparable pay and status” as defined in Section 4.2) as a result of a Change in Control, shall be entitled to receive a Base Benefit under this Plan equal to thirty (30) months of Pay.

Participants entitled to a Base Benefit shall also receive the following severance benefits: (1) for the length of the severance period, health (or COBRA coverage) and life insurance benefits under the Company’s group plans then in effect on terms offered to current employees; (2) outplacement services deemed appropriate by the Committee; and (3) a pro-rated bonus for work performed during the year in which the Change in Control occurs. The pro-rated bonus shall be an amount equal to the average of the annual incentive bonuses for the three-year period immediately preceding the date of termination, pro-rated for the number of months the Participant was employed during the year of termination, subject to the Participant receiving at least a satisfactory performance evaluation.

Section 5.2 Indemnity.

(a) In the event it shall be determined that any payment by the Company to or for the benefit of a Participant pursuant to the terms of this Plan (a “Payment”) would subject a Participant to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by a Participant with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then such Participant shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by such Participant of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, such Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the payments.

(b) Subject to the provisions of the next paragraph, all determinations required to be made under this Plan, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a certified public accounting firm designated by the Committee (the “Accounting Firm”) which shall provide detailed supporting calculations both to the

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Company and the Participant within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Plan, shall be paid by the Company to the Participant within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to the next paragraph and the Participant thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant.

(c) As a condition to indemnification hereunder, each Participant must notify the Company in writing of any claim by the IRS that, if successful, would require the payment by the Company of the Gross-Up Payment and comply with the rules in this paragraph (c) and in paragraph (d). Such notification shall be given as soon as practicable but not later than ten business days after the Participant is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Participant shall not pay such claim prior to the expiration of the 30-day period following the date on which the Participant gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Participant in writing prior to the expiration of such period that it desires to contest such claim, the Participant must: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting representation with respect to such claim by an attorney or accountant reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Participant harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Participant must prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Participant to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Participant, on an interest-free basis, and shall indemnify and hold the Participant harmless, on an after-tax basis,

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from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Participant with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the IRS or any other taxing authority.

(d) If, after the receipt by the Participant of an amount advanced by the Company pursuant to this letter agreement, the Participant becomes entitled to receive any refund with respect to such claim, the Participant must (subject to the Company’s complying with the requirements of the preceding paragraph) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Participant of an amount advanced by the Company pursuant to the preceding paragraph, a determination is made that the Participant shall not be entitled to any refund with respect to such claim and the Company does not notify the Participant in writing of its intent to contest such denial or refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

Section 5.3 Payment of Benefits. The Plan shall pay severance benefits to a Participant whose employment is terminated on account of a Change in Control in the form of a lump sum or equal installments payable over a period not to exceed twenty-four (24) months, as the Committee in its sole discretion may determine. The Plan shall make lump sum distributions as soon as administratively practicable and in no event later than thirty (30) days following the receipt by the Committee of a timely and properly executed Waiver and Release Agreement. Subject to the Committee’s receipt of a properly executed Waiver and Release Agreement on a timely basis, the Plan shall make payments of severance benefits in equal installments as of the first payday following the Participant’s termination of employment.

Section 5.4 Payment Offset. The Company reserves the right to offset the benefits payable under Sections 5.1 by any advance, loan or other monies a Participant owes the Company. Employment taxes shall be withheld from all severance payments.

Section 5.5 Unfunded Plan. The obligations of the Company under this Plan may be funded through contributions to a trust or otherwise, but the obligations of the Company are not required to be funded under this Plan unless required by law. Nothing contained in this Plan shall give a Participant any right, title or interest in any property of the Company.

Section 5.6 Prohibition against Certain Payments. Notwithstanding any provision of the Plan to the contrary, no Participant shall be entitled to receive, and the Company shall not pay, any amount under this Plan that is prohibited by Section 359.1 of the Federal Deposit Insurance Corporation Rules and Regulations.

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ARTICLE VI

ADMINISTRATION

Section 6.1 Plan Administration. The Company shall be the administrator of the Plan for purposes of Section 3(16) of ERISA and shall have responsibility for complying with any ERISA reporting and disclosure rules applicable to the Plan for any Plan Year.

Section 6.2 Plan Committee. In all respects other than as provided in Section 6.1, the Plan shall be administered and operated by the Committee which shall consist of one or more individuals appointed by the Chief Executive Officer and Chief Operating Officer of the Company who may also revoke any such appointment and subsequently appoint other individuals. The Committee shall have all powers necessary to supervise the administration of the Plan and control its operations. In addition to any powers and authority conferred to the Committee elsewhere in the Plan or by law, the Committee shall have, by way of illustration but not by way of limitation, the following discretionary powers and authority:

(a) To allocate fiduciary responsibilities among the named fiduciaries and to designate one or more other persons to carry out fiduciary responsibilities. However, no allocation or delegation under this Section 6.2(a) shall be effective until the person or persons to whom the responsibilities have been allocated or delegated agree to assume the responsibilities;

(b) To designate agents to carry out responsibilities relating to the Plan, other than fiduciary responsibilities;

(c) To employ such legal, accounting, clerical, and other assistance as it may deem appropriate in carrying out the provisions of this Plan, including one or more persons to render advice with regard to any responsibility any fiduciary may have under the Plan;

(d) To establish rules and procedures from time to time for the conduct of the Committee’s business and the administration and effectuation of this Plan;

(e) To administer, interpret, construe and apply this Plan. To decide all questions which may arise or which may be raised under this Plan by any Employee, Participant, former Participant or other person whatsoever, including but not limited to all questions relating to eligibility to participate in the Plan, the amount of service of any Participant, and the amount of benefits to which any Participant may be entitled;

(f) To determine the manner in which the severance benefits of this Plan, or any part thereof, shall be administered; and

(g) To perform or cause to be performed such further acts as it may deem to be necessary, appropriate or convenient in the efficient administration of the Plan.

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Any action taken in good faith by the Committee in the exercise of discretionary authority conferred upon it by this Plan shall be conclusive and binding upon the Participants. All discretionary powers conferred upon the Committee shall be absolute. However, all discretionary powers shall be exercised in a uniform and nondiscriminatory manner.

Section 6.3 Named Fiduciary. The members of the Committee shall be named fiduciaries with respect to this Plan for purposes of Section 402 of ERISA.

Section 6.4 Indemnification of Committee. The Company shall, to the extent permitted by law, by the purchase of insurance or otherwise, indemnify and hold harmless each member of the Committee and each other fiduciary with respect to this Plan for liabilities or expenses they and each of them incur in carrying out their respective duties under the Plan, other than for any liabilities or expenses arising out of such fiduciary’s gross negligence or willful misconduct. A fiduciary shall not be responsible for any breach of responsibility of any other fiduciary except to the extent provided in Section 405 of ERISA.

Section 6.5 Claims Procedure. If any request for benefits under this Plan is denied, in whole or in part, the claimant shall be so notified by the Committee within five (5) calendar days of the date such person’s claim is delivered to the person designated in writing by the Chief Executive Officer and Chief Operating Officer of the Company. At the same time, the Committee shall notify the claimant of his/her right to a review by the Committee and shall set forth, in a manner calculated to be understood by the claimant, specific reasons for such decision, specific references to pertinent information necessary for the claimant to perfect his/her request for review, an explanation of why such material or information is necessary, and an explanation of the Plan’s review procedure.

Any person or a duly authorized representative may appeal from such decision by submitting to the Committee within sixty (60) calendar days after receiving a notice of the Committee’ decision a written statement:

(a) Requesting a review of the claim for a termination allowance by the Committee;

(b) Setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and

(c) Setting forth any issues or comments which the claimant deems relevant to the claim.

The Committee shall act upon such appeal within sixty (60) calendar days after the later of receipt of the claimant’s request for review by the Committee or receipt of all additional materials reasonably requested by the Committee from such claimant.

The Committee shall make a full and fair review of an appeal and all written materials submitted by the claimant in connection therewith and may require the claimant to submit, within ten (10) calendar days’ written notice by the Committee therefor, such additional facts, documents or other evidence as the Committee, in its sole discretion, deems necessary or advisable in making such a review. On the basis of its review, the Committee shall make an

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independent determination of the claimant’s eligibility for an allowance and the amount of such allowance, if any, under this Plan. The decision of the Committee on any appeal shall be final and conclusive upon all persons if supported by substantial evidence in the record.

If the Committee denies a claim in whole or in part, the Committee shall give written notice of its decision to the claimant setting forth, in a manner calculated to be understood by the claimant, the specific reasons for such denial and specific references to the pertinent Plan provisions on which the Committee’s decision was based.

ARTICLE VII

AMENDMENT AND TERMINATION

Section 7.1 Before Change in Control. This Plan may be amended from time to time, or terminated at any time at the discretion of the Board of Directors by a written resolution adopted by a majority of the Board of Directors, provided, however, that no amendment or termination shall adversely affect the right of a Participant to receive a severance benefit that the Participant has accrued on account of his or her termination of employment as a result of a Change in Control.

Section 7.2 After Change in Control. Notwithstanding the foregoing, the Plan may not be amended or participation discontinued after the effective time of a Change in Control. For purposes of this Plan, the “effective time” of a Change in Control shall have the same meaning provided in the agreement governing the transactions) which give rise to the Change in Control.

ARTICLE VIII

GENERAL

Section 8.1 Payment Out of General Assets. The benefits and costs of this Plan shall be paid by the Company out of their general assets.

Section 8.2 Welfare Benefit Plan. This Plan is intended to be an employee welfare benefit plan, as defined in Section 3(1), Subtitle A of Title 1 of ERISA. The Plan will be interpreted to effectuate this intent. Notwithstanding any other provision of this Plan, no Participant shall receive hereunder any payment exceeding twice that Participant’s annual compensation during the year immediately preceding the termination of his or her service, within the meaning of 29 C.F.R. § 2510.3-2 as the same was in effect on the effective date of this Plan.

Section 8.3 Gender. The masculine pronoun shall include the feminine pronoun and the feminine pronoun shall include the masculine pronoun and the singular pronoun shall include the plural pronoun and the plural pronoun shall include the singular pronoun, unless the context clearly indicates otherwise.

Section 8.4 Limitation on Participant’s Rights. Nothing in this Plan shall be construed to guarantee terminated Eligible Employees any right to be recalled or rehired by the Company.

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Section 8.5 Severability. If any provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts, which shall be enforced as if the illegal or invalid provision had not been included in this Plan.

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EX-10.17(A)

Exhibit 10.17(a)

TERM LOAN AND SECURITY AGREEMENT

         This Term Loan and Security Agreement (the “Agreement”) is made and entered into as of July 31, 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 Section 4.1(g), and financial data submitted pursuant to this Agreement will be prepared in accordance with such principles. As used herein:

                  “Applicable Margin” means (a) in the case of Prime Rate Loans, 0.00% per annum and (b) in the case of LIBOR Rate Loans, 1.375%; provided, however, that the Applicable Margins for Prime Rate Loans and LIBOR Rate Loans are subject to adjustment on the first business day of each February, May, August, and November, commencing November 1, 2002, in accordance with the following matrix based on the Borrower’s senior unsecured debt ratings as reported by Standard & Poor’s Rating Group and Moody’s Investor Services, Inc. (whichever is lower) as of the last day of the immediately preceding calendar quarter:

Debt Rating	Prime Rate Loan Applicable Margin	LIBOR Rate Loan Applicable Margin
Greater than or equal to BBB+ or Baa1	0.00%	1.125%
BBB or Baa2	0.00%	1.250%
BBB- or Baa3	0.00%	1.375%
BB+ or Ba1	0.25%	1.625%
Equal to or less than BB or Ba2	0.50%	1.875%

                   “Average Assets” means the daily average sum of all assets shown on the consolidated balance sheet of the Borrower and its consolidated Subsidiaries, including Loan Loss Reserves of such Subsidiaries, determined in accordance with generally accepted accounting principles applicable to banks and bank holding companies, consistently applied, as set forth in the Borrower’s most recent publicly reported consolidated financial statements.

                  “Collateral” is defined in Section 5.1(a).

                  “Double Leverage Ratio” means, as to the Borrower, the relationship, expressed as numerical ratio, between:

                  (a)         the Borrower’s aggregate equity investment in the Borrower’s Subsidiaries;

and

                  (b)         total shareholder’s equity of the Borrower;

all as determined, without duplication, in accordance with generally accepted accounting principles, consistently applied to the Borrower, as shown on the most recent FRY-9LP report filed by the Borrower.

                  “Event of Default” is defined in Section 6.1.

                  “Loan Loss Reserves” means the aggregate loan loss reserves of the Borrower and its consolidated Subsidiaries as set forth in the Borrower’s most recent publicly reported consolidated financial statements.

                  “Maturity Date” means July 31, 2007 or such earlier date on which the Note becomes due and payable pursuant to Section 6.2.

                  “Net Income” means the amount by which

                  (a)         all revenues and income derived from operations in the ordinary course of business (excluding extraordinary or non-recurring gains and profits upon the disposition of investments or fixed assets)

exceeds

                  (b)         all expenses and other proper charges against income (including payment or provision for all applicable income and other taxes, but excluding any

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extraordinary or non-recurring losses and losses upon the disposition of investments and fixed assets),

all as determined for the Borrower and its consolidated Subsidiaries, without duplication, in accordance with generally accepted accounting principles, applied on a consistent basis; provided that gains and losses incurred in the disposition of investments in the ordinary course of business shall not be deemed to be extraordinary or non-recurring.

                  “Nonperforming Assets” means the sum of (i) Nonperforming Loans and (ii) Other Real Estate.

                  “Nonperforming Loans” means those loans classified as “non-accrual” or “restructured” as set forth in the Borrower’s most recent publicly reported consolidated financial statements.

                  “Note” means the term note of the Borrower in the form of Exhibit A attached hereto.

                  “Obligations” is defined in Section 5.2.

                  “Other Real Estate” means the value of all other real estate owned by the Borrower and its consolidated Subsidiaries as set forth in the Borrower’s most recent publicly reported consolidated financial statements.

                  “Regulatory Authority” means any state, federal or other authority, agency or instrumentality including, without limitation, the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board and Office of Thrift Supervision, responsible for examination and oversight of the Borrower or any Subsidiary.

                  “Subsidiary” or “Subsidiaries” means, for purposes of this Agreement and the other Loan Documents, the Subsidiary Bank, and any entity of which the Borrower owns, directly or through another entity, at the date of determination, more than 50% of the outstanding stock or interest 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.

                  “Subsidiary Bank” means Coast Commercial Bank.

                  “Total Loans” means the aggregate outstanding principal amount of all loans shown as assets of the Borrower and its consolidated Subsidiaries as set forth in the Borrower’s most recent publicly reported consolidated financial statements.

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ARTICLE II. LOANS

         2.1         Terms for Advance(s). On or about July 31, 2002, the Bank agrees, subject to the terms and conditions hereof, to make a term loan to the Borrower in the amount of $30,000,000. The term loan shall be evidenced by, be repayable and bear interest in accordance with the Note. The unpaid principal balance of the Note shall be repayable in 12 quarterly installments of $1,500,000 each payable on each July 31, October 31, January 31 and April 30 of each year, commencing October 31, 2003, followed by 3 quarterly installments of $3,000,000 each, commencing October 31, 2006, plus a final installment of the unpaid principal balance, all accrued interest thereon payable on the Maturity Date. The Borrower further agrees to pay interest on the unpaid principal balance of the Note outstanding from time to time in accordance with the terms of his Agreement.

         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. The Borrower will maintain a demand deposit account at the Bank to facilitate borrowings and repayments hereunder.

         2.3         Interest Rate.

                  (a)         Interest Rate Options. Interest on the unpaid principal balance of the Note outstanding from time to time shall accrue at one of the following per annum rates selected by Borrower (i) upon notice to the Bank, the prime rate announced by the Bank from time to time, as and when such rate changes, plus the Applicable Margin (a “Prime Rate Loan”); or (ii) upon a minimum of two New York banking days prior notice, the 1, 2 or 3 month LIBOR rate quoted by the Bank from Telerate Page 3750 or any successor thereto (which shall be the LIBOR rate in effect two New York banking days prior to commencement of the LIBOR loan advance, adjusted as necessary for any reserve requirement and other explicit or implicit costs levied by any regulatory agency), plus the Applicable Margin (a “LIBOR Rate Loan”); With respect to Prime Rate Loans, accrued interest shall be payable on the last business day of each calendar quarter commencing October 31, 2002 and continuing on the last business day of each successive quarter thereafter and on the Maturity Date. With respect to LIBOR Rate Loans, accrued interest shall be payable on the last day of the loan period therefor selected by the Borrower under the terms hereof, commencing on the first of such dates to occur after the date hereof and on the Maturity Date. If a LIBOR Rate Loan is prepaid, whether by the Borrower, as a result of acceleration upon default or otherwise, the Borrower agrees to pay all of the Bank’s costs and expenses incurred as a result of such prepayment

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(including any applicable “break-funding” charges and losses suffered due to the redeployment of the LIBOR Loan for the remainder of the 1, 2 or 3-month LIBOR interest period then in effect with respect to such LIBOR Loan). Any prepayment of a LIBOR Rate Loan shall be in an amount equal to the remaining entire principal balance of such LIBOR Loan. In the event the Borrower does not timely select another interest rate option at least 2 banking days before a LIBOR Rate Loan expires, then upon expiration such loan shall automatically be converted into a new LIBOR Loan of the same duration as the expired LIBOR Loan. The Bank’s internal records of applicable interest rates shall be determinative in the absence of manifest error. Each LIBOR rate option selected shall apply to a minimum principal amount of $1,000,000. For determining payment dates for LIBOR Rate Loans, the New York banking day shall be the standard convention. In the event after the date of initial funding any governmental authority subjects Bank to any new or additional charge, fee, withholding or tax of any kind 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.

                  (b)         Default Rate. Notwithstanding the provisions of Section 2.3(a) above, upon the occurrence and during the continuance of an Event of Default, the unpaid principal balance of the Notes shall, upon notice from the Bank to the Borrower, bear interest at an annual rate equal to the rate otherwise in effect plus two percentage points (2.00%) (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.

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

         2.4         Prepayments. Except as otherwise provided in Section 2.3(a), the Note may be prepaid, without penalty or premium, only on an interest payment date upon 5 business days’ prior notice to the Bank.

ARTICLE III. CONDITIONS TO BORROWING

         3.1         Conditions to Borrowing. The Bank will not be obligated to make any advance 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, including but not limited to the documents specified in Article V (collectively with this Agreement, the “Loan Documents”), in form and content satisfactory to the Bank; (ii) the Bank has received confirmation satisfactory to it that the Bank has received the security interest contemplated by Section 3.2; (iii) the Bank has received certified copies

5

of the Articles of Incorporation and By-Laws and a certificate of status/good standing of the Borrower and the Subsidiary Bank; (iv) the Bank has received a certified copy of a resolution or authorization in form and content 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; (v) the Bank has been provided with an opinion of the Borrower’s in-house counsel, in form and content satisfactory to the Bank confirming the matters outlined in Section 4.1(a) and such other matters as the Bank requests; (vi) 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; (vii) the Bank shall have received a closing fee in the amount of $150,000; and (viii) all proceedings taken in connection with the transactions contemplated by this Agreement and all instruments, authorizations and other documents applicable thereto, will be satisfactory to the Bank and its counsel.

         3.2         Security. The loans provided for hereunder will be secured by a first-priority pledge of 100% of the capital stock of the Subsidiary Bank now owned or hereafter acquired by the Borrower, except directors qualifying shares, if any.

ARTICLE IV. REPRESENTATIONS, WARRANTIES AND COVENANTS

         4.1         Representations and Warranties. Borrower makes the following representations and warranties to the Bank as of the date on which the loan hereunder is funded, in each case except to the extent otherwise disclosed in the Borrower’s most recent annual report on Form 10-K as filed with the Securities and Exchange Commission:

                  (a)         Organization and Authority. 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.

                  (b)         Subsidiaries.

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                            (i)         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.

                           (ii)         The Subsidiary Bank has issued and outstanding 50 shares of common stock, having no par value, which are duly authorized, validly issued, fully paid and non-assessable, of which the Borrower owns 100% of the issued and outstanding shares, free and clear of any liens, charges, encumbrances, rights of redemption, preemptive rights or rights of first refusal of any kind or nature whatsoever, except liens in favor of the Bank. The Subsidiary Bank also has 500,000 shares of authorized preferred stock, of which 10,000 shares are designated as 9.0% Noncumulative Preferred Stock, Series A, no shares of preferred stock are outstanding, and no other shares of capital stock (common or preferred), or securities or other obligations convertible into any of the foregoing, authorized or outstanding and has no outstanding offers, subscriptions, warrants, rights or other agreements or commitments obligating the Subsidiary Bank to issue or sell any of the foregoing.

                  (c)         Litigation and Compliance with Laws. The Borrower and the Subsidiaries have complied in all material respects 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 Regulatory 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 which, if adversely determined, could reasonably be expected to have a material adverse effect on the Borrower’s consolidated financial condition. 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 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

7

with any Regulatory Authority 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.

                  (d)         F.D.I.C. Insurance. The Subsidiary Bank is insured as to deposits by the Federal Deposit Insurance Corporation and no act has occurred which could adversely affect the status of the Subsidiary Bank as an insured bank.

                  (e)         Use of Proceeds; Margin Stock; Speculation. (i) The proceeds of the loan made by the Bank hereunder will be used exclusively by the Borrower to refinance existing indebtedness with the Bank in the amount of $25,000,000; and (ii) for the Borrower’s general corporate and 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.

                  (f)         Environmental Matters. Except as disclosed in a written schedule attached to this Agreement (if no schedule is attached, there are no exceptions), there exists no uncorrected violation by the Borrower of any federal, state or local laws (including statutes, regulations, ordinances or other governmental restrictions and requirements) relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or Hazardous Substances as hereinafter defined, whether such laws currently exist or are enacted in the future (collectively “Environmental Laws”) which could reasonably be expected to have a material adverse effect on the Borrower’s consolidated financial condition. The term “Hazardous Substances” will mean any hazardous or toxic wastes, chemicals or other substances, the generation, possession or existence of which is prohibited or governed by any Environmental Laws. The Borrower is not subject to any judgment, decree, order or citation, or a party to (or threatened with) any litigation or administrative proceeding, which asserts that the Borrower (i) has violated any Environmental Laws; (ii) is required to clean up, remove or take remedial or other action with respect to any Hazardous Substances (collectively “Remedial Action”); or (iii) is required to pay all or a portion of the cost of any Remedial Action, as a potentially responsible party. Except as disclosed on the Borrower’s environmental questionnaire provided to the Bank, there are not now, nor to the Borrower’s knowledge after reasonable investigation have there ever been, any Hazardous Substances (or tanks or other facilities for the storage of Hazardous Substances) stored, deposited, recycled or disposed of on, under or at any real estate owned or occupied by the Borrower during the periods that the Borrower owned or occupied such real estate, which if present on the real estate or in soils or ground water, could require Remedial Action. To the Borrower’s knowledge, there are no proposed or pending changes in Environmental Laws which would adversely affect the Borrower or

8

its business, and there are no conditions that would subject the Borrower to Remedial Action or other liability. The Borrower is in compliance in all material respects with all applicable Environmental Laws.

                  (g)         Financial Statements. The financial statements provided to the Bank fairly present the financial condition, results of operations and cash flows of the Borrower as of the dates and for the periods presented and are prepared in accordance with generally accepted accounting principles. There has been no material adverse change in the Borrower’s consolidated financial condition since the date of such financial statements.

         4.2         Covenants. For so long as the loan hereunder remains outstanding, the Borrower covenants to the Bank that it will comply with the following provisions of this Section 4.2:

                  (a)         Corporate Existence; Business Activities; Assets. The Borrower will and will cause the Subsidiary Bank to (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 or as may be otherwise permissible for a financial holding company under applicable laws and regulations; (iii) not liquidate or dissolve; and (iv) not sell, lease, transfer or otherwise dispose of all or substantially all of its assets. The Borrower shall not merge or consolidate with or into any other entity unless the Borrower is the surviving entity of such transaction.

                  (b)         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 Subsidiaries; provided that the foregoing restriction shall not apply to the capital stock or interests of Cupertino National Bank.

                  (c)         Restriction on Contingent Liabilities. The Borrower will not and will not permit the Subsidiary Bank to guarantee or become a surety or otherwise contingently liable for any obligations of others, except pursuant to the deposit and collection of checks, the issuance or confirmation of letters of credit by the Subsidiary Bank and similar matters in the ordinary course of banking business and guarantees

9

provided by the Borrower in connection with the issuance of trust preferred securities consistent with the Borrower’s past practices.

                  (d)         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.

                  (e)         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.

                  (f)         Financial Statements and Reporting. The Borrower will, and will cause each Subsidiary to (i) maintain accounting records in accordance with generally accepted accounting principles 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; and (iii) without request, provide the Bank with the following information:

                           (i)         As soon as available, and in any event within 90 days after the end of each fiscal year of the Borrower, the Borrower’s annual audited financial statements prepared by an accounting firm reasonably acceptable to the Bank; and

                           (ii)         (A) Within 45 days of the end of each quarter, quarterly FRY-9C and FRY-9LP reports, or any successors thereto, of the Borrower prepared in accordance with the guidelines of the Federal Reserve System, together with a certificate of a senior financial officer of the Borrower setting forth calculations showing the Borrower’s compliance with the financial covenants contained in this Agreement as of the end of such quarter and certifying that as of the date of such certificate no default (as described in Section 6 hereof) has occurred, nor any event or act has occurred, or condition exists, which with the giving of notice or the passage of time would constitute such a default; and

                                    (B) Upon request by the Bank, quarterly call reports prepared on FFIEC forms, or any successors thereto, of the Subsidiary Bank prepared in accordance with the guidelines of the Regulatory Authority which regulates such Subsidiary Bank; and

                           (iii)         As soon as available, copies of all reports or materials submitted or distributed to shareholders of the Borrower or filed with the SEC or other

10

governmental agency having regulatory authority over the Borrower or the Subsidiary Bank or with any national securities exchange; and

                           (iv)         Promptly after the furnishing thereof, copies of any statement or report furnished to any other holder of obligations of the Borrower or the Subsidiary Bank pursuant to the terms of any indenture, loan or similar agreement and not otherwise required to be furnished to the Bank pursuant to any other clause of this Section 4.2(f); and

                           (v)         Promptly, and in any event within 10 days, after the Borrower has knowledge thereof, a statement of a senior financial officer of the Borrower describing: (i) any event which, either of itself or with the lapse of time or the giving of notice or both, would constitute an Event of Default hereunder or a breach of any other material agreement to which the Borrower or the Subsidiary Bank is a party, together with a statement of the actions which the Borrower or the Subsidiary Bank proposes to take with respect thereto; and (ii) any pending or threatened litigation or administrative proceeding of the type described in Section 4.1(c) that could reasonably be expected to have a material adverse effect on the Borrower’s consolidated financial condition; and

                           (vi)         Notice of any memorandum of understanding or any other agreement with any Regulatory Authority, or cease and desist order, immediately after entered into by or issued against Borrower or the Subsidiary Bank; and

                           (vii)         Immediately upon receipt, copies of any correspondence, notice, complaint, order or other document from any source asserting or alleging any circumstance or condition which requires or may require a material financial contribution by the Borrower or Remedial Action or other response by or on the part of the Borrower under Environmental Laws, or which seeks material damages or civil, criminal or punitive penalties from the Borrower for an alleged violation of Environmental Laws; and

                           (viii)         Promptly after request therefor, any other information concerning the business affairs and financial condition of the Borrower or the Subsidiary Bank as the Bank may reasonably request.

                  (g)         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 the Subsidiary Bank. The Borrower and the Subsidiary Bank will use commercially reasonably efforts to obtain the consent of any person or Regulatory Authority which it deems necessary or appropriate for disclosure of the information described above.

                  (h)         Financial Covenants.

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                            (i)         The Borrower shall maintain, on a consolidated basis for the Borrower and its consolidated Subsidiaries, as of the end of each fiscal quarter of the Borrower:

                                     (A)         a ratio of Nonperforming Assets to Total Loans plus Other Real Estate of not greater than 2.0%.

                                     (B)         a ratio of Loan Loss Reserves to Non-Performing Assets of at least 100%.

                           (ii)         The Borrower shall maintain, as of the end of any fiscal quarter of the Borrower, on a consolidated, rolling four quarters basis for the Borrower and its consolidated Subsidiaries, a ratio of Net Income to Average Assets of at least .85%.

                           (iii)         The Borrower shall not permit the Borrower’s Double Leverage Ratio to exceed 135% as of the end of any fiscal quarter of the Borrower.

                           (iv)         The Borrower shall maintain, on a consolidated basis for the Borrower and its consolidated Subsidiaries, and shall cause the Subsidiary Bank, when measured separately, to maintain, as of the end of any fiscal quarter of the Borrower and the Subsidiary Bank, a Tier 1 leverage ratio (as determined in accordance with the regulations of the various federal Regulatory Authorities), of not less than 5.0%.

                           (v)         The Borrower shall maintain, on a consolidated basis for the Borrower and its consolidated Subsidiaries, and shall cause the Subsidiary Bank, when measured separately, to maintain, as of the end of any fiscal quarter of the Borrower and the Subsidiary Bank, a Tier 1 risk-based capital ratio (as determined in accordance with the regulations of the various federal Regulatory Authorities), of not less than 6.0%.

                           (vi)         The Borrower shall maintain, on a consolidated basis for the Borrower and its consolidated Subsidiaries, and shall cause the Subsidiary Bank, when measured separately, to maintain, as of the end of any fiscal quarter of the Borrower and the Subsidiary Bank, a Total risk-based capital ratio (as determined in accordance with the regulations of the various federal Regulatory Authorities), of not less than 10.0%.

                           (vii)         The Borrower shall maintain at all times minimum shareholder’s equity in the Subsidiary Bank of not less than $40,000,000.

                  (i)         Inspection of Properties and Records; Fiscal Year. The Borrower will permit representatives of the Bank to visit and inspect any of the properties and

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examine any books and records of the Borrower and the Subsidiary Bank, including without limitation the stock transfer records of the Subsidiary Bank, at any reasonable time and as often as the Bank may reasonably desire. The Borrower will not change its fiscal year.

                  (j)         Issuance of Stock. The Borrower will not permit the Subsidiary Bank to issue any additional shares of common or preferred stock, or any options, warrants or other common stock equivalents, or sell or issue securities or obligations convertible into such (“New Stock”), whether in the form of stock dividends or stock splits or otherwise, unless such New Stock will be issued to the Borrower and delivered by the Borrower to the Bank, together with any additional documents required by the Bank, as additional collateral to secure the loan provided for hereunder.

                  (k)         Acquisitions and Investments. Except to the extent permitted by Section 4.2(a), neither the Borrower nor the Subsidiary Bank will acquire any other business or make any loan, advance or extension of credit to, or investment in, any other person, corporation or other entity, including investments acquired in exchange for stock or other securities or obligations of any nature of the Borrower or the Subsidiary Bank, or create or participate in the creation of any joint venture, other than:

                           (i)         investments in (A) bank repurchase agreements; (B) savings accounts or certificates of deposit in a financial institution of recognized standing; (C) obligations issued or fully guaranteed by the United States; and (D) prime commercial paper maturing within 90 days of the date of acquisition by the Borrower or the Subsidiary Bank;

                           (ii)         loans and advances made to employees and agents in the ordinary course of business;

                           (iii)         investments in the Borrower by the Subsidiary Bank and by the Borrower and the Subsidiary Bank in Subsidiaries;

                            (iv)         with respect to the Subsidiary Bank, investments or loans made in the ordinary course of the banking business of the Subsidiary Bank; and

                           (v)         in connection with acquisitions of depository institutions and non-depository entities; provided that (A) no default (as determined in accordance with Section 6 hereof) shall have occurred and be continuing as the consummation of such acquisition, or would be created thereby or exist immediately after giving effect to such acquisition; (B) the institution or entity to be acquired shall be in a substantially similar business to that conducted by the Borrower or one of its Subsidiaries or otherwise permitted for a financial holding company or its subsidiaries; (C) the total consolidated

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assets of any depository institution to be acquired shall not exceed 35% of the total consolidated assets of the Borrower immediately prior to such acquisition; (D) the consolidated assets of any non-depository entity to be acquired shall not exceed 10% of the total consolidated assets of the Borrower immediately prior to such acquisition; and (E) the investment grade rating of the Borrower’s long-term unsecured debt, as reported by Standard & Poor’s Rating Group or Moody’s Investor Services, Inc., on a post-acquisition basis, shall be BBB- and Baa3 or better.

                  (l)         Transactions with Affiliates. Neither the Borrower nor the Subsidiary Bank will enter into or be a party to any material transaction with any affiliate except as otherwise provided herein or in the ordinary course of business or as would not otherwise be prohibited by Section 23A or 23B of the Bank Holding Company Act of 1956, as amended.

                  (m)         Other Covenants. The Borrower agrees that any financial or operating covenants (including default threshholds similar to those contianed in Section 6.1 hereof)contained in any agreement, document or instrument evidencing indebtedness of the Borrower for borrowed money entered into after the date hereof, which are more restrictive than, or substantively different from, the covenants (including the default threshholds contianed in Section 6.1 hereof) contained in this Agreement, shall be deemed to be incorporated by reference into this Agreement with the same force and effect as if originally contained herein. The Borrower further agrees to execute and deliver any amendment to this Agreement reasonably requested by the Bank to specifically incorporate herein such agreement or covenant.

                  (n)         Compliance with Laws. The Borrower will comply, and will cause the Subsidiary Bank to comply, in all material respects 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 the Subsidiary Bank or the assets owned, used or occupied by them.

ARTICLE V. COLLATERAL

         5.1         Collateral.

                  (a)         Grant of Security Interest. As security for the complete and prompt payment and performance when due of the Obligations to the Bank, the Borrower hereby grants a security interest in and collaterally assigns to the Bank all of the following, whether now owned or existing or hereafter acquired (collectively, the “Collateral”): all

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of the Borrower’s right, title and interest in and to the following property: 50 shares of the common stock of the Subsidiary Bank, evidenced by stock certificate No. 2A, together with all renewals thereof, substitutions therefor, and all proceeds thereof (including stock splits and the like), dividends, profits, monies and claims for more monies now or hereafter payable with respect to said property.

                  (b)         Warranty of Title/Status of Collateral. The Borrower represents and warrants to the Bank that the Collateral is genuine and the Borrower has good title to the Collateral. The Collateral is not subject to any restrictions on transfer and/or disposition by the Borrower or the Bank.

                  (c)         Ownership; Maintenance of Collateral; Restriction on Liens and Dispositions. The Borrower represents and warrants to the Bank that the Borrower is the sole owner of the Collateral free of all liens, claims, other encumbrances and security interests except as permitted in writing by the Bank. The Borrower will: (i) maintain the Collateral; (ii) keep the Collateral free from all liens, executions, attachments, claims, encumbrances and security interests (other than the Bank’s sole and paramount security interest and those interests permitted in writing by the Bank); (iii) defend the Collateral against all claims and legal proceedings by persons other than the Bank; (iv) pay and discharge when due all taxes, levies and other charges or fees which may be assessed against the Collateral (except for payment of taxes contested by the Borrower in good faith by appropriate proceedings so long as no levy or lien has been imposed upon the Collateral); (v) not sell or transfer the Collateral to any party; and (vi) preserve the Bank’s rights and security interest in the Collateral against all other parties. The Borrower will promptly deliver to the Bank a copy of any notices, statements or communications received by the Borrower regarding the Collateral.

                  (d)         Maintenance of Security Interest. The Borrower agrees that it will take any action requested by the Bank to preserve the Collateral and to perfect, establish the priority of, continue perfection and enforce the Bank’s interest in the Collateral and the Bank’s rights under this Section 5.1; and the Borrower will pay all costs and expenses related thereto.

                  (e)         Delivery of Collateral/Proceeds/Order of Application.

                           (i)         Except as provided for below, all proceeds of, substitutions for and distributions regarding Collateral received by the Borrower will be held by the Borrower upon an express trust for the Bank, will not be commingled with any other funds or property of the Borrower, and will be turned over to the Bank in precisely the form received (but endorsed by the Borrower, if necessary) not later than the business day following the day of their receipt by the Borrower; and all proceeds of, substitutions for

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and distributions relating to the Collateral will be held by the Bank as Collateral hereunder.

                           (ii)         Notwithstanding the provisions of clause (i) above and absent the existence of an Event of Default hereunder, the Borrower may retain all regularly scheduled and/or announced cash dividends or distributions paid to the Borrower regarding the Collateral.

                  (f)         The Borrower will immediately deliver to the Bank all original certificates, safekeeping receipts and all other evidence of ownership and/or title to the Collateral (“Certificates”). Furthermore, the Borrower agrees to direct, in writing, that all banks and entities holding or controlling any Certificates promptly and directly transmit all such Certificates to the Bank.

                  (g)         Possessory Agency Agreements; Collateral in “Street Name”. Upon the request of the Bank, the Borrower will promptly obtain from any entity holding or controlling any Collateral or Certificates such documents as the Bank deems necessary to evidence its security interest in and exclusive possession of such Collateral and Certificates, including, without limitation, an exclusive possessory agency agreement satisfactory to the Bank. If any Collateral is not registered in the Borrower’s legal name, the Borrower will furnish the Bank with satisfactory written proof of the Borrower’s bona fide ownership of same. Upon request of the Bank, the Borrower will have any Collateral registered in the Borrower’s legal name at the Borrower’s expense.

                  (h)         Tax Forms. If requested by the Bank, the Borrower will complete and deliver to the Bank IRS Form W-9 (Payer’s Request for Taxpayer Identification Number), or any successor form thereto, for each item of Collateral pledged by the Bank and any other informational tax filings required by federal and state taxing authorities with regard to such Collateral.

                  (i)         Regulation U Forms. If any Collateral is “margin stock” under Regulation U of the Federal Reserve Board, the Borrower will deliver to the Bank a completed Form U-1 satisfactory to the Bank upon request.

                  (j)         Acceptable Collateral/Restrictions On Disposition of Collateral. The Borrower will notify the Bank in writing if any of the Collateral is subject to any restrictions on its sale and/or disposition by the Borrower and/or the Bank by virtue of restrictive legends, agreements between the Borrower or third parties and restrictions under any federal and/or state securities law. In addition, the Borrower will promptly furnish to the Bank such information as the Bank deems necessary to comply with federal and/or state securities laws as to the holding and disposition of any Collateral, and to determine the status of the Collateral under federal and/or state securities laws (including,

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without limitation, an opinion of counsel as to the status of the Collateral under federal and state securities laws), and to verify the ownership and nature of restrictions on the disposition of any Collateral; all in form reasonably satisfactory to the Bank and at the Borrower’s expense.

         5.2         Credit Balances; Setoff. As additional security for the payment of all debts, liabilities and other obligations described in the Loan Documents and any other obligations of the Borrower to the Bank of any nature whatsoever, including obligations relating to any interest rate hedging or other derivative transaction between the Bank and the Borrower (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 an Event of Default, 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.

         5.3         Rights and Duties of Bank. In addition to all other rights (including setoff) of the Bank under this Agreement and the other Loan Documents, the following provisions will also apply:

                  (a)         Authority to Perform for the Borrower. To facilitate the Bank’s ability to preserve and dispose of the Collateral, the Borrower unconditionally appoints any officer of the Bank as the Borrower’s attorney-in-fact (coupled with an interest and irrevocable while any Obligations remain unpaid) to do any of the following upon the occurrence and during the continuance of an Event of Default: to endorse the name of the Borrower on any Collateral, financing statements or payments, and any documents needed to perfect, protect and/or realize upon the Bank’s interest in the Collateral; and to do all such other acts and things necessary to carry out the Borrower’s obligations under this Agreement and the other Loan Documents. All acts taken by the Bank pursuant to the above-described authority are hereby ratified and approved, and the Bank will not be liable to the Borrower for any acts of commission or omission, nor for any errors of judgment or mistakes in undertaking such authorized actions except for Lender’s gross negligence or willful misconduct. For good and valuable consideration, the Borrower agrees not to assert any claims against any third-party holding Collateral for complying with the Bank’s requests hereunder, and the Borrower waives any claims against such third parties for actions taken at the request of the Bank.

                  (b)         Collateral Preservation. The Bank will use reasonable care as to any Collateral in its physical possession but in determining such standard of reasonable care, the Borrower expressly acknowledges that the Bank has no duty to: (i) insure the

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Collateral against hazards; (ii) protect the Collateral from seizure, levy, lien, claim or conversion by third parties, or acts of God; (iii) give to the Borrower any notices, account statements or communications received by the Bank regarding the Collateral; (iv) perfect or continue perfection of any security interest in the Collateral in favor of the Borrower; (v) inform the Borrower of any decline in the value of the Collateral or the existence of any option or elections with respect to the Collateral; (vi) take any action to invest or manage the Collateral; (vii) exercise, preserve or act with respect to any exchanges, puts, calls, redemptions, conversions, maturities, offers, tenders and other rights or requirements regarding the Collateral or the Borrower’s interest therein; nor (viii) sue or otherwise take action to preserve the Borrower’s or the Bank’s interest in the Collateral. Notwithstanding any failure by the Bank to use reasonable care in preserving the Collateral, the Borrower agrees that the Bank will not be liable to the Borrower for consequential or special damages arising from such failure.

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 an “Event of 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), (f) or (g) of this Section 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 and such failure continues uncured for a period of 30 days.

                  (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

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or other agreement, document or instrument evidencing, governing or securing any indebtedness owing by the Borrower to the Bank or any indebtedness in excess of $10,000,000 owing by the Borrower to any third party, and the period of grace, if any, to cure said default will have passed.

                  (e)         Judgments. Any judgment is obtained against the Borrower which, together with all other outstanding unsatisfied judgments against the Borrower, exceeds the sum of $10,000,000 and remains unvacated, unbonded or unstayed for a period of 30 days following the date of entry thereof.

                  (f)         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 (iii) the Borrower becomes the subject of any out-of-court settlement with its creditors; or (iv) the Borrower is unable or admits in writing its inability to pay its debts as they mature; or (v) the Borrower or the Subsidiary Bank is closed or taken over by a Regulatory Authority.

                  (g)         Material Adverse Change. There is a material adverse change in the business, properties, consolidated financial condition or affairs of the Borrower, or in any Collateral.

                  (h)         Regulatory Orders. Any Regulatory Authority takes any formal enforcement action against the Borrower or the Subsidiary Bank.

         6.2         Termination of Loan; Additional Bank Rights. Upon the occurrence of any Event of Default, the Bank may at any time thereafter (i) immediately terminate its obligation, if any, to make additional loans to the Borrower; (ii) set off; and/or (iii) take such other steps to protect or preserve the Bank’s interest in any collateral; all without demand or notice of any kind, all of which are hereby waived.

         6.3         Acceleration of Obligations. Upon the occurrence of any Event of Default (other than under Section 6.1(f)), the Bank may at any time thereafter, (i) 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; and (ii) subject to applicable regulatory requirements, require the Borrower to cause the Subsidiary Bank to appoint an independent transfer agent for the purpose of registering and transferring ownership of the capital stock of Coast Commercial Bank. Upon the occurrence of any Event of

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Default under Section 6.1(f), 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 Section 6.1, Section 6.2 or this section will limit the Bank’s right to set off as provided in Section 5.2 or otherwise in this Agreement.

         6.4         Remedies as to Collateral. Upon the occurrence of an Event of Default, the Bank may at any time thereafter, subject in each case to applicable regulatory requirements: (i) transfer any of the Collateral into its name or that of its nominee; (ii) in the Borrower’s name or otherwise dispose of and/or collect any Collateral by suit or otherwise; or surrender or exchange all or any part of the Collateral; or compromise, extend, renew or modify any obligation evidenced by the Collateral; (iii) exercise all of the Borrower’s rights as a holder and/or owner of the Collateral; (iv) dispose of the Collateral as provided for herein and at law; and (v) notify any issuer or holder of any Collateral (and/or any transfer agent of such issuer) of this pledge of the Collateral, and direct such issuer, holder or transfer agent to deliver directly in trust to the Bank any subsequent shares of stock, dividend payments or other distributions pertaining to the Collateral or arising from the Borrower’s ownership of the Collateral; and the Borrower hereby unconditionally directs such parties to comply with the Bank’s requests in all respects.

         6.5         Cumulative Remedies; Notice; Waiver. In addition to the remedies set forth herein, the Bank will have all other rights and remedies for default provided by the Uniform Commercial Code, as well as any other applicable law, INCLUDING, WITHOUT LIMITATION, THE RIGHT TO REPOSSESS, AND DISPOSE OF THE COLLATERAL WITHOUT JUDICIAL PROCESS. The rights and remedies specified herein are cumulative and are not exclusive of any rights or remedies which the Bank would otherwise have. With respect to such rights and remedies:

                  (a)         Notice of Disposition. Written notice, when required by law, sent to any address of the Borrower in this Agreement, at least ten (10) calendar days (counting the day of sending) before the date of a proposed disposition of the Collateral will be deemed reasonable notice;

                  (b)         Possession of Collateral; Commercial Reasonableness. The Bank will not, at any time, be obligated to either take or retain possession or control of the Collateral. With respect to the Collateral in the possession or control of the Bank, the Borrower and the Bank agree that as a standard for determining commercial reasonableness: the Bank need not liquidate, collect, sell or otherwise dispose of any of the Collateral if the Bank believes, in good faith, that disposition of the Collateral would

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not be commercially reasonable, would subject the Bank to third-party claims or liability, or would cause the Bank to violate federal or state securities laws; and the Bank may hold the Collateral for up to one year to attract other potential purchasers or obtain a better price, and in such event, the Bank will not then be deemed to have retained the Collateral in satisfaction of the Obligations. Furthermore, the Bank may sell the Collateral with or without an agent or broker; and the Bank need not register any Securities Collateral under state or federal law;

                  (c)         Waiver by the Bank. The Bank may permit the Borrower to attempt to remedy any default without waiving its rights and remedies hereunder, and the Bank may waive any default beyond any applicable cure period provided therefor without waiving any other subsequent or prior default by the Borrower. Furthermore, delay on the part of the Bank in exercising any right, power or privilege hereunder or at law will not operate as a waiver thereof, nor will any single or partial exercise of such right, power or privilege preclude other exercise thereof or the exercise of any other right, power or privilege. No waiver or suspension will be deemed to have occurred unless the Bank has expressly agreed in writing specifying such waiver or suspension;

                  (d)         Marshalling. The Borrower waives any claim of marshalling of assets against the Bank; and

                  (e)         Regulatory Limitations. The foregoing provisions of this Section 6.5 shall not be construed to excuse the Bank from compliance with applicable regulatory requirements in dealing with the Collateral.

         6.6         Irrevocable Proxy on Default. In addition to the Bank’s other rights, the Borrower irrevocably appoints the Bank as proxy, with full power of substitution and revocation, to exercise (subject to applicable regulatory requirements), when an Event of Default shall have occurred and be continuing, the Borrower’s rights to take any action respecting the Collateral or with regard to any issuer or transfer agent of the Collateral thereof as fully as the Borrower might do. This proxy remains effective so long as any of the Obligations are unpaid.

         6.7         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

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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         Participations. The Bank may, at its option, sell all or any interests in the Note and other Loan Documents to other financial institutions with prior written notice to, and consent by, the Borrower, which consent shall not be unreasonably withheld or delayed, unless an Event of Default exists, then such notice and consent shall not be required. Any purchaser of an interest in the Note is hereinafter referred to as a “Participant.” In connection with such sales (and thereafter), the Bank may disclose any financial information the Bank may have concerning the Borrower to any such Participant or potential Participant.

         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; provided that the Borrower’s reimbursement to the Bank for legal fees and disbursements incurred in the preparation, execution and delivery of this Agreement shall not exceed $15,000. 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 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.

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         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 gross negligence or 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 in accordance with the internal laws of the State of Wisconsin, 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 COUNTIES OF SAN FRANCISCO OR SANTA CLARA, CALIFORNIA, AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, WITH

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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 Borrower in the competent courts of any other jurisdiction. 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.

         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 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.

[SIGNATURES APPEAR ON NEXT PAGE]

24

         IN WITNESS WHEREOF, the undersigned have executed this TERM LOAN AND SECURITY AGREEMENT as of July 31, 2002.

GREATER BAY BANCORP
By: /s/ DAVID L. KALKBRENNER
Name and Title:	David L. Kalkbrenner President and CEO

By: /s/ KAMRAN HUSAIN                                                 

Name and Title: Senior Vice President

Address:

2860 West Bayshore Road
Palo Alto, CA 94303
Attn: Chief Financial Officer
Facsimile No.: (650) 494-9220

U.S. BANK NATIONAL ASSOCIATION
By: /s/ JON B. BEGGS
Name and Title:	Jon B. Beggs Vice President
Address:
777 East Wisconsin Avenue Milwaukee, WI 53202 Attn: Jon B. Beggs, Vice President Facsimile No.: 414-765-6236

S-1

EXHIBIT A

TERM NOTE

$30,000,000	Milwaukee, Wisconsin
	July 31, 2002

                  FOR VALUE RECEIVED, on or before the Maturity Date (as defined in the Loan Agreement hereinafter referred to), the undersigned, GREATER BAY BANCORP, a California corporation, promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the “Bank”) the principal sum of Thirty Million Dollars, or such lesser amount as is shown to be outstanding according to the records of the Bank, which records shall be conclusive, absent manifest error, together with interest on the principal balance outstanding from time to time, at such rates and payable at such times as are set forth in the Loan Agreement hereinafter referred to.

                  Payments of both principal and interest are to be made in immediately available funds in lawful currency of the United States of America at the office of the Bank, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or such other place as the holder hereof shall designate to the undersigned in writing.

                  This Note is the Note issued pursuant to a Term Loan Agreement dated as of July 31, 2002 between the undersigned and the Bank (as amended from time to time, the “Loan Agreement”). Reference is made to such Loan Agreement for rights and obligations as to prepayment and acceleration of maturity.

                  The undersigned waives demand, presentment, protest or any other notice of any kind with respect to this Note.

                  This Note shall be governed and construed in accordance with the laws of the State of Wisconsin.

                  The undersigned agrees to pay all costs of collection, including reasonable attorneys’ fees.

GREATER BAY BANCORP

By: 

Name: 

Title: 

By: 

Name: 

Title: 

EX-10.17(B)

Exhibit 10.17(b)

FIRST AMENDMENT TO TERM LOAN
AND SECURITY AGREEMENT

         THIS FIRST AMENDMENT TO TERM LOAN AND SECURITY AGREEMENT, dated as of December 16, 2002, amends and supplements that certain Term Loan and Security Agreement dated as of July 31, 2002 (the “Loan Agreement”) between GREATER BAY BANCORP (the “Company”) and U.S. BANK NATIONAL ASSOCIATION (the “Bank”).

RECITAL

         The Company and the Bank desire to amend the Loan Agreement as provided below.

AGREEMENTS

         In consideration of the promises and agreements set forth in the Loan Agreement, as amended hereby, the Bank and the Company agree as follows:

         1.       Definitions and References. Capitalized terms not otherwise defined herein have the meanings assigned to them in the Loan Agreement. All references to the Loan Agreement contained in the Loan Documents shall, upon fulfillment of the conditions set forth in section 3 below, mean the Loan Agreement as amended by this First Amendment.

         2.       Amendments to Credit Agreement. The Loan Agreement is amended as follows:

                  (a)        The following definitions are added to section 1 thereof to appear in the appropriate alphabetical sequence:

                         “CODES” means the zero coupon senior convertible contingent debt securities issued by the Borrower in the principal amount at maturity of $312,877,000 due 2022.

                         “Marketable Securities” means (i) negotiable debt obligations issued by the U.S. Treasury Department, the Government National Mortgage Association (“Ginnie Mae”), Federal National Mortgage Association (“FNMA”), or Federal Home Loan Mortgage Corporation (“Freddie Mac”), and by Ginnie Mae, FNMA and Freddie Mac together, or (ii) collateralized mortgage obligations acceptable to the Bank or mortgage backed securities issued by Ginnie Mae, FNMA or Freddie Mac; provided, that, (i) or (ii) above shall exclude interest-only and principal-only stripped securities, securities representing residual interests in mortgage pools, and securities that are not listed on a national securities exchange or regularly quoted in a national quotation service) and, provided, further, that securities under (i) or (ii) above shall have a weighted average maturity, as shown by Bloomberg, of less than four years.

                         “Primary Capital” means the sum of (i) shareholder’s equity plus (ii) Loan Loss Reserves for the Borrower and its consolidated Subsidiaries as set forth in the Borrower’s most recent publicly reported consolidated financial statements.

                  (b)       Section 4.2(b) is amending by deleting the proviso at the end thereof and inserting the following in its place:

; provided that the Borrower may pledge the capital stock of Mid-Peninsula Bank owned by the Borrower to Wells Fargo Bank, National Association, as agent (“Wells Fargo”), or any successor to Wells Fargo, to secure the Borrower’s obligations, in an amount not to exceed $80,000,000 under that certain 364 Day Revolving Credit Agreement among the Borrower, the lenders party thereto and Wells Fargo, as agent, as the same may be amended, modified, supplemented or restated from time to time.

                  (c)       Section 4.2(h)(i)(C) is created to read as follows:

                           (C)       a ratio of Nonperforming Assets to Primary Capital of not greater than 13.0%.

                  (d)       Section 4.2(h)(viii) is created to read as follows:

         (viii)        The Borrower shall maintain, as of the end of each fiscal quarter, a minimum ratio of the fair market value of

2

unencumbered Marketable Securities then held by the Borrower to the then liability of all outstanding CODES of not less than 50%.

                  (e)       Section 6.1(d) is amended by deleting “$10,000,000” contained therein and substituting “$5,000,000” in its place.

                  (f)       Section 6.1(e) is amended by deleting “$10,000,000” contained therein and substituting “$5,000,000” in its place.

         3.       Effectiveness of First Amendment. This First Amendment shall become effective upon its execution and delivery by the Company and the Bank.

         4.       Representations and Warranties. The Company represents and warrants to the Bank that:

                  (a)       The execution, delivery and issuance of this First Amendment, and the performance by the Company of its obligations hereunder, are within its corporate power, have been duly authorized by proper corporate action on the part of the Company, are not in violation of any existing law, rule or regulation of any governmental agency or authority, any order or decision of any court, the Articles of Incorporation or By-Laws of the Company or the terms of any agreement, restriction or undertaking to which the Company is a party or by which it is bound, and do not require the approval or consent of the shareholders of the Company, any governmental body, agency or authority or any other person or entity; and

                  (b)       The representations and warranties contained in the Loan Documents are true and correct in all material respects as of the date of this First Amendment, except for immaterial changes involving an amount not to exceed $500,000 and changes that would not reasonably be expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole, and, to the Company’s knowledge, no condition exists or event or act has occurred that, with or without the giving of notice or the passage of time, would constitute a “default” under the Loan Agreement.

         5.       Costs and Expenses. The Company agrees to pay to the Bank, on demand, all costs and expenses (including reasonable attorneys’ fees) paid or incurred by the Bank in connection with the negotiation, execution and delivery of this First Amendment.

3

         6.       Full Force and Effect. The Loan Agreement, as amended hereby, remains in full force and effect.

         7.       Counterparts. This First Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any party hereto may execute this First Amendment by signing any such counterpart.

GREATER BAY BANCORP
By:	/s/ STEVEN C. SMITH
	Its EVP, CFO and CAO

By:	/s/ KAMRAN HUSAIN
	Its Senior Vice President

U.S. BANK NATIONAL ASSOCIATION
By:	/s/ JON B. BEGGS
	Its Vice President

4

EX-10.18(A)

Exhibit 10.18(a)

364 DAY REVOLVING CREDIT AGREEMENT

Dated as of December 16, 2002

Among

GREATER BAY BANCORP

asBorrower

and

THE INITIAL LENDERS NAMED HEREIN

asInitialLenders

and

WELLS FARGO BANK, NATIONAL ASSOCIATION

asAgent, SoleLeadArrangerand

BookRunner

Table of Contents

	Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms	1
SECTION 1.02. Computation of Time Periods	12
SECTION 1.03. Accounting Terms	12
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances	12
SECTION 2.02. Making the Advances	12
SECTION 2.03. Fees	13
SECTION 2.04. Termination, Reduction or Increase of the Commitments	14
SECTION 2.05. Repayment	15
SECTION 2.06. Interest	15
SECTION 2.07. Interest Rate Determination	16
SECTION 2.08. Optional Conversion of Advances	16
SECTION 2.09. Optional Prepayments	17
SECTION 2.10. Increased Costs	17
SECTION 2.11. Illegality	18
SECTION 2.12. Payments and Computations	18
SECTION 2.13. Taxes	19
SECTION 2.14. Sharing of Payments, Etc.	21
SECTION 2.15. Use of Proceeds	21
ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01	21
SECTION 3.02. Conditions Precedent to Each Borrowing	22
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower	23
ARTICLE V COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants	25
SECTION 5.02. Negative Covenants	26
SECTION 5.03. Financial Covenants	29
SECTION 5.04. Reporting Requirements	30

ARTICLE VI EVENTS OF DEFAULT
SECTION 6.01. Events of Default	32

	Page
ARTICLE VII THE AGENT
SECTION 7.01. Authorization and Action	34
SECTION 7.02. Agent’s Reliance, Etc.	35
SECTION 7.03. Wells Fargo and Affiliates	35
SECTION 7.04. Lender Credit Decision	35
SECTION 7.05. Indemnification	35
SECTION 7.06. Successor Agent	36
ARTICLE VIII MISCELLANEOUS
SECTION 8.01. Amendments, Etc.	36
SECTION 8.02. Notices, Etc.	37
SECTION 8.03. No Waiver; Remedies	37
SECTION 8.04. Costs and Expenses	37
SECTION 8.05. Right of Set-off	38
SECTION 8.06. Binding Effect	39
SECTION 8.07. Assignments and Participations	39
SECTION 8.08. Confidentiality	41
SECTION 8.09. Governing Law	41
SECTION 8.10. Execution in Counterparts	42
SECTION 8.11. Jurisdiction, Etc.	42
SECTION 8.12. Waiver of Jury Trial	42
Schedules
Schedule 1 - List of Applicable Lending Offices
Schedule 2 - Bank Subsidiaries
Schedule 3 - Subsidiaries
Schedule 5.02(a) - Existing Liens
Schedule 5.02(e) - Existing Debt

Exhibits

Exhibit A - Form of Promissory Note

Exhibit B - Form of Notice of Borrowing

Exhibit C - Form of Assignment and Acceptance

Exhibit D - Form of Pledge Agreement

Exhibit E-1 - Form of Opinion of General Counsel for the Borrower

ii 

	Page
Exhibit E-2 - Form of Opinion of Manatt, Phelps & Phillips, LLP

iii

CREDIT AGREEMENT

         CREDIT AGREEMENT, dated as of December 16, 2002 (this “Agreement”), among GREATER BAY BANCORP, a California corporation (the “Borrower”), the banks and financial institutions (the “Initial Lenders”) listed on the signature pages hereof, and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), as agent, sole lead arranger and book runner (the “Agent”) for the Lenders (as hereinafter defined).

PRELIMINARY STATEMENTS:

         (1)      The Borrower has requested that the Lenders lend to the Borrower credit facilities as described herein, to finance general corporate purposes for the Borrower, including acquisitions.

         (2)      The Lenders have indicated their willingness to agree to lend such amounts on the terms and conditions of this Agreement.

         NOW THEREFORE in consideration of the premises and for the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

                  SECTION 1.01.   Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

         “Advance” means an advance by a Lender to the Borrower pursuant to Article II, and refers to a Base Rate Advance or a Eurodollar Rate Advance (each of which shall be a “Type” of Advance).

         “Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise.

         “Allowance for Loan and Lease Losses” means, at any time, the amount set forth in the most recent Form 10Q or 10K filed by the Borrower with the Securities and Exchange Commission (or any successor report) or in the most recent call report filed by the Collateral Subsidiary Bank (or any successor report), as applicable.

          “Applicable Commitment Fee Percentage” means, as of any date, a percentage per annum determined by reference to the applicable Performance Level as set forth below:

Performance Level	Commitment Fee
Level I	0.150%
Level II	0.175%
Level III	0.200%
Level IV	0.250%
Level V	0.300%

         “Applicable Lending Office” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base Rate Advance and such Lender’s Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

         “Applicable Margin” means, as of any date, a percentage per annum determined by reference to the applicable Performance Level as set forth below:

Performance Level	Applicable Margin for Base Rate Advances	Applicable Margin for Eurodollar Rate Advances with Utilization < 50%	Applicable Margin for Eurodollar Rate Advances with Utilization > 50%
Level I	0.00%	0.750%	1.000%
Level II	0.00%	0.800%	1.050%
Level III	0.00%	0.875%	1.125%
Level IV	0.00%	1.125%	1.375%
Level V	0.25%	1.625%	1.875%

         “Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit C hereto.

         “Bank Subsidiary” means any direct or indirect Subsidiary of the Borrower which is a bank or thrift institution, including, without limitation the financial institutions listed in Schedule 2 hereof and any bank or thrift institution subsequently becoming a direct or indirect Subsidiary of the Borrower.

         “Base Rate” means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of:

          (a)      the rate of interest by Wells Fargo, from time to time, as Wells Fargo’s prime rate, which the parties acknowledge is not necessarily the lowest rate charged by Wells Fargo to its customers;

          (b)      1/2 of one percent per annum above the Federal Funds Rate.

2

          “Base Rate Advance” means an Advance that bears interest as provided in Section 2.06(a)(i).

         “Borrowing” means a borrowing consisting of Advances of the same Type made on the same day by the Lenders.

         “Business Day” means a day of the year on which banks are not required or authorized by law to close in San Francisco, California, Chicago, Illinois, and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market.

         “CODES” means the zero coupon senior convertible contingent debt securities issued by the Borrower in the principal amount at maturity of $312,877,000 due 2022.

         “Collateral Subsidiary Bank” means Mid-Peninsula Bank, a California state chartered bank.

         “Commitment” has the meaning specified in Section 2.01.

         “Confidential Information” means information that the Borrower furnishes to the Agent or any Lender in a writing designated as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes available to the Agent or such Lender from a source other than the Borrower.

         “Consolidated” refers to the consolidation of accounts in accordance with GAAP.

         “Convert”, “Conversion” and “Converted” each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.07 or 2.08.

         “Debt” of any Person means, without duplication, (a)  all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person in respect of acceptances, letters of credit or similar extensions of credit, (g) all obligations of such Person in respect of Hedge Agreements, (h) all Debt of others referred to in clauses (a) through (g) above or clause (i) below and other payment obligations (collectively, “Guaranteed Debt”) guaranteed directly or indirectly in any manner by such Person and (i) all Debt referred to in clauses (a) through (h) above (including Guaranteed Debt) secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts

3 

and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt.

         “Default” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

         “Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

         “Effective Date” has the meaning specified in Section 3.01.

         “Eligible Assignee” means (i) (a) a commercial bank organized under the laws of the United States or any state thereof; (b) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (c) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (1) such bank is acting through a branch or agency located in the United States or (2) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (d) any other Person which is an “accredited investor” (as defined in Regulation D under the Securities Act, 1933) which extends credit or buys loans as one of its businesses, including insurance companies, investment funds, mutual funds and lease financing companies; and (ii) any Lender, and any Affiliate of any Lender or, with respect to any Lender that is a fund that invests in loans, any other fund that invests in loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such Lender.

         “Equity Interest” means, with respect to any Person, share of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein, whether voting or non-voting).

         “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

         “ERISA Affiliate” means any Person that for purposes of Title IV of ERISA is a member of the Borrower’s controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code.

4

          “ERISA Event” means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan.

         “Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

         “Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

         “Eurodollar Rate” means the annual rate equal to the sum of (i) the rate obtained by dividing (a) the rate (rounded up to the nearest 1/16 of 1%) determined by the Agent as of 11:00 a.m. London, England time on the second Eurodollar Business Day prior to the date such rate is to become effective to be the average rate at which U.S. dollar deposits are offered or available to banks in the London interbank market for funds to be made available on the first day of any Interest Period in an amount approximately equal to the amount for which a Eurodollar Rate quotation has been requested and maturing at the end of such Interest Period, by (b) a percentage equal to 100% minus the Federal Reserve System reserve requirement (expressed as a percentage) applicable to such deposits, and (ii) the Applicable Margin. In making such determination, the Agent shall utilize Telerate page 3750 under the heading “British Bankers Association LIBOR rates” in the column designed “USD,” as published by Bridge Information Systems, Inc., or such other comparable source as may be available to the Agent in the event such Telerate page is no longer published or readily available.

5

          “Eurodollar Rate Advance” means an Advance that bears interest as provided in Section 2.06(a)(ii).

         “Eurodollar Rate Reserve Percentage” for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in San Francisco with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period.

         “Events of Default” has the meaning specified in Section 6.01.

         “FDIC” means the Federal Deposit Insurance Corporation.

         “FFIEC” means the Federal Financial Institutions Examination Council.

         “Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it.

         “GAAP” has the meaning specified in Section 1.03.

         “Hedge Agreements” means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements.

         “Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (San Francisco time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:

6

           (i)    the Borrower may not select any Interest Period that ends after the Termination Date;

          (ii)    Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration;

          (iii)   whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

          (iv)    whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.

         “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

         “Investment” in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation (or similar transaction) and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (f) or (g) of the definition of “Debt” in respect of such Person.

         “Lenders” means the Initial Lenders and each Person that shall become a party hereto pursuant to Sections 2.04 and 8.07.

         “Lien” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.

         “Loan Documents” means this Agreement, the Notes, the Pledge Agreement and any additional security agreement delivered pursuant to Section 3.01(a) hereof.

         “Marketable Securities” will be defined as (i) negotiable debt obligations issued by the U.S. Treasury Department, the Government National Mortgage Association (“Ginnie Mae”), Federal National Mortgage Association (“FNMA”), or Federal Home Loan Mortgage Corporation (“Freddie Mac”), and by Ginnie Mae, FNMA and Freddie Mac together, or (ii) collateralized mortgage obligations acceptable to the Agent or mortgage backed securities issued by Ginnie Mae, FNMA or Freddie Mac; provided,

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that, (i) or (ii) above shall exclude interest-only and principal-only stripped securities, securities representing residual interests in mortgage pools, and securities that are not listed on a national securities exchange or regularly quoted in a national quotation service) and, provided, further, that securities under (i) or (ii) above shall have a weighted average maturity, as shown by Bloomberg, of less than four years.

         “Material Adverse Change” means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.

         “Material Adverse Effect” means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Agent or any Lender under this Agreement or any Note or (c) the ability of the Borrower to perform its obligations under this Agreement or any Note.

         “Moody’s” means Moody’s Investors Service, Inc.

         “Multiemployer Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.

         “Multiple Employer Plan” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any ERISA Affiliate and at least one Person other than the Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated.

         “Net Income” has the meaning assigned to such term by GAAP, without reference to extraordinary items or adjustments caused solely by changes in applicable accounting principles.

         “Non-Performing Assets” means the sum of (i) all loans classified as past due 90 days or more and still accruing interest; (ii) all loans classified as “non-accrual” and no longer accruing interest; (iii) all loans classified as “restructured loans and leases”; (iv) without duplication, property acquired by repossession or foreclosure and property acquired pursuant to in-substance foreclosure, and (v) all other “Non-Performing Assets,” as reported in the then most recent call report of the relevant entity.

         “Note” means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender.

         “Notice of Borrowing” has the meaning specified in Section 2.02.

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          “PBGC” means the Pension Benefit Guaranty Corporation (or any successor).

         “Performance Level” means Performance Level I, Performance Level II, Performance Level III, Performance Level IV and Performance Level V as identified by reference to the Public Debt Rating as set forth below:

Performance Level	Public Debt Rating
Level I	Long-Term Senior Unsecured Debt of the Borrower Rated at least BBB+ by Standard & Poor’s orBaa1 by Moody’s
Level II	Long-Term Senior Unsecured Debt of the Borrower Rated less than Level I but at least BBB by Standard & Poor’s orBaa2 by Moody’s
Level III	Long-Term Senior Unsecured Debt of the Borrower Rated less than Level II but at least BBB- by Standard & Poor’s andBaa3 by Moody’s
Level IV	Long-Term Senior Unsecured Debt of the Borrower Rated less than Level IV but at least BB+ by Standard & Poor’s andBa1 by Moody’s
Level V	Long-Term Senior Unsecured Debt of the Borrower Rated less than Level V but at least BB by Standard & Poor’s orBa2 by Moody’s

         For the purposes of this definition, the public debt ratings above shall be determined by the lowest rating that has been most recently announced by either S&P or Moody’s, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Borrower. For purposes of the foregoing, (a) if only one of S&P and Moody’s shall have in effect a Public Debt Rating, the Applicable Margin and the Applicable Commitment Fee Percentage shall be determined by reference to the available rating; (b) if neither S&P nor Moody’s shall have in effect a Public Debt Rating, the Applicable Margin and the Applicable Commitment Fee Percentage will be set in accordance with Level V under the definition of “Applicable Margin” or “Applicable Commitment Fee Percentage”, as the case may be; (c) if the ratings established by S&P and Moody’s shall fall within different levels, the Applicable Margin and the Applicable Commitment Fee Percentage shall be based upon the higher rating, except that, if the rating established by S&P differs by two or more levels from the rating established by Moody’s, the Applicable Margin and the Applicable Commitment Fee Percentage shall be based upon the rating which is one level below the higher of those two levels; (d) if any rating established by S&P or Moody’s shall be changed, such change shall be effective as of the fifth day after such change is first announced publicly by the rating agency making such change; and (e) if S&P or Moody’s shall change the

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basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody’s, as the case may be, shall refer to the then equivalent rating by S&P or Moody’s, as the case may be.

         “Permitted Liens” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 5.01(b) hereof; (b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days; (c) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes.

         “Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

         “Plan” means a Single Employer Plan or a Multiple Employer Plan.

         “Pledge Agreement” has the meaning specified in Section 3.01(a)(ii).

         “Pledged Shares” means those shares of the Collateral Subsidiary Bank held by the Borrower, as referred to in the Pledge Agreement.

         “Primary Capital” shall mean shareholder equity in accordance with GAAP plus Allowance for Loan and Lease Losses.

         “Register” has the meaning specified in Section 8.07(c).

         “Required Lenders” means (a) at any time that three or less Lenders have Commitments hereunder, all Lenders, and (b) at any time that four or more Lenders have Commitments hereunder, Lenders owed at least 67% of the then aggregate unpaid principal amount of the Advances owing to Lenders, or, if no such principal amount is then outstanding, Lenders having at least 67% of the total Commitments.

         “Return on Assets” of a Person means the percentage determined by dividing the Net Income of such Person for the four calendar quarters immediately preceding the date of determination by its total average assets for such period. The total average assets of a Person shall be as reported in its most recent quarterly financial statements or, in the case of a Bank Subsidiary, in its most recent quarterly call report.

         “S&P” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.

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          “Single Employer Plan” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any ERISA Affiliate and no Person other than the Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated.

         “Subsidiary” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.

         “Termination Date” means the earlier of December ___, 2003 and the date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01.

         “Tier 1 Leverage Ratio” shall be defined and calculated in accordance with Federal Reserve Board Regulation Y in the case of the Borrower and in accordance with Section 38 of the Federal Deposit Insurance Act in the case of any Bank Subsidiary.

         “Tier 1 Risk Based Capital Ratio” shall be defined and calculated in accordance with Federal Reserve Board Regulation Y in the case of the Borrower and in accordance with Section 38 of the Federal Deposit Insurance Act in the case of any Bank Subsidiary.

         “Total Risk Based Capital Ratio” shall be defined and calculated in accordance with Federal Reserve Board Regulation Y in the case of the Borrower and in accordance with Section 38 of the Federal Deposit Insurance Act in the case of any Bank Subsidiary.

         “Trust Preferred Securities” means the junior subordinated deferrable interest debentures of the Borrower delivered in connection with trust preferred securities issued by each of GBB Capital II, GBB Capital III, GBB Capital IV, GBB Capital V and GBB Capital VI and GBB Capital VII.

         “US Bank Credit Agreement” means that certain Term Loan and Security Agreement dated as of July 31, 2002 between U.S. Bank National Association and the Borrower.

         “Utilization” means the percentage of outstanding Advances to total Commitments on any given day.

         “Voting Stock” means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar

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functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.

                  SECTION 1.02.   Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

                  SECTION 1.03.   Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e) (“GAAP”).

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

                  SECTION 2.01.   The Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender’s name on Schedule 1 hereto (as amended from time to time) or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender’s “Commitment”). Each Borrowing shall be in an aggregate amount of $1,000,000 or an integral multiple of $500,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender’s Commitment, the Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.09 and reborrow under this Section 2.01.

                  SECTION 2.02.   Making the Advances. (a) Each Borrowing shall be made on notice, given not later than 11:00 A.M. (San Francisco time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or the first Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a “Notice of Borrowing”) shall be by telephone, confirmed immediately in writing or by telecopier, in substantially the form of Exhibit B hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 11:00 A.M. (San Francisco time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent’s Account, in same day funds, such Lender’s ratable portion of such Borrowing. After the Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower at the Agent’s address referred to in Section 8.02.

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          (b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $5,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.07 or 2.11 and (ii) the Eurodollar Rate Advances may not be outstanding as part of more than ten separate Borrowings.

         (c) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

         (d) Unless the Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Agent such Lender’s ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender’s Advance as part of such Borrowing for purposes of this Agreement.

            (e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

                  SECTION 2.03.   Fees. (a) Commitment Fee. The Borrower agrees to pay to the Agent for the account of each Lender a commitment fee on the aggregate amount of such Lender’s average daily unused Commitment from the Effective Date in the case of each Initial Lender and from the later of the Effective Date and the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date at a rate per annum equal to the Applicable Commitment Percentage Fee in effect from time to time, payable in arrears quarterly on the first day of each March, June, September and December, commencing March 1, 2003, and on the Termination Date.

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          (b) Agent’s Fees. The Borrower shall pay to the Agent for its own account such fees as may from time to time be agreed between the Borrower and the Agent.

                  SECTION 2.04.   Termination, Reduction or Increase of the Commitments. The Borrower shall have the right, upon at least one Business Day’s notice to the Agent, to terminate in whole or permanently reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $500,000 in excess thereof.

                  (b) Prior to the Termination Date, the Borrower shall have the right, from time to time, to increase the aggregate Commitments hereunder in an amount not less than $10,000,000 by an increase in one or more Lender’s Commitments or by the addition of one or more banks or other lending institutions as Lenders (the “Commitment Increase”); provided, that, at no time shall the aggregate amount of Commitments exceed $80,000,000;

                  (c) The proposed Commitment Increase shall not occur unless each of the following requirements in respect thereof shall have been satisfied:

                  (d) The Agent shall have received from the Borrower written notice (the “Commitment Increase Notice”) not less than 30 days (or as otherwise agreed between the Borrower and the Agent) before the proposed Commitment Increase Effective Date (as defined below) that specifies (x) the aggregate amount of the proposed Commitment Increase, (y) the Lenders whose Commitments are to be increased and/or the banks or other lending institutions which are to become Lenders (“New Lenders”) and the amount by which such Lender’s Commitment is to be so increased and/or the amount of each New Lenders’ Commitment and (z) the date (the “Commitment Increase Effective Date”) on which the proposed Commitment Increase shall become effective;

                  (e) The Agent shall have notified the Borrower of its consent (such consent not to be unreasonably withheld) to the Commitment Increase occurring as set out in the Commitment Increase Notice.

                  (f) On and as of the Commitment Increase Effective Date of the proposed Commitment Increase the following statements shall be true:

         (i)   The representations and warranties contained in Section 4 hereof are correct and as of such Commitment Increase Effective Date before and after giving the proposed Commitment Increase, as though made on and as of such date, and

         (ii)   No event has occurred and is continuing, or would result from such a Commitment Increase, which constitutes an Event of Default or Default.

                  (g) The Agent shall have received such other approvals, opinions and documents as it may reasonably request.

                  (h) Promptly following its receipt of the Commitment Increase Notice and the consent thereto as set out in Section 2.04 (d) and (e) above, the Agent shall deliver copies of the same to each Lender. If, and only if, all of the terms, conditions and requirements specified in

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paragraphs (b) through (g) are satisfied in respect to the proposed Commitment Increase on and as of the proposed Commitment Increase Effective Date thereof and in the case of any New Lender, an agreement in form and substance reasonably satisfactory to the Administrative Agent, duly executed by such New Lender, the Agent and the Borrower pursuant to which such New Lender agrees to be bound by all the obligations of a Lender hereunder, has been received by the Agent, then, as of such Commitment Increase Effective Date and from and after such date, (1) references herein to the amounts of the Lenders’ respective Commitments shall refer to respective amounts giving effect to such Commitment Increase, and (2) each such New Lender shall be a Lender for all purposes hereof, and the Agent shall record all relevant information with respect to such New Lender and its Commitment in the Register (as defined in Section 8.07(c) hereto);

                  (i)   Upon any increase of the Commitment of any Lender or any New Lender becoming a party hereto pursuant to this Section 2.04, the Agent shall prepare a replacement Schedule 1 reflecting all Lenders and all Commitments giving effect to the such changes and shall distribute a copy of such Schedule 1 to the Borrower and each of the Lenders and, absent manifest error, such replacement Schedule 1 shall become Schedule 1 for all purposes of this Agreement.

                  SECTION 2.05.   Repayment. The Borrower shall repay to the Agent for the ratable account of the Lenders on the Termination Date the aggregate principal amount of the Advances then outstanding.

                  SECTION 2.06.   Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

         (i)   Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time, payable in arrears quarterly on the first day of each March, June, September and December and on the date such Base Rate Advance shall be Converted or paid in full.

         (ii)   Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Advance plus (y) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full.

                  (b) Default Interest. Upon the occurrence and during the continuance of an Event of Default, the Agent may, and upon the request of the Required Lenders shall, require the Borrower to pay interest (“Default Interest”) on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 4% per annum above the rate per annum required to be

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paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 4% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above; provided, however, that following acceleration of the Advances pursuant to Section 6.01, Default Interest shall accrue and be payable hereunder whether or not previously required by the Agent.

                  SECTION 2.07.    Interest Rate Determination. (a) The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.06(a)(i) or (ii).

                  (b) If, with respect to any Eurodollar Rate Advances, the Required Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

                  (c) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01, the Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.

                  (d) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $5,000,000, such Advances shall automatically Convert into Base Rate Advances.

                  (e) Upon the occurrence and during the continuance of any Event of Default (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended.

                  SECTION 2.08.    Optional Conversion of Advances. The Borrower may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (San Francisco time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.07 and 2.11, Convert all Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b)

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and no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Borrower.

                  SECTION 2.09.   Optional Prepayments. The Borrower may, upon at least one Business Day’s notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $500,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(c).

                  SECTION 2.10.   Increased Costs. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances (excluding for purposes of this Section 2.10 any such increased costs resulting from (i) Taxes or Other Taxes (as to which Section 2.13 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrower shall from time to time, within 15 days of receipt of written demand from such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided, however, that the Borrower shall not be responsible for costs under this Section 2.10(a) arising more than 180 days prior to receipt by the Borrower of the demand from the affected Lender pursuant to this Section 2.10(a). A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

                  (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender’s commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend hereunder. A certificate as to such amounts submitted to the

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Borrower and the Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

                  SECTION 2.11.   Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (a) each Eurodollar Rate Advance will automatically, upon such demand, Convert into a Base Rate Advance and (b) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

                  SECTION 2.12.   Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or set-off, not later than 11:00 A.M. (San Francisco time) on the day when due in U.S. dollars to the Agent in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.10, 2.13 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.

                  (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under the Note held by such Lender, to charge from time to time against any or all of the Borrower’s accounts with such Lender any amount so due.

                  (c) All computations of interest and fees shall be made by the Agent on the basis of a year of 364 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

                  (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

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                   (e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate.

                  SECTION 2.13.   Taxes. (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under the Notes or any other documents to be delivered hereunder shall be made, in accordance with Section 2.12 or the applicable provisions of such other documents, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction of such Lender’s Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as “Taxes”). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note or any other documents to be delivered hereunder to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

                  (b) In addition, the Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Notes or any other documents to be delivered hereunder or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Notes or any other documents to be delivered hereunder (hereinafter referred to as “Other Taxes”).

                  (c) The Borrower shall indemnify each Lender and the Agent for and hold it harmless against the full amount of Taxes or Other Taxes (including, without limitation, taxes of any kind imposed or asserted by any jurisdiction on amounts payable under this Section 2.13) imposed on or paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor.

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                   (d) Within 30 days after the date of any payment of Taxes, the Borrower shall furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing such payment to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Agent. In the case of any payment hereunder or under the Notes or any other documents to be delivered hereunder by or on behalf of the Borrower through an account or branch outside the United States or by or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Agent, at such address, an opinion of counsel acceptable to the Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms “United States” and “United States person” shall have the meanings specified in Section 7701 of the Internal Revenue Code.

                  (e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter as reasonably requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide each of the Agent and the Borrower with two original Internal Revenue Service Forms W-8BEN or W-8ECI, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided, however, that, if at the date of the Assignment and Acceptance pursuant to which a Lender assignee becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service Form W-8BEN or W-8ECI, that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrower and shall not be obligated to include in such form or document such confidential information.

                  (f) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form, certificate or other document described in Section 2.13(e) (otherthan if such failure is due to a change in law, or in the interpretation or application thereof, occurring subsequent to the date on which a form, certificate or other document originally was required to be provided, or if such form, certificate or other document otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.13(a) or (c) with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure

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to deliver a form, certificate or other document required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes.

                  SECTION 2.14.   Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances owing to it (other than pursuant to Section 2.10, 2.13 or 8.04(c)) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

                  SECTION 2.15.   Use of Proceeds. The proceeds of the Advances shall be available (and the Borrower agrees that it shall use such proceeds) to refinance certain existing indebtedness of the Borrower and for general corporate purposes of the Borrower and its Subsidiaries, including acquisitions.

ARTICLE III

CONDITIONS TO EFFECTIVENESS AND LENDING

                  SECTION 3.01.    Conditions Precedent to Effectiveness of Section 2.01. Section 2.01 of this Agreement shall become effective on and as of the first date (the “Effective Date”) on which the following conditions precedent have been satisfied:

                  (a) The Agent shall have received the following in form and substance satisfactory to the Agent and (except for the Notes) in sufficient copies for each Lender:

          (i)      The Notes to the order of the Lenders (to the extent that such has been requested by any Lender).

          (ii)    A copy of a certificate of the Secretary of State of California, dated reasonably near the date of this Agreement, certifying that the Borrower is duly incorporated and in good standing under the law of the State of California

          (iii)   A pledge agreement in substantially the form of Exhibit D hereto (the “Pledge Agreement”), duly executed by the Borrower, together with:

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          (A) certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank,

         (B) proper financing statements in form appropriate for filing under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Pledge Agreement, covering the collateral described in the Pledge Agreement,

         (C) evidence that all other action that the Administrative Agent may deem reasonably necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Pledge Agreement has been taken.

          (iv)    Certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement, the Notes and the Pledge Agreement, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Notes and the Pledge Agreement.

          (v)      A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement, the Notes, the Pledge Agreement and the other documents to be delivered hereunder.

          (vi)    Favorable opinions of the Borrower’s general counsel and Manatt, Phelps & Phillips, LLP, substantially in the forms of Exhibits E-1 and E-2 hereto and as to such other matters as any Lender through the Agent may reasonably request.

                  (b) The Agent shall have received, on or before the Effective Date, such financial, business and other information regarding the Borrower and its Subsidiaries as the Lender Parties shall have requested, including, without limitation, audited financial statements of the Borrower and its Subsidiaries on a Consolidated basis, for the period ended December 31, 2001 and the company-prepared financial statements of the Borrower and its Subsidiaries for the nine-month period ended September 30, 2002, and interim financial statements of the Borrower and its Subsidiaries dated the end of the most recent fiscal quarter for which financial statements are available.

                  (c) The Borrower shall have paid all accrued fees and expenses of the Agent and the Lenders.

                  SECTION 3.02.    Conditions Precedent to Each Borrowing. The obligation of each Lender to make an Advance on the occasion of each Borrowing shall be subject to the conditions precedent that the Effective Date shall have occurred and on the date of such Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing

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shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true):

         (i)      the representations and warranties contained in Section 4.01 are correct on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, and

         (ii)    no event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, that constitutes a Default;

and (b) the Agent shall have received such other approvals, opinions or documents as any Lender through the Agent may reasonably request.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

                  SECTION 4.01.   Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:

                  (a) The Borrower and each of its Subsidiaries (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary and where failure to be so licensed or qualified would have a materially adverse impact on its business or properties; (ii) is in compliance with the requirements of applicable laws and regulations, except for such noncompliance as would not materially and adversely affect its business or financial condition; and (iii) has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents.

                  (b) The execution, delivery and performance by the Borrower and each of its Subsidiaries of the Loan Documents to which it is a party and the Borrowings from time to time hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Borrower or any of its Subsidiaries, or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, except such as have already been obtained, (ii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or any of its Subsidiaries or of the Articles of Incorporation or Articles of Association, as the case may be, or Bylaws of the Borrower or any of its Subsidiaries, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower or any of its Subsidiaries is a party or by which it or its properties may be bound or affected, or (iv) result in, or require, the creation or imposition of any Lien or other charge or encumbrance of any nature upon or with respect to any of the properties

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now owned or hereafter acquired by the Borrower or any of its Subsidiaries, other than liens created pursuant to the Loan Documents. The Borrower is not in violation of any such indenture or loan or credit agreement or any other material agreement, lease or instrument the violation or breach of which would be reasonably likely to have a Material Adverse Effect.

                  (c) This Agreement and the other Loan Documents to which it is a party constitute, the legal, valid and binding obligations of the Borrower and each of its Subsidiaries, as applicable, enforceable against each such party in accordance with their respective terms, subject to any applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar law affecting creditors’ rights generally, and general principles of equity.

                  (d) Schedule 3, lists, as of the date of this Agreement, each direct and indirect Subsidiary of the Borrower. The percentage of the capital stock of each Subsidiary owned by the Borrower or by one or more other Subsidiaries is as set forth in Schedule 3.

                  (e) The execution, delivery and performance by the Borrower of each of the Loan Documents, and the consummation of the transactions contemplated hereby, are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Borrower’s charter or by-laws or (ii) law or any contractual restriction binding on or affecting the Borrower.

                  (f) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by the Borrower of any of the Loan Documents.

                  (g) The Consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2001, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of PricewaterhouseCoopers, independent public accountants, and the Consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 2002, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the nine months then ended, as included in the Borrower’s Quarterly Report on Form 10-Q for the period ended September 30, 2002 filed with the Securities and Exchange Commission and duly certified by the chief financial officer of the Borrower, copies of which have been furnished to each Lender, fairly present the Consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the Consolidated results of the operations and cash flow of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied. Since December 31, 2001, there has been no Material Adverse Change.

                  (h) There is no pending or threatened action, suit, investigation, litigation or proceeding, affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, any Note, or the Pledge Agreement or the consummation of the transactions contemplated hereby.

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                   (i) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

                  (j) The Borrower and each of its Subsidiaries has paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by it. The Borrower and each of its Subsidiaries has filed all federal, state and local tax returns which to the knowledge of the officers of the Borrower are required to be filed, and the Borrower and each of its Subsidiaries has paid or caused to be paid to the respective taxing authorities all taxes as shown on said returns or on any assessment receive by it to the extent such taxes have become due, other than taxes whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which the Borrower or its Subsidiary, as applicable, has provided adequate reserves in accordance with GAAP.

                  (k) As of the date of this Agreement, no Plan established or maintained by the Borrower or any ERISA Affiliate that is subject to Part 3 of Subtitle B of Title I of ERISA had an accumulated funding deficiency (as such term is defined in Section 302 of ERISA) in excess of $1,000,000 as of the last day of the most recent fiscal year of such Plan ended prior to the date hereof, and no liability to the Pension Benefit Guaranty Corporation or the Internal Revenue Service in excess of such amount has been, or is expected by the Borrower or any ERISA Affiliate to be, incurred with respect to any Plan of the Borrower or any ERISA Affiliate. Neither the Borrower nor any of its Subsidiaries has any contingent liability with respect to any post-retirement benefit under a Welfare Plan as described in Section 3(1) of ERISA, other than liability for continuation coverage described in Part 6 of Subtitle B of Title I of ERISA.

ARTICLE V

COVENANTS OF THE BORROWER

                  SECTION 5.01.   Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will:

                  (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and environmental laws.

                  (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors.

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                   (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates.

                  (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Borrower and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(b) and providedfurther that neither the Borrower nor any of its Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of the Borrower or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Borrower, such Subsidiary or the Lenders.

                  (e) Visitation Rights. At any reasonable time and from time to time, permit the Agent or any of the Lenders or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants.

                  (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time.

                  (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted.

                  (h) Additional Collateral. If at any time and from time to time the value of the aggregate shareholder equity (as determined in conformance with GAAP) of the voting common stock of the Collateral Subsidiary Bank is less than an amount equal to 150% of aggregate Commitments (the difference between such value and the amount equal to 150% of the aggregate Commitments being the “Collateral Shortfall”), the Borrower shall immediately pledge to the Agent an amount of cash or Marketable Securities in an aggregate amount not less than the Collateral Shortfall at such time (the “Additional Collateral”) to be held in a collateral account at the Agent on behalf of the Lenders and in connection therewith the Borrower shall enter into such collateral documents as are reasonably requested by the Agent. The Agent shall release the Additional Collateral after financial statements filed with the FFIEC reflect that the value of the aggregate shareholder equity (as determined above) of the Collateral Subsidiary Bank’s voting common stock exceeds an amount equal to 150% of the aggregate Commitments.

                  SECTION 5.02.   Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:

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                   (a) Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien on or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, other than:

          (i)      Permitted Liens,

          (ii)    the Liens existing on the Effective Date and described on Schedule 5.02(a) hereto,

          (iii)   Liens over the assets of any Subsidiary pledged in the ordinary course of banking business including, without limitation, liens granted for the purpose of receiving advances from the Federal Home Loan Bank and the Federal Discount Window;

          (iv)    Liens created or existing in order to comply with the requirements of Sections 23A and 23B of the Federal Reserve Act.

          (v)      the replacement, extension or renewal of any Lien permitted by clause (ii) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the Debt secured thereby.

                  (b) Mergers, Etc. Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person, or permit any of its Subsidiaries to do so, except that (i) any Subsidiary of the Borrower (other than a Collateral Subsidiary Bank) may merge or consolidate with or into any other Subsidiary of the Borrower, (ii) any Subsidiary of the Borrower (other than a Collateral Subsidiary Bank) may merge or consolidate with or into any other entity if such transaction involves an Investment permitted under Section 5.02(d), (iii) any Collateral Subsidiary Bank may merge into any other Collateral Subsidiary Bank, and (iv) any Subsidiary of the Borrower may merge into the Borrower, provided, in each case, that no Default or Event of Default shall have occurred and be continuing at the time of such proposed transaction or would result therefrom.

                  (c) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted or required by GAAP.

                  (d) Investments in Other Persons. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person, except:

          (i)      Any acquisition of a bank, saving and loan association or any other depositary institution (a “Financial Entity”) if the value of the total Consolidated assets of such Financial Entity does not exceed 35% of the value of the total Consolidated assets of the Borrower prior to giving effect to such acquisition; and

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           (ii)   Any acquisition of an entity other than a Financial Entity if the value of the total Consolidated assets of such entity does not exceed 10% of the value of the total Consolidated assets of the Borrower prior to giving effect to such acquisition.

          (iii)   Any Investment in a Subsidiary which is established to effect an acquisition permitted by subparagraphs (i) or (ii) above;

          (iv)    Any Investment in any currently existing Subsidiary;

          (v)      Any Investment by any Subsidiary in the Borrower;

          (vi)    Any Investment in a Subsidiary which is created solely to effect a financing transaction; and

          (vii)   Any Investment (other than an Investment permitted under paragraphs (i) to (vi) above) to the extent the funds used for any such Investment constitute proceeds of issuances of equity of the Borrower,

         provided, that, at the time of, and after giving effect to, such Investment, no Default or Event of Default exists.

                  (e) Debt. Create, assume or permit to exist, or allow any of its Subsidiaries to create, assume or permit to exist, any Debt, other than:

          (i)      Debt of the Borrower hereunder;

          (ii)    Debt of the Borrower set forth on Schedule 5.02(e) hereto; and

          (iii)   Debt of any Subsidiary entered into in the ordinary course of banking business including, without limitation, Debt incurred for the purpose of obtaining advances from the Federal Home Loan Bank and the Federal Discount Window;

          (iv)    Debt of the Borrower to any Subsidiary;

          (v)      Debt of any Subsidiary or to any of its other Subsidiaries; and

          (vi)    The replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of any Debt permitted by clause (ii) above.

                  (f) Transactions with Affiliates. Permit any Collateral Subsidiary Bank to enter into any transaction with an Affiliate including, without limitation, any purchase, distribution, sale or exchange of assets, other than in the ordinary course of business and except for any transaction between Collateral Subsidiary Banks.

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                   (g) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business as carried on at the date hereof.

                  (h) Amendments of Constitutive Documents. Amend, or permit any of its Subsidiaries to amend, its certificate of incorporation or bylaws or other constitutive documents other than amendments that could not be reasonably expected to have a Material Adverse Effect.

                  (i) Prepayments, Etc., of Debt. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt, except the prepayment of the Advances in accordance with the terms of this Agreement and any prepayment of (i) junior subordinated deferrable interest debentures issued in relation to any Trust Preferred Securities; (ii) the CODES; (iii) the U.S. Bank Credit Agreement and (iv) Debt to the extent the funds used for any such prepayment constitute proceeds of issuances of equity of the Borrower.

                  (j) Negative Pledge. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets other than (i) the provision set forth in Section 4.2(b) of the US Bank Credit Agreement (ii) the arrangement listed on Schedules 5.02(a) and 5.02(e) hereto, and (iii) any Lien or Debt arrangement permitted under Sections 5.02(a) and 5.02(e) hereto provided, that, such arrangements shall not prohibit the Liens that are, or may be, created under the Pledge Agreement and Section 5.01(h) hereof.

                  SECTION 5.03.   Financial Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder: (a) the Borrower on a Consolidated basis, and each Bank Subsidiary individually, will:

          (i)      Tier 1 Leverage Ratio. Maintain a minimum Tier 1 Leverage Ratio at the end of each quarter of not less than 5.0 percent.

          (ii)    Tier 1 Risk Based Capital Ratio. Maintain a minimum Tier 1 Risk Based Capital Ratio at the end of each quarter of not less than 6.0 percent.

          (iii)   Total Risk Based Capital Ratio. Maintain a minimum Total Risk Based Capital Ratio at the end of each quarter of not less than 10.0 percent.

         (b)      The Borrower on a Consolidated basis will:

          (i)      Loan Loss Reserves. Maintain at all times an Allowance for Loan and Lease Losses in an amount not less than an amount equal to 100% of combined Non-Performing Assets.

          (ii)    Non-Performing Assets. Maintain at all times an aggregate amount of Non-Performing Assets not in excess of an amount equal to 13.0 percent of Consolidated Primary Capital.

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           (iii)  Minimum Return on Assets. Maintain a Return on Assets, determined as of each calendar quarter end, at not less than 0.85 percent.

         (c)      The Borrower will maintain a minimum ratio, calculated at each quarter-end, of the fair market value of unencumbered Marketable Securities then held by the Borrower to the then liability of all outstanding CODES of not less than 50 percent.

         (d)      The Borrower will cause the Collateral Subsidiary Bank to:

          (i)      Minimum Net Worth. Maintain an aggregate shareholder equity (determined in accordance with GAAP) in its voting common stock at all times of not less than $120,000,000, provided, that, noncompliance with this covenant will not result in an Event of Default so long as within five (5) Business Days of the Borrower becoming aware of any such noncompliance it complies with the requirements of Section 5.01(h) above.

          (ii)    Non-Performing Assets. Maintain, at all times, an aggregate amount of Non-Performing Assets not in excess of an amount equal to 13.0 percent of Primary Capital.

          (iii)   Loan Loss Reserves. Maintain, at all times, its Allowance for Loan and Lease Losses in an amount of not less than an amount equal to 100 percent of its Non-Performing Assets.

                  SECTION 5.04.   Reporting Requirements. So long as any Advance or any other Obligation of the Borrower under any Loan Document shall remain unpaid, or any Lender shall have any Commitment hereunder, the Borrower will furnish to the Agents:

                  (a) Default Notice. As soon as possible and in any event within two Business Days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the Chief Financial Officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto.

                  (b) Annual Financials. As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and Consolidated statements of cash flows of the Borrower and itsSubsidiaries for such Fiscal Year, in each case accompanied by an unqualified opinion reasonably acceptable to the Required Lenders of PricewaterhouseCoopers or other independent public accountants of recognized standing reasonably acceptable to the Administrative Agent, together with (i) a certificate of such accounting firm to the Agent stating that in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule

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in form satisfactory to the Agent of the computations used by the Borrower in determining compliance with the covenants contained in Section 5.03 and (iii) a certificate of the chief financial officer of the Borrower stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto.

                  (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of the Borrower and itsSubsidiaries as of the end of such quarter and Consolidated statements of income and Consolidated statements of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments) by the chief financial officer of the Borrower as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto and (ii) a schedule in form satisfactory to the Agent of the computations used by the Borrower in determining compliance with the covenants contained in Section 5.03.

                  (d) Securities Reports. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Borrower or any of its Subsidiaries sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission, and copies of all regular periodic and special reports that the Borrower or any of its Subsidiaries files with the FDIC, the Board of Governors of the Federal Reserve Bank, the OCC or any governmental authority that may be substituted therefor, or with any national securities exchange.

                  (e) Minimum Net Worth. As soon as available and in any event no later than 10 days after the end of each month, a monthly statement certified by the chief financial officer of the Borrower that the Collateral Subsidiary Bank in the aggregate has maintained during such month a minimum Net Worth at all times of $120,000,000.

                  (f) Other Information. Such other information respecting the business condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or any of its Subsidiaries as the Agent, or any Lender through the Agent, may from time to time reasonably request, including without limitation, any reports to the Borrower or any Subsidiary from any regulatory authority subject to any limitations or restrictions imposed by applicable law or regulation.

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ARTICLE VI

EVENTS OF DEFAULT

                  SECTION 6.01.   Events of Default. If any of the following events (“Events of Default”) shall occur and be continuing:

                  (a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance or make any other payment of fees or other amounts payable under this Agreement or any Note within three Business Days after the same becomes due and payable; or

                  (b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made; or

                  (c) (i) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d), (e) or (h), 5.02 or 5.03, or (ii) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if such failure shall remain unremedied for 10 Business Days after written notice thereof shall have been given to the Borrower by the Agent or any Lender; or

                  (d) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal or notional amount of at least $5,000,000 in the aggregate (but excluding Debt outstanding hereunder) of the Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or

                  (e) The Borrower or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions

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sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or

                  (f) The issuance against the Borrower or any Subsidiary of the Borrower (including without limitation, any Bank Subsidiary) of any informal or formal administrative agreement or court order, temporary or permanent, by any federal or state regulatory agency or court having jurisdiction or control over the Borrower or such Subsidiary involving activities deemed to be unsafe or unsound or a breach of fiduciary duty under applicable law or regulation, such action taking the form of, but not limited to: (i) a memorandum of understanding; (ii) a cease and desist order; (iii) the termination of insurance coverage of customer deposits by FDIC; (iv) the suspension or removal of any executive officer or director, or the prohibition of participation by any others in the business affairs of the Borrower or such Subsidiary; or (v) a capital maintenance agreement.

                  (g) Judgments or orders for the payment of money in excess of $5,000,000 in the aggregate shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not be an Event of Default under this Section 6.01(g) if and for so long as (i) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least “A” by A.M. Best Company, has been notified of, and has not disputed the claim made for payment of, the amount of such judgment or order; or

                  (h) Any non-monetary judgment or order shall be rendered against the Borrower or any of its Subsidiaries that could be reasonably expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

                  (i) (i) Any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing 20% or more of the combined voting power of all Voting Stock of the Borrower; or (ii) during any period of up to 24 consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Borrower (or persons who were either appointed by a majority of such directors or elected by the Borrower’s shareholders upon the recommendation of a majority of such directors), shall cease for any reason to constitute a majority of the board of directors of the Borrower; or (iii) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower; or

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                   (j) The Borrower or any of its ERISA Affiliates shall incur, or in the reasonable opinion of the Required Lenders, shall be reasonably likely to incur liability in excess of $5,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the partial or complete withdrawal of the Borrower or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan;

                  (k) Any provision of any Loan Document after delivery thereof pursuant to Section 3.01 shall for any reason cease to be valid and binding on or enforceable against the Borrower or any of its Subsidiaries to it, or any the Borrower shall so state in writing;

                  (l) The Pledge Agreement after delivery thereof pursuant to Section 3.01 or any additional security agreement delivered pursuant to Section 5.01(i) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority lien on and security interest in the collateral purported to be covered thereby;

then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

ARTICLE VII

THE AGENT

                  SECTION 7.01.   Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement.

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                  SECTION 7.02.   Agent’s Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of any Note as the holder thereof until the Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance, observance or satisfaction of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or the existence at any time of any Default or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier) believed by it to be genuine and signed or sent by the proper party or parties.

                  SECTION 7.03.   Wells Fargo and Affiliates. With respect to its Commitment, the Advances made by it and the Note issued to it, Wells Fargo shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include Wells Fargo in its individual capacity. Wells Fargo and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Wells Fargo were not the Agent and without any duty to account therefor to the Lenders. The Agent shall have no duty to disclose any information obtained or received by it or any of its Affiliates relating to the Borrower or any of its Subsidiaries to the extent such information was obtained or received in any capacity other than as Agent.

                  SECTION 7.04.   Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

                  SECTION 7.05.   Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal

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amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons that are not Lenders, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement (collectively, the “IndemnifiedCosts”), provided that no Lender shall be liable for any portion of the Indemnified Costs resulting from the Agent’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05 applies whether any such investigation, litigation or proceeding is brought by the Agent, any Lender or a third party.

                  SECTION 7.06.   Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

ARTICLE VIII

MISCELLANEOUS

                  SECTION 8.01.   Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Notes or any other Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive any of the conditions specified in Section 3.01, (b) increase the Commitments of the Lenders, (c) reduce the principal of, or interest on, the Notes or any fees or

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other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (f) release any material portion of any collateral held to secure the obligations of the Borrower under this Agreement and the Notes, (g) amend or waive any of the provisions specified in Sections 5.03(b)(i) or (ii) or Sections 5.03(d)(ii) or (iii), or (h) amend this Section 8.01; and providedfurther that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note or any other Loan Document.

                  SECTION 8.02.   Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed, telecopied or delivered, if to the Borrower, at its address at 2860 West Bayshore Road, Palo Alto, California, 94303, Attention: Chief Financial Officer; if to any Initial Lender at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Agent, at its address at 420 Montgomery Street, San Francisco, CA 94104, Attention: Robert McFadden, or, as to the Borrower or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed or telecopied, be effective when deposited in the mails or telecopied, respectively, except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof.

                  SECTION 8.03.   No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note or any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

                  SECTION 8.04.   Costs and Expenses. (a) The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Notes, the Pledge Agreement and the other documents to be delivered hereunder, including, without limitation, (A) all due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, duplication, appraisal, consultant, and audit expenses and (B) the reasonable fees and expenses of external counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement. The Borrower further agrees to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this

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Agreement, the Notes, the Pledge Agreement and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the Agent and each Lender in connection with the enforcement of rights under this Section 8.04(a).

                  (b) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of external counsel incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith)  the Notes, this Agreement, any other Loan Document or any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 8.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, equityholders or creditors or an Indemnified Party or any other Person, whether or not any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any claim for special, indirect, consequential or punitive damages against the Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability arising out of or otherwise relating to the Notes, this Agreement, any other Loan Document or any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances.

                  (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.07(d) or (e), 2.09 or 2.11, acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.

                  (d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.10, 2.13 and 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Notes.

                  SECTION 8.05.   Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Notes due and payable

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pursuant to the provisions of Section 6.01, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, whether or not such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender and its Affiliates may have.

                  SECTION 8.06.   Binding Effect. This Agreement shall become effective (other than Section 2.01, which shall only become effective upon satisfaction of the conditions precedent set forth in Section 3.01) when it shall have been executed by the Borrower and the Agent and when the Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.

                  SECTION 8.07.   Assignments and Participations . (a) Each Lender may assign to one or more Persons all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender’s rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, (iii) each such assignment shall be to an Eligible Assignee, and (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note subject to such assignment and a processing and recordation fee of $3,500.00. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.11, 2.14 and 8.04 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

39

                   (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender.

                  (c) The Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

                  (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such

40

surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A hereto.

                  (e) Each Lender may sell participations to one or more banks or other entities (other than the Borrower or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Note or any other Loan Document, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation.

                  (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender.

                  (g) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.

                  SECTION 8.08.   Confidentiality. Neither the Agent nor any Lender shall disclose any Confidential Information to any other Person without the consent of the Borrower, other than (a) to the Agent’s or such Lender’s Affiliates and their officers, directors, employees, agents and advisors and, as contemplated by Section 8.07(f), to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process and (c) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking.

                  SECTION 8.09.   Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of California.

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                  SECTION 8.10.   Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement.

                  SECTION 8.11.   Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any California State court or federal court of the United States of America sitting in San Francisco, California, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such California State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any jurisdiction.

                  (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the Notes in any California State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

                  SECTION 8.12.   Waiver of Jury Trial. Each of the Borrower, the Agent and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the Notes or the actions of the Agent or any Lender in the negotiation, administration, performance or enforcement thereof.

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         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

GREATER BAY BANCORP
By:	/s/ STEVEN C. SMITH
Title:	EVP, CAO & CFO

WELLS FARGO BANK, NATIONAL         ASSOCIATION, as Agent
By:	/s/ ROBERT MCFADDEN
	Title: Vice President

Initial Lenders

WELLS FARGO BANK, NATIONAL         ASSOCIATION
By:	/s/ ROBERT MCFADDEN
	Title: Vice President

U.S. BANK, N.A
By:	/s/ JON B. BEGGS
Title:	Vice President

HARRIS TRUST AND SAVINGS BANK
By:	/s/ TIMOTHY E. BROCCOLO
	Title: Managing Director

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SCHEDULE I
GREATER BAY BANCORP
364 DAY REVOLVING CREDIT FACILITY
COMMITMENTS AND APPLICABLE LENDING OFFICES

Name of Initial Lender	Commitment	Domestic Lending Office	Eurodollar Lending Office
Wells Fargo Bank, National Association	$40,000,000
US Bank, N.A.	$10,000,000
Harris Trust and Savings Bank	$10,000,000

EXHIBIT A
FORM OF PROMISSORY NOTE

U.S.$                             Dated: , 20

         FOR VALUE RECEIVED, the undersigned, GREATER BAY BANCORP, a California corporation (the “Borrower”), HEREBY PROMISES TO PAY to the order of _________________________ (the “Lender”) for the account of its Applicable Lending Office on the Termination Date (each as defined in the Credit Agreement referred to below) the principal sum of U.S.$[amount of the Lender’s Commitment in figures] or, if less, the aggregate principal amount of the Advances made by the Lender to the Borrower pursuant to the Credit Agreement dated as of December___, 2002 among the Borrower, the Lender and certain other lender parties thereto, and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), as Agent for the Lender and such other lenders (as amended or modified from time to time, the “Credit Agreement”; the terms defined therein being used herein as therein defined) outstanding on the Termination Date.

         The Borrower promises to pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement.

         Both principal and interest are payable in lawful money of the United States of America to Wells Fargo, as Agent, at _________________________, _______________, _______________, in same day funds. Each Advance owing to the Lender by the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note.

         This Promissory Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of Advances by the Lender to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Advance being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. The obligations of the Borrower under this Promissory Note and the Credit Agreement are secured by collateral as provided therein.

GREATER BAY BANCORP
By:
	Title:

ADVANCES AND PAYMENTS OF PRINCIPAL

Date Amount of
Advance Amount of
Principal Paid or
Prepaid Unpaid Principal
Balance Notation Made
By

EXHIBIT B
FORM OF NOTICE OF BORROWING

Wells Fargo Bank, National Association, as Agent
for the Lender Parties to the Credit Agreement
referred to below _________________________
_______________________________________                                                               [Date]

Attention: ____________________

Ladies and Gentlemen:

         The undersigned, Greater Bay Bancorp, refers to the Credit Agreement, dated as of December 16, 2002 (as amended or modified from time to time, the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto and Wells Fargo Bank, National Association, as Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.02(a) of the Credit Agreement:

         (i)      The Business Day of the Proposed Borrowing is _______________, 20__.

         (ii)    The Type of Advances comprising the Proposed Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].

         (iii)   The aggregate amount of the Proposed Borrowing is $_______________.

         (iv)    [The initial Interest Period for each Eurodollar Rate Advance made as part of the Proposed Borrowing is __________ month[s].]

         The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

         (A)      the representations and warranties contained in Section 4.01 of the Credit Agreement are correct, before and after giving effect to the Proposed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and

         (B)      no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, that constitutes a Default.

Very truly yours, GREATER BAY BANCORP
By:
	Title:

EXHIBIT C
FORM OF ASSIGNMENT AND ACCEPTANCE

         Reference is made to the Credit Agreement dated as of December ___, 2002 (as amended or modified from time to time, the “Credit Agreement”) among Greater Bay Bancorp, a California corporation (the “Borrower”), the Lenders (as defined in the Credit Agreement) and Wells Fargo Bank, National Association, as agent for the Lenders (the “Agent”). Terms defined in the Credit Agreement are used herein with the same meaning.

The “Assignor” and the “Assignee” referred to on Schedule 1 hereto agree as follows:

         1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor’s rights and obligations under the Credit Agreement as of the date hereof equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement. After giving effect to such sale and assignment, the Assignee’s Commitment and the amount of the Advances owing to the Assignee will be as set forth on Schedule 1 hereto.

         2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, the Credit Agreement or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iv) attaches the Note held by the Assignor and requests that the Agent exchange such Note for a new Note payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto or new Notes payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, respectively, as specified on Schedule 1 hereto.

         3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and

authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.13 of the Credit Agreement.

         4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the “Effective Date”) shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1 hereto.

         5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

         6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves.

         7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of California.

         8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance.

         IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon.

 2

Schedule 1
to
Assignment and Acceptance

Percentage interest assigned:		%
Assignee’s Commitment:	$
Aggregate outstanding principal amount of Advances assigned:	$
Principal amount of Note payable to Assignee:	$
Principal amount of Note payable to Assignor:	$
Effective Date1: , 20

[NAME OF ASSIGNOR], as Assignor
By:
	Title:
Dated: , 20

[NAME OF ASSIGNEE], as Assignee
By:
	Title:
Domestic Lending Office:                [Address] Eurodollar Lending Office:                 [Address]

______________

1 This date should be not earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent

Accepted [and Approved]1 this day of , 20 , as Agent
By:
	Title:

[Approved this day of , 20 [NAME OF BORROWER]
By:	]2
	Title:

______________

1 Required if the Assignee is an Eligible Assignee solely by reason of clause (viii) of the definition of “Eligible Assignee”.

2 Required if the Assignee is an Eligible Assignee solely by reason of clause (viii) of the definition of “Eligible Assignee”.

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EXHIBIT D

PLEDGE AGREEMENT

         PLEDGE AGREEMENT, dated as of December ___, 2002, made by Greater Bay Bancorp, a California corporation (the “Pledgor”), to Wells Fargo Bank, National Association, as Agent (the “Agent”) for the lenders party to the Credit Agreement (as defined below) (the “Lenders”).

PRELIMINARY STATEMENTS:

         (1)      The Pledgor is the owner of the shares (the “Pledged Shares”) of stock described in Schedule I hereto and issued by the corporations named therein.

         (2)      The Agent and the Lenders have entered into a Credit Agreement, dated as of even date (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the “Credit Agreement”, the terms defined therein and not otherwise defined herein being used herein as therein defined), with the Pledgor. It is a condition precedent to the effectiveness of the Credit Agreement that the Pledgor shall have made the pledge contemplated by this Agreement.

         NOW THEREFORE, in consideration of the premises and in order to induce the Lenders to make the Advances under the Credit Agreement, the Pledgor hereby agrees as follows:

         SECTION 1.   Pledge. The Pledgor hereby pledges to the Agent, for the benefit of the Lenders, and grants to the Agent, a security interest in, the following (the “Pledged Collateral”):

         (i)      the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; and

         (ii)    all additional shares of stock of the issuer of the Pledged Shares from time to time acquired by the Pledgor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares.

         SECTION 2.   Security for Obligations. This Agreement secures the payment of all obligations of the Pledgor now or hereafter existing under the Credit Agreement and the Notes, whether for principal, interest, expenses or otherwise, and all obligations of the Pledgor now or hereafter existing under this Agreement (all such obligations of the Pledgor being the “Obligations”).

         SECTION 3.   Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be

accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Agent shall have the right, at any time in its discretion and with notice to the Pledgor, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a). In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations.

         SECTION 4.   Representations and Warranties. The Pledgor represents and warrants as follows:

         (a)      The Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable.

         (b)      The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Pledged Collateral is on file in any recording office, except such as may have been filed in favor of the Agent relating to this Agreement.

         (c)      The pledge of the Pledged Shares pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations.

         (d)      No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body or other third party is required either (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor or (ii) for the perfection or maintenance of the pledge, assignment or security interest created hereby (including the first priority nature of such pledge, assignment or security interest) or (iii) for the exercise by the Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally and as may be imposed by applicable state and federal banking regulations).

         (e)      The Pledged Shares constitute 100 percent of the issued and outstanding shares of the Common Stock of the issuer thereof.

         SECTION 5.   Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral.

         SECTION 6.   Voting Rights; Dividends; Etc. (a)  So long as no Event of Default or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred and be continuing:

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          (i)    The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if, in the Agent’s reasonable judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof.

         (ii)    The Pledgor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, provided, however, that any and all

          (A)      dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral,

          (B)      dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and

          (C)      cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral,

shall be, and shall be forthwith delivered, less the taxes, if any, estimated by the Pledgor to be payable by the Pledgor in respect of such distribution (in the event that any amount of any such distribution shall be withheld by the Pledgor in respect of taxes, the Pledgor shall deliver forthwith to the Agent a certificate of an officer of the Pledgor as to the “circumstances giving rise to such taxes and their computation), to the Agent to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Agent as Pledged Collateral in the same form as so received (with any necessary indorsement).

         (iii)   The Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above.

         (b)      Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default:

         (i)      All rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) and to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise such

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voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments, subject to compliance with applicable state and federal banking regulations.

         (ii)    All dividends and interest payments which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Agent as Pledged Collateral in the same form as so received (with any necessary indorsement).

         SECTION 7.   Transfers and Other Liens; Additional Shares. (a)   The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement.

         (b)      The Pledgor agrees that it will (i) cause the issuer of the Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to the Pledgor and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of the issuer of the Pledged Shares.

         (i)      first, to the payment of any outstanding costs and expenses incurred by the Agent in protecting the, preserving or enforcing rights under the Loan Documents,

         (ii)    second to the payment of any outstanding interest or other fees or amounts due under the Notes and other Loan Documents, in each case other than for principal or costs arising out of Hedging

         (iii)   third, to the payment of the principal of the notes pro rata as among the banks in accordance with the aggregate unpaid principal balances of their Loans;

         (iv)    fourth, to the Agent and the Lenders ratably in accordance with the amounts of any other indebtedness, obligations or liabilities of the Borrower owning to each of them and secured by the any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever amy be lawfully entitled to receive such surplus.

         SECTION 8.   Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Agent the Pledgor’s attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time when an Event of Default exists in the Agent’s discretion to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same.

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         SECTION 9.   Agent May Perform. If the Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgor under Section 13.

         SECTION 10.   Reasonable Care. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property, it being understood that the Agent shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral.

         SECTION 11.   Remedies upon Default. If any Event of Default shall have occurred and be continuing:

         (a)      Subject to applicable state and federal banking regulations, the Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the “Code”) in effect in the State of California at that time, and the Agent may, also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or at any of the Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

         (b)      Any cash held by the Agent as Pledged Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Agent, be held by the Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Agent pursuant to Section 12) in the whole or in part b y the Agent against, all or any part of the Obligations in such order as follows:

         (i)      First to the payment of outstanding costs and expenses incurred by the Agent in protecting, preserving or enforcing rights under the Loan Documents

         (ii)    second to the payment of any outstanding interest or other fees or amounts due under the Notes and other Loan Documents,in each case other than for principal or costs arising out of Hedging Arrangements,

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          (iii)  Third, to the payment of the principal of the notes pro rata as among the banks in accord with the aggregate unpaid principal balances of their Loans;

         (iv)    Fourth, to the Agent and the Lenders ratably in accordance with the amounts of any other indebtedness, obligations or liabilities of the Borrower owing to each of them and secured by the Pledged Shares; and

         (v)      Fifth, any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus.

         SECTION 12.   Expenses. The Pledgor will upon demand pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Agent hereunder, (iv) the failure by the Pledgor to perform or observe any of the provisions hereof or (v) the registration of all or a portion of the Pledged Collateral under the provisions of the Securities Act of 1933 or the qualification of the Pledged Collateral under the state securities or “Blue Sky” laws.

         SECTION 13.   Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

         SECTION 14.   Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and, if to the Pledgor, mailed or telecopied or delivered to it, addressed to it with a copy to __________________________; if to the Agent, mailed or telecopied or delivered to it, addressed to it at the address of the Agent specified in the Credit Agreement, or as to either party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telecopied, respectively, be effective when deposited in the mails or delivered to the recipient, respectively, addressed as aforesaid.

         SECTION 15.   Continuing Security Interest; Transfer of Notes. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until payment in full (after the Termination Date) of the Obligations, (ii) be binding upon the Pledgor, and its successors and assigns, and (iii) inure to the benefit of the Agent, the Lenders and each of their successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) a Lender may assign or otherwise transfer a Note to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. Upon the payment in full (after the Termination Date) of the Obligations, the Pledgor shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof.

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         SECTION 16.   Governing Law; Terms. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Unless otherwise defined herein or in the Credit Agreement, terms defined in Division 9 of the Code in the State of California are used herein as therein defined.

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         IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its representative thereunto duly authorized as of the date first above written.

GREATER BAY BANCORP
By:
	Title:

8

Schedule 1

Description of Pledged Shares

Issuer

Certificate No.

Date of Issuance

No. of Shares
State of
Incorporation

EXHIBIT E-1
FORM OF OPINION OF COUNSEL
FOR THE BORROWER

[Date]

To each of the Lenders parties
to the Credit Agreement dated
as of November ___, 2002
among Greater Bay Bancorp,
said Lenders and Wells Fargo Bank, National Association,
as Agent for said Lenders

GREATER BAY BANCORP

Ladies and Gentlemen:

         This opinion is furnished to you pursuant to Section 3.01(h)(iv) of the Credit Agreement, dated as of November ___, 2002 (the “Credit Agreement”), among Greater Bay Bancorp (the “Borrower”), the Lenders parties thereto and Wells Fargo Bank, National Association, as Agent for said Lenders. Terms defined in the Credit Agreement are used herein as therein defined.

         I am internal General Counsel to the Borrower and in that capacity I have acted as counsel to the Borrower in connection with the negotiation, preparation, execution and delivery of the Credit Agreement.

         In that connection, I have examined:

          (1)      The Credit Agreement.

          (2)      The Notes.

          (3)      The Pledge Agreement.

          (4)      The Articles of Incorporation of the Borrower and all amendments thereto (the “Charter”).

          (5)      The by-laws of the Borrower and all amendments thereto (the “By-laws”).

          (6)      A certificate of the Secretary of State of California, dated _______________, 2002, attesting to the continued corporate existence and good standing of the Borrower in that State.

         In so acting, I have investigated such questions of law, and I have also examined and relied upon the originals, or copies certified or otherwise identified to my satisfaction, of such records, documents, certificates and other information, as in my judgment are necessary or appropriate to enable me to render the opinions expressed below. In addition, I have assumed (i) the genuineness of the signatures of persons signing all documents in connection with which this

1

opinion is rendered on behalf of parties thereto, (ii) the authenticity of all documents submitted to me as originals or execution copies and (iii) the conformity to authentic original documents of all documents submitted to me as certified, conformed or photostatic copies.

         My opinions expressed below are limited to the law of the State of California and the Federal law of the United States.

         Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion:

         1.       The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of California.

         2.       The execution, delivery and performance by the Borrower of the Credit Agreement, the Notes and the Pledge Agreement, and the consummation of the transactions contemplated thereby, are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Charter or the By-laws or (ii) any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (iii) any contractual or legal restriction contained in any document listed in the Certificate or, to the best of my knowledge, contained in any other similar document. The Credit Agreement, the Notes and the Pledge Agreement have been duly executed and delivered on behalf of the Borrower.

         3.       No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by the Borrower of the Credit Agreement, the Notes and the Pledge Agreement.

         4.       Each of the Credit Agreement and the Pledge Agreement is, and after giving effect to the initial Borrowing, the Notes will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms.

         5.       All of the Pledged Shares are owned of record by the Borrower and have been duly authorized and validly issued and are fully paid and non-assessable.

         6.       To the best of my knowledge, there are no pending or overtly threatened actions or proceedings against the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator that purport to affect the legality, validity, binding effect or enforceability of the Credit Agreement, any of the Notes or the Pledge Agreement or the consummation of the transactions contemplated thereby or that are likely to have a materially adverse effect upon the financial condition or operations of the Borrower or any of its Subsidiaries.

         The opinions set forth above are subject to the following qualifications:

         (a)      My opinion in paragraph 4 above as to enforceability is subject to the effect of any applicable bankruptcy, insolvency (including, without limitation, all laws

 2

relating to fraudulent transfers), reorganization, moratorium or similar law affecting creditors’ rights generally.

         (b)      My opinion in paragraph 4 above as to enforceability is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law).

         (c)      My opinions in paragraph 6 above are subject to the qualification that the security interest, and perfection and continuation of perfection of the security interest, of the Agent in proceeds of the Pledged Shares are limited to the extent set forth in Section 9315 of the California UCC.

         (d)      My opinions expressed above are limited to the law of the State of California and the federal law of the United States, and I do not express any opinion herein concerning any other law.

         (e)      My opinions in paragraph 6 above are limited to Division 9 of the California UCC, and therefore those opinions do not address (i) laws other than Division 9 of the California UCC and (ii) collateral of a type not subject to Article 9 of the California UCC.

         (f)      The enforceability of the Agent’s security interest in the Pledged Collateral and the exercise of remedies with respect thereto are subject to applicable federal and state bank regulatory requirements.

         (g)      I express no opinion with respect to:

                  (i)    Section 8.05 of the Credit Agreement to the extent that such Section implies that set off may be made without notice;

                  (ii)   the effect of the law of any jurisdiction other than the State of California wherein any Lender may be located or wherein enforcement of the Credit Agreement, the Notes or the Pledge Agreement may be sought that limits the rates of interest legally chargeable or collectible;

                  (iii)  any provision of any of the Loan Documents purporting to relieve the Agent or any Lender of liability for its own negligence or willful misconduct;

                  (iv)   any provision of any of the Loan Documents purporting to define what is commercially reasonable behavior or any provision which is intended to establish any standard in any Loan Document as the measure of the performance by any party thereto, including without limitation, any party’s obligations of good faith, diligence, reasonableness or care or the fulfillment of the duties imposed upon the Agent as a secured party with respect to disposition or redemption of collateral, accounting for surplus proceeds of collateral or accepting collateral in discharge of liabilities;

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                  (v)     the validity, enforceability or legality of any power of attorney, proxies or agency relationship purported to be created by the Loan Documents;

                  (vi)   the enforceability of provisions of the Loan Documents waiving vaguely or broadly stated rights or unknown future rights or of provisions stating that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy or that the election of some particular remedy or remedies does not preclude recourse to one or more others;

                  (vii)  any provision of any of the Loan Documents permitting the Agent or any Lender to exercise greater or different rights with respect to any collateral other than provided under the California Uniform Commercial Code (and in this regard you should note that the California Uniform Commercial Code provides that certain rights of a borrower or third party pledgor or guarantor are not waivable prior to a default, or are not waivable under any circumstances);

                  (viii) waiver by the Borrower or any guarantor or any pledgor of any statutes of limitation or right to trial by jury;

                  (ix)   the priority of any security interest created by any of the Loan Documents;

                  (x)    except as stated in paragraph 5 above, the title to or ownership of any collateral described in the Loan Documents; and

                  (xi)   provisions of any of the Loan Documents that purport to preserve absolute and unconditional rights of the Agent and the Lenders and obligations of any of the other parties thereto irrespective of the lack of validity or enforceability of the Loan Documents or of unspecified circumstances that would otherwise be available as a defense to, or discharge the obligors from any such obligation;

         A copy of this opinion letter may be delivered by any of you to any Person that becomes a Lender in accordance with the provisions of the Credit Agreement. Any such Lender may rely on the opinions expressed above as if this opinion letter were addressed and delivered to such Lender on the date hereof.

         This opinion letter is rendered to you in connection with the transactions contemplated by the Loan Documents. This opinion letter may not be relied upon by you or any future Lender for any other purpose, or relied upon by or provided to any other Person, without my prior written consent.

         This opinion letter speaks only as of the date hereof. I expressly disclaim any responsibility to advise you of any development or circumstance of any kind, including any change of law or fact, that may occur after the date of this opinion letter even though such development, circumstance or change may affect the legal analysis, a legal conclusion or any other matter set forth in or relating to this opinion letter. Accordingly, any of you who may rely on this opinion letter at any future time should seek advice of your counsel as to the proper application of this opinion letter at such time.

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Very truly yours,

5

EXHIBIT E-2
FORM OF OPINION OF MANATT,
PHELPS & PHILLIPS, LLP

[Date]

To each of the Lenders parties
to the Credit Agreement dated
as of December ___, 2002
among Greater Bay Bancorp,
said Lenders and Wells Fargo Bank, National Association,
as Agent for said Lenders

GREATER BAY BANCORP

Ladies and Gentlemen:

         This opinion is furnished to you pursuant to Section 3.01(h)(iv) of the Credit Agreement, dated as of December ___, 2002 (the “Credit Agreement”), among Greater Bay Bancorp (the “Borrower”), the Lenders parties thereto and Wells Fargo Bank, National Association, as Agent for said Lenders. Terms defined in the Credit Agreement are used herein as therein defined.

         We have acted as special counsel to the Borrower in connection with the negotiation, preparation, execution and delivery of the Credit Agreement.

         In that connection, we have examined:

         (1)      The Credit Agreement.

         (2)      The Notes.

         (3)      The Pledge Agreement.

         In so acting, we have investigated such questions of law, and we have also examined and relied upon the originals, or copies certified or otherwise identified to our satisfaction, of such records, documents, certificates and other information, as in our judgment are necessary or appropriate to enable us to render the opinions expressed below. In addition, we have assumed (i) the genuineness of the signatures of persons signing all documents in connection with which this opinion is rendered on behalf of parties thereto, (ii) the authenticity of all documents submitted to us as originals or execution copies and (iii) the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies. With your permission, we have also relied upon the opinion of Borrower’s general counsel, Linda Iannone, dated the date hereof and addressed to you, and have assumed the accuracy of the opinions expressed therein.

         Based upon the foregoing and upon such investigation as we have deemed necessary, we are of the following opinion:

1

         1.       Upon their respective due execution and delivery, each of the Credit Agreement and the Pledge Agreement is, and after giving effect to the initial Borrowing, the Notes will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms.

         2.       The terms of the Pledge Agreement are sufficient to create a valid security interest in favor of the Agent in the Pledged Collateral (as defined therein). Assuming the Agent takes and retains possession in the State of California of the certificates representing the securities (within the meaning of Section 8102(a)(15) of the California Uniform Commercial Code) included in the Pledged Collateral which are certificated, duly endorsed to the Agent or in blank by an effective endorsement (within the meaning of Section 8102(a)(11) of the California Uniform Commercial Code), the security interest of the Agent in such certificated securities is perfected by “control” under the California Uniform Commercial Code.

         The opinions set forth above are subject to the following qualifications:

         (a)      Our opinion in paragraph 1 above as to enforceability is subject to the effect of any applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar law affecting creditors’ rights generally.

         (b)      Our opinion in paragraph 1 above as to enforceability is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law).

         (c)      Our opinions in paragraph 2 above are subject to (i) the qualification that the security interest, and perfection and continuation of perfection of the security interest, of the Agent in proceeds of the Pledged Shares are limited to the extent set forth in Section 9315 of the California UCC and (ii) the assumption that value has been given.

         (d)      Our opinions expressed above are limited to the law of the State of California and the federal law of the United States, and we do not express any opinion herein concerning any other law.

         (e)      Our opinions in paragraph 2 above are limited to Divisions 8 and 9 of the California UCC, and therefore those opinions do not address (i) laws other than Divisions 8 and 9 of the California UCC and (ii) collateral of a type as to which a security interest cannot be perfected pursuant to Division 9 of the California UCC.

         (f)      The enforceability of the Agent’s security interest in the Pledged Collateral and the exercise of remedies with respect thereto are subject to applicable federal and state bank regulatory requirements and compliance with applicable federal and state securities laws.

         (g)      We express no opinion with respect to:

E-2

                    (i)    Section 8.05 of the Credit Agreement to the extent that such Section implies that set off may be made without notice;

                  (ii)   the effect of the law of any jurisdiction other than the State of California wherein any Lender may be located or wherein enforcement of the Credit Agreement, the Notes or the Pledge Agreement may be sought that limits the rates of interest legally chargeable or collectible;

                  (iii)  any provision of any of the Loan Documents purporting to relieve the Agent or any Lender of liability for its own negligence or willful misconduct;

                  (iv)    any provision of any of the Loan Documents purporting to define what is commercially reasonable behavior or any provision which is intended to establish any standard in any Loan Document as the measure of the performance by any party thereto, including without limitation, any party’s obligations of good faith, diligence, reasonableness or care or the fulfillment of the duties imposed upon the Agent as a secured party with respect to disposition or redemption of collateral, accounting for surplus proceeds of collateral or accepting collateral in discharge of liabilities;

                  (v)    the validity, enforceability or legality of any power of attorney, proxies or agency relationship purported to be created by the Loan Documents;

                  (vi)    the enforceability of provisions of the Loan Documents waiving vaguely or broadly stated rights or unknown future rights or of provisions stating that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy or that the election of some particular remedy or remedies does not preclude recourse to one or more others;

                  (vii)    any provision of any of the Loan Documents permitting the Agent or any Lender to exercise greater or different rights with respect to any collateral other than provided under the California Uniform Commercial Code (and in this regard you should note that the California Uniform Commercial Code provides that certain rights of a borrower or third party pledgor or guarantor are not waivable prior to a default, or are not waivable under any circumstances);

                  (viii)   waiver by the Borrower or any guarantor or any pledgor of any statutes of limitation or right to trial by jury;

                  (ix)     the priority of any security interest created by any of the Loan Documents;

                  (x)      the title to or ownership of any collateral described in the Loan Documents; and

                  (xi)     provisions of any of the Loan Documents that purport to preserve absolute and unconditional rights of the Agent and the Lenders and obligations of any of the other parties thereto irrespective of the lack of validity or enforceability of

E-3

the Loan Documents or of unspecified circumstances that would otherwise be available as a defense to, or discharge the obligors from any such obligation;

         A copy of this opinion letter may be delivered by any of you to any Person that becomes a Lender in accordance with the provisions of the Credit Agreement. Any such Lender may rely on the opinions expressed above as if this opinion letter were addressed and delivered to such Lender on the date hereof.

         This opinion letter is rendered to you in connection with the transactions contemplated by the Loan Documents. This opinion letter may not be relied upon by you or any future Lender for any other purpose, or relied upon by or provided to any other Person, without our prior written consent.

         This opinion letter speaks only as of the date hereof. We expressly disclaim any responsibility to advise you of any development or circumstance of any kind, including any change of law or fact, that may occur after the date of this opinion letter even though such development, circumstance or change may affect the legal analysis, a legal conclusion or any other matter set forth in or relating to this opinion letter. Accordingly, any of you who may rely on this opinion letter at any future time should seek advice of your counsel as to the proper application of this opinion letter at such time.

                         Very truly yours,

E-4

EX-10.18(B)

Exhibit 10.18(b)

PLEDGE AGREEMENT

                  PLEDGE AGREEMENT, dated as of December 16, 2002, made by Greater Bay Bancorp, a California corporation (the “Pledgor”), to Wells Fargo Bank, National Association, as Agent (the “Agent”) for the lenders party to the Credit Agreement (as defined below) (the “Lenders”).

PRELIMINARY STATEMENTS:

                  (1)         The Pledgor is the owner of the shares (the “Pledged Shares”) of stock described in Schedule I hereto and issued by the corporations named therein.

                  (2)         The Agent and the Lenders have entered into a Credit Agreement, dated as of even date (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the “Credit Agreement”, the terms defined therein and not otherwise defined herein being used herein as therein defined), with the Pledgor. It is a condition precedent to the effectiveness of the Credit Agreement that the Pledgor shall have made the pledge contemplated by this Agreement.

                  NOW THEREFORE, in consideration of the premises and in order to induce the Lenders to make the Advances under the Credit Agreement, the Pledgor hereby agrees as follows:

                  SECTION 1.   Pledge. The Pledgor hereby pledges to the Agent, and grants to the Agent a security interest in, the following (the “Pledged Collateral”):

         (i)      the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; and

         (ii)    all additional shares of stock of the issuer of the Pledged Shares from time to time acquired by the Pledgor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares.

                  SECTION 2.   Security for Obligations. This Agreement secures the payment of all obligations of the Pledgor now or hereafter existing under the Credit Agreement and the Notes, whether for principal, interest, expenses or otherwise, and all obligations of the Pledgor now or hereafter existing under this Agreement (all such obligations of the Pledgor being the “Obligations”).

                  SECTION 3.   Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf

of the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. The Agent shall have the right, at any time in its discretion and with notice to the Pledgor, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a). In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations.

                  SECTION 4.   Representations and Warranties. The Pledgor represents and warrants as follows:

         (a)      The Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable.

         (b)      The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Pledged Collateral is on file in any recording office, except such as may have been filed in favor of the Agent relating to this Agreement.

         (c)      The pledge of the Pledged Shares pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations.

         (d)      No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body or other third party is required either (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor or (ii) for the perfection or maintenance of the pledge, assignment or security interest created hereby (including the first priority nature of such pledge, assignment or security interest) or (iii) for the exercise by the Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally and as may be imposed by applicable state and federal banking regulations).

         (e)      The Pledged Shares constitute 100 percent of the issued and outstanding shares of the Common Stock of the issuer thereof.

                  SECTION 5.   Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral.

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                  SECTION 6.   Voting Rights; Dividends; Etc. (a)  So long as no Event of Default or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred and be continuing:

         (i)      The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if, in the Agent’s reasonable judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof.

         (ii)    The Pledgor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, provided, however, that any and all

          (A)      dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral,

          (B)      dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and

          (C)      cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral,

shall be, and shall be forthwith delivered, less the taxes, if any, estimated by the Pledgor to be payable by the Pledgor in respect of such distribution (in the event that any amount of any such distribution shall be withheld by the Pledgor in respect of taxes, the Pledgor shall deliver forthwith to the Agent a certificate of an officer of the Pledgor as to the “circumstances giving rise to such taxes and their computation), to the Agent to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Agent as Pledged Collateral in the same form as so received (with any necessary indorsement).

         (iii)   The Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above.

                  (b)         Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default:

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          (i)    All rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) and to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall cease, and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments, subject to compliance with applicable state and federal banking regulations.

         (ii)    All dividends and interest payments which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Agent as Pledged Collateral in the same form as so received (with any necessary indorsement).

                  SECTION 7.   Transfers and Other Liens; Additional Shares. (a)  The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement.

                  (b)         The Pledgor agrees that it will (i) cause the issuer of the Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to the Pledgor and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of the issuer of the Pledged Shares.

                  SECTION 8.   Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Agent the Pledgor’s attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time when an Event of Default exists in the Agent’s discretion to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same.

                  SECTION 9.   Agent May Perform. If the Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgor under Section 13.

                  SECTION 10.   Reasonable Care. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property, it being understood that the Agent shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Agent has or is deemed to

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have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral.

                  SECTION 11.   Remedies upon Default. If any Event of Default shall have occurred and be continuing:

         (a)      Subject to applicable state and federal banking regulations, the Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the “Code”) in effect in the State of California at that time, and the Agent may, also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or at any of the Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days’ notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

         (b)      Any cash held by the Agent as Pledged Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Agent, be held by the Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Agent pursuant to Section 12) in whole or in part by the Agent against, all or any part of the Obligations in such order as the Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus.

                  SECTION 12.   Expenses. The Pledgor will upon demand pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Agent hereunder, (iv) the failure by the Pledgor to perform or observe any of the provisions hereof or (v) the registration of all or a portion of the Pledged Collateral under the provisions of the Securities Act of 1933 or the qualification of the Pledged Collateral under the state securities or “Blue Sky” laws.

                  SECTION 13.   Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or

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consent shall be effective only in the specific instance and for the specific purpose for which given.

                  SECTION 14.   Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and, if to the Pledgor, mailed or telecopied or delivered to it, addressed to it with a copy to Manatt, Phelps & Phillips, LLP, 11355 W. Olympic Blvd., Los Angeles, CA 90064, Attention: William Quicksilver; if to the Agent, mailed or telecopied or delivered to it, addressed to it at the address of the Agent specified in the Credit Agreement, or as to either party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telecopied, respectively, be effective when deposited in the mails or delivered to the recipient, respectively, addressed as aforesaid.

                  SECTION 15.   Continuing Security Interest; Transfer of Notes. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until payment in full (after the Termination Date) of the Obligations, (ii) be binding upon the Pledgor, and its successors and assigns, and (iii) inure to the benefit of the Agent, the Lenders and each of their successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) a Lender may assign or otherwise transfer a Note to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. Upon the payment in full (after the Termination Date) of the Obligations, the Pledgor shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof.

                  SECTION 16.   Governing Law; Terms. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Unless otherwise defined herein or in the Credit Agreement, terms defined in Division 9 of the Code in the State of California are used herein as therein defined.

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                  IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its representative thereunto duly authorized as of the date first above written.

GREATER BAY BANCORP
By:	/s/ STEVEN C. SMITH
Title:	EVP, CAO & CFO

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Schedule 1

Description of Pledged Shares

Issuer
Certificate No.
Date of Issuance
No. of Shares State of
Incorporation

EX-10.18(C)

Exhibit 10.18(c)

AMENDMENT NO. 1 TO CREDIT AGREEMENT dated as of March 3, 2003 among GREATER BAY BANCORP, a California corporation (the “Borrower”), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the “Lenders”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, as agent (the “Agent”) for the Lenders.

PRELIMINARY STATEMENTS:

(1) The Borrower, the Lenders and the Agent have entered into a Credit Agreement dated as of December 16, 2002, (the “Credit Agreement”). Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement.

(2) The Borrower and the Lenders have agreed to amend the Credit Agreement as hereinafter set forth.

SECTION 1. Amendments to Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2, hereby amended as follows:

(a) Section 1.01 (Definitions) is amended by:

(i) Adding a new definition of “Approved Marketable Securities” to read as follows:

“‘Approved Marketable Securities’ means those securities listed on Schedule 4 hereto, and which are acceptable to the Agent.”

(ii) Adding a new definition of “Cure Agreement” to read as follows:

“‘Cure Agreement’ means that certain Agreement under the Bank Holding Company Act dated February 17, 2003 between the Borrower and the Federal Reserve Bank of San Francisco, or any memorandum of understanding or other agreement that may hereafter be entered into by the Borrower or any Subsidiary with any federal or state bank regulatory agency with respect to any matter covered by aforementioned Agreement under Bank Holding Company Act, including, but not limited to any matter covered by or outlined in the corrective action plan referred to in Section 2 of the aforementioned Agreement under Bank Holding Company Act.”

(iii) Adding a new definition of “Security Agreement” to read as follows:

“‘Security Agreement’ means that certain Security Agreement dated as of March 3, 2003 from the Borrower to the Agent, for the benefit of itself and the Secured Parties.”

(iv) Adding a new definition of “Secured Parties” to read as follows:

“‘Secured Parties’ means the Agent and the Lenders.”

(v) Amending the definition of “Loan Documents” by inserting, after the words “the Pledge Agreement”, the words “, the Security Agreement”.

(b) Section 3.02 (Conditions Precedent to Each Borrowing) is amended by inserting a new sub-clause (c) after sub-clause (b) to read as follows:

“and (c) the Agent shall have a first priority perfected security interest in an amount of Approved Marketable Securities in respect of such Borrowing to the extent required by Section 5.01(i).”

(c) Section 5.01 (Affirmative Covenants) is amended by amending subclause (h) in its entirety to read as follows:

“Additional Collateral. If at any time and from time to time the sum of (i) the value of the aggregate shareholder equity (as determined in conformance with GAAP) of the voting common stock of the Collateral Subsidiary Bank and (ii) the fair market value of the Approved Marketable Securities pledged pursuant to Section 5.01(i) hereof is less than an amount equal to 150% of aggregate Commitments (the difference between such value and the amount equal to 150% of the aggregate Commitments being the “Collateral Shortfall”), the Borrower shall immediately pledge to the Agent an amount of cash or Marketable Securities in an aggregate amount not less than the Collateral Shortfall at such time (the “Additional Collateral”) to be held in a collateral account at the Agent on behalf of the Lenders and in connection therewith the Borrower shall enter into such collateral documents as are reasonably requested by the Agent. The Agent shall release the Additional Collateral after financial statements filed with the FFIEC reflect that the sum of (i) value of the aggregate shareholder equity (as determined above) of the Collateral Subsidiary Bank’s voting common stock and (ii) the fair market value of the Approved Marketable Securities pledged pursuant to Section 5.01(i) hereof exceeds an amount equal to 150% of the aggregate Commitments.”

(d) Section 5.01 (Affirmative Covenants) is amended by adding a new sub-clause (i), to read as follows:

“(i) Pledge of Approved Marketable Securities. Until the Agent shall have received evidence reasonably satisfactory to it and the Required Lenders that the Federal Reserve Bank of San Francisco or other appropriate federal or state bank regulatory agency, as applicable, has determined that

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(a) the Borrower (or, if applicable, a Subsidiary) has performed its obligations under the Cure Agreement or (b) the Borrower (or, if applicable, a Subsidiary) is otherwise no longer subject to the terms of the Cure Agreement, maintain in a collateral account at the Agent, or in an account in which the Agent otherwise has a first priority perfected security interest, an amount (as determined herein) of Approved Marketable Securities not less than the aggregate principal amount of Advances outstanding; provided, that, the above requirement of this Section 5.01(i) shall remain in full force and effect to the extent that any Lien permitted under Section 5.02(vi) below is in existence. For the purposes of this Section 5.01(i), the amount of Approved Marketable Securities shall be determined on the basis of the percentage of the market value of the respective Approved Marketable Securities as set forth in Schedule 4 hereto. The Agent shall release from the collateral account any Approved Marketable Securities when and to the extent the amount of Approved Marketable Securities exceeds the aggregate principal amount of Advances outstanding.”

(e) Section 5.02(a) (Negative Covenants—Liens, Etc.) is amended by deleting the period at the end of sub-section (v) thereof and substituting therefor “; and” and by adding as new sub-section (vi), to read as follows:

“(vi) any Lien on the Equity Interests of Mt. Diablo National Bank or Peninsula Bank of Commerce in favor of U.S. Bank, N.A. to secure the obligations of the Borrower under the US Bank Credit Agreement; provided, that, during any time that such Lien is in effect, the Agent shall have a perfected security interest to the extent required by Section 5.01(i) hereof.”

(f) A new Schedule 4 is inserted, in the form of the Schedule attached hereto.

(g) Section 5.03 (Financial Covenants) is amended by amending subclause (c) in its entirety to read as follows:

“The Borrower will maintain a minimum ratio, calculated at each quarter end, of the sum of the (i) fair market value of unencumbered Marketable Securities then held by the Borrower and (ii) the fair market value of Approved Marketable Securities pledged pursuant to Section 5.01(i) hereof to the then liability of all outstanding CODES of not less than 50%.”

SECTION 2. Conditions of Effectiveness. This Amendment shall become effective as of the date first above written when, and only when, each of the following conditions have been satisfied:

(i) The Agent shall have received counterparts of this Amendment executed by the Borrower and all of the Lenders or, as to any of the Lenders, advice satisfactory to the Agent that such Lender has executed this Amendment;

(ii) The Agent shall have received a Security Agreement in the form of Exhibit A hereto (the “Security Agreement”), duly executed by the Borrower and dated as of the date hereof; and

(iii) The Agent shall have received for the ratable account of each Lender, a closing fee of 0.10% of the aggregate Commitments (and upon receipt of such fee from the Borrower, the Agent will distribute the ratable portion of such fee to each Lender no later than the close of business on the second business day after receipt thereof by the Agent).

(iv) Certified copies of the resolutions of the Board of Directors of the Borrower approving this Amendment and the Security Agreement and the matters contemplated hereby and thereby, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Amendment and the Security Agreement and the matters contemplated hereby and thereby.

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(v) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Amendment and the Security Agreement and the other documents to be delivered hereunder and thereunder.

This Amendment is subject to the provisions of Section 8.01 of the Credit Agreement.

SECTION 3. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:

(i) The Borrower and each of its Subsidiaries (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary and where failure to be so licensed or qualified would have a materially adverse impact on its business or properties; (ii) is in compliance with the requirements of applicable laws and regulations, except for such noncompliance as would not materially and adversely affect its business or financial condition; and (iii) has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents.

(ii) The execution, delivery and performance by the Borrower of this Amendment, the Security Agreement and the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Borrower, or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, except such as have already been obtained, (ii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or any of its Subsidiaries or of the Articles of Incorporation or Articles of Association, as the case may be, or Bylaws of the Borrower or any of its Subsidiaries, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower or any of its Subsidiaries is a party or by which it or its properties may be bound or affected, or (iv) result in, or require, the creation or imposition of any Lien or other charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Borrower or any of its Subsidiaries, other than liens created pursuant to the Loan Documents or the Security Agreement. The Borrower is not in violation of any such indenture or loan or credit agreement or any other material agreement, lease or instrument the violation or breach of which would be reasonably likely to have a Material Adverse Effect other than the matters subject to the Cure Agreement.

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(iii) This Amendment, the Security Agreement, the Credit Agreement, as amended hereby, and the other Loan Documents constitute, the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to any applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar law affecting creditors’ rights generally, and general principles of equity.

SECTION 4. Reference to and Effect on the Credit Agreement and the Loan Documents. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment.

(b) The Credit Agreement, as specifically amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Pledge Agreement and all of the Pledged Collateral described therein do and shall continue to secure all payment and other obligations of the Borrower under the Credit Agreement, as amended by this Amendment.

(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement.

SECTION 5. Costs, Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for the Agent) in accordance with the terms of Section 8.04 of the Credit Agreement.

SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

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SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of California.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

GREATER BAY BANCORP
By	/s/    STEVEN C. SMITH
	Title: EVP, CAO, CFO

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent and as Lender
By	/s/    AZIM RAJAN
	Title: Vice President

U.S. BANK, N.A.
By	/s/    JON B. BEGGS
	Title: Vice President

HARRIS TRUST AND SAVINGS BANK
By	/s/    TIMOTHY E. BROCCOLO
	Title: Managing Director

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SCHEDULE

[Schedule 4 to Credit Agreement]

APPROVED MARKETABLE SECURITIES

Marketable Security	Percentage of Market Value Allocated for Purposes of Section 5.01(i)
U.S. Government Bonds, Notes or Treasury Bills	90%
Municipal or U.S. corporate bonds rated at least AAA by SP or AA by Moody’s.	85%
Mortgage-backed Securities rated at least AAA by S&P or AA by Moody’s.	80%
Collateralized mortgage obligations rated at least AAA by S&P or AA by Moody’s.	80%

EXHIBIT A

Form of Security Agreement

SECURITY AGREEMENT

Dated March __, 2003

From

GREATER BAY BANCORP

as Grantor

to

WELLS FARGO BANK, N.A.

As Agent

TABLE OF CONTENTS

Section		Page
Section 1.	Grant of Security	2
Section 2.	Security for Obligations	2
Section 3.	Delivery and Control of Collateral	2
Section 4.	Representations and Warranties	3
Section 5.	Further Assurances	4
Section 6.	Dividends; Etc.	4
Section 7.	Transfers and Other Liens	5
Section 8.	Agent Appointed Attorney-in-Fact	5
Section 9.	Agent May Perform	5
Section 10.	The Agent’s Duties	5
Section 11.	Remedies	6
Section 12.	Indemnity and Expenses	7
Section 13.	Amendments; Waivers; Etc.	7
Section 14.	Notices, Etc.	7
Section 15.	Continuing Security Interest; Assignments under the Credit Agreement	8
Section 16.	Execution in Counterparts	8
Section 17.	Governing Law	8
Schedule I	–  Location, Chief Executive Office, Place Where Agreements Are Maintained, Type Of Organization, Jurisdiction Of Organization And Organizational Identification Number
Exhibit A	–  Form of Securities Account Control Agreement

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SECURITY AGREEMENT

SECURITY AGREEMENT dated March __, 2003 made by GREATER BAY BANCORP, a California corporation (the “Grantor”), to WELLS FARGO BANK N.A., as Agent (in such capacity, together with any successor agent appointed pursuant to Article VII of the Credit Agreement (as hereinafter defined), the “Agent”) for the Secured Parties (as defined in the Credit Agreement).

PRELIMINARY STATEMENTS.

1. The Borrower has entered into a Credit Agreement dated as of December 16, 2002, as amended by Amendment No. 1 to Credit Agreement dated as of March __, 2003, (said Agreement, as it may hereafter be amended, amended and restated, supplemented or otherwise modified from time to time, being the “Credit Agreement”) with the Lenders and the Agent (each as defined therein).

2. Pursuant to the Credit Agreement, the Grantor is entering into this Agreement in order to grant to the Agent for the ratable benefit of the Secured Parties a security interest in the Collateral (as hereinafter defined).

3. It is a condition precedent to the making of Advances by the Lenders under the Credit Agreement that the Grantor shall have granted the assignment and security interest contemplated by this Agreement.

4. The Grantor will derive substantial direct and indirect benefit from the transactions contemplated by the Loan Documents.

5. Terms defined in the Credit Agreement and not otherwise defined in this Agreement are used in this Agreement as defined in the Credit Agreement. Further, unless otherwise defined in this Agreement or in the Credit Agreement, terms defined in Article 9 of the UCC (as defined below) and/or in the Federal Book Entry Regulations (as defined below) are used in this Agreement as such terms are defined in such Article 9 and/or the Federal Book Entry Regulations. “UCC” means the Uniform Commercial Code as in effect, from time to time, in the State of California; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority. The term “Federal Book Entry Regulations” means (a) the federal regulations contained in Subpart B (“Treasury/Reserve Automated Debt Entry System (TRADES)”) governing book-entry securities consisting of U.S. Treasury bonds, notes and bills and Subpart D (“Additional Provisions”) of 31 C.F.R. Part 357, 31 C.F.R. §357.2, §357.10 through §357.14 and §357.41 through § 357.44 and (b) to the extent substantially identical to the federal regulations referred to in clause (a) above (as in effect from time to time), the federal regulations governing other book-entry securities.

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6. Under the terms of the Credit Agreement, the Grantor is required to grant to the Secured Parties a security interest in certain Approved Marketable Securities from time to time (all such Approved Marketable Securities being the “Securities Collateral”).

NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Advances under the Credit Agreement the Grantor hereby agrees with the Agent for the ratable benefit of the Secured Parties as follows:

SECTION 8. Grant of Security. The Grantor hereby grants to the Agent, for the ratable benefit of the Secured Parties, a security interest in its right, title and interest in and to the Securities Collateral held in the account, number 12713590 maintained with Wells Fargo Brokerage Services, LLC and subject to a Securities Account Control Agreement (as defined in Section 3 below) or such other account or accounts maintained with one or more securities intermediaries and subject, in each case, to a Securities Account Control Agreement pursuant to Section 3 below, as may be agreed to by the Agent from time to time, whether now owned or hereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising, and all dividends, distributions, return of capital, interest, cash, instruments or other property from time to time received, receivable or otherwise distributed in respect of for or in exchange for any or all of such Securities Collateral (collectively, the “Collateral”) and all proceeds relating to any and all of the Collateral.

SECTION 9. Security for Obligations. This Agreement secures the payment of all Obligations of the Grantor now or hereafter existing under the Loan Documents, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, fees, premiums, penalties, indemnifications, contract causes of action, costs, expenses or otherwise (all such Obligations being the “Secured Obligations”).

SECTION 10. Delivery and Control of Collateral. (a) With respect to any Collateral that constitutes a security entitlement in which the Agent is not the entitlement holder, the Grantor will cause the securities intermediary with respect to such security entitlement either (i) to identify in its records the Agent as the entitlement holder of such security entitlement against such securities intermediary or (ii) to agree in an authenticated record with the Grantor and the Agent that such securities intermediary will comply with entitlement orders (that is, notifications communicated to the securities intermediary directing transfer or redemption of the financial asset to which the Grantor has a security entitlement) originated by the Agent without further consent of the Grantor, such authenticated record to be in the form of Exhibit A hereto or such other form as is satisfactory to the Agent, (such agreement being a “Securities Account Control Agreement”).

(b) The Grantor will not change or add any securities intermediary that maintains any securities account in which any of the Collateral is credited or carried, or change or add any such securities account without first complying with the above provisions of this Section 3 in order to perfect the security interest granted hereunder in such Collateral.

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SECTION 11. Representations and Warranties. The Grantor represents and warrants as follows:

(a) The Grantor’s exact legal name, as defined in Section 9-503(a) of the UCC, is correctly set forth in Schedule 1 hereto. The Grantor is located (within the meaning of Section 9-307 of the UCC) and has its chief executive office in the State of California. The information set forth in Schedule I hereto with respect to the Grantor is true and accurate in all respects. The Grantor has not previously changed its name, location, chief executive office, place where it maintains its agreements, type of organization, jurisdiction of organization or organizational identification number from those set forth in Schedule I hereto.

(b) The Grantor is the legal and beneficial owner of the Collateral free and clear of any Lien, claim, option or right of others, except for the security interest created under this Agreement. No effective financing statement or other instrument similar in effect covering all or any part of such Collateral or listing the Grantor or any trade name of the Grantor as debtor is on file in any recording office, except such as may have been filed in favor of the Agent relating to the Loan Documents.

(c) All filings and other actions necessary to perfect the security interest in the Collateral of the Grantor created under this Agreement have been duly made or taken and are in full force and effect, and this Agreement creates in favor of the Agent for the benefit of the Secured Parties a valid and, together with such filings and other actions, perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations.

(d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the grant by the Grantor of the security interest granted hereunder or for the execution, delivery or performance of this Agreement by the Grantor, (ii) the perfection or maintenance of the security interest created hereunder (including the first priority nature of such security interest), except for the filing of financing and continuation statements under the UCC, which financing statements have been duly filed and are in full force and effect, and the actions described in Section 3 with respect to Collateral, which actions have been taken and are in full force and effect, or (iii) the exercise by the Agent of its rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with the disposition of any portion of the Collateral by laws affecting the offering and sale of securities generally.

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SECTION 12. Further Assurances. (a) The Grantor agrees that from time to time, the Grantor will, at its expense, promptly execute and deliver, or otherwise authenticate, all further instruments and documents, and take all further action that may be necessary or desirable, or that the Agent may request, in order to perfect and protect any pledge or security interest granted or purported to be granted by the Grantor hereunder or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.

(b) The Grantor hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, in each case without the signature of the Grantor, and regardless of whether any particular asset described in such financing statements falls within the scope of the UCC or the granting clause of this Agreement. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. The Grantor ratifies its authorization for the Agent to have filed such financing statements, continuation statements or amendments filed prior to the date hereof.

(c) The Grantor will furnish to the Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail.

SECTION 13. Dividends; Etc. (a) So long as no Event of Default shall have occurred and be continuing, the Grantor shall be entitled to receive and retain any and all dividends, interest and other distributions paid in respect of the Collateral if and to the extent that the payment thereof is not otherwise prohibited by the terms of the Loan Documents; provided, however, that any and all:

(a) dividends, interest and other distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Collateral,

(b) dividends and other distributions paid or payable in cash in respect of any Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus and

(c) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Collateral

shall be, and shall be forthwith delivered to the Agent to hold as Collateral and shall, if received by the Grantor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Grantor and be forthwith delivered to the Agent as Collateral in the same form as so received (with any necessary indorsement).

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(b) Upon the occurrence and during the continuance of an Event of Default:

(i) All rights of the Grantor to receive the dividends, interest and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 6(a) shall automatically cease, and all such rights shall thereupon become vested in the Agent, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Collateral such dividends, interest and other distributions.

(ii) All dividends, interest and other distributions that are received by the Grantor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Agent as Collateral in the same form as so received (with any necessary indorsement).

SECTION 14. Transfers and Other Liens. The Grantor agrees that it will not (i) sell, assign or otherwise dispose of, or grant any option with respect to, any of the Collateral, other than sales, assignments and other dispositions of Collateral, and options relating to Collateral, permitted under the terms of the Credit Agreement, or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral except for the pledge, assignment and security interest created under this Agreement.

SECTION 15. Agent Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Agent the Grantor’s attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, following the occurrence of an Event of Default from time to time in the Agent’s discretion, to take any action and to execute any instrument that the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:

(a) to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral,

(b) to receive, indorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above, and

(c) to file any claims or take any action or institute any proceedings that the Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Agent with respect to any of the Collateral.

SECTION 16. Agent May Perform. If the Grantor fails to perform any agreement contained herein, the Agent may but without any obligation to do so and without notice, itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Grantor under Section 12.

SECTION 17. The Agent’s Duties. The powers conferred on the Agent hereunder are solely to protect the Secured Parties’ interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not any Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property.

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SECTION 18. Remedies. If any Event of Default shall have occurred and be continuing:

(a) The Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected Collateral) and also may: (i) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Agent forthwith, assemble all or part of the Collateral as directed by the Agent and make it available to the Agent at a place and time to be designated by the Agent that is reasonably convenient to both parties; (ii) without notice, sell the Collateral or any part thereof upon such other terms as the Agent may deem commercially reasonable; and (iii) exercise any and all rights and remedies of the Grantor under or in connection with the Collateral, or otherwise in respect of the Collateral, including, without limitation, (A) any and all rights of the Grantor to demand or otherwise require payment of any amount under the Collateral, and (B) exercise all other rights and remedies with respect to the Collateral, including, without limitation, those set forth in Section 9-607 of the UCC.

(b) Any cash held by or on behalf of the Agent and all cash proceeds received by or on behalf of the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Agent, be held by the Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Agent pursuant to Section 12) in whole or in part by the Agent for the ratable benefit of the Secured Parties against, all or any part of the Secured Obligations, in the following manner:

(i) first, paid to the Agent for any amounts then owing to the Agent pursuant to Section 8.04 of the Credit Agreement or otherwise under the Loan Documents, ratably in accordance with such respective amounts then owing to the Agent; and

(ii) second, ratably paid to the Lenders, respectively, for any amounts then owing to them, in their capacities as such, under the Loan Documents ratably in accordance with such respective amounts then owing to such Lenders.

Any surplus of such cash or cash proceeds held by or on the behalf of the Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus.

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(c) All payments received by the Grantor in respect of the Collateral shall be received in trust for the benefit of the Agent, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Agent in the same form as so received (with any necessary indorsement).

(d) The Agent may, without notice to the Grantor except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Secured Obligations against any funds held in any deposit account.

SECTION 19. Indemnity and Expenses. (a) The Grantor agrees to indemnify, defend and save and hold harmless each Secured Party and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct.

(b) The Grantor will upon demand pay to the Agent the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of its counsel and of any experts and agents, that the Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral of the Grantor, (iii) the exercise or enforcement of any of the rights of the Agent or the other Secured Parties hereunder or (iv) the failure by the Grantor to perform or observe any of the provisions hereof.

SECTION 20. Amendments; Waivers; Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Agent or any other Secured Party to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

SECTION 21. Notices, Etc. All notices and other communications provided for hereunder shall be either (i) in writing (including telecopier communication) and mailed, telecopied, or otherwise delivered or (ii) by electronic mail (if electronic mail addresses are designated as provided below) confirmed immediately in writing, in the case of the Borrower or the Agent, addressed to it at its address specified in the Credit Agreement; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and other communications shall, when mailed, telecopied sent by electronic mail or otherwise, be effective when deposited in the mails, telecopied, sent by electronic mail and confirmed in writing, or otherwise delivered (or confirmed by a signed receipt), respectively, addressed as aforesaid; except that notices and other communications to the Agent shall not be effective until received by the Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Security Agreement Supplement or Schedule hereto shall be effective as delivery of an original executed counterpart thereof.

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SECTION 22. Continuing Security Interest; Assignments under the Credit Agreement. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the earlier of (i) the date upon which the Agent shall have received evidence, satisfactory to it, that the Federal Reserve Bank of San Francisco or other appropriate federal or state bank regulatory agency has determined that the Borrower (or, if applicable, a Subsidiary) has performed its obligations under the Cure Agreement or the Borrower (or, if applicable, a Subsidiary) is otherwise no longer subject to the terms of the Cure Agreement and (ii) the date of payment in full of all obligations under the Credit Agreement and termination of all Commitments thereunder, (b) be binding upon the Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Agent hereunder, to the benefit of the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment, the Advances owing to it and the Note or Notes, if any, held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as provided in Section 8.07 of the Credit Agreement.

Upon the earlier of (i) and (ii) above, the pledge and security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantor. Upon any such termination, the Agent will, at the Grantor’s expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination.

SECTION 23. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.

SECTION 24. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California.

IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

GREATER BAY BANCORP
By
	Title:

8

Schedule I to the

Security Agreement

LOCATION, CHIEF EXECUTIVE OFFICE, TYPE OF ORGANIZATION,

JURISDICTION OF ORGANIZATION AND ORGANIZATIONAL IDENTIFICATION NUMBER

Grantor	Location	Chief Executive Office	Type of Organization	Jurisdiction of Organization	Organizational I.D. No.
Greater Bay Bancorp			Corporation	California

Exhibit A to the

Security Agreement

Section 1. FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT

CONTROL AGREEMENT dated as of March __, 2003, among GREATER BAY BANCORP, a California corporation (the “Grantor”), WELLS FARGO BANK, N.A., as Agent (the “Secured Party”), and ______________________________________ (“_______”), as securities intermediary (the “Securities Intermediary”).

PRELIMINARY STATEMENTS:

(1) The Grantor has granted the Secured Party a security interest (the “Security Interest”) in account no. _________________ maintained by the Securities Intermediary for the Grantor (the “Account”).

(2) Terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the State of California (“California Uniform Commercial Code”) are used in this Agreement as such terms are defined in such Article 8 or 9.

NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto hereby agree as follows:

(a) The Account. The Grantor and Securities Intermediary represent and warrant to, and agree with, the Grantor and the Secured Party that:

(i) The Securities Intermediary maintains the Account for the Grantor, and all property held by the Securities Intermediary for the account of the Grantor is, and will continue to be, credited to the Account.

(ii) The Account is a securities account. The Securities Intermediary is the securities intermediary with respect to the property credited from time to time to the Account. The Grantor is the entitlement holder with respect to the property credited from time to time to the Account.

(iii) The State of California is, and will continue to be, the Securities Intermediary’s jurisdiction of organization for purposes of Section 8-110(e) of the UCC so long as the Security Interest shall remain in effect.

(iv) Exhibit A attached hereto is a statement of the property credited to the Account on the date hereof.

(v) The Grantor and Securities Intermediary do not know of any claim to or interest in the Account or any property credited to the Account, except for claims and interests of the parties referred to in this Agreement.

(b) Control by Secured Party. The Securities Intermediary will comply with all notifications it receives directing it to transfer or redeem any property in the Account (each an “Entitlement Order”) or other directions concerning the Account (including, without limitation, directions to distribute to the Secured Party proceeds of any such transfer or redemption or interest or dividends on property in the Account) originated by the Secured Party without further consent by the Grantor or any other person.

(c) Grantor’s Rights in Account.

(a) Except as otherwise provided in this Section 3, the Securities Intermediary will comply with Entitlement Orders and other directions concerning the Account originated by the Grantor without further consent by the Secured Party.

(b) Until the Securities Intermediary receives a notice from the Secured Party that the Secured Party will exercise exclusive control over the Account (a “Notice of Exclusive Control”), the Securities Intermediary may distribute to the Grantor all interest and regular cash dividends on property in the Account.

(c) If the Securities Intermediary receives from the Secured Party a Notice of Exclusive Control, the Securities Intermediary will cease:

(i) complying with Entitlement Orders or other directions concerning the Account originated by the Grantor, and

(ii) distributing to the Grantor all interest and dividends on property in the Account.

(d) Priority of Secured Party’s Security Interest. (a) The Securities Intermediary subordinates in favor of the Secured Party any security interest, lien, or right of setoff it may have, now or in the future, against the Account or property in the Account, except that the Securities Intermediary will retain its prior lien on property in the Account to secure payment for property purchased for the Account and normal commissions and fees for the Account.

(b) The Securities Intermediary will not agree with any Person not party to this Agreement that the Securities Intermediary will comply with Entitlement Orders originated by such Person.

(e) Statements, Confirmations, and Notices of Adverse Claims. (a) The Securities Intermediary will send copies of all statements and confirmations for the Account simultaneously to the Grantor and the Secured Party.

(b) When the Securities Intermediary knows of any claim or interest in the Account or any property credited to the Account other than the claims and interests of the parties referred to in this Agreement, the Securities Intermediary will promptly notify the Secured Party and the Grantor of such claim or interest.

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(f) The Securities Intermediary’s Responsibility. (a) Except for permitting a withdrawal, delivery, or payment in violation of Section 3, the Securities Intermediary will not be liable to the Secured Party for complying with Entitlement Orders or other directions concerning the Account from the Grantor that are received by the Securities Intermediary before the Securities Intermediary receives and has a reasonable opportunity to act on a Notice of Exclusive Control.

(b) The Securities Intermediary will not be liable to the Grantor or the Secured Party for complying with a Notice of Exclusive Control or with an Entitlement Order or other direction concerning the Account originated by the Secured Party, even if the Grantor notifies the Securities Intermediary that the Secured Party is not legally entitled to issue the Notice of Exclusive Control or Entitlement Order or such other direction unless the Securities Intermediary takes the action after it is served with an injunction, restraining order, or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order or other legal process.

(c) This Agreement does not create any obligation of the Securities Intermediary except for those expressly set forth in this Agreement and in Part 5 of Article 8 of the California Uniform Commercial Code. In particular, the Securities Intermediary need not investigate whether the Secured Party is entitled under the Secured Party’s agreements with the Grantor to give an Entitlement Order or other direction concerning the Account or a Notice of Exclusive Control. The Securities Intermediary may rely on notices and communications it believes given by the appropriate party.

(g) Indemnity. The Grantor will indemnify the Securities Intermediary, its officers, directors, employees and agents against claims, liabilities and expenses arising out of this Agreement (including, without limitation, reasonable attorney’s fees and disbursements), except to the extent the claims, liabilities or expenses are caused by the Securities Intermediary’s gross negligence or willful misconduct as found by a court of competent jurisdiction in a final, non-appealable judgment.

(h) Termination; Survival. (a) The Secured Party may terminate this Agreement by notice to the Securities Intermediary and the Grantor. If the Secured Party notifies the Securities Intermediary that the Security Interest has terminated, this Agreement will immediately terminate.

(b) The Securities Intermediary may terminate this Agreement on 60 days’ prior notice to the Secured Party and the Grantor, provided that before such termination the Securities Intermediary and the Grantor shall make arrangements to transfer the property in the Account to another securities intermediary that shall have executed, together with the Grantor, a control agreement in favor of the Secured Party in respect of such property in substantially the form of this Agreement or otherwise in form and substance satisfactory to the Secured Party.

(c) Sections 6 and 7 will survive termination of this Agreement.

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(i) Governing Law. This Agreement and the Account will be governed by the law of the State of California. The Securities Intermediary and the Grantor may not change the law governing the Account without the Secured Party’s express prior written agreement.

(j) Entire Agreement. This Agreement is the entire agreement, and supersedes any prior agreements, and contemporaneous oral agreements, of the parties concerning its subject matter.

(k) Amendments. No amendment of, or waiver of a right under, this Agreement will be binding unless it is in writing and signed by the party to be charged.

(l) Financial Assets. The Securities Intermediary agrees with [the Control Agent,] the Secured Party and the Grantor that, to the fullest extent permitted by applicable law, all property credited from time to time to the Account will be treated as financial assets under Article 8 of the California Uniform Commercial Code.

(m) Notices. A notice or other communication to a party under this Agreement will be in writing (except that Entitlement Orders may be given orally), will be sent to the party’s address set forth under its name below or to such other address as the party may notify the other parties and will be effective on receipt.

(n) Binding Effect. This Agreement shall become effective when it shall have been executed by the Grantor, the Secured Party and the Securities Intermediary, and thereafter shall be binding upon and inure to the benefit of the Grantor, the Secured Party and the Securities Intermediary and their respective successors and assigns.

(o) Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

GREATER BAY BANCORP
By
	Title:
	Address:

WELLS FARGO BANK, N.A., as Agent
By
	Title:
	Address:

WELLS FARGO BROKERAGE SERVICES, LLC as Securities Intermediary
By
	Title:
	Address:

5

EX-12.1

Exhibit 12.1

Greater Bay Bancorp Annual Report of Form 10-K

Statements re Computation of Ratios of Earnings to Fixed Charges

	For the Years Ended December 31,
	2002		2001		2000		1999		1998
Income before income taxes	$	196,327	$	106,284	$	110,829	$	77,762	$	64,431
Fixed charges:
Interest expense		159,418		199,956		165,892		110,710		90,219
Interest factor of rental expense		6,081		3,733		2,778		2,493		1,978
Fixed charges		165,499		203,689		168,670		113,203		92,197
Less: interest expense on deposits		82,747		132,655		146,269		98,588		78,525
Net fixed charges		82,752		71,034		22,401		14,615		13,672
Earnings, excluding interest on deposits	$	279,079	$	177,318	$	133,230	$	92,377	$	78,103
Ratio of earnings, excluding interest on deposits, to net fixed charges(1)		3.37 x		2.50 x		5.95 x		6.32 x		5.71 x
Earnings, including interest on deposits	$	196,327	$	106,284	$	110,829	$	77,762	$	64,431
Ratio of earnings, including interest on deposits, to fixed charges(2)		2.19 x		1.52 x		1.66 x		1.69 x		1.70 x

(1) For the purposes of computing the ratio of earnings, excluding interest on deposits, to net fixed charges, earnings represent income before income taxes plus net fixed charges. Net fixed charges include interest expense, other than interest on deposits, and that portion of rental expense, generally one third, deemed representative of the interest factor.

(2) For the purposes of computing the ratio of earnings, including interest on deposits, to fixed charges, earnings represent income before income taxes plus fixed charges. Fixed charges include interest expense and that portion of rental expense, generally one third, deemed representative of the interest factor.

EX-21

Exhibit 21

GREATER BAY BANCORP

ANNUAL REPORT ON FORM 10-K

SUBISDIARIES OF THE REGISTRANT

Greater Bay Bancorp owns 100% of the outstanding voting securities of the following corporations, either directly or indirectly, all of which are included in Greater Bay Bancorp’s consolidated financial statements.

Name	Jurisdiction of Incorporation
Direct Subsidiaries:
ABD Insurance & Financial Services	California
Bank of Petaluma	California
Bank of Santa Clara	California
Bay Area Bank	California
Bay Bank of Commerce	California
Coast Commercial Bank	California
Cupertino National Bank	United States
Golden Gate Bank	California
Matsco Lease Finance, Inc. III	Delaware
Mid-Peninsula Bank	California
Mt. Diablo National Bank	United States
Peninsula Bank of Commerce	California
Pacific Business Funding Corporation	California
San Jose National Bank	United States
GBB Capital II	Delaware
GBB Capital III	Delaware
GBB Capital IV	Delaware
GBB Capital V	Delaware
GBB Capital VI	Delaware
GBB Capital VII	Delaware
Indirect Subsidiaries:
ABD Financial Services, Inc.	Colorado
Bay Commerce Capital LLC	California
Cupertino Capital LLC	California
CNB Investment Trust I	Maryland
CNB Investment Trust II	Maryland
Epic Funding Corporation	California
Mid-Peninsula Capital LLC	California
MPB Investment Trust	Maryland

Peninsula Real Estate Corporation	California
Petaluma Capital LLC	California
Redwood Capital LLC	California
Santa Clara Capital LLC	California
Santa Cruz Capital LLC	California
SJNB Investment Trust	Maryland

EX-23.1

Exhibit 23.1

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-61679, 333-70025, 333-94343, 333-35622, 333-65772, 333-67542 and 333-96909) and Form S-8 (Nos. 333-30913, 333-67677, 333-30915, 333-16967, 333-47747, 333-30812, 333-37722, 333-76004, and 333-98943) of Greater Bay Bancorp of our report dated February 10, 2003 relating to the consolidated financial statements, which appears in this Annual Report on Form 10-K.

/s/    PricewaterhouseCoopers LLP

San Francisco, California

March 3, 2003

EX-99.1

Exhibit 99.1

Certification

Pursuant to the requirement set forth in Section 906 of the Corporate Fraud Accountability Act of 2002, David L. Kalkbrenner and Steven C. Smith each hereby certify as follows:

1.    They are the duly appointed Chief Executive Officer and Chief Financial Officer, respectively, of Greater Bay Bancorp, a California corporation (the “Company”).

2.    Based on their knowledge, the Company’s annual Report on Form 10-K for the year ended December 31, 2002, and to which this Certification is attached as Exhibit 99.1 (the “Periodic Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of this 4th day of March, 2003.

/s/    DAVID L. KALKBRENNER        

DAVID L. KALKBRENNER

CHIEF EXECUTIVE OFFICER

/s/    STEVEN C. SMITH         

STEVEN C. SMITH

CHIEF FINANCIAL OFFICER