10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

For the transition period from              to              .

Commission file number 0-25034

GREATER BAY BANCORP

(Exact name of registrant as specified in its charter)

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

2860 West Bayshore Road, Palo Alto, California 94303

(Address of principal executive offices)(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

Outstanding shares of Common Stock, no par value, as of July 29, 2004: 51,228,331

GREATER BAY BANCORP

QUARTERLY REPORT ON FORM 10-Q

INDEX

Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	1
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2004 and 2003	2
Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2004 and 2003	3
Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2004 and 2003	4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003	5
Notes to Consolidated Financial Statements
Note 1-Summary of Significant Accounting Policies	7
Note 2-Goodwill and Other Intangible Assets	10
Note 3-Securities	12
Note 4-Borrowings	13
Note 5-Derivative Instruments and Hedging Activities	16
Note 6-Common Stock	17
Note 7-Income Taxes	18
Note 8-Earnings Per Common Share	19
Note 9-Activity of Business Segments	21
Note 10-Guarantees	25
Note 11-Variable Interest Entities	26
Note 12-Supplemental Employee Retirement Plan	27
Note 13-Commitments and Contingencies	27
Note 14-Recent Accounting Developments	28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview	30
Critical Accounting Policies	33
Results of Operations	35
Net Interest Income	36
Our Interest Rate Risk Strategy	36
Results for the Quarters Ended June 30, 2004, June 30, 2003 and March 31, 2004	37
Results for the Six Months ended June 30, 2004 and June 30, 2003	40
Provision for Loan and Lease Losses	41
Non-interest Income	42
Operating Expenses	45
Income Taxes	48

i

GREATER BAY BANCORP

QUARTERLY REPORT ON FORM 10-Q

INDEX (continued)

Financial Condition	48
Securities	48
Loans	48
Nonperforming Assets and Other Risk Factors	50
Allowance for Loan and Lease Losses	52
Property, Premises and Equipment	56
Deposits	56
Borrowings	56
Liquidity and Cash Flow	56
Capital Resources	57
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations	59
Results of Business Segments	60
Recent Accounting Developments	67
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Value of Portfolio Equity	68
Net Interest Income	69
Item 4. Controls and Procedures	70
Part II. Other Information
Item 1. Legal Proceedings	71
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities	71
Item 3. Defaults Upon Senior Security	71
Item 4. Submission of Matters to a Vote of Security Holders	71
Item 5. Other Information	73
Item 6. Exhibits and Reports on Form 8-K	73
Signature	74

ii

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Dollars in thousands)	June 30, 2004			December 31, 2003
ASSETS
Cash and cash equivalents	$	264,517		$	275,891
Securities:
Securities available for sale, at fair value		1,704,833			2,153,930
Securities held to maturity, at amortized cost (fair value: $494,360)		494,063			—
Other securities		57,943			73,222
Total securities		2,256,839			2,227,152
Loans		4,443,024			4,537,807
Allowance for loan and lease losses		(120,625	)		(126,168	)
Total loans, net		4,322,399			4,411,639
Property, premises and equipment, net		90,854			83,816
Goodwill		178,317			177,991
Other intangible assets		43,544			47,238
Interest receivable and other assets		456,825			377,696
Total assets	$	7,613,295		$	7,601,423
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	5,306,912		$	5,312,667
Borrowings		1,322,645			1,282,191
Other liabilities		253,396			240,746
Total liabilities		6,882,953			6,835,604
Preferred stock of real estate investment trust subsidiaries		15,302			15,302
Commitments and contingencies (Note 13)
SHAREHOLDERS’ EQUITY
Preferred stock, no par value: 10,500,000 shares authorized		—			—
7.25% convertible preferred stock, stated value $50.00: 2,356,606 reserved shares; 1,823,093 and 1,825,504 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively		91,924			91,752
Common stock, no par value: 160,000,000 shares authorized; 51,177,202 and 52,529,850 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively		256,658			252,650
Unearned compensation		(2,187	)		(344	)
Accumulated other comprehensive income (loss)		(29,474	)		209
Retained earnings		398,119			406,250
Total shareholders’ equity		715,040			750,517
Total liabilities and shareholders’ equity	$	7,613,295		$	7,601,423

See notes to consolidated financial statements.

1

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended June 30,				Six months ended June 30,
(Dollars in thousands, except per share amounts)	2004		2003		2004		2003
INTEREST INCOME
Loans	$	71,434	$	81,139	$	144,561	$	162,016
Securities:
Taxable		20,037		19,921		41,674		43,710
Tax-exempt		1,147		1,241		2,263		2,464
Total interest on securities		21,184		21,162		43,937		46,174
Other interest income		986		1,149		1,851		2,604
Total interest income		93,604		103,450		190,349		210,794
INTEREST EXPENSE
Deposits		12,182		16,045		23,457		32,578
Long-term borrowings		6,741		9,123		13,929		16,834
Other borrowings		2,799		4,478		5,710		11,411
Total interest expense		21,722		29,646		43,096		60,823
Net interest income		71,882		73,804		147,253		149,971
Provision for loan and lease losses		2,000		6,700		4,000		13,195
Net interest income after provision for loan and lease losses		69,882		67,104		143,253		136,776
NON-INTEREST INCOME
Insurance commissions and fees		32,916		27,945		67,497		58,587
Rental revenues on operating leases		2,665		1,234		4,982		2,111
Service charges and other fees		2,624		2,995		5,247		5,826
Gain on sale of securities, net		2,117		3,136		3,283		5,159
Loan and international banking fees		2,026		2,421		4,000		4,459
Trust fees		974		819		1,825		1,576
Gain on sale of loans		635		364		1,035		1,907
ATM network revenue		333		445		693		851
Other income		2,335		2,962		5,536		6,609
Total non-interest income		46,625		42,321		94,098		87,085
OPERATING EXPENSES
Compensation and benefits		45,626		42,001		95,210		87,433
Occupancy and equipment		10,251		10,171		20,456		19,813
Amortization of intangibles		2,072		1,671		4,143		3,342
Dividends paid on preferred stock of real estate investment trusts		456		454		912		907
Other expenses		18,670		17,949		36,398		34,093
Total operating expenses		77,075		72,246		157,119		145,588
Income before provision for income taxes		39,432		37,179		80,232		78,273
Provision for income taxes		14,899		14,054		30,847		30,051
Net income	$	24,533	$	23,125	$	49,385	$	48,222
Net income per common share - basic	$	0.45	$	0.42	$	0.89	$	0.87
Net income per common share - diluted	$	0.43	$	0.41	$	0.86	$	0.86
Cash dividends per share of common stock	$	0.1425	$	0.1350	$	0.2850	$	0.2700

See notes to consolidated financial statements.

2

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2004			2003			2004			2003
Net income	$	24,533		$	23,125		$	49,385		$	48,222
Other comprehensive income/(loss):
Unrealized net gains/(losses) on securities:
Unrealized net holding gains/(losses) arising during period (net of taxes of $(29,003,000) and $6,316,000 for the three months ended June 30, 2004 and 2003, and $(20,377,000) and $3,690,000 for the six months ended June 30, 2004 and 2003, resepectively)		(39,969	)		8,704			(28,082	)		5,085
Less: reclassification adjustment for net gains included in net income, net of income taxes		(1,227	)		(1,817	)		(1,902	)		(2,989	)
Net change		(41,196	)		6,887			(29,984	)		2,096
Cash flow hedge:
Net gains arising during period (net of taxes of $669,000 and $(317,000) for the three months ended June 30, 2004 and 2003, and $630,000 and $(258,000) for the six months ended June 30, 2004 and 2003, respectively)		923			(437	)		868			(355	)
Less: reclassification adjustment for income included in net income, net of income taxes		(622	)		—			(567	)		—
Net change		301			(437	)		301			(355	)
Other comprehensive income/(loss)		(40,895	)		6,450			(29,683	)		1,741
Comprehensive income/(loss)	$	(16,362	)	$	29,575		$	19,702		$	49,963

See notes to consolidated financial statements.

3

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

For the periods indicated (Dollars in thousands, except per share amounts)	Common stock					Unearned compensation			Accumulated other comprehensive income / (loss)			Retained earnings			Convertible preferred stock amount			Total shareholders’ equity
	Shares		Amount
Balance, December 31, 2003	52,529,850		$	252,650		$	(344	)	$	209		$	406,250		$	91,752		$	750,517
Net income	—			—			—			—			49,385			—			49,385
Other comprehensive loss, net of taxes	—			—			—			(29,683	)		—			—			(29,683	)
7.25% convertible preferred stock issued in purchase accounting transaction - valuation adjustment	—			—			—			—			—			298			298
Conversion of convertible preferred stock	4,175			126			—			—			—			(126	)		—
Stock options exercised, including related tax benefits	299,589			9,603			—			—			—			—			9,603
Restricted stock grants	44,200			2,107			(1,843	)		—			—			—			264
Stock issued in Employee Stock Purchase Plan	76,473			1,687			—			—			—			—			1,687
Stock issued in Dividend Reinvestment Plan	14,188			396			—			—			—			—			396
Stock repurchased	(1,791,273	)		(9,911	)		—			—			(39,600	)		—			(49,511	)
Cash dividend on convertible preferred series B	—			—			—			—			(3,306	)		—			(3,306	)
Cash dividend $0.2850 per share of common stock	—			—			—			—			(14,610	)		—			(14,610	)
Balance, June 30, 2004	51,177,202		$	256,658		$	(2,187	)	$	(29,474	)	$	398,119		$	91,924		$	715,040
Balance, December 31, 2002	51,577,795		$	234,627		$	(1,450	)	$	18,624		$	348,358		$	80,900		$	681,059
Net income	—			—			—			—			48,222			—			48,222
Other comprehensive income, net of taxes	—			—			—			1,741			—			—			1,741
7.25% convertible preferred stock issued in purchase accounting transaction - valuation adjustment	—			—			—			—			—			(459	)		(459	)
Stock options exercised, including related tax benefits	226,583			2,257			—			—			—			—			2,257
Restricted stock grants	15,000			520			715			—			—			—			1,235
Stock issued in Employee Stock Purchase Plan	140,356			1,809			—			—			—			—			1,809
Stock issued in Dividend Reinvestment Plan	23,130			423			—			—			—			—			423
Cash dividend on convertible preferred series B	—			—			—			—			(2,956	)		—			(2,956	)
Cash dividend $0.2700 per share of common stock	—			—			—			—			(14,036	)		—			(14,036	)
Balance, June 30, 2003	51,982,864		$	239,636		$	(735	)	$	20,365		$	379,588		$	80,441		$	719,295

See notes to consolidated financial statements.

4

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended June 30,
(Dollars in thousands)	2004			2003
Cash flows - operating activities
Net income	$	49,385		$	48,222
Reconcilement of net income to net cash from operations:
Provision for loan and lease losses		4,000			13,195
Depreciation and amortization		9,285			15,871
Amortization of intangible assets		4,143			3,342
Accretion of discount on CODES		563			812
Deferred income taxes		2,281			(172	)
Loss (gain) on sale of other real estate owned		328			(98	)
Gain on sale of loans		(1,035	)		(1,907	)
Gain on sale of securities, net		(3,283	)		(5,159	)
Changes in assets and liabilities:
Accrued interest receivable and other assets		(42,915	)		(28,924	)
Accrued interest payable and other liabilities		(2,350	)		16,360
Deferred loan fees and discounts, net		(1,012	)		(2,352	)
Operating cash flows, net		19,390			59,190
Cash flows - investing activities
Maturities and partial paydowns on securities:
Available for sale		455,260			1,264,480
Purchase of securities:
Available for sale		(844,931	)		(1,564,606	)
Held to maturity		(66,355	)		—
Other securities		(1,251	)		(560	)
Proceeds from sale of securities available for sale		369,721			312,494
Proceeds from sale of other securities		12,010			26,358
Loans, net		58,645			57,199
Proceeds from sale of portfolio loans		25,409			17,953
Payment for business acquisition		(28	)		(1,883	)
Proceeds from sale of other real estate owned		3,227			495
Purchase of property, premises and equipment		(15,136	)		(5,712	)
Purchase of bank owned life insurance policies		(5,730	)		(7,718	)
Investing cash flows, net		(9,159	)		98,500

5

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) (CONTINUED)

	Six months ended June 30,
(Dollars in thousands)	2004			2003
Cash flows - financing activities
Net change in deposits		(5,755	)		275,978
Net change in borrowings - short-term		18,000			(541,705	)
Proceeds from borrowings - long-term		240,704			147,924
Principal repayment for borrowings - long-term		(218,813	)		(48,901	)
Repurchase of common stock		(49,511	)		—
Proceeds from sale of common stock		11,686			5,724
Cash dividends on convertible preferred stock		(3,306	)		(2,956	)
Cash dividends on common stock		(14,610	)		(14,036	)
Financing cash flows, net		(21,605	)		(177,972	)
Net change in cash and cash equivalents		(11,374	)		(20,282	)
Cash and cash equivalents at beginning of period		275,891			314,514
Cash and cash equivalents at end of period	$	264,517		$	294,232
Cash flows - supplemental disclosures
Cash paid during the period for:
Interest	$	42,256		$	64,121
Income taxes	$	26,186		$	11,728
Non-cash transactions:
Additions to other real estate owned	$	3,555		$	2,500

See notes to consolidated financial statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Consolidated Balance Sheet as of June 30, 2004, and the Consolidated Statements of Operations and Comprehensive Income for the three months and six months ended June 30, 2004 and Consolidated Statements of Cash Flows and Shareholders’ Equity for the six months ended June 30, 2004 have been prepared by Greater Bay Bancorp and are not audited. The interim financial data as of June 30, 2004 is unaudited; however, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for the three months and six months ended June 30, 2004 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 2004.

Organization and Nature of Operations

Greater Bay Bancorp is a financial holding company with one bank subsidiary, Greater Bay Bank, National Association, referred to as the Bank, and one commercial insurance brokerage subsidiary, ABD Insurance and Financial Services, referred to as ABD. The Bank conducts business through the following operating divisions: 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, San Jose National Bank, CAPCO, Greater Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Carmel, Greater Bay Bank Marin, Greater Bay Bank SBA Lending Group, Greater Bay Capital, Corporate Finance, Greater Bay International Banking Division, Greater Bay Trust Company, Matsco, Pacific Business Funding and the Venture Banking Group.

On February 1, 2004, we completed the merger of ten bank subsidiaries into the Bank, formerly Mid-Peninsula Bank. We also merged MPB Investment Trust and SJNB Investment Trust into CNB Investment Trust I which is a subsidiary of the Bank. These mergers did not impact which entities are included in our consolidated balance sheets and statements of operations or require a restatement of previously reported results.

CNB Investment Trust I, along with its subsidiary, CNB Investment Trust II, together referred to as the REITs, were formed in order to provide flexibility in raising capital.

We provide a wide range of commercial banking and financial services to small and medium-sized businesses, property managers, business executives, real estate developers, 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. ABD also owns a broker-dealer that executes mutual fund transactions on behalf of clients’ employee benefit plans. CAPCO, which offers asset-based lending and accounts receivable factoring products, is located in Bellevue, Washington and it operates in the Pacific Northwest. Greater Bay Capital finances equipment leases and is located in the Chicago, Illinois area. Matsco markets its dental and veterinarian financing services nationally.

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of our holding company, its subsidiaries and operating divisions. All significant intercompany transactions and balances have been eliminated. Our accounting and reporting policies conform to generally accepted accounting principles, or GAAP, applicable in the United States, and the prevailing practices within the banking industry.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Income

Statement of Financial Accounting Standards, or 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 were as follows for the periods indicated:

(Dollars in thousands)	Unrealized gains (losses) on securities			Cash flow hedges			Accumulated other comprehensive income (loss)
Balance - March 31, 2004	$	11,421		$	—		$	11,421
Current period change in fair value		(41,196	)		301			(40,895	)
Balance - June 30, 2004	$	(29,775	)	$	301		$	(29,474	)
Balance - March 31, 2003	$	14,205		$	(290	)	$	13,915
Period change in fair value		6,887			(437	)		6,450
Balance - June 30, 2003	$	21,092		$	(727	)	$	20,365
(Dollars in thousands)	Unrealized gains (losses) on securities			Cash flow hedges			Accumulated other comprehensive income (loss)
Balance - December 31, 2003	$	209		$	—		$	209
Current period change in fair value		(29,984	)		301			(29,683	)
Balance - June 30, 2004	$	(29,775	)	$	301		$	(29,474	)
Balance - December 31, 2002	$	18,996		$	(372	)	$	18,624
Period change in fair value		2,096			(355	)		1,741
Balance - June 30, 2003	$	21,092		$	(727	)	$	20,365

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

Stock-Based Compensation

Under the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” we are encouraged, but not required, to measure compensation costs related to our employee stock compensation plans under the fair value method. Because 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 and No. 148 fair value methodology.

We apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, in our accounting for our stock option plan and our employee stock purchase plan. Accordingly, no compensation cost has been recognized for stock options granted from our stock option plan as the exercise price of the options are granted at fair value of the underlying common stock on the date of grant. We record compensation costs for our restricted stock grants over the vesting period of the grants based on the fair value of the underlying common stock on the date of grant.

If compensation for our stock option plan had been determined consistent with SFAS No. 123 and No. 148, our net income per common share would have been reduced to the pro forma amounts indicated below:

(Dollars in thousands, except per share amounts)	Three months ended June 30,				Six months ended June 30,
	2004		2003		2004		2003
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	$	1,446	$	1,294	$	2,840	$	2,634
Net income:
As reported	$	24,533	$	23,125	$	49,385	$	48,222
Pro forma	$	23,087	$	21,831	$	46,545	$	45,588
Basic net income per common share:
As reported	$	0.45	$	0.42	$	0.89	$	0.87
Pro forma	$	0.42	$	0.39	$	0.83	$	0.82
Diluted net income per common share:
As reported	$	0.43	$	0.41	$	0.86	$	0.86
Pro forma	$	0.41	$	0.39	$	0.81	$	0.81

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

The fair value of each stock-based compensation grant is determined as of the date of the grant. The fair values for our stock-based compensation plans are estimated using the Black-Scholes option-pricing model with the following weighted average assumptions during the periods indicated:

	Three months ended June 30,				Six months ended June 30,
	2004		2003		2004		2003
Stock option plan:
Dividend yield	2.0	%	3.1	%	2.0	%	3.3	%
Expected volatility	42.7	%	44.8	%	43.0	%	45.0	%
Risk free rates	3.9	%	2.6	%	3.3	%	2.8	%
Weighted average expected life (in years)	5.86		5.75		5.80		5.75
Employee stock purchase plan:
Dividend yield	2.0	%	2.8	%	2.0	%	2.5	%
Expected volatility	32.9	%	43.5	%	31.1	%	44.6	%
Risk free rates	1.8	%	1.2	%	1.7	%	1.4	%
Weighted average expected life (in years)	0.25		0.25		0.25		0.25

No adjustments have been made for forfeitures. The actual value, if any, that the beneficiary will realize from these stock-based compensation plans will depend solely on the increase in the common share stock price over the option price when the options are exercised or the purchase price when the shares are purchased.

NOTE 2—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets by business segment were as follows at the dates indicated:

	June 30, 2004				December 31, 2003
(Dollars in thousands)	Goodwill		Other intangible assets		Goodwill		Other intangible assets
Community banking	$	2,360	$	1,408	$	2,360	$	1,760
Holding company		—		464		—		—
Specialty finance:
Matsco		21,207		—		21,207		—
CAPCO		6,054		80		6,054		100
Total specialty finance		27,261		80		27,261		100
Insurance brokerage services:
ABD		143,131		35,568		142,805		38,859
Sullivan & Curtis Insurance Brokers		5,565		6,024		5,565		6,519
Total insurance brokerage services		148,696		41,592		148,370		45,378
Total	$	178,317	$	43,544	$	177,991	$	47,238

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

Based on ABD achieving its specified performance goals for 2003, we accrued for ABD’s estimated 2003 earn-out payment as of December 31, 2003. The accrual resulted in a $25.9 million increase to goodwill recorded for this transaction based on issuing to ABD’s former shareholders approximately 195,000 shares (subject to adjustment) of convertible preferred stock. During the first quarter of 2004, we finalized procedures to determine the exact amount of the 2003 ABD earn-out payment. As a result of the final determination of the 2003 earn-out payment, we increased goodwill by $326,000 due to a stock valuation adjustment and increased the number of shares of convertible preferred stock issued by 89 shares.

SFAS No. 142, “Goodwill and Other Intangible Assets” requires an analysis of impairment of goodwill annually or more frequently upon the occurrence of certain events. During 2003, we completed the required annual impairment test of goodwill. Based upon our evaluation, our goodwill was not impaired at December 31, 2003.

All of our other intangible assets have finite useful lives. We have no indefinite lived intangible assets other than goodwill. Other intangible assets at June 30, 2004 were as follows:

(Dollars in thousands)	Gross carrying amount		Accumulated amortization			Total
ABD expirations	$	50,375	$	(14,807	)	$	35,568
S&C expirations		6,306		(788	)		5,518
Servicing assets		2,245		(892	)		1,353
Other covenant not to compete		774		(310	)		464
S&C covenants not to compete		708		(202	)		506
CAPCO customer base		200		(120	)		80
Core deposits		1,465		(1,410	)		55
Total intangible assets	$	62,073	$	(18,529	)	$	43,544

As of June 30, 2004, the balance of unamortized expirations recorded in connection with the acquisitions of ABD and Sullivan & Curtis Insurance Brokers of Washington, or S&C, was $41.1 million. Expirations represent the estimated fair value of the existing customer lists (books of business) that had been developed over a period of years through the date of acquisition. The expirations are estimated to have a life of approximately eight years. Amortization for intangibles for 2004 and each of the next five years is estimated to range between $5.8 million and $7.3 million per year.

Sale and Servicing of Small Business Administration Loans

We originate loans to customers under Small Business Administration, or SBA, programs that generally provide for SBA guarantees of 70% to 90% of each loan. We have the ability to sell the guaranteed portion of these loans to investors 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.

SBA loans are sold with servicing retained. 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 based upon their relative fair values. 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. All other loan sales are servicing released.

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

As of June 30, 2004, servicing assets, net of accumulated amortization, were $1.4 million as compared to $1.7 million as of December 31, 2003. We periodically evaluate servicing assets for impairment. We use industry prepayment statistics in estimating the expected life of the loans. The loans sold to generate the servicing assets were predominately originated from the same SBA program, with similar terms in regards to interest rate index and term to maturity. As the loans related to the servicing asset are homogeneous in nature, servicing assets are evaluated for impairment using a single strata based upon the fair value of the rights as compared to amortized cost. Fair value is determined using discounted forecast cash flows. Impairment to the asset is recorded if the aggregate fair value calculation drops below net book value of the asset.

NOTE 3—SECURITIES

During the second quarter of 2004, we transferred a portion of our available for sale securities portfolio to the held to maturity category. The amortized cost of these securities at the time of transfer was $433.2 million and the securities had unrealized losses of $5.4 million at the time of transfer. The net unrealized loss at the time of the transfer is reported as a component of the cost basis of these securities and was reflected as a decrease to other comprehensive income in shareholders’ equity, net of deferred taxes. The net unrealized losses are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method.

At its November 2003 meeting, the Emerging Issues Task Force, or EITF, of the Financial Accounting Standard Board, or FASB, reached a consensus requiring certain disclosures for impaired securities as described in EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” Any security for which the current fair value is less than the carrying value is considered impaired. On a quarterly basis, we evaluate all impaired securities to determine if the impairments are other-than-temporary. For those securities which we identify as having an other-than-temporary impairment, the loss is reported as a reduction in current period income. For all other temporary impairments, the current period unrealized losses are recorded in other comprehensive income.

As of June 30, 2004, we had temporarily impaired securities with a fair value of $1.6 billion and unrealized losses of $44.3 million. Securities that are not impaired had a fair value of $638.5 million and unrealized gains of $3.6 million at June 30, 2004. The following table presents the fair value and unrealized loss positions of our temporarily impaired securities, categorized by whether the securities have been impaired for less than 12 months or if they have been impaired for 12 months or more as of June 30, 2004.

	Less than 12 months					12 months or longer					Total
As of June 30, 2004 (Dollars in thousands)	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Duration (years)
Available for sale securities:
U.S. agency notes	$	60,577	$	(2,131	)	$	—	$	—		$	60,577	$	(2,131	)	5.0
Mortgage and mortgage related securities		1,294,644		(40,240	)		—		—			1,294,644		(40,240	)	3.2
Corporate securities		8,521		(479	)		871		(129	)		9,392		(608	)	2.8
Total available for sale securities		1,363,742		(42,850	)		871		(129	)		1,364,613		(42,979	)	3.2
Held to maturity securities:
U.S. Treasury obligations		22,890		(7	)		—		—			22,890		(7	)	0.1
U.S. agency notes		167,722		(290	)		—		—			167,722		(290	)	4.2
Tax-exempt securities		2,721		(10	)		—		—			2,721		(10	)	3.0
Corporate securities		54,124		(1,039	)		—		—			54,124		(1,039	)	2.2
Total held to maturity securities		247,457		(1,346	)		—		—			247,457		(1,346	)	3.9
Total temporarily impaired securities	$	1,611,199	$	(44,196	)	$	871	$	(129	)	$	1,612,070	$	(44,325	)	3.3

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

U.S. Treasury obligations, U.S. agency notes, tax-exempt notes and mortgage and mortgage related securities, or MBS, are impaired due to temporary declines in fair values resulting from increases in market interest rates. As of June 30, 2004, there are 105 temporarily impaired securities in these categories, all of which have been impaired for less than 12 months. None of the securities in these categories has exhibited a decline in value as a result of changes in credit risk. The majority of these temporary declines in fair values are in the MBS category. Although the MBS have contractual maturities of up to 30 years, these securities are subject to prepayments, and our analysis indicates that the expected duration for these securities is approximately 3.2 years. Our analysis also indicates that the MBS are forecasted to recover their fair value up to their cost in a period comparable to the expected duration.

The impaired corporate securities are primarily comprised of trust preferred securities issued by other banks. There are seven impaired securities in this category, one of which has been impaired for more than 12 months. While some of these securities have exhibited nominal increases in credit risk since purchase, the majority of these securities have exhibited an improved credit profile. Management closely monitors all of our investments in trust preferred securities for changes in credit risk. We do not believe any increases in the credit risk attributable to these securities has given rise to an other-than-temporary impairment. We believe that the primary reason for the temporary impairment of these securities is the result of increases in market interest rates combined with the more complex nature of these securities which results in a more limited resale market. Furthermore, since the purchase of these securities, newer issues of trust preferred securities have been structured on terms more desirable to investors. This has also had a negative impact on the demand for the trust preferred securities in which we have invested and therefore impacts the fair values of these securities. Despite the limitations on the marketability of these securities, our analysis indicates that the expected duration for these securities is approximately 2.2 years. Our analysis also indicates that the corporate securities are forecasted to recover their fair value up to their cost in a period comparable to the expected duration.

Our liquidity and asset/liability planning assumes that we will hold all of the impaired securities for their expected duration, and, therefore, management has determined that we have the intent and ability to hold these securities for the period of time necessary to recover their fair value. Therefore, we do not expect to realize losses on any of these securities. As such, management considers the impairments on these securities to be temporary.

NOTE 4—BORROWINGS

Borrowings are detailed as follows at the dates indicated:

(Dollars in thousands)	June 30, 2004		December 31, 2003
Short-term borrowings:
FHLB advances	$	660,000	$	642,000
Securities sold under agreements to repurchase		20,000		20,000
Total short-term borrowings		680,000		662,000
Long-term borrowings:
Zero Coupon Senior Convertible Contingent Debt Securities		240,998		75,229
Subordinated debt		210,311		210,311
5.25% Senior Notes, Series B due March 31, 2008		147,083		151,048
FHLB advances		39,999		150,632
Term loan		—		28,500
Other long-term notes payable		4,254		4,471
Total long-term borrowings		642,645		620,191
Total borrowings	$	1,322,645	$	1,282,191

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

Short-term borrowings

During the six months ended June 30, 2004 and the year ended December 31, 2003, the average balances of short-term Federal Home Loan Bank, or FHLB, advances were $724.8 million and $822.7 million, respectively, and the average interest rates during those periods were 1.52% and 2.00%, respectively. The interest rate on short-term FHLB advances outstanding as of June 30, 2004 was 1.76%, compared to 1.80% as of December 31, 2003. The maximum amounts outstanding at any month-end were $797.0 million during the six months ended June 30, 2004 and $1.1 billion during the year ended December 31, 2003. The FHLB advances are collateralized by loans and securities pledged to the FHLB. We had securities with a carrying value of $1.3 billion at June 30, 2004 and $1.3 billion at December 31, 2003 and loans with a carrying value of $250.8 million at June 30, 2004 and $274.3 million at December 31, 2003 pledged to the FHLB for both short-term and long-term borrowings.

During the six months ended June 30, 2004 and the year ended December 31, 2003, the average balances of securities sold under short-term agreements to repurchase were $20.0 million and $72.0 million, respectively, and the average interest rates during those periods were 3.71% and 2.39%, respectively. The interest rate on the agreements outstanding as of both June 30, 2004 and December 31, 2003 was 3.71%. The maximum amounts outstanding at any month-end were $20.0 million during the six months ended June 30, 2004 and $114.3 million during the year ended December 31, 2003. Securities sold under short-term agreements to repurchase generally mature within 90 days of dates of purchase.

There were no outstanding federal funds purchased at any time during the six month period ended June 30, 2004. During the year ended December 31, 2003, the average balance of federal funds purchased was $1.6 million, and the average interest rate during that period was 1.82%. The maximum amount outstanding at any month-end was $0 during the six months ended June 30, 2004 and $10.0 million during the year ended December 31, 2003. There was no balance outstanding at December 31, 2003.

As of June 30, 2004, our holding company had a short-term, unsecured credit facility totaling $95.0 million. As of December 31, 2003, we had $60.0 million available under this credit facility. At June 30, 2004 and December 31, 2003, we had no advances outstanding under this facility. The credit facility provides for an interest rate based on LIBOR plus 0.875%. The credit facility requires compliance with certain debt covenants, including (a) prohibitions on the imposition of any encumbrance or lien on certain of our properties; (b) the merger or consolidation of Greater Bay Bancorp or any of our subsidiaries with any other person, subject to certain exceptions; (c) incurrence of additional debt; and (d) the maintenance of certain capital and financial performance ratios. We are in compliance with all related financial covenants for this credit facility. During the six months ended June 30, 2004 and the year ended December 31, 2003, there were no average balances outstanding under this credit facility. There were no amounts outstanding at any month-end during the six months ended June 30, 2004 and the year ended December 31, 2003.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

Zero Coupon Senior Convertible Contingent Debt Securities, or CODES

CODES due 2024

As of June 30, 2004, 265,212 units of the CODES issued in 2004 and due in 2024, or the CODES due 2024, are outstanding with a carrying value of $240.3 million. We received approximately $234.0 million in net proceeds on origination of the CODES due 2024 during the quarter ended March 31, 2004 through a private placement. Each unit of the CODES due 2024 has a $1,000 principal amount at maturity and has an accreted value of $906.16 per unit as of June 30, 2004. The CODES due 2024 have a yield to maturity of 0.50%, are callable after five years and have a put right at March 23, 2006, 2009, 2014 and 2019. The CODES due 2024 are convertible into 6,300,960 shares of our common stock at a rate of 23.7582 shares of our common stock per unit of CODES due 2024 contingent under certain circumstances. This conversion rate is adjusted based on several factors, including increases in the dividend rate on our common stock. As a result of the quarterly dividend declared by our Board of Directors to our shareholders of record on April 5, 2004, we are carrying forward an adjustment to the conversion rate which will result in a new conversion rate of 23.7644 per unit of CODES at the time such adjustment is required to be made. Upon conversion, the CODES due 2024 can be settled in either cash or our common stock. We have entered into a registration rights agreement with the initial purchaser, in which we agreed to register with the Securities Exchange Commission, or SEC, the CODES due 2024 and the underlying stock for resale by September 23, 2004. On May 26, 2004, we filed a registration statement with the SEC. If the registration statement is not declared effective by the SEC by September 23, 2004, we will be required to pay additional interest on the CODES at a rate of 0.25% per year until the SEC declares the registration statement effective.

CODES due 2022

As of June 30, 2004, 1,000 units of the CODES issued in 2002 and due in 2022, or the CODES due 2022, are outstanding with a carrying value of $668,000. Each unit of the CODES due 2022 has a $1,000 principal amount at maturity and has an accreted value of $668.49 per unit as of June 30, 2004. The CODES due 2022 have a yield to maturity of 2.25%, are callable after five years and have a put right at April 24, 2007, 2012 and 2017. The CODES due 2022 are convertible into 15,370 shares of our common stock at a rate of 15.3699 shares of our common stock per unit of CODES due 2022 contingent on certain circumstances. Upon conversion, the CODES due 2022 can only be settled in our common stock.

During the quarter ended June 30, 2004, certain holders of the CODES due 2022 exercised their put right and, as a result, we repurchased 112,377 units of the CODES due 2022 with an accreted value of $75.1 million. The CODES due 2022 were repurchased at their accreted value, and we did not recognize any gain or loss on this transaction.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

Contingent Conversion Features

Each issue of CODES is contingently convertible under any one of the following circumstances:

• For the CODES due 2024, during any fiscal quarter, if the sale price of our common stock for a period of at least 20 trading days in the period of 30 consecutive trading days ending on the last day of the preceding fiscal quarter is more than 120% of the accreted conversion price on that thirtieth day;

• For the CODES due 2022, during any quarterly conversion period, if the closing sale price of our common stock for a period of at least 20 trading days in the period of 30 consecutive trading days ending on the first day of that conversion period is more than 120% of the accreted conversion price per share of common stock for the series of CODES on that thirtieth day;

• For the CODES due 2024, during the five business day period following any 10 consecutive trading day period in which the average of the trading prices for the CODES due 2024 was less than 98% of the average conversion value for the CODES due 2024 during that period, subject to certain limitations;

• For the CODES due 2022, during the five business day period following any 10 consecutive trading day period in which the average of the trading prices for the CODES due 2022 was less than 105% of the average conversion value for the CODES due 2022 during that period;

• During any period following the 30th day after the initial issuance of the CODES in which the credit rating assigned to the CODES by either Moody’s or Standard & Poor’s is below Ba3 or BB-, respectively, in which the credit rating assigned to the CODES is suspended or withdrawn by either rating agency or in which neither rating agency is rating the CODES or providing ratings services coverage to us;

• If the CODES have been called for redemption; or

• Upon the occurrence of specified corporate transactions.

NOTE 5—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Cash Flow Hedges

We use an interest rate swap to convert floating-rate debt to fixed-rate debt. We entered into a swap, with a notional amount of $30.0 million and a term of 10 years expiring on September 15, 2008, with the intention of fixing the interest payments on the subordinated debt issued to 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 indexed to rates paid on the instrument and a notional amount equal to the amount of the instrument being hedged. On October 1, 2002, we elected to assert 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 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.

For the three months and six months ended June 30, 2004, we recognized income of $1.1 million and $979,000, respectively, which represented ineffectiveness of cash flow hedges. There were no such gains or losses during the same period of 2003. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

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

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

Fair Value Hedges

We use an interest rate swap to convert fixed-rate debt to floating-rate debt. We entered into a swap, with a notional amount of $150.0 million expiring on March 31, 2008, with the intention of hedging the variability of the fair value of the 5.25% Senior Notes, Series B. This derivative instrument possesses a term equal to the term of the hedged instrument, with 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, “Accounting for Derivative Instruments and Hedging Activities”, SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement No. 133)” and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” As such, the derivative instrument was assumed to be 100% effective and all changes in the fair value of the hedge were recorded in current-period earnings together with the offsetting change in fair value of the hedged item attributable to the risk being hedged with no impact on the income statement for any ineffective portion through June 30, 2004.

Trading and Non-Hedging Activities

We also entered into an interest rate collar to reduce the embedded cap in trust preferred securities issued by GBB Capital VI. We entered into the interest rate cap, with a notional amount of $15.0 million and a term of 10 years expiring in July 2011, with the intention of lowering the cap of the interest payments on these trust preferred securities. 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.

NOTE 6—COMMON STOCK

On June 23, 2004, we declared a cash dividend of $0.1425 cents per common share payable on July 15, 2004 to shareholders of record as of July 2, 2004.

On March 17, 2004, we announced a share repurchase program that authorized the purchase of up to $70.0 million in common stock from time-to-time in privately negotiated transactions and in the open market. The repurchase program is currently in effect and does not have an expiration date. During the first quarter of 2004, we repurchased 1,695,273 shares of common stock with a total market value of $46.8 million. During the second quarter of 2004, we repurchased an additional 96,000 shares of common stock with a total market value of $2.7 million. In both transactions, the purchase price of the stock was allocated between common stock and retained earnings. The portion of the purchase price allocated to common stock was limited to the prorata portion of common stock paid in, with the remainder of the purchase price allocated to retained earnings. The shares are available for reissuance at any time in the future. For the shares repurchased during the first quarter of 2004, the source of cash used was the proceeds from the CODES issued during the first quarter of 2004. For the shares repurchased during the second quarter of 2004, the source of cash used was available cash. Currently, there remains $20.5 million of share repurchase capacity under the $70.0 million share repurchase program.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

NOTE 7—INCOME TAXES

In the fourth quarter of 2001, we formed CNB Investment Trust II, which elected to be taxed as a real estate investment trust, or REIT, and sold preferred stock of CNB Investment Trust II for $15.0 million in order to raise capital. The sale of the preferred stock resulted in a one-time $34.0 million loss for income tax purposes and a corresponding $11.4 million permanent reduction in 2001 income tax expense.

During the second quarter of 2004, the Internal Revenue Service requested information concerning the reported 2001 tax loss from the sale of CNB Investment Trust II’s preferred stock in connection with its ongoing examination of the 2000 and 2001 tax years. Due to this inquiry, we believe that there is a reasonable possibility that the Internal Revenue Service may seek to adjust some portion or all of the loss we deducted in connection with the sale of the CNB Investment Trust II preferred stock. We believe that the loss deduction has merit and we would vigorously contest any proposed disallowance of such tax benefits in appropriate proceedings, if necessary. Should the Internal Revenue Service successfully challenge the validity of our loss deduction, incremental taxes would be reported in income tax expense in the period such a decision is reached, or earlier if we determine that such an outcome is probable and estimable. While we do not believe it is probable that a loss has been incurred, we cannot determine, at this time, the eventual outcome, timing or impact of this matter.

In 2001 we also formed CNB Investment Trust I, which elected to be taxed as a REIT. CNB Investment Trust I engaged in consent dividends under the federal REIT rules in 2001 and 2002 and deducted such consent dividends for both federal and California tax purposes. From inception of the REITs through June 30, 2004, we have recognized a tax benefit of $1.9 million on these consent dividends. The California Franchise Tax Board subsequently took the position that consent dividends are not deductible for California franchise and income tax purposes. We filed amended California tax returns for 2001 and 2002 and paid additional taxes and interest in accordance with the position of the Franchise Tax Board. We believe that the California tax benefits claimed with respect to the consent dividends have merit and we intend to vigorously contest the position of the Franchise Tax Board in appropriate proceedings if necessary. Should we prevail in our position, a financial statement tax benefit may be recognized in the period in which the issue is resolved. Should the California Franchise Tax Board successfully challenge the validity of our position, incremental taxes would be reported in income tax expense in the period that such a decision is reached, or earlier if we determine that such an outcome is probable and estimable.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

NOTE 8—EARNINGS PER COMMON SHARE

Basic net income per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income available to common shareholders and assumed conversions by the weighted average number of common shares plus common equivalent shares outstanding including dilutive stock options and convertible preferred stock. The following table provides a reconciliation of the numerators and denominators of the basic and diluted net income per common share computations for the periods indicated:

	For the three months ended June 30, 2004
(Dollars in thousands, except per share amounts)	Income (numerator)			Shares (denominator)	Per share amount
Basic net income per common share:
Net income	$	24,533
Dividends on preferred stock		(1,653	)
Income available to common shareholders		22,880		51,108,000	$	0.45
Effect of dilutive securities:
Stock options		—		1,505,000
Diluted net income per common share:
Income available to common shareholders and assumed conversions	$	22,880		52,613,000	$	0.43

	For the three months ended June 30, 2003
(Dollars in thousands, except per share amounts)	Income (numerator)			Shares (denominator)	Per share amount
Basic net income per common share:
Net income	$	23,125
Dividends on preferred stock		(1,478	)
Income available to common shareholders		21,647		51,925,000	$	0.42
Effect of dilutive securities:
Stock options		—		820,000
Diluted net income per common share:
Income available to common shareholders and assumed conversions	$	21,647		52,745,000	$	0.41

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

	For the six months ended June 30, 2004
(Dollars in thousands, except per share amounts)	Income (numerator)			Shares (denominator)	Per share amount
Basic net income per common share:
Net income	$	49,385
Dividends on preferred stock		(3,306	)
Income available to common shareholders		46,079		51,881,000	$	0.89
Effect of dilutive securities:
Stock options		—		1,554,000
Diluted net income per common share:
Income available to common shareholders and assumed conversions	$	46,079		53,435,000	$	0.86

	For the six months ended June 30, 2003
(Dollars in thousands, except per share amounts)	Income (numerator)			Shares (denominator)	Per share amount
Basic net income per common share:
Net income	$	48,222
Dividends on preferred stock		(2,956	)
Income available to common shareholders		45,266		51,831,000	$	0.87
Effect of dilutive securities:
Stock options		—		589,000
Diluted net income per common share:
Income available to common shareholders and assumed conversions	$	45,266		52,420,000	$	0.86

There were options outstanding to purchase 1,712,814 shares and 3,944,139 shares during the three months ended June 30, 2004 and 2003, respectively, that were considered anti-dilutive whereby the options’ exercise price was greater than the average market price of the common stock. As such, these options are not included in the share totals for purposes of computing basic or diluted net income per share.

There were options outstanding to purchase 1,712,814 shares and 4,259,555 shares during the six months ended June 30, 2004 and 2003, respectively, that were considered anti-dilutive whereby the options’ exercise price was greater than the average market price of the common stock. As such, these options are not included in the share totals for purposes of computing basic or diluted net income per share.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

The convertible preferred stock was considered anti-dilutive in the second quarter of 2004 and 2003 and during the six months ended June 30, 2004 and 2003, whereby the preferred dividends of $1.7 million and $3.3 million for the quarter and year to date, respectively, divided by the common stock equivalent of the convertible preferred stock of 3,043,000 shares for both the second quarter of 2004 and the six months ended June 30, 2004 were greater than the diluted earnings per common share. As such, these convertible preferred shares are not included in the share totals for purposes of computing basic or diluted net income per share. The convertible preferred stock was considered anti-dilutive in the second quarter of 2003 and the six months ended June 30, 2003, whereby the preferred dividends of $1.5 million and $3.0 million for the quarter and year to date divided by the common stock equivalent of the convertible preferred stock of 2,785,000 shares and 2,751,000 shares for the second quarter of 2003 and the six months ended June 30, 2003, respectively, were greater than the diluted earnings per common share.

The CODES due 2022 and the CODES due 2024 were not included in the share totals for purposes of computing basic or diluted net income per share in the second quarter of 2004 and 2003 and the six months ended June 30, 2004 and 2003, whereby we have determined that the contingent conditions required for the conversion of these securities into common stock have not been met during any of these periods. See Note 4 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for a description of the contingent conditions required for the conversion of these securities. If the contingent conditions required for the conversion of these securities had been met as of June 30, 2004, the CODES due 2022 would have been convertible into 15,370 shares of our common stock and the CODES due 2024 would have been convertible into 6,300,960 shares of our common stock and those shares would have been included as a dilutive security for purposes of calculating diluted net income per share. If the contingent conditions required for the conversion of these securities had been met as of June 30, 2003, the CODES due 2022 would have been convertible into 1,742,593 shares of our common stock. There were no CODES due 2024 outstanding as of June 30, 2003. See Note 14 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for a description of proposed accounting changes affecting how the CODES would be treated in the calculation of diluted earnings per share.

NOTE 9—ACTIVITY OF BUSINESS SEGMENTS

We are organized primarily along community banking, specialty finance, trust services and insurance brokerage services business segments. We have aggregated 17 operating divisions into the community banking business segment. Community banking provides a range of banking services to small-and medium-sized businesses, real estate developers, property managers, business executives, professionals and other individuals. We have aggregated five operating divisions into the specialty finance business segment. Through this business segment, we provide an array of specialty finance products including loans to smaller businesses on which the SBA generally provides guarantees, asset-based lending and accounts receivable factoring, loans and lease products tailored to the dental and veterinary health professions and capital lease equipment financing. The trust service segment provides trust services to support the trust needs of the Bank’s business and private banking clients. The insurance brokerage services segment provides commercial insurance brokerage and employee benefits consulting services. We conduct our business within the United States; foreign operations are not material.

During 2003, management increased its focus on the distinction between community banking and specialty finance and, therefore, specialty finance is presented as a separate business segment beginning that year. Prior periods have been restated to conform to the current presentation of our business segments.

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

The accounting policies of the segments are described in the “Summary of Significant Accounting Policies,” contained in our Annual Report on Form 10-K for the year ended December 31, 2003. Segment data includes intersegment revenue, including the systematic allocation of corporate-headquarters costs, or intercompany allocation, made according to an agreement between our holding company and the Bank to each of its operating segments. ABD receives certain corporate-headquarters services from our holding company for which the holding company is not reimbursed. Specialty finance also paid community banking $18.7 million in interest charges during the six months ended June 30, 2004 and $18.9 million during the six months ended June 30, 2003. Community banking paid trust services $571,000 in interest charges during the six months ended June 30, 2004 and $758,000 during the six months ended June 30, 2003. All other intersegment revenue is not significant to the results of the segments. Both the intercompany allocation and the interest charges are 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.

The following table shows each segment’s key operating results and financial position for the six months and three months ended June 30, 2004 and 2003:

	As of and for the six months ended June 30, 2004
(Dollars in thousands)	Community banking		Specialty finance		Insurance brokerage services		Trust services		Total
Statement of operations
Net interest income after provision for loan and lease losses	$	128,530	$	23,059	$	356	$	318	$	152,263
Non-interest income		14,449		9,832		67,758		1,878		93,917
Operating expenses:
Direct operating expenses		39,500		15,744		56,406		1,553		113,203
Intercompany allocation		46,150		1,369		—		115		47,634
Total operating expenses		85,650		17,113		56,406		1,668		160,837
Income before provision for income taxes (1)	$	57,329	$	15,778	$	11,708	$	528	$	85,343
Balance sheet
Assets	$	6,222,641	$	1,192,183	$	306,369	$	—	$	7,721,193
Deposits		5,410,126		14,355		—		53,749		5,478,230
Assets under administration (2)		—		—		—		647,022		647,022

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

(2) Assets under administration are not included in our consolidated assets as reported on our Consolidated Balance Sheet.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

	As of and for the six months ended June 30, 2003
(Dollars in thousands)	Community banking		Specialty finance		Insurance brokerage services		Trust services		Total
Statement of operations
Net interest income after provision for loan and lease losses	$	126,948	$	19,430	$	434	$	465	$	147,277
Non-interest income		21,543		7,298		58,419		1,643		88,903
Operating expenses:
Direct operating expenses		38,856		14,536		46,408		1,573		101,373
Intercompany allocation		53,234		947		—		217		54,398
Total operating expenses		92,090		15,483		46,408		1,790		155,771
Income before provision for income taxes (1)	$	56,401	$	11,245	$	12,445	$	318	$	80,409
Balance sheet
Assets	$	7,014,044	$	1,096,178	$	251,996	$	—	$	8,362,218
Deposits		5,675,525		11,080		—		46,731		5,733,336
Assets under administration (2)		—		—		—		616,847		616,847

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

(2) Assets under administration are not included in our consolidated assets as reported on our Consolidated Balance Sheet.

	As of and for the three months ended June 30, 2004
(Dollars in thousands)	Community banking		Specialty finance		Insurance brokerage services		Trust services		Total
Statement of operations
Net interest income after provision for loan and lease losses	$	62,242	$	11,339	$	173	$	73	$	73,827
Non-interest income		6,555		4,879		33,071		998		45,503
Operating expenses:
Direct operating expenses		18,741		7,660		28,267		740		55,408
Intercompany allocation		22,115		649		—		55		22,819
Total operating expenses		40,856		8,309		28,267		795		78,227
Income before provision for income taxes (1)	$	27,941	$	7,909	$	4,977	$	276	$	41,103

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

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

	As of and for the three months ended June 30, 2003
(Dollars in thousands)	Community banking		Specialty finance		Insurance brokerage services		Trust services		Total
Statement of operations
Net interest income after provision for loan and lease losses	$	62,958	$	9,459	$	215	$	241	$	72,873
Non-interest income		11,060		3,502		27,777		849		43,188
Operating expenses:
Direct operating expenses		20,106		8,102		22,851		765		51,824
Intercompany allocation		24,031		553		—		59		24,643
Total operating expenses		44,137		8,655		22,851		824		76,467
Income before provision for income taxes (1)	$	29,881	$	4,306	$	5,141	$	266	$	39,594

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

A reconciliation of total segment net interest income and non-interest income combined, net income before income taxes, and total assets to the consolidated totals in each of these categories for the six months ended June 30, 2004 and 2003 is presented below.

(Dollars in thousands)	Six months ended June 30, 2004			Six months ended June 30, 2003
Net interest income after provision for loan and lease losses and non-interest income
Total segment net interest income after provision for loan and lease losses and non-interest income	$	246,180		$	236,180
Parent company net interest income after provision for loan and lease losses and non-interest income (1)		(8,829	)		(12,319	)
Consolidated net interest income after provision for loan and lease losses and non-interest income	$	237,351		$	223,861
Income before provision for income taxes
Total segment income before provision for income taxes	$	85,343		$	80,409
Parent company income before provision for income taxes (1)		(5,111	)		(2,136	)
Consolidated income before provision for income taxes	$	80,232		$	78,273
Total assets
Total segment assets	$	7,721,193		$	8,362,218
Parent company assets (1)		(107,898	)		(271,893	)
Consolidated total assets	$	7,613,295		$	8,090,325

(1) Includes impact of consolidating entries, including elimination of intercompany allocation paid by our business segments to the parent company.

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

NOTE 10—GUARANTEES

In the ordinary course of business, we have issued certain guarantees which qualify as off-balance sheet arrangements. A guarantee is 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). As of June 30, 2004, those guarantees include the following:

• Financial standby letters of credit and financial guarantees are conditional lending commitments issued to guarantee the performance of a customer to a third party in borrowing arrangements. At June 30, 2004, the maximum undiscounted future payments that we could be required to make totaled $116.0 million. We generally have recourse to recover from the customer any amounts paid under these guarantees. The form of collateral that we hold for these guarantees is as follows:

(Dollars in thousands)	As of June 30, 2004
Cash	$	30,505
Other secured		71,087
Unsecured		14,414
Total	$	116,006

• We may be required to make contingent payments to the former shareholders of ABD, The Matsco Companies, Inc. and S&C based on their future operating results. Any contingent payments we may be required to make would be recorded as an increase to goodwill. As of June 30, 2004, under the ABD acquisition agreement, the gross future earn-out payments to ABD’s former shareholders are $31.5 million contingent on ABD reaching certain EBITDA targets as defined in the acquisition agreement. The actual earn-out payment may exceed this amount should ABD surpass its EBITDA target. As of June 30, 2004, under the acquisition agreements with The Matsco Companies, Inc. and S&C, the maximum gross future cash earn-out payments to their former shareholders are $4.8 million for 2004, $4.8 million for 2005 and $4.9 million for 2006; and

• The Bank has guaranteed credit cards issued to our clients by an unaffiliated financial institution. As of June 30, 2004, the combined credit limits on those accounts are $5.5 million.

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

NOTE 11—VARIABLE INTEREST ENTITIES

FASB Interpretation No. 46 “Consolidation of Variable Interest Entities,” or FIN 46, defines a variable interest entity as a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) has equity investors that do not provide sufficient financial resources for the entity to support its activities, or (b) does not have equity investors with either voting rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity, or (c) has a group of equity investors whose voting rights are disproportionate with their obligation to absorb the expected losses or their right to receive expected residual returns. FIN 46 requires that a variable interest entity be consolidated by a company if that company is the primary beneficiary of that entity. The primary beneficiary 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.

We are not the primary beneficiary of any variable interest entities in which we do not also hold a majority voting interest in the entity.

The following provides information about our investments in various unconsolidated variable interest entities in which we are not the primary beneficiary:

• At June 30, 2004, we had investments in low income housing tax credit partnerships totaling $10.8 million. These low income housing tax credit partnerships are passive investments in housing development projects entered into over a period of several years. We account for these low income housing tax credit partnerships using the equity method. Investors receive tax benefits from passive partnership losses and low income housing credits, as well as having the potential for residual proceeds from the sale of property 15 years following completion of the project. As with many equity investments, there exists a maximum exposure to loss on these investments which is limited to our current recorded investment;

• At June 30, 2004, we had investments in venture capital funds totaling $9.5 million with related additional potential capital calls totaling $8.2 million. Changes in the value of these investments are recorded using the equity method of accounting with any changes in value recognized in the current period. In the event of a decline in the value of these investments, there exists a maximum exposure to loss that is limited to our current recorded investment and the amount of related additional potential capital calls; and

• At June 30, 2004, we had investments in GBB Capital II, GBB Capital III, GBB Capital IV, GBB Capital V, GBB Capital VI and GBB Capital VII, collectively referred to as the Trusts, totaling $6.3 million. The Trusts are subsidiary trusts which issued trust preferred securities and purchased subordinated debt in capital raising transactions. The Trusts are variable interest entities as defined by FIN 46. In accordance with the provisions of FIN 46, we have deconsolidated the Trusts, so that they are not included in our consolidated financial position and results of operations. Also, as a result of the deconsolidation of the Trusts, subordinated debt issued by our holding company to the Trusts, which was previously eliminated in consolidation, is currently recognized as a liability. In order to promote comparability between reporting periods, and to improve the readability of the financial statements, we have elected to restate prior periods to include the deconsolidation of the Trusts (see Note 11 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in our 2003 Annual Report on Form 10-K for additional information regarding these Trusts.) The Federal Reserve Board has issued regulations which allow for the continued inclusion of these instruments in Tier I capital regardless of the FIN 46 interpretation, although such determination could change at a later date. There is no exposure to loss on these investments.

Matsco Lease Finance, Inc. III is a special purpose corporation wholly owned by our holding company, formed for the purpose of issuing lease-backed notes. This entity repaid its Class A certificates in 2000 and its Class B certificates in 2003. Matsco Lease Finance, Inc. III and the REITs each have some characteristics of variable interest entities as defined by FIN 46; however, under FIN 46, are not required to be deconsolidated. The results and financial position of these entities are fully consolidated with our results and financial position.

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

NOTE 12 - SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN

We have a supplemental employee retirement plan comprised of individual agreements with certain key executives and senior officers. This plan is a non-qualified defined benefit plan and the majority of the benefits under the plan are unfunded.

The following tables set forth the plan’s net periodic pension cost for the periods indicated:

(Dollars in thousands)	Three months ended June 30, 2004		Three months ended June 30, 2003
Net pension cost included the following components:
Service cost-benefits earned during the period	$	449	$	409
Interest cost on projected benefit obligation		336		292
Amortization of net obligation at transition		—		—
Amortization of prior service cost		805		805
Recognized net actuarial loss		—		—
Net periodic pension cost	$	1,590	$	1,506
(Dollars in thousands)	Six months ended June 30, 2004		Six months ended June 30, 2003
Net pension cost included the following components:
Service cost-benefits earned during the period	$	897	$	817
Interest cost on projected benefit obligation		673		585
Amortization of net obligation at transition		—		—
Amortization of prior service cost		1,610		1,610
Recognized net actuarial loss		—		—
Net periodic pension cost	$	3,180	$	3,012

For the six month period ended June 30, 2004, we made contributions of $2.0 million to the secular trusts. We presently anticipate contributing $167,000 to fund the secular trusts during the remainder of 2004. We do not anticipate making any other contributions to the plan during 2004.

NOTE 13 – 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 accompanying consolidated financial statements. GAAP prohibits 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 $1.1 billion and letters of credit were $116.0 million and $112.4 million, at June 30, 2004 and December 31, 2003, respectively. Our exposure to credit loss is limited to amounts funded or drawn; however, at June 30, 2004, no losses are anticipated as a result of these commitments based on current information.

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

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 $223.2 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 Bank evaluates 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 Bank to guarantee the performance of a client to a third party. These guarantees are primarily related to purchases of inventory by the Bank’s commercial clients, and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients, and the Bank accordingly uses 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 14 – RECENT ACCOUNTING DEVELOPMENTS

The Meaning of Other-than-Temporary Impairment and Its Application to Certain Investments

In November 2003, the EITF reached consensus on Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” Issue 03-1 provides guidance in the recognition and measurement of other-than-temporary impairment for certain securities, including:

• All debt securities and equity securities that are subject to the scope of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”; and

• Equity securities that are not subject to the scope of SFAS No. 115 and that are accounted for under the cost method of accounting, or cost method investments.

Issue 03-1 also provides guidance on disclosure requirements for other-than-temporary impairment for cost method investments. The guidance in these areas of Issue 03-1 are effective for fiscal years ending after June 15, 2004.

The implementation of these areas of Issue 03-1 is not anticipated to have a material impact on our financial statements.

We have previously adopted the disclosure provisions of Issue 03-1 for debt and equity investments that are accounted for under SFAS No. 115. Those requirements were effective for fiscal years ending after December 15, 2003.

Accounting for Participating Securities and the Two-Class Method Under FASB Statement No. 128, “Earnings Per Share”

In March 2004, the EITF reached final consensuses on Issue 03-6. Issue 03-6 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. Issue 03-6 also provides further guidance in applying the two-class method of calculating earnings per share. It clarifies what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED–CONTINUED)

As of June 30, 2004 and December 31, 2003 and for the

Three Months and Six Months Ended June 30, 2004 and 2003

The consensus reached by the EITF on Issue 03-6 are effective for fiscal periods beginning March 31, 2004. We have considered Issue 03-6 and determined that it will not have a material impact on our financial condition or operating results.

Proposed Accounting for Contingently Convertible Securities in the Calculation of Fully Diluted Earnings per Share under EITF Issue 04-8

On July 1, 2004, the EITF reached a tentative conclusion on Issue 04-8 that contingently convertible securities should be treated as convertible securities and included in the calculation of fully diluted earnings per share using the if-converted method. If this proposal is adopted as currently written, we would be required to include the weighted average contingently issuable shares from the CODES due 2024 and the CODES due 2022 as common stock equivalents for purposes of computing diluted earnings per share. We estimate the proposal, if implemented, would reduce our 2004 diluted earnings per share by approximately 10%. While this proposal would revise the manner in which our results are presented it would not impact the economic substance of our financial performance. As currently proposed, retroactive restatement of previous periods would be required. The EITF is expected to take action on this Issue in September 2004.

29

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Discussions of certain matters contained in this Report may constitute “forward-looking statements” as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements discuss matters that are not historical facts. These forward-looking statements can be identified by the use of terminology such as “estimate,” “projects,” “anticipate,” “expects,” “intends,” “believes,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to our current expectations regarding future operating results, net interest margin, net loan charge-offs, asset quality, levels of the allowance for loan and lease losses, growth in loans and deposits, the level of the investment securities portfolio, the impact of the new accounting standards and the strength of the local economy. Forward-looking statements are only estimates or predictions and you should not rely on them. Actual events or results may differ significantly as a result of risks and uncertainties facing us or actual results differing from the assumptions underlying such statements. Such risks and uncertainties include, but are not limited to the those set forth in “Item 1. Business—Factors That May Affect Future Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2003. All written and oral forward-looking statements made in connection with this Report which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by cautionary statements included herein. We disclaim any obligation to update information contained in any forward-looking statement.

OVERVIEW

Who We Are

Greater Bay Bancorp is a financial holding company with one bank subsidiary, Greater Bay Bank, National Association and one commercial insurance brokerage subsidiary, ABD. The Bank conducts business through the following operating divisions: 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, San Jose National Bank, CAPCO, Greater Bay Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank Carmel, Greater Bay Bank Marin, Greater Bay Bank SBA Lending Group, Greater Bay Capital, Corporate Finance, Greater Bay International Banking Division, Greater Bay Trust Company, Matsco, Pacific Business Funding and the Venture Banking Group.

How We Generate Revenues and Information About Our Industries

Our primary business is the operation of a diversified financial institution. Our profitability, like most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates we receive on our interest-earning assets and the interest rates we pay on interest bearing liabilities comprises the major portion of our earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment. The impact that future changes in domestic and foreign economic conditions might have on us cannot be predicted.

30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Our business is also influenced by 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 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. The nature and impact on us of any future changes in monetary and fiscal policies cannot be fully predicted.

From time-to-time, legislation, 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. This legislation may change banking statutes and our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations.

As with other medium and large financial institutions, we seek to diversify our sources of revenues. In order to achieve this diversity, in March 2002 we acquired ABD which has substantially increased our non-interest income. ABD offers a full-range of commercial insurance brokerage activities, including property and casualty, directors and officers liability insurance, employee benefits insurance, retirement planning services, risk management and engineering and loss control services.

Our Lines of Business, Principal Products and Services and Locations of Operations

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

• Community Banking. 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.

• Insurance Brokerage Services. ABD provides commercial insurance brokerage, employee benefits consulting and risk management solutions to business clients throughout the United States. ABD also owns a broker-dealer that executes mutual fund transactions on behalf of clients’ employee benefit plans.

• Specialty Finance. CAPCO, which offers asset-based lending and accounts receivable factoring products, is located in Bellevue, Washington and it operates in the Pacific Northwest. Greater Bay Capital finances equipment leases and is located in the Chicago, Illinois area. Matsco provides dental and veterinarian financing services nationally.

• Trust Services. Greater Bay Trust Company provides trust services to support the trust needs of community banking’s business and personal clients. These services include, but are not limited to, custodial, investment management, estate planning resources and employee benefit plan services.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

How Economic Factors Impact Us

We have a significant geographic concentration in the San Francisco Bay Area and our results depend largely upon economic conditions in this area. Even though we are now noting signs of limited job growth and improvement in the commercial real estate environment, the San Francisco Bay Area economy continues to be challenging. A protracted recovery or a 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 weak recovery nationwide or a weakening in the national economy might further exacerbate local economic conditions. The extent of the future impact of these events on our economic and business conditions cannot be predicted.

Our Opportunities, Challenges and Risks

We believe that our opportunity for internal growth in business banking to small and medium-sized businesses, professionals and high net worth individuals is partially dependent on continued economic growth in the San Francisco Bay Area economy. There remains the risk that another economic downturn could adversely affect us through weakness for loan demand and deterioration of loan quality.

We also believe that conditions will reappear in which active consolidation of community banks will take place during the next few years. Under such conditions, we could be viewed as a potential acquirer, providing us with additional growth opportunities. In markets we wish to enter or expand our business, we will also consider de novo regional offices. We will also consider acquisition opportunities in other business segments, including, but not limited to, specialty finance, insurance brokerage services and wealth management. In the past, we have successfully integrated acquired institutions and de novo branches into our family of companies, but there can be no assurance that future activities will not present unforeseen integration issues.

On February 1, 2004, we completed the merger of our 11 bank subsidiaries into a single national bank that is regulated by the Office of the Comptroller of the Currency, or the OCC. The integration is designed to be transparent to our customers as the Bank will continue to operate in the same communities and under the same names as before the merger. The merger will provide us with the opportunity to streamline our back-office operations, improve the efficiency of our risk management processes, reduce corporate governance requirements and reduce our regulatory reporting burden. Our financial performance and profitability would be affected by our ability to successfully integrate the systems of these 11 subsidiaries into a single system. Although the former bank subsidiaries currently operate on substantially identical systems and share many common back-office operations, the merger requires the integration of 11 similar but separately operated back-office systems into a single merged system. Although historically we have completed numerous system conversions, the planned system integration is the first time we will merge separate systems into one integrated platform. In addition, the merger will result in the reallocation of personnel from our holding company to the Bank. Although we have allocated considerable resources to the planning and execution of this merger and the related integration, there can be no assurance that unforeseen issues will not adversely affect us. Failure to successfully complete this integration could result in the failure to recognize anticipated operating efficiencies or loss of customers.

Based on the current forecast of economic growth in our market area, combined with feedback from our clients on anticipated growth rates, we anticipate future loan growth ranging from the low single to mid-single digits. We anticipate future core deposit growth in the mid-single digits. We will adjust our use of institutional time deposits and other non-relationship funding sources to meet funding needs not satisfied by core deposit and capital funding sources. Based on balance sheet trends and the rate sensitivity of our assets and liabilities, we expect the margin to fluctuate in the 4.40% to 4.50% range.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CRITICAL ACCOUNTING POLICIES

Our accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS presented in our 2003 Annual Report on Form 10-K. 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 and Lease Losses

The allowance for loan and lease losses represents management’s best estimate of losses inherent in the existing loan portfolio. The allowance for loan and lease losses is increased by the provision for loan and lease losses charged to expense and reduced by loans charged-off, net of recoveries. The allowance for loan and lease losses is determined based on the distribution of the portfolio by credit risk grade and the amount of impairment associated with impaired loans as well as on management’s assessment of several factors: changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, and historical default experiences.

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, unless they are well secured and in the process of collection. The measurement of impaired loans is 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, economic conditions, historical loss experience and the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for loan and lease losses and the associated provision for loan and lease losses.

Securities

The investment portfolio is an integral part of our financial performance. We invest primarily in fixed income securities. Accounting estimates are used in the presentation of the investment portfolio and these estimates do impact the presentation of our financial condition and results of operations. Many of the securities included in the investment portfolio are purchased at a premium or discount. Except for mortgage related securities, discounts are accreted over the life of the security, and premiums are amortized to the call date which results in the lowest yield. For mortgage-related securities (i.e. securities that are collateralized and payments received from underlying mortgages), the amortization or accretion is based on estimated average lives of the securities. The estimated lives of these securities fluctuate based on the amount that prepayments vary from time-to-time based on the interest rate environment (i.e. lower interest rates increase the likelihood of refinances) and the rate of turnover of the mortgage (i.e. how often the underlying properties are sold and mortgages paid-off). We use estimates for the average lives of these mortgage-related securities based on information received from third parties whose business it is to compile mortgage related data and develop a consensus of that data. We adjust the rate of amortization or accretion regularly to reflect changes in the estimated average lives of these securities.

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

33

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Derivative Instruments

The fair value of derivative instruments is based on quoted market prices received from independent sources. Active markets may not exist for our derivative instruments. Consequently, the independent sources we use to obtain quoted market prices may be using estimating techniques, such as discounted cash flow analysis and comparison to similar instruments to determine the fair value of our derivative instruments. Estimates developed by these independent sources are highly subjective and require the judgment of the independent sources regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market risks. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes.

Fair values are netted by counterparty where the legal right of offset exists. If these netted amounts are positive, they are classified as an asset and if negative, a liability.

Goodwill and Other Intangible Assets

As discussed in Note 2 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, we assess goodwill and other intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future cash flows are materially less than estimated, we may be required to take a charge against earnings to write down the goodwill or other intangible assets. In our 2003 evaluation of the impairment of goodwill, we used a discount rate of 17.9% and a capitalization rate of 12.2%.

Accounting for Income Taxes

Our accounting for income taxes is explained in Note 13 to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS presented in our 2003 Annual Report on Form 10-K.

Our provision for income tax expense is reported in the Consolidated Statements of Operations. Accrued taxes represent the net estimated amount due or to be received from taxing jurisdictions either currently or in the future and are reported as a component of other assets and other liabilities on the Consolidated Balance Sheet. In estimating accrued taxes, we assess the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance in the context of our tax position. Changes to our estimate of accrued taxes may occur due to changes in the tax rates, implementation of new tax planning strategies, resolution with taxing authorities of issues with previously taken tax positions and newly enacted statutory, judicial and regulatory guidance. These changes, when they occur, affect accrued taxes and can be material to our operating results for any particular period.

We also use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If we suffer losses or future income is less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced.

Supplemental Employee Retirement Plan

As described in detail in Note 15 to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS presented in our 2003 Annual Report on Form 10-K, we have entered into supplemental employee retirement 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 expected benefit levels. Should these estimates prove materially wrong, we could incur additional or reduced expense to provide the benefits.

34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS

The following table summarizes net income, earnings per common share and key financial ratios for the periods indicated.

(Dollars in thousands, except per share amounts)	Three months ended June 30, 2004			Three months ended June 30, 2003
Net income	$	24,533		$	23,125
Earnings per common share:
Basic	$	0.45		$	0.42
Diluted	$	0.43		$	0.41
Return on average assets		1.29	%		1.15	%
Return on average shareholders’ equity		13.51	%		12.97	%
(Dollars in thousands, except per share amounts)	Six months ended June 30, 2004			Six months ended June 30, 2003
Net income	$	49,385		$	48,222
Earnings per common share:
Basic	$	0.89		$	0.87
Diluted	$	0.86		$	0.86
Return on average assets		1.31	%		1.21	%
Return on average shareholders’ equity		13.27	%		13.80	%

Net income increased 6.1% to $24.5 million, or $0.43 per diluted share, during the second quarter of 2004 as compared to $23.1 million, or $0.41 per diluted share, during the second quarter of 2003. Net income increased 2.4% to $49.4 million, or $0.86 per diluted share, during the first six months of 2004 as compared to $48.2 million, or $0.86 per diluted share, during the first six months of 2003.

The $1.4 million increase in net income for the second quarter of 2004 compared to the second quarter of 2003 was primarily attributable to the following items:

• A $1.9 million decrease in net interest income, reflecting the combined effects of a decline in interest earning assets, which was partially offset by the increase in the net interest margin;

• A $4.7 million decrease in the provision for loan and lease losses;

• A $4.3 million increase in non-interest income primarily due to a $5.0 million increase in ABD’s insurance commissions and fees. This increase was partially offset by a decrease of $1.0 million in the gain on sale of investment securities in the second quarter of 2004 compared to the same period in 2003; and

• A $4.8 million increase in operating expenses. The major component of this increase was a rise of $5.4 million in expenses at ABD, which were partially offset by a $0.6 million decline in bank-level expenses.

35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The $1.2 million increase in net income for the six months ended 2004 compared to the six months ended 2003 was primarily attributable to the following items:

• A $2.7 million decrease in net interest income, reflecting the combined effects of a decline in interest earning assets, which was partially offset by the increase in the net interest margin;

• A $9.2 million decrease in the provision for loan and lease losses;

• A $7.0 million increase in non-interest income. This growth included an increase of $9.2 million in ABD commissions and fees, which was partially offset by a decline of $2.3 million in bank non-interest revenue; and

• An $11.5 million increase in operating expenses primarily due to an increase in ABD expenses of $10.0 million.

Net Interest Income

Our Interest Rate Risk Strategy

Our interest rate risk, or IRR, strategy focuses on containing this risk within board approved limits. We primarily use balance sheet matching techniques and, to a limited extent, derivatives to manage IRR. We currently adhere to a core strategy of maintaining a relatively neutral interest rate risk position. Within that context, we may adjust our position based on our interest rate outlook.

During 2003, we reduced the size of our securities portfolio, positioning ourselves to be more asset sensitive in anticipation of a rising rate environment.

Our net interest margin for the second quarter of 2004 was 4.29%, compared to 4.51% for the first quarter of 2004 and 4.11% for the second quarter of 2003. The 0.22% reduction from the margin level in the first quarter was primarily due to an increase in the premium amortization expense recorded on our investment portfolio that reflected higher prepayment levels experienced in the second quarter. Additionally, a decline in the yield of our loan portfolio due to a shift in the portfolio mix was also a contributing factor.

Our net interest margin for the six months ended June 30, 2004 was 4.40%, compared to 4.22% for the same period in 2003. The 0.18% increase in the margin level was primarily due to a decrease in rates paid on interest-bearing liabilities and an increase in the contribution of non-interest bearing deposits and other liabilities. The contribution of these factors was partially offset by a decrease in the yield earned on interest earning assets.

Net interest income for the second quarter of 2004 was $71.9 million, compared to $75.4 million for the first quarter of 2004 and $73.8 million for the second quarter of 2003. The $3.5 million decrease in our net interest income earned during the second quarter of 2004 as compared to the first quarter of 2004 was primarily due to decreases in the yield earned on securities and loans and an increase in rates paid on MMDA, NOW and savings accounts. These were partially offset by a decrease in rates paid on borrowings. The $1.9 million decrease in our net interest income earned during the second quarter of 2004 as compared to the same period in 2003 was due to a decrease in average loans and securities, and was partially offset by the increase in net yield earned on interest earning assets.

Net interest income for the six month period ended June 30, 2004 was $147.3 million, compared to $150.0 million for the same period in 2003. The $2.7 million decrease in our net interest income earned during the six month period ended June 30, 2004 as compared to the same period in 2003 was due to a decrease in average loans and securities, and was partially offset by the increase in net yield earned on interest earning assets.

36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Results for the Quarters Ended June 30, 2004, June 30, 2003 and March 31, 2004

The following tables present, for the periods indicated, our condensed average balance sheet information together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities. Average balances are average daily balances.

	Three months ended June 30, 2004						Three months ended June 30, 2003
(Dollars in thousands)	Average balance (1)		Interest		Average yield / rate		Average balance (1)		Interest		Average yield / rate
INTEREST-EARNING ASSETS:
Fed funds sold	$	148,945	$	324	0.87	%	$	135,418	$	373	1.10	%
Other short-term securities		2,826		20	2.85	%		72		1	5.57	%
Securities:
Taxable		2,082,490		20,678	3.99	%		2,242,162		20,696	3.70	%
Tax-exempt (2)		91,141		1,147	5.06	%		106,144		1,241	4.69	%
Loans (3)		4,414,731		71,435	6.51	%		4,720,462		81,139	6.89	%
Total interest-earning assets		6,740,133		93,604	5.59	%		7,204,258		103,450	5.76	%
Noninterest-earning assets		900,703						858,015
Total assets	$	7,640,836		93,604			$	8,062,273		103,450
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings	$	3,267,483		8,824	1.09	%	$	3,030,295		8,708	1.15	%
Time deposits, over $100,000		455,509		1,821	1.61	%		523,582		2,751	2.11	%
Other time deposits		504,981		1,536	1.22	%		1,178,796		4,586	1.56	%
Total interest-bearing deposits		4,227,973		12,181	1.16	%		4,732,673		16,045	1.36	%
Other borrowings		1,175,519		5,032	1.72	%		1,313,388		9,379	2.86	%
Subordinated debt		210,311		4,508	8.62	%		210,311		4,222	8.05	%
Total interest-bearing liabilities		5,613,803		21,721	1.56	%		6,256,372		29,646	1.90	%
Noninterest-bearing deposits		1,052,290						928,801
Other noninterest-bearing liabilities		229,021						146,546
Preferred stock of real estate investment trust subsidiaries		15,302						15,646
Shareholders’ equity		730,420						714,908
Total shareholders’ equity and liabilities	$	7,640,836		21,721			$	8,062,273		29,646
Net interest income			$	71,883					$	73,804
Interest rate spread					4.03	%					3.86	%
Net yield on interest-earning assets(4)					4.29	%					4.11	%

(1) Nonaccrual loans are excluded from the average balance.

(2) Tax equivalent yields earned on the tax-exempt securities were 7.65% for the three months ended June 30, 2004 and 7.04% for the three months ended June 30, 2003 using the federal statutory rate of 35%.

(3) Interest income on loans includes loan fees of $276,000 for the three months ended June 30, 2004 and $1.2 million for the three months ended June 30, 2003.

(4) The net yield on interest-earning assets during the period equals (a) the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, divided by (b) average interest-earning assets for the period.

37

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

	Three months ended June 30, 2004						Three months ended March 31, 2004
(Dollars in thousands)	Average balance (1)		Interest		Average yield / rate		Average balance (1)		Interest		Average yield / rate
INTEREST-EARNING ASSETS:
Fed funds sold	$	148,945	$	324	0.87	%	$	92,582	$	204	0.89	%
Other short-term securities		2,826		20	2.85	%		2,992		78	10.49	%
Securities:
Taxable		2,082,490		20,678	3.99	%		2,079,717		22,220	4.30	%
Tax-exempt (2)		91,141		1,147	5.06	%		96,735		1,116	4.64	%
Loans (3)		4,414,731		71,435	6.51	%		4,450,875		73,127	6.61	%
Total interest-earning assets		6,740,133		93,604	5.59	%		6,722,901		96,745	5.79	%
Noninterest-earning assets		900,703						834,572
Total assets	$	7,640,836		93,604			$	7,557,473		96,745
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings	$	3,267,483		8,824	1.09	%	$	2,997,172		7,079	0.95	%
Time deposits, over $100,000		455,509		1,821	1.61	%		456,127		1,839	1.62	%
Other time deposits		504,981		1,536	1.22	%		738,581		2,357	1.28	%
Total interest-bearing deposits		4,227,973		12,181	1.16	%		4,191,880		11,275	1.08	%
Other borrowings		1,175,519		5,032	1.72	%		1,131,723		5,594	1.99	%
Subordinated debt		210,311		4,508	8.62	%		210,311		4,505	8.62	%
Total interest-bearing liabilities		5,613,803		21,721	1.56	%		5,533,914		21,374	1.55	%
Noninterest-bearing deposits		1,052,290						1,018,638
Other noninterest-bearing liabilities		229,021						222,898
Preferred stock of real estate investment trust subsidiaries		15,302						15,302
Shareholders’ equity		730,420						766,721
Total shareholders’ equity and liabilities	$	7,640,836		21,721			$	7,557,473		21,374
Net interest income			$	71,883					$	75,371
Interest rate spread					4.03	%					4.23	%
Net yield on interest-earning assets(4)					4.29	%					4.51	%

(1) Nonaccrual loans are excluded from the average balance.

(2) Tax equivalent yields earned on the tax-exempt securities were 7.65% for the three months ended June 30, 2004 and 7.00% for the three months ended March 31, 2004 using the federal statutory rate of 35%.

(3) Interest income on loans includes loan fees of $276,000 for the three months ended June 30, 2004 and $736,000 for the three months ended March 31, 2004.

(4) The net yield on interest-earning assets during the period equals (a) the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, divided by (b) average interest-earning assets for the period.

38

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 securities, 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 periods 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 that are not attributable specifically to either volume or rate are allocated proportionately between both variances. Nonaccrual loans are excluded from average loans.

	Three months ended June 30, 2004 compared with the same period ended June 30, 2003 favorable / (unfavorable)									Three months ended June 30, 2004 compared with the same period ended March 31, 2004 favorable / (unfavorable)
(Dollars in thousands)	Volume			Rate			Net			Volume			Rate			Net
INTEREST EARNED ON INTEREST-EARNING ASSETS
Federal funds sold	$	34		$	(83	)	$	(49	)	$	123		$	(3	)	$	120
Other short-term investments		20			(1	)		19			(4	)		(54	)		(58	)
Securities:
Taxable		(1,552	)		1,534			(18	)		30			(1,572	)		(1,542	)
Tax-exempt		(186	)		92			(94	)		(67	)		98			31
Loans		(5,202	)		(4,502	)		(9,704	)		(591	)		(1,101	)		(1,692	)
Total interest income		(6,885	)		(2,961	)		(9,846	)		(509	)		(2,632	)		(3,141	)
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits:
MMDA, NOW and savings		(643	)		527			(116	)		(674	)		(1,071	)		(1,745	)
Time deposits over $100,000		329			601			930			2			16			18
Other time deposits		2,214			836			3,050			715			106			821
Total interest-bearing deposits		1,900			1,964			3,864			44			(950	)		(906	)
Other borrowings		906			3,441			4,347			(210	)		772			562
Subordinated debt		—			(286	)		(286	)		—			(3	)		(3	)
Total interest expense		2,805			5,120			7,925			(166	)		(181	)		(347	)
Net increase (decrease) in net interest income	$	(4,080	)	$	2,159		$	(1,921	)	$	(676	)	$	(2,812	)	$	(3,488	)

39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Results for the Six Months Ended June 30, 2004 and June 30, 2003

The following tables present, for the periods indicated, our condensed average balance sheet information together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities. Average balances are average daily balances.

	Six months ended June 30, 2004						Six months ended June 30, 2003
(Dollars in thousands)	Average balance (1)		Interest		Average yield / rate		Average balance (1)		Interest		Average yield / rate
INTEREST-EARNING ASSETS:
Fed funds sold	$	120,876	$	528	0.88	%	$	92,923	$	512	1.11	%
Other short-term securities		2,909		63	4.36	%		36		1	5.60	%
Securities:
Taxable		2,081,103		42,933	4.15	%		2,246,473		45,801	4.11	%
Tax-exempt (2)		93,938		2,263	4.84	%		105,280		2,464	4.72	%
Loans (3)		4,432,806		144,562	6.56	%		4,718,705		162,016	6.92	%
Total interest-earning assets		6,731,632		190,349	5.69	%		7,163,417		210,794	5.93	%
Noninterest-earning assets		866,862						841,101
Total assets	$	7,598,494		190,349			$	8,004,518		210,794
INTEREST-BEARING LIABILITIES:
Deposits:
MMDA, NOW and Savings	$	3,132,354		15,903	1.02	%	$	2,871,547		16,957	1.19	%
Time deposits, over $100,000		455,818		3,659	1.61	%		531,597		5,650	2.14	%
Other time deposits		621,781		3,894	1.26	%		1,144,389		9,971	1.76	%
Total interest-bearing deposits		4,209,953		23,456	1.12	%		4,547,533		32,578	1.44	%
Other borrowings		1,153,733		10,627	1.85	%		1,411,953		19,216	2.74	%
Subordinated debt		210,311		9,012	8.62	%		210,311		9,029	8.66	%
Total interest-bearing liabilities		5,573,997		43,095	1.55	%		6,169,797		60,823	1.99	%
Noninterest-bearing deposits		1,035,464						955,424
Other noninterest-bearing liabilities		225,161						159,083
Preferred stock of real estate investment trust subsidiaries of the Banks		15,302						15,648
Shareholders’ equity		748,570						704,566
Total shareholders’ equity and liabilities	$	7,598,494		43,095			$	8,004,518		60,823
Net interest income			$	147,254					$	149,971
Interest rate spread					4.13	%					3.94	%
Net yield on interest-earning assets(4)					4.40	%					4.22	%

(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 were 7.31% and 7.08% for the six months ended June 30, 2004 and June 30, 2003, respectively, using the federal statutory rate of 35%.

(3) Loan fees totaling $1.0 million and $2.4 million are included in loan interest income for the six months ended June 30, 2004 and June 30, 2003, respectively.

(4) The net yield on interest-earning assets during the period equals (a) the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, divided by (b) average interest-earning assets for the period.

40

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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

	Six months ended June 30, 2004 compared with the same period June 30, 2003 favorable / (unfavorable)
(Dollars in thousands)	Volume			Rate			Net
INTEREST EARNED ON INTEREST-EARNING ASSETS
Federal funds sold	$	136		$	(120	)	$	16
Other short-term investments		63			(1	)		62
Securities:
Taxable		(3,295	)		427			(2,868	)
Tax-exempt		(266	)		65			(201	)
Loans		(9,325	)		(8,129	)		(17,454	)
Total interest income		(12,687	)		(7,758	)		(20,445	)
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits:
MMDA, NOW and savings		(1,477	)		2,531			1,054
Time deposits over $100,000		729			1,262			1,991
Other time deposits		3,751			2,326			6,077
Total interest-bearing deposits		3,003			6,119			9,122
Other borrowings		3,092			5,497			8,589
Subordinated debt		—			17			17
Total interest expense		6,095			11,633			17,728
Net increase (decrease) in net interest income	$	(6,592	)	$	3,875		$	(2,717	)

Provision for Loan and Lease Losses

The provision for loan and lease losses represents the current period credit cost associated with maintaining an appropriate allowance for credit losses. Periodic fluctuations in the provision for loan and lease losses result from management’s assessment of the adequacy of the allowance for loan and lease losses. The provision for loan and lease losses for each period is further dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, third parties and banking 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 area.

The provision for loan and lease losses was $2.0 million in the second quarter of 2004, $2.0 million in the first quarter of 2004 and $6.7 million in the second quarter of 2003. The provision for loan and lease losses was $4.0 million for the six months ended June 30, 2004 and $13.2 million for the six months ended June 30, 2003. The reduced provision level is consistent with our methodology for establishing the adequacy of our allowance for loan and lease losses and the level of net charge-offs for the periods indicated. For further information on the allowance for loan and lease losses and nonperforming assets and a description of our systematic methodology employed in determining an adequate allowance for loan and lease losses, see “FINANCIAL CONDITION – Nonperforming Assets and Other Risk Factors” and “FINANCIAL CONDITION – Allowance for Loan and Lease Losses.”

41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Non-interest Income

The following table sets forth the major categories of non-interest income for the periods indicated.

	Three month periods ended:
(Dollars in thousands)	June 30, 2004		March 31, 2004		December 31, 2003		September 30, 2003		June 30, 2003
Insurance commissions and fees	$	32,916	$	34,581	$	27,747	$	31,174	$	27,945
Rental revenues on operating leases		2,665		2,317		1,934		1,537		1,234
Service charges and other fees		2,624		2,623		2,754		2,792		2,995
Gain on sale of securities, net		2,117		1,166		764		38		3,136
Loan and international banking fees		2,026		1,974		2,188		2,668		2,421
Trust fees		974		851		925		813		819
Gain on sale of loans		635		400		1,113		1,515		364
ATM network revenue		333		360		430		492		445
Other income		2,335		3,201		2,678		2,895		2,962
Total non-interest income	$	46,625	$	47,473	$	40,533	$	43,924	$	42,321

The decrease in non-interest income during the second quarter of 2004, as compared to the first quarter of 2004, is primarily due to decreases in insurance commissions and fees, and other income. This was partially offset by increases in rental revenues on operating leases, the gain on sale of securities, trust fees, and the gain on sale of loans. Non-interest income increased during the second quarter of 2004, as compared to the second quarter of 2003, primarily due to the increase in insurance commissions and fees and rental revenues on operating leases.

The increase in insurance commissions and fees in the second quarter of 2004, as compared to the second quarter of 2003, was a result of the S&C acquisition in July 2003 and ABD’s internal growth. Insurance commissions and fees in the second quarter of 2004 decreased slightly compared to the first quarter of 2004. This is primarily due to ABD receiving a significant portion of its annual contingency and override income, which represents bonus payments from insurance companies based on ABD’s production and profitability thresholds during the prior calendar year, during the first quarter of 2004. The amount of contingency and override income is not estimable before receipt, and therefore this income is not recorded until received.

Recent news articles have reported that the New York Attorney General is investigating certain insurance brokerage firms to obtain information about compensation agreements between insurance brokers and insurance companies. The focus of these inquiries appears to be on contingency or override payments that insurance companies pay to brokers based on the overall relationship and services provided by the broker. Such payments are generally in accordance with longstanding industry practice, and may be based upon a variety of factors including, but not limited to, aggregate volume, profitability and persistency of business. It is possible that the California Department of Insurance may also be reviewing these arrangements. ABD receives payments of this nature from insurance companies. It is uncertain whether there are any similarities between the nature of ABD’s relationship or arrangements with its insurance carriers and those of the firms being investigated in New York. Although ABD has not received notice that it is a subject of any inquiries, it is uncertain at this time whether these actions could impact ABD’s arrangements with its insurance carriers or its ability to collect these payments in the future.

42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Rental revenues on operating leases represent fees earned on operating equipment leases financed by Greater Bay Capital. The $348,000 increase in revenues generated by that operating division for the second quarter of 2004, as compared to the first quarter of 2004, and the $1.4 million increase in revenues generated by that operating division for the second quarter of 2004, as compared to the second quarter of 2003, is the result of the growth in the size of the portfolio from this line of business.

Our gains and losses on the sale of securities are the result of securities sales transactions undertaken in order to manage IRR and in consideration of other factors, such as the anticipation of increases in prepayment rates. Specific IRR program initiatives can cause us to increase the volume of sale transactions and can result in an increase in gains on securities in the periods when such initiatives occur. In 2002, we made the decision to de-leverage the balance sheet by reducing the securities portfolio. This decision resulted in significant securities sales activities, which continued into the first part of 2003 and resulted in significantly larger securities gains than we had recognized either before or since. The gain on sale of securities also includes a $1.2 million gain for the second quarter of 2004, $198,000 loss for the first quarter of 2004, a $141,000 gain for the fourth quarter of 2003 and a $351,000 loss for the second quarter of 2003 recognized on derivative instruments marked to market through earnings and ineffectiveness of a hedge recorded in accordance with SFAS No. 133, SFAS No. 138 and SFAS No. 149.

The second quarter 2004 gain on sale of loans of $503,000 is related to the sale of $14.4 million of Matsco’s loan production, compared to a $210,000 gain on sale of $3.9 million of Matsco’s loan production in the first quarter of 2004, and a $1.0 million gain on the sale of $18.3 million of Matsco’s loan production in the fourth quarter of 2003. There were no gains on the sale of Matsco’s loan production in the second quarter of 2003. The remaining gain on sale of loans relates to the sale of SBA loans. The gain on sale of SBA loans amounted to $132,000 during the second quarter of 2004, $190,000 during the first quarter of 2004, $113,000 during the fourth quarter of 2003 and $364,000 during the second quarter of 2003. The level of the gain on sale of loans is generally dependent on loan sale volumes. We do not have any programs in place to sell a specified amount, or a percentage of loan originations. In determining both the level of loan sales and which loans to sell, we consider several factors, including desired concentration levels in the Matsco and SBA loan portfolios and the period of time we would need to hold the loan in order to earn the same revenues that we could generate from the sale of the loan under current market conditions.

SBA loans are sold with servicing retained. 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 based upon their relative fair values. 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. All other loan sales are servicing released.

43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The following table sets forth the major categories of non-interest income for the periods indicated.

	Six month periods ended:
(Dollars in thousands)	June 30, 2004		June 30, 2003
Insurance commissions and fees	$	67,497	$	58,587
Rental revenues on operating leases		4,982		2,111
Service charges and other fees		5,247		5,826
Gain on sale of securities, net		3,283		5,159
Loan and international banking fees		4,000		4,459
Trust fees		1,825		1,576
Gain on sale of loans		1,035		1,907
ATM network revenue		693		851
Other income		5,536		6,609
Total	$	94,098	$	87,085

The increase in non-interest income during the six months ended June 30, 2004, as compared to the six months ended June 30, 2003, is primarily due to increases in insurance commissions and fees, rental revenues on operating leases, and trust fees. This was partially offset by decreases in service charges and other fees, loan and international banking fees, gain on sale of investments, gain on sale of loans and other income.

The increase in insurance commissions and fees in the six months ended June 30, 2004, as compared to the six months ended June 30, 2003, was primarily a result of the S&C acquisition in July 2003 and ABD’s internal growth.

Rental revenues on operating leases represent fees earned on operating equipment leases financed by Greater Bay Capital. The $2.9 million increase in revenues generated by that operating division for the six months ended June 30, 2004, as compared to the six months ended June 30, 2003, is the result of the growth in the size of the portfolio from this line of business.

Our gains and losses on the sale of securities decreased for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 due primarily to the deleveraging of our balance sheet discussed above. The gain on sale of securities includes a $989,000 gain for the six months ended June 30, 2004 and a $1.8 million loss for the six months ended June 30, 2003 recognized on derivative instruments marked to market through earnings and ineffectiveness of a hedge recorded in accordance with SFAS No. 133, SFAS No. 138 and SFAS No. 149.

Of the gain on sale of loans for the six months ended June 30, 2004, $713,000 related to the sale of $18.3 million of Matsco’s loan production, compared to a $1.2 million gain on the sale of $9.7 million of Matsco’s loan production in the six months ended June 30, 2003. The remaining gain on sale of loans relates to the sale of SBA loans. The gain on sale of SBA loans decreased to $322,000 during the six months ended June 30, 2004, compared to $711,000 during the six months ended June 30, 2003.

44

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 periods indicated.

	Three month periods ended:
(Dollars in thousands)	June 30, 2004			March 31, 2004			December 31, 2003			September 30, 2003			June 30, 2003
Compensation and benefits	$	45,626		$	49,584		$	44,681		$	43,309		$	42,001
Occupancy and equipment		10,251			10,205			10,390			10,695			10,171
Legal and other professional fees		4,646			3,298			3,641			3,601			4,390
Depreciation - equipment leased to others		2,252			1,905			1,712			1,096			1,072
Amortization of intangibles		2,072			2,071			1,889			1,949			1,671
Telephone, postage and supplies		1,853			1,749			1,854			1,767			1,878
Marketing and promotion		1,729			1,669			1,755			1,428			1,822
Data processing		1,272			1,227			1,267			1,431			1,407
Insurance		1,257			1,271			837			1,131			1,283
Correspondent bank and ATM network fees		801			1,241			1,245			1,495			1,717
FDIC insurance and regulatory assessments		496			500			505			588			482
Dividends paid on preferred stock of real estate investment trusts		456			456			464			453			454
Directors’ fees		286			365			303			294			293
Client service expenses		272			327			337			294			318
Expenses on other real estate owned		214			134			—			546			518
Contribution to Greater Bay Bancorp Foundation		—			900			—			—			—
Other expenses		3,592			3,142			3,199			2,464			2,769
Total operating expenses	$	77,075		$	80,044		$	74,079		$	72,541		$	72,246
Efficiency ratio		65.04	%		65.16	%		64.00	%		62.21	%		62.21	%
Total operating expenses to average assets		4.06	%		4.26	%		3.82	%		3.61	%		3.59	%

We compute the efficiency ratio by dividing operating expenses by the sum of net interest income and other income. The efficiency ratio is a standard banking industry ratio used to determine how efficient we are at the allocation of resources. A lowering of the efficiency ratio is achieved through an increase in revenues or a decrease in operating expenses, which would generally indicate a more efficient allocation of resources. Conversely, an increase in the efficiency ratio would generally indicate a decrease in our overall efficiency. As with any standard ratio, there are limitations inherent in this measure. For example, although an increase in efficiency indicated by a decrease in this ratio would generally be expected to result in improved profitability, excessive expense reductions could result in, among other items, a weak control environment, inadequate credit risk management or a failure to comply with banking regulations. The impact of these types of deficiencies could all have an adverse impact on overall profitability.

45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The primary reasons for the decreases in operating expenses during the second quarter of 2004 as compared to the first quarter of 2004 and the increases during the second quarter of 2004 as compared to the second quarter of 2003 include the following:

• Compensation and benefits expenses decreased in the second quarter of 2004 to $45.6 million, compared to $49.6 million in the first quarter of 2004 and increased from $42.0 million in the second quarter of 2003. The decrease in the second quarter of 2004 compared to the first quarter of 2004 is primarily due to the seasonal impact of first quarter payroll taxes and benefits and first quarter bonuses paid to ABD employees. The increase in the second quarter of 2004 compared to the same period in 2003 is primarily due to the S&C acquisition and personnel added during 2003 to enhance our enterprise-wide risk management;

• The increase in legal and professional fees incurred during the second quarter of 2004 as compared to the first quarter of 2004 is a result of the increasing commitment of resources to document and enhance controls required by the Sarbanes-Oxley Act of 2002. We anticipate incurring additional such costs for at least the remainder of 2004. The increase in legal and professional fees incurred during the second quarter of 2004 as compared to the second quarter of 2003 resulting from our increase in Sarbanes-Oxley activities is partially offset by a decrease in professional fees paid for activities surrounding enhancements to our enterprise-wide risk management and regulatory compliance programs and processes, which decreased following the first half of 2003;

• Depreciation – equipment leased to others represents expenses related to operating equipment leases financed by Greater Bay Capital. The increase in expenses related to that operating division is the result of the growth in the size of the portfolio from this line of business; and

• Correspondent bank and ATM network fees decreased to $801,000 for the second quarter of 2004 as compared to $1.2 million for the first quarter of 2004. These expenses include fees paid on brokered certificates of deposit. Our average balance of brokered certificates of deposit for the second quarter of 2004 was $101.8 million, as compared to $326.6 million for the first quarter of 2004. As our use of brokered certificates of deposit has decreased, the related fees have also decreased.

46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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

	Six month periods ended:
(Dollars in thousands)	June 30, 2004			June 30, 2003
Compensation and benefits	$	95,210		$	87,433
Occupancy and equipment		20,456			19,813
Legal and other professional fees		7,944			9,352
Depreciation - equipment leased to others		4,157			1,807
Amortization of intangibles		4,143			3,342
Telephone, postage and supplies		3,602			3,624
Marketing and promotion		3,398			2,937
Insurance		2,528			2,519
Data processing		2,499			2,658
Correspondent bank and ATM network fees		2,042			3,418
FDIC insurance and regulatory assessments		996			980
Dividends paid on preferred stock of real estate investment trusts		912			907
Contribution to Greater Bay Bancorp Foundation		900			—
Directors fees		651			631
Client service expenses		599			662
Expenses on other real estate owned		348			519
Other expenses		6,734			4,986
Total operating expenses	$	157,119		$	145,588
Efficiency ratio		65.10	%		61.42	%
Total operating expenses to average assets		4.16	%		3.67	%

The primary reasons for the increases in operating expenses during the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 include the following:

• Compensation and benefits expenses increased in the six months ended June 30, 2004 to $95.2 million, compared to $87.4 million in the six months ended June 30, 2003 as a result of the S&C acquisition and personnel added during 2003 to enhance our enterprise-wide risk management;

• The decrease in legal and professional fees incurred during the six month period ended June 30, 2004 as compared to the same period in 2003 is a result of a decrease in activities surrounding enhancements to our enterprise-wide risk management and regulatory compliance programs and processes. These decreases were partially offset by 2004 activities to document and enhance controls as required by the Sarbanes-Oxley Act of 2002;

• Correspondent bank and ATM network fees decreased to $2.0 million for the six month period ended June 30, 2004 as compared to $3.4 million for the same period in 2003. These expenses include fees paid on brokered certificates of deposit. As our reliance on brokered certificates of deposit during 2004 has decreased, our correspondent bank fees have also decreased;

• Depreciation – equipment leased to others represents expenses related to operating equipment leases financed by Greater Bay Capital; and

• During the six months ended June 30, 2004, we contributed $900,000 to the Foundation.

47

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Income Taxes

Our effective income tax rate for the second quarter of 2004 was 37.7%, as compared to 37.8% for the same period in 2003. Our effective income tax rate for the six months ended June 30, 2004 was 38.4%, as compared to 38.4% for the same period in 2003. The effective rates were lower than the statutory rate of 42% due to California enterprise zone interest income exclusion, and tax-exempt income on municipal securities and bank owned life insurance policies. See Note 7 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for information regarding certain tax contingencies.

FINANCIAL CONDITION

Total assets increased $11.9 million to $7.61 billion at June 30, 2004, compared to $7.60 billion at December 31, 2003.

Securities

Securities increased 1.3% to $2.26 billion at June 30, 2004 from $2.22 billion at December 31, 2003.

The securities portfolio is comprised of U.S. Treasury securities, U.S. government agency securities, mortgage-backed securities, obligations of states and political subdivisions, corporate debt instruments and a modest amount of equity securities, including Federal Reserve Bank stock and FHLB stock. Securities available for sale are recorded at fair value. Securities held to maturity are recorded at amortized 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 securities available for sale. These other investments are included in cash and cash equivalents.

At June 30, 2004, 74.61%, of our total securities were invested in mortgage and mortgage related securities, as compared to 71.2%, at December 31, 2003. Although the stated maturity of these securities is as long as 30 years, due to periodic principal payments and anticipated prepayments, we estimate that the average remaining life of these securities is just under four years.

During the second quarter of 2004, we transferred a portion of our available for sale securities portfolio to the held to maturity category. The amortized cost of these securities at the time of transfer was $433.2 million and the securities had an unrealized loss of $5.4 million at the time of transfer. We elected to make this transfer after evaluating our current asset / liability position, IRR status, the anticipated future direction of interest rates and our resulting intention and ability to hold these securities until maturity. See Note 3 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion regarding the accounting for this transfer.

Loans

Our loan portfolio is concentrated in commercial (primarily manufacturing, service and technology) and real estate lending, with the balance in leases and consumer loans. 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’ ability to repay their loans, reduce the demand for loans and decrease our net interest margin.

48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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

	June 30, 2004					December 31, 2003
(Dollars in thousands)	Amount			%		Amount			%
Commercial	$	1,941,573		44.9	%	$	1,937,766		43.9	%
Term real estate - commercial		1,658,921		38.4			1,636,356		37.1
Total commercial		3,600,494		83.3			3,574,122		81.0
Real estate construction and land		415,155		9.6			537,079		12.2
Real estate other		268,947		6.2			273,504		6.2
Consumer and other		171,003		4.0			167,593		3.8
Total loans, gross		4,455,599		103.1			4,552,298		103.2
Deferred fees and discounts, net		(12,575	)	(0.3	)		(14,491	)	(0.3	)
Total loans, net of deferred fees		4,443,024		102.8			4,537,807		102.9
Allowance for loan and lease losses		(120,625	)	(2.8	)		(126,168	)	(2.9	)
Total loans, net	$	4,322,399		100.0	%	$	4,411,639		100.0	%

Total loans decreased by $94.8 million from December 31, 2003 to June 30, 2004 and by $264.6 million from June 30, 2003 to June 30, 2004. This portfolio contraction was almost entirely related to a decline in construction loans which we believe to be consistent with the relatively diminished level of construction activity in our primary market area. Total loans grew by $6.8 million, or an annualized growth rate of 0.61%, at June 30, 2004 from the March 31, 2004 level. This figure includes the impact of the sale of Matsco loans totaling approximately $14.4 million and the write-down of corporate finance loans of $2.0 million in this discontinued business area which occurred during the second quarter. Excluding these actions, total loans increased by $23.2 million during the second quarter of 2004, an annualized growth rate of 2.09%.

The following table presents the maturity distribution of our commercial, term real estate – commercial, real estate construction and land, real estate other and consumer and other portfolio and the allocation between fixed and variable rate loans at June 30, 2004.

(Dollars in thousands)	Commercial		Term real estate- commercial		Real estate construction and land		Real estate other		Consumer and other		Total loans, gross
Loans maturing in:
One year or less:
Fixed rate	$	161,739	$	87,157	$	44,522	$	4,316	$	12,478	$	310,212
Variable rate		476,825		56,045		297,071		20,308		71,162		921,411
One to five years:
Fixed rate		516,612		309,717		7,184		11,863		28,132		873,508
Variable rate		249,829		379,389		62,661		61,079		44,903		797,861
After five years:
Fixed rate		408,084		306,884		—		989		13,937		729,894
Variable rate		128,484		519,729		3,717		170,392		391		822,713
Total	$	1,941,573	$	1,658,921	$	415,155	$	268,947	$	171,003	$	4,455,599

49

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Nonperforming Assets and Other Risk Factors

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 we have granted a concession on either principal or interest paid due to financial difficulties of the borrower. Restructured loans which are performing in accordance with the agreed upon modified loan term are presented separately in the period of restructure and the three subsequent quarters. Other real estate owned, or OREO, consists of real property acquired through foreclosure on the related collateral underlying defaulted loans.

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

(Dollars in thousands)	June 30, 2004			March 31, 2004			December 31, 2003			September 30, 2003			June 30, 2003
Nonperforming assets:
Nonaccrual loans	$	42,230		$	48,042		$	61,700		$	58,072		$	46,491
OREO		—			1,200			—			—			2,500
Total nonperforming assets	$	42,230		$	49,242		$	61,700		$	58,072		$	48,991
Restructured loans on accrual status	$	255		$	439		$	240		$	3,500		$	—
Accruing loans past due 90 days or more	$	26		$	—		$	—		$	50		$	277
Nonaccrual loans to total loans		0.95	%		1.08	%		1.36	%		1.26	%		0.99	%
Nonperforming assets to total assets		0.55	%		0.64	%		0.81	%		0.75	%		0.61	%
Nonperforming assets, restructured loans and accruing loans past due 90 days or more to total loans and OREO		0.96	%		1.12	%		1.36	%		1.34	%		1.05	%
Nonperforming assets, restructured loans and accruing loans past due 90 days or more to total assets		0.56	%		0.65	%		0.81	%		0.79	%		0.61	%

The amount of interest income on nonaccrual loans that was included in net revenue was $268,000 for the six months ended June 30, 2004 and $606,000 for the six months ended June 30, 2003. The gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms would have been $1.2 million for the six months ended June 30, 2004 and $1.7 million for the six months ended June 30, 2003.

At June 30, 2004, $11.0 million, $4.7 million at March 31, 2004 and at December 31, 2003, $3.4 million in restructured loans were also on nonaccrual status and are included in nonaccrual loans above. There was a principal reduction concession of $504,000 allowed on restructured loans during the fourth quarter of 2003. There were no principal reduction concessions allowed on restructured loans during the second and first quarter of 2004.

50

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Interest income from restructured loans on accruing status totaled $6,000 for the second quarter of 2004, $2,000 for the first quarter of 2004 and $5,000 for the fourth quarter of 2003. The foregone interest income for the restructured loans on accruing status totaled $0 for the second quarter of 2004, $2,000 for the first quarter of 2004 and $1,000 for the fourth quarter of 2003.

Interest income from restructured loans on accruing status totaled $8,000 for the six months ended June 30, 2004 and $0 for the six months ended June 30, 2003. The foregone interest income for the restructured loans on accruing status totaled $2,000 for the six months ended June 30, 2004 and $0 for the six months ended June 30, 2003.

The details of our nonaccrual loans at June 30, 2004 and December 31, 2003 were as follows:

(Dollars in thousands)	June 30, 2004		December 31, 2003
Commercial:
Other commercial	$	11,929	$	15,398
Matsco		8,726		7,520
SNC/Corporate Finance		5,973		12,745
SBA		2,607		4,845
Venture Banking Group		3,291		3,514
Total commercial		32,526		44,022
Real estate:
Term real estate - commercial		7,505		15,003
Real estate construction and land		1,526		1,568
Real estate other		505		536
Total real estate		9,536		17,107
Consumer and other		168		571
Total nonaccrual loans	$	42,230	$	61,700

The decrease in nonaccrual assets was primarily in four areas: term real estate – commercial of $7.5 million, Shared National Credit/Corporate Finance of $6.8 million, other commercial loans of $3.5 million and SBA of $2.2 million.

All nonaccrual loans (except for a small volume of small balance Matsco and consumer loans that are considered to be homogeneous) are analyzed individually in order to determine probable loss exposure. If loss exposure is identified for any of these nonaccrual loans, we either take a write-down in the amount of the estimated loss exposure if such estimated loss is considered certain, or establish a specific reserve in the amount of the estimated loss if such loss is less certain. The balance of specific reserves associated with nonaccrual loans totaled $14.6 million at June 30, 2004, and this reserve accounts for our current estimate of the loss exposure contained within the nonaccrual portfolio.

51

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

In accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures, an Amendment of SFAS No. 114,” 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, unless they are well secured and in the process of collection. In certain circumstances, the determination of the impairment of a loan is subjective and, among other factors, is dependent upon the judgment of management. Changes in the levels of impaired loans can have an impact on our nonperforming asset levels and indirectly, our allowance for loan and lease losses. Impaired loans were $42.2 million at June 30, 2004, $48.0 million at March 31, 2004, $61.7 million at December 31, 2003 and $46.5 million at June 30, 2003. During the second quarter of 2004, first quarter of 2004 and fourth quarter of 2003, we recognized no interest income during the time within the year that the loans were impaired. As of June 30, 2004, March 31, 2004 and December 31, 2003, all of our impaired loans were on nonaccrual status and are included in nonperforming loans.

In addition to the loans disclosed above as nonaccrual or restructured, management also has identified loans totaling approximately $15.3 million that, on the basis of information known to us, were judged to have a higher than normal risk of becoming nonperforming. Management cannot, however, predict the extent to which economic conditions may worsen or other factors may impact our borrowers and our loan portfolio. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual status, be removed from nonaccrual status, become restructured loans or other real estate owned in the future.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is established through a provision for loan and lease losses based on management’s determination of losses inherent in our loan and lease portfolio. The allowance is increased by provisions charged against current earnings and reduced by net charge-offs. Loans and leases are charged-off when they are deemed to be uncollectable; recoveries are generally recorded only when cash payments are received.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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

	At and for the three month periods ended
(Dollars in thousands)	June 30, 2004			March 31, 2004			December 31, 2003			September 30, 2003			June 30, 2003
Period end gross loans outstanding	$	4,455,599		$	4,449,019		$	4,552,298		$	4,616,882		$	4,722,378
Average loans outstanding	$	4,482,052		$	4,501,141		$	4,556,111		$	4,667,233		$	4,750,886
Allowance for loan and lease losses:
Balance at beginning of period	$	122,609		$	126,168		$	128,499		$	130,030		$	129,818
Charge-offs:
Commercial		(4,111	)		(5,816	)		(6,350	)		(9,870	)		(6,089	)
Term real estate - commercial		(490	)		(1,117	)		(1,025	)		(61	)		(1,576	)
Total commercial		(4,601	)		(6,933	)		(7,375	)		(9,931	)		(7,665	)
Real estate construction and land		—			—			(2,595	)		—			—
Real estate other		—			—			(54	)		—			—
Consumer and other		(79	)		(285	)		(216	)		(257	)		(331	)
Total charge-offs		(4,680	)		(7,218	)		(10,240	)		(10,188	)		(7,996	)
Recoveries:
Commercial		560			1,538			278			559			1,104
Term real estate - commercial		—			—			—			25			338
Total commercial		560			1,538			278			584			1,442
Real estate construction and land		48			48			593			—			—
Real estate other		4			—			—			—			—
Consumer and other		84			73			38			73			66
Total recoveries		696			1,659			909			657			1,508
Net charge-offs		(3,984	)		(5,559	)		(9,331	)		(9,531	)		(6,488	)
Provision charged to income		2,000			2,000			7,000			8,000			6,700
Balance at end of period	$	120,625		$	122,609		$	126,168		$	128,499		$	130,030
Quarterly net charge-offs to average loans outstanding during the period, annualized		0.36	%		0.50	%		0.81	%		0.81	%		0.55	%
Year to date net charge-offs to average loans outstanding during the period, annualized		0.43	%		0.50	%		0.67	%		0.63	%		0.54	%
Allowance as a percentage of period end loans outstanding		2.71	%		2.76	%		2.77	%		2.78	%		2.75	%
Allowance as a percentage of nonperforming assets		285.64	%		248.99	%		204.49	%		221.28	%		265.42	%

During the first quarter of 2004, we enhanced our methodology for determining the appropriate level of allowance for loan and lease losses. While our methodology has always consisted of two key components, an individual loan impairment component and a pool loan analysis component, the enhancement made in the first quarter 2004 introduced a loss-migration approach into the pool loan analysis that utilizes historical probability-of-default and loss-given-default rates. In addition, the enhanced methodology incorporates increased analysis of loss exposure associated with pass-rated loan portfolios that has likely been incurred but not yet identified. The prior methodology relied on loss factors that provided results that were not significantly different from the results of our enhanced methodology.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The individual loan impairment component is equal to the balance of specific reserves, which are established for impaired loans as defined by SFAS 114 and 118. Loans are considered for impairment through the normal review process, and if impairment is determined, the loan is placed on nonperforming status. We estimate the amount of impairment and adjust the book value of the loan for the amount of impairment by either taking a charge-off against the loan or establishing a specific reserve. If we believe that the impaired value is reasonably certain, we charge-off an amount equal to the impairment. A specific reserve is established when the impaired value has a degree of uncertainty and we believe that we will obtain a more precise value by the occurrence of a specific future event. The balance of the specific reserve represents the individual loan impairment component of the allowance. This component totaled $15 million at June 30, 2004, $16 million at March 31, 2004, and $21 million at December 31, 2003. The $5 million reduction in this allowance component from December 31, 2003 to March 31, 2004 resulted from a decline in the volume of impaired loans.

The pool loan analysis is a migration-based analysis that results in a range of allowance and is performed in two steps. First, the analysis includes an estimate of loss based on the distribution of the portfolio by credit risk rating, the probability of default by credit risk rating, and the estimate of loss assuming a loan default. Because we estimate loss based on credit risk rating, any deterioration or improvement in credit quality will directly impact the loss estimate. This first step of the pool loan analysis resulted in an allowance requirement of $62 million at June 30, 2004, compared to $61 million at March 31, 2004. The nominal change in the allowance requirement resulting from this portion of our analysis reflected the nominal changes in quality and complexion of our loan portfolios from the prior period.

The second step of the pool loan analysis is a determination of an estimated range of unidentified, incurred loss. We believe that borrowers are impacted by events that result in loan default and eventual loss that occur well in advance of a lender’s knowledge of those events. An example of a loss-causing event for a commercial real estate loan would be the loss of a major tenant. There is a lag between the loss-causing event, loss of a major tenant in this example, and our knowledge of this event, particularly during times of significant economic downturn.

While loss causing events have likely been identified for loans that have been assigned risk ratings associated with criticized loans, they probably have not been identified for all pass-rated loans. Therefore, we believe that a portion of the pass-rated loans has heightened risk that would be similar to criticized loans. Due to the economic downturn we have experienced in our primary lending markets, we believe that a range of pass-rated loans have heightened risk. This portion of our pool loan analysis resulted in a range of additional required allowance of between $26 million and $44 million at June 30, 2004, compared to a range of $28 million and $46 million at March 31, 2004. The small change in the range from the prior period reflects nominal changes in the risk rating complexion of our loan portfolios.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Adding together the individual loan impairment component and the two portions of the pool loan analyses, the total indicated range of allowance resulting from our methodology was between $103 million and $121 million at June 30, 2004. Management believes that the most likely amount of loss within this range is the upper end of the range due to the following primary considerations:

• The overall Bay Area economic trends continue to be of concern and the timing of recovery is uncertain. While we enjoyed some reduction in nonperforming assets and charge-offs during the quarter, we are not yet certain that the reduction reflects a trend, nor a recovery of our regional economy. In addition, we believe that increased interest rates may place added pressure on debt service ratios;

• The Bank has a significant number of large loans. Unidentified loss causing events have likely occurred for some large credits and could result in downgrades that would materially alter allowance needs; and,

• The enhanced allowance for loan and lease losses methodology, which was implemented in the first quarter of 2004, is new to the organization. While management believes that this enhanced migration-based approach provides a superior assessment of allowance needs, experience with the new approach is limited.

In summary, our allowance at June 30, 2004 was $121 million, and consisted of an individual loan impairment component of $15 million and a pool loan analysis component of $106 million. This compares to a total allowance of $123 million at March 31, 2004, with an individual loan impairment component of $16 million and a pool loan analysis component of $107 million, and a total allowance of $126 million at December 31, 2003, with an individual loan impairment component of $21 million and pool loan analysis component of $105 million.

As we add new products, increase in complexity, and expand our geographic coverage, we will further enhance our methodology to keep pace with the size and complexity of the loan portfolio. 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.

While our current methodology utilizes historical and other objective information, establishing the allowance for loan and lease losses is, to some extent, based on management’s judgment and experience. Management believes that the allowance for loan and lease losses is adequate as of June 30, 2004 to cover inherent 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 and lease losses as necessary.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Property, Premises and Equipment

Property, premises and equipment increased by $7.0 million to $90.9 million at June 30, 2004, as compared to $83.8 million at December 31, 2003. The primary reason for this increase is the $9.3 million increase in equipment leased to others and was partially offset by increases in accumulated depreciation on other property, premises and equipment. The equipment leased to others represents equipment leases financed by Greater Bay Capital. Equipment leased to others, net of depreciation, was $42.5 million at June 30, 2004, compared to $33.3 million at December 31, 2003. This increase is the result of the growth in the size of the lease portfolio from this line of business.

Deposits

Total core deposits (which exclude institutional time deposits) increased by $469.2 million from June 30, 2003 and by $451.8 million from December 31, 2003. This represents a year-over-year growth rate of 10.32% and an annualized growth rate of 19.91% when compared to December 31, 2003. Institutional time deposits are comprised of brokered deposits and California state treasury deposits. Brokered deposits were $26.3 million at June 30, 2004 and $483.8 million at December 31, 2003. California state treasury deposits were $265.0 million at June 30, 2004 and $265.1 million at December 31, 2003. Total deposits were $5.3 billion at June 30, 2004 and December 31, 2003, compared to $5.5 billion at June 30, 2003.

Borrowings

Borrowings were $1.3 billion at June 30, 2004 and December 31, 2003. At June 30, 2004, borrowings consisted of FHLB advances, subordinated debt, senior notes, CODES, securities sold under agreements to repurchase and other notes payable.

Liquidity and Cash Flow

The objective of our liquidity management is to maintain our 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 Bank to meet the needs of its 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 securities, the Bank has access to the brokered deposit market, the ability to sell securities under agreements to repurchase, obtain FHLB advances or purchase overnight Federal Funds.

Net cash provided by operating activities totaled $12.3 million for the six months ended June 30, 2004 and $59.2 million for the same period of 2003. Cash used by investing activities totaled $2.1 million for the six months ended June 30, 2004. Cash provided by investing activities totaled $98.5 million for the six months ended June 30, 2003.

Net cash used by financing activities was $21.6 million for the six months ended June 30, 2004 and $178.0 million for the same period of 2003. For the first six months of 2004, the decline in deposit activities decreased cash by $5.8 million. For the first six months ended 2003, deposit gathering activities generated cash of $276.0 million. Short-term and long-term borrowings increased $39.9 million for the six months ended 2004 and decreased $442.7 million for the six months ended 2003.

As of June 30, 2004, we did not have any material commitments for capital expenditures.

56

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Our holding company is a company separate and apart from the Bank, ABD and its other subsidiaries and therefore it must provide for its own liquidity. In addition to its own operating expenses, our holding company is responsible for the payment of the interest on its line of credit, senior notes and the subordinated debt, the contingent interest on the CODES, and the dividends on our capital stock. On April 23, 2004, certain holders of the CODES due 2022 exercised their put right and, as a result, we repurchased CODES with an accreted value of $74.1 million. The CODES were repurchased at their accreted value, and the source of funds was available cash. Substantially all of our revenues are obtained from management fees, interest received on its securities and dividends declared and paid by our subsidiaries. There are statutory and regulatory provisions that limit the ability of the Bank and ABD to pay dividends to our holding company. Under such restrictions, the amount available for payment of dividends by our subsidiaries to our holding company totaled $52.0 million at June 30, 2004. We do not believe that such a limitation will adversely impact our holding company’s ability to meet its ongoing cash obligations. See Note 4 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional information concerning our holding company’s obligations under its line of credit, the senior notes, the subordinated debt and the CODES.

Capital Resources

Shareholders’ equity at June 30, 2004 decreased to $715.0 million from $750.5 million at December 31, 2003. We declared dividends per common share of $0.1425 during each of the first and second quarters of 2004 and of $0.54 during the year ended December 31, 2003. We paid cash dividends on the noncumulative convertible preferred stock of $0.90625 per preferred share during each quarter of 2004 and 2003 or an annual rate of $3.625 per preferred share.

During the first quarter of 2004, we initiated a share repurchase program that authorized the purchase of up to $70 million of our common stock. We repurchased 1,695,273 shares of common stock for an aggregate amount of $46.8 million, during the first quarter of 2004 with proceeds from the CODES issued during the first quarter of 2004. On May 27, 2004, we repurchased 96,000 shares of common stock at an aggregate price of $2.7 million. The purchase price of the stock was allocated to common stock and retained earnings.

During the first quarter of 2004 and fourth quarter of 2003, we issued 89 shares and 195,000 shares respectively, of 7.25% noncumulative convertible preferred stock. These shares were issued in connection with the final determination of the year-end earn-out payment for ABD.

A banking organization’s total qualifying capital includes two components: core capital (Tier I capital) and supplementary capital (Tier II 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 and lease 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 and lease losses in supplementary capital.

57

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The Federal Reserve and the OCC have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. Our capital levels at June 30, 2004 and the two highest levels recognized under these regulations were as follows:

	Leverage ratio		Tier I risk-based capital ratio		Total risk-based capital ratio
Company:
June 30, 2004	9.83	%	12.72	%	13.98	%
December 31, 2003	9.98	%	12.87	%	14.13	%
June 30, 2003	9.29	%	12.29	%	13.55	%
Well-capitalized minimum	5.00	%	6.00	%	10.00	%
Adequately capitalized minimum	4.00	%	4.00	%	8.00	%

Our tangible total equity to tangible asset ratio decreased from 7.12% at December 31, 2003 to 6.67% at June 30, 2004. The reduction in this ratio during the second quarter was primarily attributable to a downward investment securities valuation of $41.0 million reflective of increased market interest rates. In evaluating our tangible equity ratio, we believe it is important to consider the composition of the goodwill and other intangibles that are deducted from total equity and total assets to arrive at tangible equity and tangible assets. At June 30, 2004, total goodwill and other intangibles was $221.9 million, the majority of which is related to the ABD acquisition. Tangible equity and the tangible equity ratios are non-GAAP financial information. We believe that the tangible equity ratios are meaningful measures because they reflect the equity deployed in our business. The following table sets forth the reconciliation of shareholders’ equity to tangible equity and total assets to tangible assets for the periods indicated:

(Dollars in thousands)	June 30, 2004			December 31, 2003			June 30, 2003
Common shareholders’ equity	$	623,116		$	658,765		$	638,854
Convertible preferred stock		91,924			91,752			80,441
Total shareholders’ equity		715,040			750,517			719,295
Less: goodwill and other intangibles		(221,861	)		(225,229	)		(189,299	)
Tangible total equity	$	493,179		$	525,288		$	529,996
Total assets	$	7,613,295		$	7,601,423		$	8,090,325
Less: goodwill and other intangibles		(221,861	)		(225,229	)		(189,299	)
Tangible assets	$	7,391,434		$	7,376,194		$	7,901,026

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

The following table provides the amounts due under specified contractual obligations for the periods indicated as of June 30, 2004.

(Dollars in thousands)	Less than one year		One to three years		Four to five years		More than five years		Total
Commitment to fund loans	$	1,176,598	$	—	$	—	$	—	$	1,176,598
Commitments under letters of credit		116,006		—		—		—		116,006
Deposits		5,230,935		64,282		11,679		16		5,306,912
Borrowings		852,521		279,505		—		190,619		1,322,645
Capital lease obligations		—		—		—		—		—
Operating lease obligations		9,963		42,680		12,671		18,202		83,517
Purchase obligations		8,234		—		—		—		8,234
Other liabilities		215,579		—		—		37,817		253,396
Total	$	7,609,835	$	386,467	$	24,350	$	246,654	$	8,267,308

The obligations are categorized by their contractual due dates. Approximately $223.2 million of the commitments to fund loans relate to real estate construction and a significant percentage is expected to fund within the next 12 months. However, the remainder of the commitment to fund loans relate 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.

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 June 30, 2004, we had potential future venture capital funding requirements of $8.2 million.

59

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS BY BUSINESS SEGMENTS

We are organized along four business segments, namely: community banking, specialty finance, trust services and insurance brokerage services. We have aggregated 18 operating divisions into the community banking business segment. We have aggregated five operating divisions into the specialty finance business segment. Our trust services business segment consists of a single operating division, Greater Bay Trust Company. Our insurance brokerage services business segment consists of a single operating division, ABD.

Segment data includes intersegment revenue, including the systematic allocation of corporate-headquarters costs, or intercompany allocation, made according to an agreement between our holding company and the Bank to each of its operating segments. ABD receives certain corporate-headquarters services from our holding company for which the holding company is not reimbursed. Specialty finance also paid community banking $18.7 million in interest charges during the six months ended June 30, 2004 and $18.9 million during the six months ended June 30, 2003. Community banking paid trust services $571,000 in interest charges during the six months ended June 30, 2004 and $758,000 during the six months ended June 30, 2003. All other intersegment revenue is not significant to the results of the segments. Both the intercompany allocation and the interest charges are 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.

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.

Commercial Loans. Community banking provides personalized financial services to the diverse commercial and professional businesses in its market areas. Commercial loans consist primarily of short-term loans (normally with a maturity of up to one year) to support business operations. Community banking focuses 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. Community banking’s commercial clients are drawn from a wide variety of manufacturing, technology, real estate, wholesale and service businesses. Commercial loans may also include revolving lines of credit collateralized by accounts receivable, inventory and equipment. Commercial loan pricing is generally at a rate tied to the prime rate, as quoted in the Wall Street Journal.

Real Estate Construction and Land Loans. Community banking’s real estate construction loan activity primarily focuses on providing short-term (generally less than one year maturity) loans to individuals and developers with whom community banking has established relationships for the construction of properties in its 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 range between approximately $1.5 million and $5.0 million.

Community banking also makes land loans to borrowers who intend to construct a single family residence generally within 12 months. In addition, community banking makes commercial real estate construction loans to high net worth clients with adequate liquidity. Such loans are typically secured by first deeds of trust and require guarantees of the borrower.

Consumer and Other Loans. Community banking’s consumer and other loan portfolio is divided between installment loans secured by automobiles and aircraft, 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. Community banking also has a minimal portfolio of credit card loans, issued as an additional service to our clients.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

We also provide a wide range of financial services to support the international banking needs of community banking’s clients, including 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.

Deposit Services. Community banking offers a wide range of deposit products, including personal and business checking and savings accounts, time deposits and individual retirement accounts. Community banking also offers 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.

The key measures we use to evaluate community banking’s performance appear on the following table as of and for the six months ended June 30, 2004 and 2003. The table also provides additional significant segment measures useful to understanding the performance of this segment:

	As of and for the six month periods ended
(Dollars in thousands)	June 30, 2004			June 30, 2003
Key Measures:
Statement of operations:
Net interest income after provision for loan and lease losses	$	128,530		$	126,948
Non-interest income		14,449			21,543
Operating expenses:
Direct operating expenses		39,500			38,856
Intercompany allocation		46,150			53,234
Total operating expenses		85,650			92,090
Income before provision for income taxes (1)	$	57,329		$	56,401
Balance sheet:
Assets	$	6,222,641		$	7,014,044
Deposits	$	5,410,126		$	5,675,525
Other Significant Segment Measures:
Average loans	$	3,338,744		$	3,713,187
Yield earned on loans		6.06	%		6.40	%
Provision for loan and lease losses	$	2,038		$	7,759
Average securities	$	2,051,162		$	2,271,037
Yield earned on securities		4.19	%		4.12	%
Average deposits (2)	$	4,391,052		$	4,678,491
Rate paid on deposits		1.12	%		1.40	%
Compensation and benefits	$	18,929		$	17,297
Interest charges received from other segments and included in net interest income, net	$	18,139		$	18,151

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

(2) Includes deposit accounts of the Bank, holding company and other subsidiaries which are eliminated inconsolidation.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Community banking’s income before provision for income taxes increased to $57.3 million for the six month period ended June 30, 2004, as compared to $56.4 million for the same period in 2003.

Community banking’s primary source of revenues is interest income earned on loans. Yield earned on loans for the six month period ended June 30, 2004 declined 0.34% to 6.06% as compared 6.40% for the same period in 2003. Average loans for the six month period ended June 30, 2004 decreased to $3.3 billion, as compared to $3.7 billion for the same period in 2003. As a result of these changes, interest income on loans was $100.6 million for the six month period ended June 30, 2004, as compared to $117.9 million for the same period in 2003.

Community banking’s second highest source of revenues is interest income earned on securities. Average securities for the six month period ended June 30, 2004 decreased to $2.1 billion, as compared to $2.3 billion for the same period in 2003. Primarily as a result of this decline, interest income on securities was $42.7 million for the six month period ended June 30, 2004, as compared to $46.4 million for the same period in 2003.

Community banking is our primary deposit gathering business segment. Total deposits at June 30, 2004 were $5.4 billion, a 4.7% decrease from the June 30, 2003 balance of $5.7 billion. The decrease in deposits is a result of a decrease in institutional time deposits. Community banking’s core deposits, which excludes institutional time deposits, was $5.1 billion at June 30, 2004, a 10.0% increase from the June 30, 2003 balance of $4.7 billion.

Community banking’s provision for loan and lease losses decreased to $2.0 million for the six month period ended June 30, 2004, as compared to $7.8 million for the same period in 2003. The reduced provision level is consistent with our methodology for establishing the adequacy of our loan and lease loss reserve and the level of net charge-offs for the periods indicated. For further information on the allowance for loan and lease losses and nonperforming assets and a description of our systematic methodology employed in determining an adequate allowance for loan and lease losses, see “FINANCIAL CONDITION – Nonperforming Assets and Other Risk Factors” and “FINANCIAL CONDITION – Allowance for Loan and Lease Losses.”

Community banking’s primary direct operating expense is compensation and benefits. Compensation and benefits were $18.9 million for the six month period ended June 30, 2004 as compared to $17.3 million for the six month period ended June 30, 2003.

Specialty Finance

Specialty finance offers 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 also offer capital equipment lease financing through our Greater Bay Capital division.

Specialty finance also offers 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.

Our specialty finance products include loans to smaller businesses on which the SBA generally provides guarantees. We participate as a preferred lender in many SBA programs through the Greater Bay Bank SBA Lending Group.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The key measures we use to evaluate specialty finance’s performance appear on the following table as of and for the six months ended June 30, 2004 and 2003. The table also provides additional significant segment measures useful to understanding the performance of this segment:

	As of and for the six month periods ended
(Dollars in thousands)	June 30, 2004			June 30, 2003
Key Measures:
Statement of operations:
Net interest income after provision for loan and lease losses	$	23,059		$	19,430
Non-interest income		9,832			7,298
Operating expenses:
Direct operating expenses		15,744			14,536
Intercompany allocation		1,369			947
Total operating expenses		17,113			15,483
Income before provision for income taxes (1)	$	15,778		$	11,245
Balance sheet:
Assets	$	1,192,183		$	1,096,178
Deposits	$	14,355		$	11,080
Other Significant Segment Measures:
Average loans	$	1,093,753		$	1,040,245
Yield earned on loans		8.08	%		8.53	%
Provision for loan and lease losses	$	1,912		$	5,435
Rental revenue on operating leases	$	4,982		$	2,111
Compensation and benefits	$	7,319		$	7,976
Interest paid to other segments and included in net interest income	$	18,717		$	18,909

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

Specialty finance’s income before provision for income taxes increased to $15.8 million for the six month period ended June 30, 2004, as compared to $11.2 million for the same period in 2003.

Specialty finance’s primary source of revenues is interest income earned on loans. Yield earned on loans for the six month period ended June 30, 2004 declined 0.45% to 8.08% as compared 8.53% for the same period in 2003. The decrease in yield on loans was offset by an increase in loans. Average loans for the six month period ended June 30, 2004 increased to $1.1 billion, as compared to $1.0 billion for the same period in 2003. Interest income on loans was $44.0 million for the six month period ended June 30, 2004, which is unchanged from the same period in 2003.

Specialty finance’s primary expense is interest paid to other business segments. Specialty finance’s inter-segment interest expense was $18.7 million for the six month period ended June 30, 2004, as compared to $18.9 million for the same period in 2003.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Specialty finance’s provision for loan and lease losses decreased to $1.9 million for the six month period ended June 30, 2004, as compared to $5.4 million for the same period in 2003. The reduced provision level is consistent with our methodology for establishing the adequacy of our loan and lease loss reserve and the level of net charge-offs for the periods indicated. For further information on the allowance for loan and lease losses and nonperforming assets and a description of our systematic methodology employed in determining an adequate allowance for loan and lease losses, see “FINANCIAL CONDITION – Nonperforming Assets and Other Risk Factors” and “FINANCIAL CONDITION – Allowance for Loan and Lease Losses.”

Non-interest income is primarily comprised of rental revenue on operating leases and gains on the sales of loans and leases. Rental revenues on operating leases represent fees earned on operating equipment leases financed by Greater Bay Capital. Rental revenue on operating leases increased to $5.0 million for the six month period ended June 30, 2004, as compared to $2.1 million for the same period in 2003. The $2.9 million increase is the result of the growth in the size of the portfolio from this line of business. Gains on the sales of loans and leases were $1.0 million for the six months ended June 30, 2004 as compared to $2.0 million for the same period in 2003. The level of the gain on sale of loans and leases is generally dependent on loan sale volumes. We do not have any programs in place to sell a specified amount, or a percentage of loan originations. See “RESULTS OF OPERATIONS – Non-interest Income” for additional information regarding the computation of the gain on sale of loans.

Specialty finance’s primary direct operating expense is compensation and benefits. Compensation and benefits were $7.3 million for the six month period ended June 30, 2004 as compared to $8.0 million for the six month period ended June 30, 2003.

Insurance Brokerage Services

ABD is a commercial insurance brokerage and employee benefits consulting firm with offices located in California, Washington and Nevada, and clients throughout the United States. ABD is engaged in selling commercial, personal property, casualty, employee benefits, life and retirement insurance products and providing risk management consulting services.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The key measures we use to evaluate insurance brokerage services’ performance appear on the following table as of and for the six months ended June 30, 2004 and 2003. The table also provides additional significant segment measures useful to understanding the performance of this segment:

	As of and for the six month periods ended
(Dollars in thousands)	June 30, 2004		June 30, 2003
Key Measures:
Statement of operations:
Net interest income	$	356	$	434
Non-interest income		67,758		58,419
Operating expenses:
Direct operating expenses		56,406		46,408
Income before provision for income taxes	$	11,708	$	12,445
Balance sheet:
Assets	$	306,369	$	251,996
Other Significant Segment Measures:
Insurance commissions and fees	$	67,751	$	58,587
Compensation and benefits	$	40,344	$	33,690

Insurance brokerage services’ income before provision for income taxes decreased to $11.7 million for the six month period ended June 30, 2004, as compared to $12.4 million for the same period in 2003.

Insurance brokerage services’ primary source of revenues is insurance commissions and fees earned on the sales of insurance products and insurance related consulting services. Insurance brokerage fees were $67.5 million for the six month period ended June 30, 2004, as compared to $58.6 million for the same period in 2003. The increase in insurance commissions and fees was the result of the S&C acquisition in July 2003 and ABD’s internal growth.

Insurance brokerage services’ primary expenses are compensation and benefits and amortization of intangibles. Compensation and benefits increased to $40.3 million for the six month period ended June 30, 2004 as compared to $33.7 million for the six month period ended June 30, 2003. The increase in compensation and benefits was primarily the result of the S&C acquisition.

Trust Services

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The key measures we use to evaluate trust services’ performance appear on the following table as of and for the six months ended June 30, 2004 and 2003. The table also provides additional significant segment measures useful to understanding the performance of this segment:

	As of and for the six month periods ended
(Dollars in thousands)	June 30, 2004		June 30, 2003
Key Measures:
Statement of operations:
Net interest income	$	318	$	465
Non-interest income		1,878		1,643
Operating expenses:
Direct operating expenses		1,553		1,573
Intercompany allocation		115		217
Total operating expenses		1,668		1,790
Income before provision for income taxes (1)	$	528	$	318
Balance sheet:
Deposits	$	53,749	$	46,731
Assets under administration (2)	$	647,022	$	616,847
Other Significant Segment Measures:
Trust fees	$	1,825	$	1,576
Compensation and benefits	$	1,186	$	1,187
Interest charges received from other segments and included in net interest income	$	571	$	758

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

(2) Assets under administration are not included in our consolidated assets as reported on our Consolidated Balance Sheet.

Trust services’ income before provision for income taxes increased to $528,000 for the six month period ended June 30, 2004, as compared to $318,000 for the same period in 2003.

Trust services’ primary source of revenues is trust fees earned on the administration of client assets. Assets under administration at June 30, 2004 were $647.0 million as compared to $616.8 million at June 30, 2003. The increase in these assets was primarily a result of income earned on existing assets. The increase in assets under administration resulted in an increase in trust fees earned, which increased from $1.6 million for the six month period ended June 30, 2003 to $1.8 million for the six month period ended June 30, 2004.

Trust services’ primary expense is compensation and benefits. Compensation and benefits were $1.2 million for the six month period ended June 30, 2004 which is unchanged from the six month period ended June 30, 2003.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RECENT ACCOUNTING DEVELOPMENTS

The Meaning of Other-than-Temporary Impairment and Its Application to Certain Investments

In November 2003, the EITF reached consensus on Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” Issue 03-1 provides guidance in the recognition and measurement of other-than-temporary impairment for certain securities, including:

• All debt securities and equity securities that are subject to SFAS No. 115; and

• Equity securities that are not subject to the scope of SFAS No. 115 and that are accounted for under the cost method of accounting, or cost method investments.

Issue 03-1 also provides guidance on disclosure requirements for other-than-temporary impairment for cost method investments. The guidance in these areas of Issue 03-1 are effective for fiscal years ending after June 15, 2004.

The implementation of these areas of Issue 03-1 is not anticipated to have a material impact on our financial statements.

We have previously adopted the disclosure provisions of Issue 03-1 for debt and equity investments that are accounted for under SFAS No. 115. Those requirements were effective for fiscal years ending after December 15, 2003.

Accounting for Participating Securities and the Two-Class Method Under FASB Statement No. 128, “Earnings Per Share”

In March 2004, the EITF reached final consensus on Issue 03-6. Issue 03-6 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The Issue also provides further guidance in applying the two-class method of calculating earnings per share. It clarifies what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security.

The consensus reached by the EITF on Issue 03-6 are effective for fiscal periods beginning March 31, 2004. We have considered Issue 03-6 and determined that it will not have a material impact on our financial condition or operating results.

Proposed Accounting for Contingently Convertible Securities in the Calculation of Fully Diluted Earnings per Share under EITF Issue 04-8

On July 1, 2004, the EITF reached a tentative conclusion on Issue 04-8 that contingently convertible securities should be treated as convertible securities and included in the calculation of fully diluted earnings per share using the if-converted method. If this proposal is adopted as currently written, we would be required to include the weighted average contingently issuable shares from the CODES due 2024 and the CODES due 2022 as common stock equivalents for purposes of computing diluted earnings per share. We estimate the proposal, if implemented, would reduce our 2004 diluted earnings per share by approximately 10%. While this proposal would revise the manner in which our results are presented it would not impact the economic substance of our financial performance. As currently proposed, retroactive restatement of previous periods would be required. The EITF is expected to take action on this Issue in September 2004.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial performance is impacted by, among other factors, IRR and credit risk. Our overall goal is to manage interest rate risk sensitivity so adverse interest rate movements do not have the potential to reduce net interest income or the economic value of portfolio equity beyond our tolerance. We do not utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and our allowance for loan and lease losses. See “—Allowance for Loan and Lease Losses” herein.

IRR is measured as the potential volatility in our market value of portfolio equity and net interest income caused by changes in market interest rates. This risk is addressed by our Management Asset & Liability Committee, or ALCO, which includes senior management representatives. The ALCO monitors IRR by analyzing the potential change in the economic value of portfolio equity and net interest income due to changes in market interest rates. The ALCO manages our balance sheet to maintain economic value of portfolio equity and net interest income sensitivities within Board-approved limits.

Our exposure to IRR is reviewed on at least a quarterly basis by the Board ALCO and monthly by the Management ALCO. IRR 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, management will adjust its asset and liability mix to bring IRR within Board-approved limits.

As part of our IRR management process, we have implemented strategies to improve the maturity match of our balance sheet composition by balancing the average lives of our assets and liabilities. In addition, we have utilized two interest rate swaps and an interest rate collar to adjust the IRR of certain long-term debt instruments.

Market Value of Portfolio Equity

Interest rate sensitivity is computed by estimating the changes in net market value of portfolio equity, over a range of potential changes in interest rates. The market value of portfolio equity is the market value of our assets less 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 and prepayment speeds. The discount rates are based on recently observed spread relationships, adjusted for assumed interest rate changes. Some valuations are obtained directly from independent broker quotes. We measure the impact on market value of portfolio equity 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 the dates indicated.

Change in interest rates (Dollars in millions)	June 30, 2004							June 30, 2003
	Net portfolio value		Projected change					Net portfolio value		Projected change
			Dollars			Percentage				Dollars			Percentage
100 basis point rise	$	1,415.6	$	(18.7	)	-1.3	%	$	1,191.0	$	46.0		4.0	%
Base scenario		1,434.3		—		—			1,145.0		—		—
100 basis point decline		1,428.3		(6.0	)	-0.4	%		1,049.0		(96.0	)	-8.4	%

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)

The preceding table indicates that as of June 30, 2004 an immediate and sustained 100 basis point increase in interest rates would decrease our market value of portfolio equity by approximately 1.3% and an immediate and sustained 100 basis point decrease in interest rates would decrease our market value of portfolio equity by approximately 0.4%.

The net portfolio value of equity as of June 30, 2004 was $1.4 billion as compared to $1.1 billion as of June 30, 2003.

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. As of June 30, 2004, the analysis indicates that our net interest income before provision for loan and lease losses for the next 12 months would decrease by 1.9% if rates increased 100 basis points, and increase by 2.1% if rates decreased 100 basis points.

This analysis indicates the effect of changes in net interest income for an instantaneous set of rate changes and various other assumptions. It assumes modest balance sheet growth and a similar composition of existing products, however, it does not account for all the factors that could affect this analysis. Actual market conditions that vary significantly from the assumptions may have significant effects on our net interest income. As such, the results of this sensitivity analysis should not be relied upon as indicative of actual future results.

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ITEM 4. CONTROLS AND PROCEDURES

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, or the Exchange Act, as of the quarter ended June 30, 2004, 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 as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

During the quarter ended June 30, 2004, there have been no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, these controls.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings – Not applicable

ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities

Set forth below is certain information regarding repurchases of the our common stock during the second quarter of 2004:

(Dollars in thousands, except per share amounts)	Total number of shares of common stock purchased	Average price paid per share		Total number of shares of common stock purchased as part of publicly announced plans or programs	Approximate dollar value of shares of common stock that may yet be purchased under the plans or programs
April 1, 2004 through April 30, 2004	298	$	29.61	—	$	23,210
May 1, 2004 through May 31, 2004	—		—	—		23,210
June 1, 2004 through June 30, 2004	96,000		28.37	96,000		20,486
Total	96,298	$	28.28	96,000		20,486

On March 17, 2004, we announced a repurchase program that authorized the purchase of up to $70.0 million in common stock from time-to-time in privately negotiated transactions and in the open market. The repurchase program does not have an expiration date.

In addition to the repurchases resulting from the announced repurchase program described above, the total number of shares of common stock purchased includes 298 shares of common stock which were surrendered during April 2004 in connection with the payment of either the exercise price or withholding taxes due with respect to outstanding stock options.

ITEM 3. Defaults Upon Senior Securities – Not applicable

ITEM 4. Submission of Matters to a Vote of Security Holders

(a) We held our annual meeting of shareholders on May 25, 2004.

(b) The following directors were elected at the annual meeting to serve for a three-year term:

Frederick J. de Grosz

Susan Ford Dorsey

James E. Jackson

Stanley A. Kangas

George M. Marcus

Duncan L. Matteson

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PART II. OTHER INFORMATION

(Continued)

The following directors continued in office after the annual meeting:

Robert A. Archer

John M. Gatto

David L. Kalkbrenner

Daniel G. Libarle

Rex D. Lindsay

Arthur K. Lund

Glen McLaughlin

Linda R. Meier

Byron A. Scordelis

Donald H. Seiler

Warren R. Thoits

James C. Thompson

T. John Whalen

(c) At the annual meeting, the shareholders (1) approved the election of our Class I directors; (2) approved the amendment of our Restated Articles of Incorporation to increase the authorized number of shares of common stock from 80,000,000 to 160,000,000; (3) approved the proposal to increase the number of shares of common stock reserved under our 1996 Stock Option Plan by 6,375,000; (4) approved the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2004; (5) did not approve the proposal to amend our Bylaws to eliminate the classified Board of Directors; and (6) approved the shareholder proposal requesting the board of directors to take the necessary steps to eliminate its classified board. The results of the voting were as follows:

Matter	Votes for	Votes Against	Withheld	Abstentions	Broker non- votes
Election of Directors:
Frederick J. de Grosz	42,931,368		3,696,617
Susan Ford Dorsey	44,829,074		1,798,910
James E. Jackson	44,865,043		1,762,941
Stanley A. Kangas	44,883,600		1,744,384
George M. Marcus	43,018,200		3,609,784
Duncan L. Matteson	42,906,471		3,721,514
Articles Amendment	42,619,746	3,701,932		306,306
Separate Class Vote by common shareholders	40,918,456	3,674,813		212,480
Option Plan Amendment	26,279,825	7,676,360		498,922	12,172,876
Independent Public Accountants	45,724,156	693,825		210,003
Bylaws Amendment	20,304,001	13,323,180		827,977	12,172,876
Shareholder Proposal	19,818,648	13,799,387		837,074	12,172,876

(d) Not applicable.

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PART II. OTHER INFORMATION

(Continued)

ITEM 5. Other Information

The Board has reviewed the results of its annual meeting of shareholders held on May 25, 2004, notably:

• The approval of a shareholder proposal requesting the Board of Directors to take action to eliminate the classified board and elect all directors annually; and

• The defeat of a proposal, submitted but opposed by the Board, to amend the Bylaws to eliminate the classified board and thus elect all directors annually.

The Board has spent considerable time and resources to address the shareholder proposal; and by providing the shareholders the opportunity to vote on the Bylaw amendment, the Board believes it has substantially implemented the shareholder proposal. Therefore, in accordance with the views of our shareholders as expressed in their defeat of the proposal to amend the Bylaws, the Board has determined to maintain its classified board structure. See “Part II. Item 4. Submission of Matters to a Vote of Security Holders” for a detailed breakdown of the votes.

ITEM 6. Exhibits and Reports on Form 8-K

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

(a) Exhibits

Exhibit No.	Description of Exhibits
3.1	Restated Articles of Incorporation, as amended.
10.1	Greater Bay Bancorp 2004 Voluntary Deferred Compensation Plan (1) (2)
10.2	Greater Bay Bancorp 1996 Stock Option Plan, as amended as of May 25, 2004 (1) (3)
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Represents executive compensation plans and arrangements.

(2) Incorporated by reference from Greater Bay Bancorp’s Registration Statement on Form S-8 (File No. 033-117013) filed with the SEC on June 30, 2004.

(3) Incorporated by reference from Greater Bay Bancorp’s Registration Statement on Form S-8 (File No. 033-117012) filed with the SEC on June 30, 2004.

(b) Reports on Form 8-K

During the quarter ended June 30, 2004, Greater Bay filed the following Current Reports on Form 8-K: (1) April 2, 2004 under Item 5, 7 and 9 (announcing the appointment of James Westfall as Chief Financial Officer effective May 1, 2004) and (2) April 21, 2004 under Item 12 (announcing its financial results for the first quarter of 2004).

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Signature

In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Greater Bay Bancorp

(Registrant)

By:	/s/    JAMES S. WESTFALL
	JAMES S. WESTFALL
	Executive Vice President and Chief Financial Officer

Date: August 6, 2004

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EX-3.1

EXHIBIT 3.1

RESTATED ARTICLES OF INCORPORATION

OF

GREATER BAY BANCORP

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

1. They are the duly elected and acting President and Secretary, respectively, of GREATER BAY BANCORP, a California corporation (the “Corporation” or the “Company”).

2. The Articles of Incorporation, as amended, of this corporation are hereby restated to read as follows:

I. NAME

The name of the Corporation is GREATER BAY BANCORP (the “Corporation” or the “Company”).

II. PURPOSE

The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code.

III. AUTHORIZED STOCK

(a) This corporation is authorized to issue only two classes of shares designated “Preferred Stock” and “Common Stock,” respectively. The number of shares of Preferred Stock authorized to be issued is 4,000,000 and the number of shares of Common Stock authorized to be issued is 80,000,000.

(b) The Preferred Stock may be divided into such number of series as the board of directors may determine. The board of directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The board of directors, within the limits and restrictions stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.

IV. SERIES A PREFERRED STOCK

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

Section 1. Designation and Amount. The shares of such series shall be designated as “Series A Preferred Stock” (the “Series A Preferred Stock”) and the number of shares constituting the Series A Preferred Stock shall be 1,200,000 shares. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.

Section 2. Dividends and Distributions.

(A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, no par value (the “Common Stock”), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.095 or (b) subject to the provision for adjustment hereinafter set forth, the aggregate per share amount of all cash dividends, and the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared

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on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.095 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not less than 10 nor more than 60 days prior to the date fixed for the payment thereof.

Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:

(A) Each share of Series A Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the shareholders of the Corporation.

(B) Except as otherwise provided herein, in any other Certificate of Determination creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.

Section 4. Certain Restrictions.

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation dissolution or winding up) with the Series A Preferred Stock, except dividends

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paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking Junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or

(iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law.

Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received an amount per share equal to $100.00, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or

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winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction of the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 8. Redemption. The shares of Series A Preferred Stock shall not be redeemable.

Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all other series of the Corporation’s Preferred Stock, unless the terms of any such series shall provide otherwise.

Section 10. Amendment. The Articles of Incorporation (including any Certificate of Determination issued under the authority of said Articles) of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single series.

V. SUPER-MAJORITY VOTING BY DIRECTORS

The vote of not less than two-thirds of all members of the board of directors shall be required to approve any of the following types of matters affecting the corporation:

(a) Any merger, sale of control or sale of material assets of the corporation.

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(b) Any material acquisition by the corporation.

(c) The creation of any new business unit of the corporation or any subsidiary of the corporation.

(d) Any operating budget, or any material change therein, of the corporation or any subsidiary of the corporation.

(e) Any material change in the business organization or organizational structure of the corporation or any subsidiary of the corporation.

(f) Termination of the employment of any executive or senior officer appointed to the Executive Management Committee of the corporation.

(g) Any change in the authorized range of the number of directors of the corporation.

VI. DIRECTOR LIABILITY; INDEMNIFICATION OF AGENTS

(a) Limitation of Directors’ Liability. The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.

(b) Indemnification of Corporate Agents. The indemnification of an agent [as defined in California Corporations Code section 317(a)] of this corporation, whether by bylaws, agreement or otherwise, for breach of duty to this corporation and its stockholders, may, to the extent not prohibited under California Corporations Code sections 317 and 204(a), exceed the indemnification otherwise permitted by section 317 of the Corporations Code.

VII. ELIMINATION OF CUMULATIVE VOTING

No holder of any class of stock of the corporation shall be entitled to cumulate votes at any election of directors of the corporation.

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3. The foregoing restatement of the Articles of Incorporation (the “Restatement”) has been duly approved by the Board of Directors of the Corporation.

4. Shareholder approval of the Restatement is not required pursuant to Section 910(b) of the California General Corporation Law.

5. The Corporation is a listed company as defined in Section 301.5(d) of the California General Corporation Law because its securities are listed on the Nasdaq National Market System.

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

Executed at Palo Alto, California this 30th day of January, 2001.

/s/ David L. Kalkbrenner

David L. Kalkbrenner, President

/s/ Linda M. Iannone

Linda M. Iannone, Secretary

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CERTIFICATE OF DETERMINATION OF THE RIGHTS, PREFERENCES,

PRIVILEGES AND RESTRICTIONS

OF SERIES B PREFERRED STOCK

OF

GREATER BAY BANCORP

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

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

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

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

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

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

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

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

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

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

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

Section 1. Designation, Amount and Ranking.

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

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

Section 2. Dividend Rights; Payment of Dividends.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Section 4. Redemption.

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

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

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

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

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

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

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Section 6. Conversion Rights.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(H) In case:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Series A Preferred Stock” shall mean the Corporation’s Series A Preferred Stock as authorized by the Corporation’s Restated Articles of Incorporation.

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

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

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

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

26

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

Executed at Palo Alto, California this 11th day of March, 2002.

/s/ David L. Kalkbrenner

David L. Kalkbrenner, President

/s/ Linda M. Iannone

Linda M. Iannone, Secretary

27

CERTIFICATE OF AMENDMENT

OF

RESTATED ARTICLES OF INCORPORATION

OF

GREATER BAY BANCORP

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

1. They are the duly electing and acting President and Secretary, respectively, of Greater Bay Bancorp, a California corporation (the “Company”).

2. Article III, paragraph (a) of the Restated Articles of Incorporation is hereby amended to read as follows:

“(a) This corporation is authorized to issue only two classes of shares designated “Preferred Stock” and “Common Stock,” respectively. The number of shares of Preferred Stock authorized to be issued is 10,500,000 and the number of shares of Common Stock authorized to be issued is 80,000,000.

3. The foregoing amendment of the Company’s Restated Articles of Incorporation has been duly approved by the Company’s Board of Directors.

4. The foregoing amendment has been duly approved by the required vote of the shareholders of the Company in accordance with Sections 902 and 903 of the California General Corporation Law. The total number of outstanding shares of the Company is 51,423,952 shares of Common Stock and 1,630,504 shares of Series B Preferred Stock. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required. The percentage vote required was more than (i) 50% of the outstanding shares of Common Stock voting as a separate class, (ii) 50% of the outstanding shares of Common Stock and Series B Preferred Stock, voting together as a single class and (iii) 50% of the outstanding shares of Series B Preferred Stock voting as a separate class.

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

Executed at Palo Alto, California on July 22, 2003

/s/ David L. Kalkbrenner

David L. Kalkbrenner, President

/s/ Linda M. Iannone

Linda M. Iannone, Secretary

28

CERTIFICATE OF AMENDMENT

OF

RESTATED ARTICLES OF INCORPORATION

OF

GREATER BAY BANCORP

Byron A. Scordelis and Linda M. Iannone hereby certify that:

1. They are the duly elected and acting President and Secretary, respectively, of Greater Bay Bancorp, a California corporation (the “Company”).

2. Article III, paragraph (a) of the Restated Articles of Incorporation is hereby amended to read as follows:

“(a) This corporation is authorized to issue only two classes of shares designated “Preferred Stock” and “Common Stock,” respectively. The number of shares of Preferred Stock authorized to be issued is 10,500,000 and the number of shares of Common Stock authorized to be issued is 160,000,000.”

3. The foregoing amendment of the Company’s Restated Articles of Incorporation has been duly approved by the Company’s Board of Directors.

4. The foregoing amendment has been duly approved by the required vote of the shareholders of the Company in accordance with Sections 902 and 903 of the California General Corporation Law. The total number of outstanding shares of the Company entitled to vote was 50,909,641 shares of Common Stock and 1,825,593 shares of Series B Preferred Stock. There are no shares of Series A Preferred Stock outstanding. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required. The percentage vote required was more than (i) 50% of the outstanding shares of Common Stock voting as a separate class and (ii) 50% of the outstanding shares of Common Stock and Series B Preferred Stock, voting together as a single class.

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

Executed at Palo Alto, California on June 3, 2004

/s/ Byron A. Scordelis

Byron A. Scordelis, President

/s/ Linda M. Iannone

Linda M. Iannone, Secretary

29

EX-31.1

Exhibit 31.1

Certification

I, Byron A. Scordelis, certify that:

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

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    BYRON A. SCORDELIS

Byron A. Scordelis

President and Chief Executive Officer

Date: August 6, 2004

EX-31.2

Exhibit 31.2

Certification

I, James S. Westfall, certify that:

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

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    JAMES S. WESTFALL

James S. Westfall

Executive Vice President and Chief Financial Officer

Date: August 6, 2004

EX-32

Exhibit 32

Certification

Pursuant to the requirement set forth in Section 906 of the Sarbanes-Oxley Act of 2002, Byron A. Scordelis and James Westfall 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 Quarterly Report on Form 10-Q for the period ended June 30, 2004, and to which this Certification is attached as Exhibit 32 (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 6^th day of August, 2004.

/s/    BYRON A. SCORDELIS

Byron A. Scordelis

Chief Executive Officer

/s/    JAMES S. WESTFALL

James S. Westfall

Chief Financial Officer

A signed original of this written statement, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement, required by Section 906 has been provided to Greater Bay Bancorp and such statement will be retained by Greater Bay Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.