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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from __________ to __________.
Commission File No. 0-25034
GREATER BAY BANCORP
(Exact name of registrant as specified in its charter)
California 77-0387041
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or
organization)
2860 West Bayshore Road, Palo Alto, California 94303
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (650) 813-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
9.75% Cumulative Trust Preferred Securities of GBB Capital I
Guarantee of Greater Bay Bancorp with respect to the 9.75% Cumulative Trust
Preferred Securities of GBB Capital I
9.00% Cumulative Trust Preferred Securities of GBB Capital V
Guarantee of Greater Bay Bancorp with respect to the
9.00% Cumulative Trust Preferred Securities of GBB Capital V
Preferred Share Purchase Rights
(Title of classes)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock held by non-affiliates, based
upon the closing sale price of the Common Stock on February 6, 2002, as
reported on the Nasdaq National Market System, was approximately
$1,179,915,000. Shares of Common Stock held by each officer, director and
holder of 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. Such determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of February 6, 2002, 50,029,620 shares of the Registrant's Common Stock
were outstanding.
Document Incorporated By Reference: Part Of Form 10K Into Which Incorporated:
----------------------------------- -----------------------------------------
Definitive Proxy Statement for Annual Part III
Meeting of Shareholders to be filed within
120 days of the fiscal year ended December 31, 2001
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ANNUAL REPORT ON FORM 10-K
PART I
Discussions of certain matters contained in this Annual Report on Form 10-K
may constitute forward-looking statements within the meaning of the Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may
involve risks and uncertainties. These forward-looking statements relate to,
among other things, expectations of the business environment in which Greater
Bay Bancorp (referred to as "we" or "our" when such reference includes Greater
Bay Bancorp and its subsidiaries, collectively, "Greater Bay" when referring
only to the parent company and "the Banks" when referring only to Greater Bay's
banking subsidiaries, Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay
Bank of Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate
Bank, Mid-Peninsula Bank, Mt. Diablo National Bank, Peninsula Bank of Commerce
and San Jose National Bank) operates, projections of future performance,
perceived opportunities in the market and statements regarding our mission and
vision. Our actual results, performance and achievements may differ materially
from the results, performance and achievements expressed or implied in such
forward-looking statements. For a discussion of some of the factors that might
cause such a difference, see "Item 1. Business--Factors That May Affect Future
Results of Operations".
ITEM 1. BUSINESS.
Greater Bay Bancorp
Greater Bay Bancorp ("Greater Bay", on a parent-only basis, and "we" or
"our", on a consolidated basis) is a bank holding company with 11 bank
subsidiaries: Bank of Petaluma, Bank of Santa Clara, Bay Area Bank, Bay Bank of
Commerce, Coast Commercial Bank, Cupertino National Bank, Golden Gate Bank,
Mid-Peninsula Bank, Mt. Diablo National Bank, Peninsula Bank of Commerce, and
San Jose National Bank.
We also conduct business through the following divisions: CAPCO, Greater Bay
Bank Contra Costa Region, Greater Bay Bank Fremont Region, Greater Bay Bank
Carmel, Greater Bay Bank Marin, Greater Bay Bank Santa Clara Valley Group,
Greater Bay Bank SBA Lending Group, Greater Bay Corporate Finance Group,
Greater Bay International Banking Division, Greater Bay Trust Company, Matsco,
Pacific Business Funding and the Venture Banking Group.
We provide a wide range of commercial banking services to small and
medium-sized businesses, real estate developers, property managers, business
executives, professionals and other individuals. We operate throughout the San
Francisco Bay Area including Silicon Valley, San Francisco and the San
Francisco Peninsula, the East Bay, Santa Cruz, Marin, Monterey, and Sonoma
Counties, with 45 offices located in Aptos, Blackhawk, Capitola, Carmel,
Cupertino, Danville, Fremont, Hayward, Lafayette, Los Gatos, Millbrae,
Milpitas, Palo Alto, Petaluma, Pleasanton, Point Reyes Station, Redwood City,
San Francisco, San Jose, San Leandro, San Mateo, San Rafael, San Ramon, Santa
Clara, Santa Cruz, Saratoga, Scotts Valley, Sunnyvale, Valley Ford, Walnut
Creek and Watsonville.
At December 31, 2001, we had total assets of $7.9 billion, total loans, net,
of $4.4 billion and total deposits of $5.0 billion.
1
History
Greater Bay became a multi-bank holding company as the result of the
November 1996 merger of Cupertino National Bancorp and Mid-Peninsula Bancorp.
Mid-Peninsula Bancorp was incorporated in 1984 under the name San Mateo County
Bancorp as the bank holding company of WestCal National Bank. In 1994, WestCal
National Bank was merged with Mid-Peninsula Bank, which commenced operations in
October 1987. Concurrently San Mateo County Bancorp changed its name to
Mid-Peninsula Bancorp. The name was then changed to Greater Bay Bancorp as a
result of the 1996 merger. On consummation of the November 1996 merger between
Cupertino National Bancorp and Mid-Peninsula Bancorp, we changed our name to
Greater Bay Bancorp and Cupertino National Bank became a wholly-owned
subsidiary. Cupertino National Bank commenced operations in May 1985.
Greater Bay has continued to expand its presence within its market area by
affiliating with other quality banking organizations, and select niche
financial services companies. In addition we have been successful in opening
key regional bank locations to respond to market and client demands, while also
selectively opening key new businesses that expand our product offerings.
The following provides a chronological listing of mergers and acquisitions
that we have completed since November 27, 1996:
Year
commenced
Date of merger Entity Former bank holding company operations
-------------- ------ --------------------------- ----------
December 23, 1997 Peninsula Bank of Commerce none 1981
May 8, 1998 Golden Gate Bank Pacific Rim Bancorporation 1976
August 31, 1998 Pacific Business Funding Corporation (1) n/a 1995
May 21, 1999 Bay Area Bank Bay Area Bancshares 1979
October 15, 1999 Bay Bank of Commerce Bay Commercial Services 1981
January 31, 2000 Mt. Diablo National Bank Mt. Diablo Bancshares 1993
May 18, 2000 Coast Commercial Bank Coast Bancorp 1982
July 21, 2000 Bank of Santa Clara none 1973
October 13, 2000 Bank of Petaluma none 1987
November 30, 2000 The Matsco Companies, Inc. (2) n/a 1983
March 30, 2001 CAPCO Financial Company Inc. (3) n/a 1990
October 23, 2001 San Jose National Bank SJNB Financial Corp. 1982
- --------
(1) Operates as a division of Cupertino National Bank and conducts business
under the name Pacific Business Funding.
(2) Operates as a division of Cupertino National Bank and conducts business
under the name Matsco.
(3) Operates as a division of Cupertino National Bank and conducts business
under the name CAPCO.
With the exception of the acquisitions of The Matsco Companies, Inc. and
CAPCO, all of these acquisitions were accounted for as a pooling-of-interests
and, accordingly, all of our financial information for the periods prior to the
acquisitions has been restated as if the acquisitions had occurred at the
beginning of the earliest reporting period presented. The acquisitions of The
Matsco Companies, Inc. and CAPCO were accounted for using the purchase
accounting method.
On December 18, 2001, we signed a definitive merger agreement with ABD
Insurance and Financial Services, Inc. ("ABD"). ABD is the largest
independently owned insurance brokerage and employee benefits consulting
organization in the western United States. ABD has over $1.0 billion of
insurance premiums serviced and in excess of $100 million in revenue for the 11
month period ended December 31, 2001.
2
Our Goals
We strive toward six primary goals. These goals include:
. High Credit Quality. Non-performing asset levels continue to be below
our peer group. We've also implemented tighter underwriting standards
and more aggressive management of non-accruals to adjust for current
economy.
. Core Deposit Growth. In addition to pursuing acquisition-driven deposit
growth, we strive to expand our deposit franchise internally through
market penetration and cross-selling as part of our relationship banking
model.
. Net Interest Margin. Though declining rates have resulted in margin
compression, we have eased the compression with our interest rate risk
mitigation strategy and client relationship pricing initiatives. We
believe our relationship-based banking model positions us to deal with
sustained margin compression more effectively.
. Efficiency. We continue to actively manage our efficiency ratio, by
reducing expenses and increasing personal productivity.
. Relationship Management. This value proposition continues to benefit
our clients and our shareholders. As a market differentiator, the close
relationship with a knowledgeable, decision-empowered banker appeals to
business owners, managers and executives who demand a greater level of
service. And for Greater Bay Bancorp, the relationship delivers better
control, higher quality loans and continuing opportunities for revenue
development.
. Acquisition Strategy. We will continue to target well-managed, high
performing banks and other financial services companies that offer
growth and profit opportunities in key markets. Through disciplined
transaction execution, we have brought nine banks and three specialty
finance firms into the Greater Bay Bancorp family.
Regional Community Banking Philosophy
In order to meet the demands of the increasingly competitive banking and
financial services industries, we have adopted a business philosophy referred
to as the "Regional Community Banking Philosophy". Our Regional Community
Banking Philosophy is based on our belief that banking clients value doing
business with locally managed institutions that can provide a full service
commercial banking relationship through an understanding of the clients'
financial needs and the flexibility to deliver customized solutions through our
menu of products and services. We also believe that banks who affiliate with
Greater Bay and implement our Regional Community Banking Philosophy are better
able to build successful client relationships as the holding company provides
cost effective administrative support services while promoting bank autonomy
and flexibility in serving client needs.
To implement this philosophy, we operate each of our banking subsidiaries by
retaining their independent names. Our banking subsidiaries have established
strong reputations and client followings in their market areas through
attention to client service and an understanding of client needs.
In an effort to capitalize on the identities and reputations of the Banks,
we currently intend to continue to market our services under each Bank's name,
primarily through each Bank's relationship managers. The primary focus for the
Banks' relationship managers is to cultivate and nurture their client
relationships. Relationship managers are assigned to each borrowing client to
provide continuity in the relationship. This emphasis on personalized
relationships requires that all of the relationship managers maintain close
ties to the communities in which they serve, so they are able to capitalize on
their efforts through expanded business opportunities for the Banks.
3
While client service decisions and day-to-day operations are maintained at
the Banks, Greater Bay offers the advantages of affiliation with a multi-bank
holding company by providing expanded client support services, such as
increased client lending capacity, business cash management, international
trade finance services, and upon the completion of our acquisition of ABD,
currently expected to close in the first quarter of 2002, business insurance
products. In addition, Greater Bay provides centralized administrative
functions, including support in credit policy formulation and review,
investment management, data processing, accounting, loan servicing and other
specialized support functions. All of these centralized services are designed
to enhance the ability of the relationship manager to expand their client
relationship base.
Corporate Growth Strategy
Our primary goal is to become the preeminent independent financial services
company in Northern California. Our primary business strategy is to focus on
increasing our market share within the communities we serve through continued
internal growth. We also pursue opportunities to expand our market share
through select acquisitions that management believes complement our businesses.
Management pursues acquisition opportunities in contiguous and infill market
areas. In 2001, with the proposed acquisition of ABD, we have begun to focus on
expanding fee based products in addition to our traditional banking services.
Consistent with our operating philosophy and growth strategy, Greater Bay
regularly evaluates opportunities to acquire banks and other financial services
companies that complement our existing business, expand our market coverage and
share and enhance our client product offerings.
Greater Bay Bancorp's Family of Companies
The following provides a summary of all of our affiliated banks and
operating divisions.
Banks
Bank of Petaluma
Bank of Petaluma presently has four full service regional offices. At
December 31, 2001, Bank of Petaluma had total assets of $392.2 million, total
net loans of $136.0 million and total deposits of $230.1 million.
Bank of Santa Clara
Bank of Santa Clara presently has eight full service regional offices. At
December 31, 2001, Bank of Santa Clara had total assets of $538.5 million,
total net loans of $230.2 million and total deposits of $350.7 million.
Bay Area Bank
Bay Area Bank presently has one full service regional office. At December
31, 2001, Bay Area Bank had total assets of $367.1 million, total net loans of
$158.7 million and total deposits of $214.4 million.
Bay Bank of Commerce
Bay Bank of Commerce presently has three full service regional offices. At
December 31, 2001, Bay Bank of Commerce had total assets of $299.6 million,
total net loans of $130.4 million and total deposits of $158.2 million.
Coast Commercial Bank
Coast Commercial Bank presently has seven full service regional offices. At
December 31, 2001, Coast Commercial Bank had total assets of $565.1 million,
total net loans of $210.8 million and total deposits of $342.6 million.
4
Cupertino National Bank
Cupertino National Bank presently has seven locations, including five full
service regional offices. At December 31, 2001, Cupertino National Bank had
total assets of $2.1 billion, total net loans of $1.5 billion and total
deposits of $1.3 billion. During 2001, we formed and funded CNB Investment
Trust I ("CNBIT I") and CNB Investment Trust II ("CNBIT II"), both of which are
Maryland real estate investment trusts and subsidiaries of Cupertino National
Bank. CNBIT I and CNBIT II provides Cupertino National Bank with flexibility in
raising capital.
Golden Gate Bank
Golden Gate Bank presently has one full service regional office. On December
31, 2001, Golden Gate Bank had total assets of $437.9 million, total net loans
of $205.8 million and total deposits of $234.7 million.
Mid-Peninsula Bank
Mid-Peninsula Bank presently has five full service regional offices. On
December 31, 2001, Mid-Peninsula Bank had total assets of $1.5 billion, total
net loans of $880.2 million and total deposits of $1.0 billion.
Mt. Diablo National Bank
Mt. Diablo National Bank presently has four full service regional offices.
At December 31, 2001, Mt. Diablo National Bank had total assets of $524.1
million, total net loans of $192.0 million and total deposits of $312.6 million.
Peninsula Bank of Commerce
Peninsula Bank of Commerce presently has one full service regional office.
On December 31, 2001, Peninsula Bank of Commerce had total assets of $431.7
million, total net loans of $212.7 million and total deposits of $242.7 million.
San Jose National Bank
San Jose National Bank presently has four full service regional offices. On
December 31, 2001, San Jose National Bank had total assets of $857.2 million,
total net loans of $491.3 million and total deposits of $541.1 million.
Operating Divisions of the Banks
CAPCO
CAPCO is engaged in providing account receivable financing to small business
located in the Pacific Northwest. At December 31, 2001, CAPCO had approximately
$25.2 million in loans outstanding.
Greater Bay Bank Carmel Region, Greater Bay Bank Contra Costa Region,
Greater Bay Bank Fremont Region and Greater Bay Bank Marin Region
We believe that the East Bay, Marin County, and Monterey County have a
tremendous potential for growth. In order to establish and expand our presence
in these markets, we formed the Carmel, Contra Costa, Fremont, and Marin
regional offices. Each of these offices offers a full line of business banking
services.
5
Greater Bay Bank Santa Clara Valley Group
Greater Bay Bank Santa Clara Valley Group offers a full line of business
banking services, catering to the needs of small to medium-sized businesses,
professional firms and the executives who own and operate their business. The
services include a full range of deposit accounts, cash management and credit
facilities custom-tailored to meet the specific needs of our clients.
Greater Bay Bank SBA Lending Group
The Greater Bay Bank SBA Lending Group provides loans to smaller businesses
on which the Small Business Administration ("SBA") generally provides
guarantees between 65% to 80% of the principal loan amount. The SBA has named
both Coast Commercial Bank and Cupertino National Bank as Preferred Lenders.
The SBA awards Preferred Lender status to lenders that have demonstrated
superior ability to generate, underwrite and service loans that the SBA
guarantees. This status results in more rapid turnaround of loan applications
submitted to the SBA for approval. The group is able to utilize this status to
provide this same level of service to clients of all of the Banks.
Greater Bay Corporate Finance Group
Greater Bay Corporate Finance Group primarily focuses on originating loans
to companies that have revenues in excess of $20.0 million and financing
requirements in the range of $5.0 million to $250.0 million. Greater Bay
Corporate Finance Group participates in syndicated loan transactions and direct
sourced transactions where Greater Bay Corporate Finance Group is the lead
agent. At December 31, 2001, Greater Bay Corporate Finance Group had $99.7
million in syndicated loan transactions outstanding and $69.2 million in direct
financing transactions.
Greater Bay Trust Company
Greater Bay Trust Company provides trust services to support the trust needs
of the Banks' business and private banking clients. These services include, but
are not limited to, custodial, investment management, estate planning resources
and employee benefit plan services.
International Banking Division
International Banking Division provides a wide range of financial services
to support the international banking needs of the Banks' clients, including
identifying certain risks of conducting business abroad and providing
international letters of credit, documentary collections and other trade
finance services. In 2001, the Export-Import Bank of the United States
increased the 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.
Matsco
Matsco is engaged in providing financial products, primarily loans and
leases, to the dental and veterinary health professions. At December 31, 2001,
Matsco's outstanding loans and leases totaled $491.8 million. Approximately 80%
of Matsco's outstanding loans and leases were to dental businesses, with the
remainder to veterinarians.
Pacific Business Funding
Pacific Business Funding is an asset-based lending and factoring division
that provides alternative funding and support programs designed to enhance our
small business banking services.
6
Venture Banking Group
Venture Banking Group serves the needs of companies in their start-up and
development phase, allowing them to access a banking relationship early in
their development. The loans to this target group of clients are generally
secured by the accounts receivable, inventory and equipment of the companies.
The financial strength of these companies also tends to be bolstered by the
presence of venture capital investors among their shareholders.
Banking Services
We provide a wide range of commercial banking and financial services to
small and medium-sized businesses, real estate developers and property
managers, business executives, professionals and other individuals.
The Banks offer a wide range of deposit products, including the normal range
of personal and business checking and savings accounts, time deposits and
individual retirement accounts. The Banks also offer a wide range of
specialized services designed to attract and service the needs of clients and
include cash management and international trade finance services for business
clients, traveler's checks, safe deposit and MasterCard and Visa merchant
deposit services.
The Banks also engage in the full complement of lending activities,
including commercial, real estate and consumer loans. The Banks provide
commercial loans for working capital and business expansion to small and
medium-sized businesses with annual revenues generally in the range of $1.0
million to $100.0 million with a primary focus on business clients with
borrowing needs between $2.0 million and $10.0 million. The Banks' commercial
clients are drawn from a wide variety of manufacturing, technology, real
estate, wholesale and service businesses. The Banks provide interim real estate
construction loans primarily in the Banks' service areas for single-family
residences, which typically range between approximately $500,000 and $1.0
million, multi-unit projects, which typically range between approximately $1.5
million and $4.0 million and commercial real estate which typically range
between $1.5 million to $7.5 million. The Banks also provide medium term
commercial real estate loans or credits, typically ranging between $1.0 million
and $10.0 million for the financing of commercial or industrial buildings where
the owners either use the properties for business purposes or derive income
from tenants.
Market Area
The Banks concentrate on marketing their services to small and medium-sized
businesses, professionals and individuals in Alameda, Contra Costa, Marin,
Monterey, Santa Clara, San Francisco, San Mateo, Santa Cruz, and Sonoma
Counties.
. Bank of Petaluma's primary base of operations is in Petaluma, California
and extends through Sonoma County. Sonoma County has a population of
approximately 450,000.
. Bank of Santa Clara's primary base of operations is in Santa Clara,
California, which is located in the geographic area referred to as
"Silicon Valley". Bank of Santa Clara's operation extends throughout
Santa Clara County. Santa Clara County has a population of approximately
1,737,000.
. Bay Area Bank's primary base of operations is in Redwood City,
California and includes central San Mateo County. San Mateo county has a
population of approximately 730,000.
. Bay Bank of Commerce's primary base of operations is San Leandro,
California and extends through Alameda and Southern Contra Costa
counties. Alameda County and Contra Costa County have populations of
approximately 1,454,000 and 930,000, respectively.
7
. Coast Commercial Bank's primary base of operations is in Santa Cruz,
California and extends through Santa Cruz County. Coast Commercial Bank
also maintains a banking office in Monterey County. Santa Cruz County
and Monterey County have populations of approximately 255,000 and
399,000 respectively.
. Cupertino National Bank's primary base of operations is in Cupertino,
California, which is in the center of the geographic area referred to as
"Silicon Valley". Cupertino National Bank's operations extend throughout
Santa Clara County.
. Golden Gate Bank's primary base of operations is centered in the City
and County of San Francisco. San Francisco County has a population of
approximately 801,000.
. Mt. Diablo National Bank's primary base of operations is Danville,
California and extends through Contra Costa and northern Alameda
Counties.
. Mid-Peninsula Bank's primary base of operations is centered in Palo
Alto, California and extends from northern Santa Clara County through
San Mateo County. Mid-Peninsula Bank also maintains banking offices in
Alameda, Contra Costa, and Marin Counties.
. Peninsula Bank of Commerce's primary base of operations is centered in
Millbrae, California, and includes northern San Mateo County and extends
into San Francisco County.
. San Jose National Bank's primary base of operations is centered in San
Jose, California, and includes Santa Clara County.
The commercial base of Alameda, Contra Costa, Marin, Monterey, Santa Clara,
Santa Cruz, San Francisco, San Mateo and Sonoma Counties is diverse and
includes computer and semiconductor manufacturing, professional services,
biotechnology, printing and publishing, aerospace, defense and real estate
construction, as well as wholesale and retail trade. As a result of our
geographic concentration, our results depend largely upon economic conditions
in these areas. While the economy in our market areas exhibited weakness in
2001, recent employment reports and other economic indicators have offered
positive signs for the economy for the latter half of 2002. No assurance can be
given that significant improvement in the economy will occur in 2002. A
prolonged economic downturn could have a material adverse impact on the quality
of our loan portfolio and the demand for our products and services, and
accordingly on our results of operations. See "Item 1. Business--Factors That
May Affect Future Results of Operations."
Matsco markets its dental and veterinarian financing services nationally. At
December 31, 2001, approximately $338.1 million of Matsco's outstanding loans
and leases are with borrowers located outside of the State of California. Those
loans and leases are distributed throughout the United States, with the largest
volume having been originated in Florida, where Matsco has outstanding loans
and leases totaling approximately $37.3 million.
Similarly, the Greater Bay Corporate Finance Group participates in
syndicated loan transactions which are originated nationally. At December 31,
2001, approximately $46.6 million in outstanding syndicated loans participated
by the Greater Bay Corporate Finance Group are with borrowers located outside
the State of California.
Our other operating divisions primarily conduct business in the San
Francisco Bay Area.
8
Lending Activities
Underwriting and Credit Administration
Each Bank's lending activities are guided by the basic lending policies
established by Greater Bay and approved by each Bank's Board of Directors. Each
loan must meet minimum underwriting criteria established in the Bank's lending
policy. Lending authority is granted to officers of each Bank on a limited
basis. Loan requests which exceed individual officer approval limits are
approved on a pooled-authority basis up to a maximum limit for each Bank. Loan
requests exceeding these limits are submitted to our Officers' Loan Committee,
which consists of the President and Chief Executive Officer of Greater Bay, the
Executive Vice President and Chief Lending Officer of Greater Bay, the
Executive Vice President and Chief Credit Officer of Mid-Peninsula Bank, the
Senior Vice President and Chief Credit Officer of Greater Bay, and three
Regional Credit Administrators. All members of the Officers' Loan Committee are
also officers of the individual Banks. Loan requests which exceed the limits of
our Officers' Loan Committee are submitted to the Directors' Loan Committee.
The Directors' Loan Committee consists of at least one director of each of the
Banks. Each of these committees meets on a regular basis in order to provide
timely responses to the Banks' clients.
Our credit administration function includes an internal loan review and the
regular use of two outside loan review firms. In addition, our Officers' Loan
Committee, Credit Risk Management Committee, Chief Administrative Officer/Chief
Financial Officer and Controller review information at least once a month
related to delinquencies, nonperforming assets, classified assets and other
pertinent information to evaluate credit risk within each Bank's loan portfolio
and to review our allowance for loan losses.
Loan Portfolio
The composition of our gross loan portfolio at December 31, 2001 was as
follows:
. Approximately 73.8% were commercial loans. 42.4% of the commercial loans
were commercial real estate term loans;
. Approximately 16.6% were in real estate construction and land loans,
which are split evenly between commercial properties and residential
projects;
. Approximately 5.5% were other real estate term loans, primarily secured
by residential real estate;
. The balance of the portfolio consists of consumer loans.
The interest rates the Banks charge varies with the degree of risk, size and
maturity of the loans. In addition, competition from other financial services
companies and analyses of the client's deposit relationship with the Bank and
the Bank's cost of funds impact the interest rate charged on loans.
Commercial Loans. In their commercial loan portfolios, the Banks provide
personalized financial services to the diverse commercial and professional
businesses in their market areas. Commercial loans, including those made by the
Venture Banking Group, consist primarily of short-term loans (normally with a
maturity of up to one year) to support business operations. The Banks focus on
businesses with annual revenues generally between $1.0 million and $100.0
million with borrowing needs generally between $2.0 million and $10.0 million.
The Banks' commercial clients are drawn from a wide variety of manufacturing,
technology, real estate, wholesale and service businesses. Commercial loans
also include those loans made by the Greater Bay Corporate Finance Group.
Commercial loans typically include revolving lines of credit collateralized
by inventory, accounts receivable and equipment. In underwriting commercial
loans, we emphasize the borrower's earnings history, capitalization and
secondary sources of repayment. In some instances, we require third party
guarantees or highly liquid collateral (such as time deposits and investment
securities). Commercial loan pricing is generally at a rate tied to the prime
rate, as quoted in the Wall Street Journal, or the Banks' reference rates.
9
The Venture Banking Group provides innovative lending products and other
financial services, tailored to the needs of start-up and development-stage
companies. The Venture Banking Group's typical clients include venture capital
and technology companies, ranging from multimedia, software and
telecommunications providers to bio-technology and medical device firms.
Borrowings are generally secured by minimum cash balances, accounts receivable,
intellectual property rights, inventory and equipment of the companies. Because
many of these technology companies are in the start-up or development phase,
they may not generate any revenues for several years. We often receive warrants
from these companies as part of the compensation for our services. As of
December 31, 2001, the Venture Banking Group had loans outstanding to start-up
and development stage companies of approximately $78.0 million.
The Greater Bay Corporate Finance Group specializes in providing commercial
loans to small and medium sized, non-investment grade middle market companies.
We design credit facilities to supplement ongoing working capital needs,
purchase fixed assets or finance strategic acquisitions. Loan facilities are
typically collateralized by a first priority security interest in all of the
borrower's assets and are generally underwritten based on the value of the
borrower's assets or historical cash flow. The Greater Bay Corporate Finance
Group sources its own relationships and has participated in syndicated loan
transactions led by other financial institutions. Greater Bay Corporate Finance
Group has not participated in any syndicated loan transactions led by another
financial institution since January of 2000.
We participate in many SBA programs through the Greater Bay Bank SBA Lending
Group, which is a "preferred lender". Preferred lender status is granted to a
lender which has made a certain number of SBA loans and which, in the opinion
of the SBA, has staff who are qualified and experienced in this area. As a
preferred lender, the SBA Lending Group has the authority to authorize, on
behalf of the SBA, the SBA guaranty on loans under the 7A program. This can
represent a substantial savings to the customer. The SBA Lending Group utilizes
both the 504 program, which is focused toward longer-term financing of
buildings and other long-term assets, and the 7A program, which is primarily
used for financing of the equipment, inventory and working capital needs of
eligible businesses generally over a three- to seven-year term. The collateral
position in the SBA loans is enhanced by the SBA guaranty in the case of 7A
loans, and by lower loan-to-value ratios under the 504 program. The SBA Lending
Group generally sells the guaranteed portion of its SBA loans in the secondary
market.
Matsco offers a complete range of financial products and services to meet
the needs of dentists and veterinarians throughout their professional career.
Matsco's principal financial products, which are marketed nationwide, 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.
Real Estate Construction and Land Loans. The Banks' real estate
construction loan activity focuses on providing short-term (generally less than
one year maturity) loans to individuals and developers with whom the Banks have
established relationships for the construction primarily of single family
residences in the Banks' market areas. Real estate construction loans for
single family residences typically range between approximately $500,000 and
$1.0 million, and for multi-unit projects typically range between approximately
$1.5 million and $5.0 million.
Residential real estate construction loans are typically secured by first
deeds of trust and require guarantees of the borrower. The economic viability
of the project and the borrower's credit-worthiness are primary considerations
in the loan underwriting decision. Generally, these loans provide an attractive
yield, but may carry a higher than normal risk of loss or delinquency,
particularly if general real estate values decline. The Banks utilize approved
independent local appraisers and loan-to-value ratios which generally do not
exceed 65% to 75% of the appraised value of the property. The Banks monitor
projects during the construction phase through regular construction inspections
and a disbursement program tied to the percentage of completion of each project.
10
The Banks also occasionally make land loans to borrowers who intend to
construct a single family residence on the lot generally within twelve months.
In addition, the Banks also make commercial real estate construction loans to
high net worth clients with adequate liquidity for construction of office and
warehouse properties. Such loans are typically secured by first deeds of trust
and require guarantees of the borrower.
Real Estate Term Loans. The Banks provide medium-term commercial real
estate loans secured by commercial or industrial buildings where the owner
either uses the property for business purposes or derives income from tenants.
Our loan policies require the principal balance of the loan, generally between
$400,000 and $15.0 million, to be no more than 70% of the lower of actual or
stabilized appraised value of the underlying real estate collateral. The loans,
which are typically secured by first deeds of trust only, generally have terms
of no more than seven to ten years and are amortized over 20-25 years. Most of
these loans have rates tied to the prime rate, with many adjusting whenever the
prime rate changes; the remaining loans adjust every two or three years
depending on the term of the loan.
Consumer and Other Loans. The Banks' consumer and other loan portfolio is
divided between installment loans secured by automobiles and aircraft, and home
improvement loans and lines of credit which are often secured by residential
real estate. Installment loans tend to be fixed rate and longer-term
(one-to-five year maturity), while the equity lines of credit and home
improvement loans are generally at a floating rate and are reviewed for renewal
on an annual basis. The Banks also have a minimal portfolio of credit card
loans, issued as an additional service to its clients.
Deposits
The Banks obtain deposits primarily from small and medium-sized businesses,
business executives, professionals and other individuals. Each of the Banks
offers the usual and customary range of depository products that commercial
banks provide to customers. The Banks' deposits are not received from a single
depositor or group of affiliated depositors, the loss of any one of which would
have a material adverse effect on our business or any of the Banks. Rates paid
on deposits vary among the categories of deposits due to different terms, the
size of the individual deposit, and rates paid by competitors on similar
deposits.
Cupertino National Bank has two business units that provide significant
support to its deposit base. The Greater Bay Trust Company has approximately
8.7% of its trust assets under management in liquid funds that are retained in
Cupertino National Bank money market demand accounts. At December 31, 2001,
these funds totaled $54.8 million. The Venture Banking Group is another source
of deposits as most of the start-up phase companies have significant liquidity
that is deposited in Cupertino National Bank as part of the banking
relationship. At December 31, 2001, the Venture Banking Group's clients had
$419.0 million in deposits at Cupertino National Bank.
Trust Services
The Greater Bay Trust Company, which is a division of Cupertino National
Bank, offers a full range of fee-based trust services directly to its clients
and administers several types of retirement plans, including corporate pension
plans, 401(k) plans and individual retirement plans, with an emphasis on the
investment management, custodianship and trusteeship of such plans. In
addition, the Greater Bay Trust Company acts as executor, administrator,
guardian and/or trustee in the administration of the estates of individuals.
Investment and custodial services are provided for corporations, individuals
and nonprofit organizations. Total assets under management were $629.7 million
at December 31, 2001, compared to $773.8 million at December 31, 2000 and
$697.4 million at December 31, 1999.
11
Competition
The banking and financial services industry in California generally, and in
the Banks' market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. The Banks compete for loans,
deposits, and customers with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies, insurance
companies, finance companies, money market funds, credit unions, and other
nonbank financial service providers. Many of these competitors are much larger
in total assets and capitalization, have greater access to capital markets and
offer a broader range of financial services than the Banks.
In order to compete with other financial services providers, the Banks
principally rely upon local promotional activities, personal relationships
established by officers, directors, and employees with their customers, and
specialized services tailored to meet the needs of the communities served. In
those instances where the Banks are unable to accommodate a customer's needs,
the Banks may arrange for those services to be provided by their
correspondents. The Banks have 45 offices located in Alameda, Contra Costa,
Marin, Monterey, San Francisco, San Mateo, Santa Clara, Santa Cruz and Sonoma
counties in California.
As of June 30, 2001, the latest date for which the FDIC branch data is
available, the Bank's deposits represented 1.17% of the deposits for all
financial service companies in Alameda County, 1.35% of the deposits for all
financial service companies in Contra Costa County, 4.73% of the deposits for
all financial service companies in San Mateo County, 8.01% of all deposits in
Santa Clara County, 11.25% of all deposits in Santa Cruz County and 2.52% of
all deposits in Sonoma County. The Bank's deposits represent less than 1% of
the deposits for all financial service companies in Marin and San Francisco
Counties. The Bank's total deposits represents 3.02% of the deposits for all
financial service companies in the San Francisco Bay Area, which includes Napa
and Solano Counties in addition to the above eight counties.
Economic Conditions, Government Policies, Legislation, and Regulation
Our profitability, like most financial institutions, is primarily dependent
on interest rate differentials. In general, the difference between the interest
rates paid by the Banks on interest-bearing liabilities, such as deposits and
other borrowings, and the interest rates received by the Banks on their
interest-earning assets, such as loans extended to their clients and securities
held in their investment portfolios, comprise the major portion of our
earnings. These rates are highly sensitive to many factors that are beyond the
control of Greater Bay and the Banks, such as inflation, recession and
unemployment, and the impact which future changes in domestic and foreign
economic conditions might have on Greater Bay and the Banks cannot be predicted.
The monetary and fiscal policies of the federal government and the policies
of regulatory agencies, particularly the Board of Governors of the Federal
Reserve System (the "Federal Reserve") influence our business. The Federal
Reserve implements national monetary policies (with objectives such as curbing
inflation and combating recession) through its open-market operations in U.S.
Government securities by adjusting the required level of reserves for
depository institutions subject to its reserve requirements, and by varying the
target federal funds and discount rates applicable to borrowings by depository
institutions. The actions of the Federal Reserve in these areas influence the
growth of bank loans, investments, and deposits and also affect interest rates
earned on interest-earning assets and paid on interest-bearing liabilities. We
cannot fully predict the nature and impact on Greater Bay and the Banks of any
future changes in monetary and fiscal policies.
From time to time, legislative acts, as well as regulations, are enacted
which have the effect of increasing the cost of doing business, limiting or
expanding permissible activities, or affecting the competitive balance between
banks and other financial services providers. Proposals to change the laws and
regulations governing the operations and taxation of banks, bank holding
companies, and other financial institutions and financial services providers
are frequently made in the U.S. Congress, in the state legislatures, and before
various regulatory agencies. See "Item 1. Business--Supervision and Regulation."
12
Supervision and Regulation
General
Bank holding companies and banks are extensively regulated under both
federal and state law. This regulation is intended primarily for the protection
of depositors and the deposit insurance fund and not for the benefit of
shareholders of Greater Bay. Set forth below is a summary description of the
material laws and regulations which relate to the operations of Greater Bay and
the Banks. The description is qualified in its entirety by reference to the
applicable laws and regulations.
Greater Bay
As a registered bank holding company, Greater Bay and its subsidiaries are
subject to the Federal Reserve Board's supervision, regulation and examination
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). In
addition, effective on February 1, 2002, Greater Bay became a financial holding
company under the BHCA as amended by the Gramm-Leach-Bliley Act of 1999 (the
"Financial Services Modernization Act"). For further information on the
Financial Services Modernization Act, see --"Financial Services Modernization
Legislation" below.
As a bank holding company, Greater Bay was required to seek the Federal
Reserve Board's prior approval before acquiring ownership or control of more
than 5% of the outstanding shares of any class of voting securities, or
substantially all the assets, of any company, including a bank or bank holding
company. As a financial holding company, the Federal Reserve Board's prior
approval is not required to acquire ownership or control of entities engaged in
specified financial activities. The existing restrictions, however, on directly
or indirectly acquiring a bank or bank holding company are still applicable.
Further, as a bank holding company, Greater Bay was generally allowed to
engage, directly or indirectly, only in banking and other activities that the
Federal Reserve Board deems to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. As a financial holding
company, Greater Bay is permitted to engage in a full range of financial
activities, including banking, which the Federal Reserve Board determines to be
financial in nature, incidental to such financial activities or complimentary
to a financial activity.
Greater Bay is required by the Federal Reserve to maintain certain levels of
capital. See "--Capital Standards, below."
Under Federal Reserve regulations, a bank holding company is required to
serve as a source of financial and managerial strength to its subsidiary banks
and may not conduct its operations in an unsafe or unsound manner. In addition,
it is the Federal Reserve's policy that in serving as a source of strength to
its subsidiary banks, a bank holding company should stand ready to use
available resources to provide adequate capital funds to its subsidiary banks
during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary
banks will generally be considered by the Federal Reserve to be an unsafe and
unsound banking practice or a violation of the Federal Reserve's regulations or
both.
Greater Bay is also a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, Greater Bay and its
subsidiaries are subject to examination by, and may be required to file reports
with, the California Department of Financial Institutions.
Greater Bay's securities are registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As such, Greater Bay is subject to the information, proxy solicitation,
insider trading, and other requirements and restrictions of the Exchange Act.
13
The Banks
We have three national banking subsidiaries and eight bank subsidiaries
which are California chartered banks and members of the Federal Reserve. The
national banks are subject to primary supervision, examination, and regulation
by the Office of the Comptroller of the Currency (the "Comptroller") and are
also subject to regulations of the Federal Deposit Insurance Corporation
("FDIC") and the Federal Reserve. The state chartered banks are subject to
primary supervision, periodic examination, and regulation by the California
Commissioner of Financial Institutions ("Commissioner") and the Federal Reserve
and are also subject to regulations of the FDIC.
If, as a result of a bank examination, the Comptroller or the Federal
Reserve should determine that the financial condition, capital resources, asset
quality, earnings prospects, management, liquidity, or other aspects of the
bank's operations are unsatisfactory or that the bank or its management is
violating or has violated any law or regulation, various remedies are available
to these regulatory agencies. Such remedies include the power to enjoin "unsafe
or unsound" practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to issue an administrative order that
can be judicially enforced, to direct an increase in capital, to restrict the
growth of the bank, to assess civil monetary penalties, to remove officers and
directors, and ultimately to terminate the bank's deposit insurance, which for
a California chartered bank would result in a revocation of the bank's charter.
The Commissioner has many of the same remedial powers.
Various requirements and restrictions under the laws of California and the
United States affect the Banks' operations. State and federal statutes and
regulations relate to many aspects of the Banks' operations, including reserves
against deposits, ownership of deposit accounts, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings, dividends,
locations of branch offices, capital requirements, and disclosure of
obligations to depositors and borrowers. Further, the Banks are required to
maintain certain levels of capital. See "--Capital Standards."
USA Patriot Act of 2001
On October 26, 2001, President Bush signed the USA Patriot Act of 2001.
Enacted in response to the terrorist attacks in New York, Pennsylvania and
Washington, D.C. on September 11, 2001, the Patriot Act is intended to
strengthen U.S. law enforcement's and the intelligence communities' ability to
work cohesively to combat terrorism on a variety of fronts. The potential
impact of the Act on financial institution of all kinds is significant and wide
ranging. The Act contains sweeping anti-money laundering and financial
transparency laws and requires various regulations, including:
. due diligence requirements for financial institutions that administer,
maintain, or manage private banks accounts or correspondent accounts for
non-U.S. persons;
. standards for verifying customer identification at account opening;
. rules to promote cooperation among financial institutions, regulators,
and law enforcement entities in identifying parties that may be involved
in terrorism or money laundering;
. reports by nonfinancial trades and business filed with the Treasury
Department's Financial Crimes Enforcement Network for transactions
exceeding $10,000 and;
. filing of suspicious activities reports securities by brokers and
dealers if they believe a customer may be violating U.S. laws and
regulations.
Greater Bay is not able to predict the impact of such law on its financial
condition or results of operations at this time.
14
Financial Services Modernization Legislation
General. On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act").
The Financial Services Modernization Act repealed the two affiliation
provisions of the Glass-Steagall Act: Section 20, which restricted the
affiliation of Federal Reserve Member Banks with firms "engaged principally" in
specified securities activities; and Section 32, which restricted officer,
director, or employee interlocks between a member bank and any company or
person "primarily engaged" in specified securities activities. In addition, the
Financial Services Modernization Act also contains provisions that expressly
preempt any state law restricting the establishment of financial affiliations,
primarily related to insurance. The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks,
insurance companies, securities firms, and other financial service providers by
revising and expanding the BHCA framework to permit a holding company system to
engage in a full range of financial activities through a new entity known as a
Financial Holding Company.
The law also:
. broadens the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies, and their financial subsidiaries;
. provides an enhanced framework for protecting the privacy of consumer
information;
. adopts a number of provisions related to the capitalization, membership,
corporate governance, and other measures designed to modernize the
Federal Home Loan Bank system;
. modifies the laws governing the implementation of the Community
Reinvestment Act, and
. addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions.
Greater Bay and the Banks do not believe that the Financial Services
Modernization Act will have a material adverse effect on our operations in the
near-term. However, to the extent that it permits banks, securities firms, and
insurance companies to affiliate, the financial services industry may
experience further consolidation. The Financial Services Modernization Act is
intended to grant to community banks certain powers as a matter of right that
larger institutions have accumulated on an ad hoc basis. Nevertheless, this act
may have the result of increasing the amount of competition that Greater Bay
and the Banks face from larger institutions and other types of companies
offering financial products, many of which may have substantially more
financial resources than Greater Bay and the Banks.
Financial Holding Companies. Bank holding companies that elect to become a
financial holding company may affiliate with securities firms and insurance
companies and engage in other activities that are financial in nature or are
incidental or complementary to activities that are financial in nature. Greater
Bay became a financial holding company on February 1, 2002. Activities that are
financial in nature include:
. securities underwriting,
. dealing and market making,
. sponsoring mutual funds and investment companies,
. insurance underwriting and agency,
. merchant banking, and
. activities that the Federal Reserve, in consultation with the Secretary
of the Treasury, determines from time to time to be so closely related
to banking or managing or controlling banks as to be a proper incident
thereto.
15
Prior to electing to become a financial holding company, and in order to
maintain that status, all of the bank holding company's depository institution
subsidiaries must be well capitalized, well managed and, except in limited
circumstances, in compliance with the Community Reinvestment Act.
Failure to comply with the financial holding company requirements could lead
to divestiture of subsidiary banks or require all our activities to conform to
those permissible for a bank holding company. No Federal Reserve approval is
required for a financial holding company to acquire a company (other than a
bank holding company, bank or savings association) engaged in activities that
are financial in nature or incidental to activities that are financial in
nature, as determined by the Federal Reserve.
A bank holding company that is not also a financial holding company is
limited to engaging in banking and such other activities as determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
Merchant Banking Restrictions. While BHCA generally prohibits bank holding
companies from owning more than 5 percent of the voting stock of non-financial
companies, with limited exceptions, the Financial Services Modernization Act
authorizes merchant banking activities. Permissible merchant banking
investments are defined as investments that meet two important requirements:
. the investment may only be held for a period of time to enable the
resale of the investment (generally current regulations allow for a
10-year holding period for direct investments and a 15-year holding
period for investments in private equity funds), and
. while the investment is held by the financial holding company, the
investment financial holding company may not routinely manage or operate
the commercial firm except as necessary or required to obtain a
reasonable return on the investment on resale (regulation presumes that
officer or director interlocks involve routine management).
In addition, there are limits on bank funding of portfolio companies owned
by the bank's parent holding company, transactions between the bank and
portfolio companies and on cross-marketing activities between banks and
portfolio companies owned by the same financial holding company. However,
current rules do not prevent a depository institution from marketing the shares
of private equity funds controlled by an affiliated financial holding company,
and does not apply to situations in which the financial holding company owns
less than 5 percent of the voting shares of the portfolio company.
Furthermore, in December 2001, federal regulators adopted new capital
requirements for merchant banking activities. The rule employs a sliding scale
based on each banking organization's aggregate equity investment in
non-financial entities and Tier I capital, requiring banks or holding companies
to hold regulatory capital equal to
. 8 cents for every $1 of equity investment up to 15% of Tier 1 capital;
. 12 cents for every $1 of investments for the next 10% of Tier 1 capital;
and
. 25 cents for every $1 exceeding 25% of Tier 1 capital.
The first 15% of investments that banking companies make through
small-business investment companies (SBICs) is exempt, however, the sliding
scale applies for any such investment over 15%.
Expanded Bank Activities. The Financial Services Modernization Act also
permits national banks to engage in expanded activities through the formation
of financial subsidiaries. A national bank may have a subsidiary engaged in any
activity authorized for national banks directly or any financial activity,
except for insurance underwriting, insurance investments, real estate
investment or development, or merchant banking, which may only be conducted
through a subsidiary of a financial holding company. Financial activities
include all activities permitted under new sections of the BHCA or permitted by
regulation.
16
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized," "well-managed"
and in compliance with the Community Reinvestment Act. The total assets of all
financial subsidiaries may not exceed the lesser of 45% of a bank's total
assets, or $50 billion. A national bank must exclude from its assets and equity
all equity investments, including retained earnings, in a financial subsidiary.
The assets of the subsidiary may not be consolidated with the bank's assets.
The bank must also have policies and procedures to assess financial subsidiary
risk and protect the bank from such risks and potential liabilities.
The Financial Services Modernization Act also includes a new section of the
Federal Deposit Insurance Act governing subsidiaries of state banks that engage
in "activities as principal that would only be permissible" for a national bank
to conduct in a financial subsidiary. It expressly preserves the ability of a
state bank to retain all existing subsidiaries. Because California permits
commercial banks chartered by the state to engage in any activity permissible
for national banks, the Bank will be permitted to form subsidiaries to engage
in the activities authorized by The Financial Services Modernization Act, to
the same extent as a national bank. In order to form a financial subsidiary,
the bank must be well-capitalized, and the bank would be subject to the same
capital deduction, risk management and affiliate transaction rule as applicable
to national banks.
Privacy. Under the Financial Services Modernization Act, federal banking
regulators adopted rules that limit the ability of banks and other financial
institutions to disclose non-public information about consumers to
nonaffiliated third parties. Pursuant to the rules, financial institutions must
provide:
. initial notices to customers about their privacy policies, describing
the conditions under which they may disclose nonpublic personal
information to nonaffiliated third parties and affiliates;
. annual notices of their privacy policies to current customers; and
. a reasonable method for customers to "opt out" of disclosures to
nonaffiliated third parties.
These privacy provisions will affect how consumer information is transmitted
through diversified financial companies and conveyed to outside vendors. It is
not possible at this time to assess the impact of the privacy provisions on
Greater Bay's financial condition or results of operations.
Dividends and Other Transfers of Funds
Dividends from the Banks constitute the principal source of income to
Greater Bay. Greater Bay is a legal entity separate and distinct from the
Banks. The Banks are subject to various statutory and regulatory restrictions
on their ability to pay dividends to Greater Bay. Under such restrictions, the
amount available for payment of dividends to Greater Bay by the Banks totaled
$106.5 million at December 31, 2001. In addition, the California Department of
Financial Institutions and the Federal Reserve have the authority to prohibit
the Banks from paying dividends, depending upon the Banks' financial condition,
if such payment is deemed to constitute an unsafe or unsound practice.
The bank regulatory agencies also have authority to prohibit the Banks from
engaging in activities that, in the opinion of the applicable bank regulatory
authority, constitute unsafe or unsound practices in conducting its business.
It is possible, depending upon the financial condition of the bank in question
and other factors, that the applicable bank regulatory authority could assert
that the payment of dividends or other payments might, under some
circumstances, be such an unsafe or unsound practice. Further, the FDIC, the
Comptroller and the Federal Reserve have established guidelines with respect to
the maintenance of appropriate levels of capital by banks or bank holding
companies under their jurisdiction. Compliance with the standards set forth in
such guidelines and the restrictions that are or may be imposed under the
prompt corrective action provisions of federal law could limit the amount of
dividends which the Banks or Greater Bay may pay. An insured depository
institution is prohibited from paying management fees to any controlling
persons or, with certain limited exceptions, making capital distributions if
after such transaction the institution would be undercapitalized. See "--Prompt
Corrective Regulatory Action and Other Enforcement Mechanisms" and "--Capital
Standards" for a discussion of these additional restrictions on capital
distributions.
17
The Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, Greater Bay or other affiliates, the purchase of, or investments in,
stock or other securities thereof, the taking of such securities as collateral
for loans, and the purchase of assets of Greater Bay or other affiliates. Such
restrictions prevent Greater Bay and such other affiliates from borrowing from
the Banks unless the loans are secured by marketable obligations of designated
amounts. Further, such secured loans and investments by the Banks to or in
Greater Bay or to or in any other affiliate are limited, individually, to 10.0%
of the respective bank's capital and surplus (as defined by federal
regulations), and such secured loans and investments are limited, in the
aggregate, to 20% of the respective bank's capital and surplus (as defined by
federal regulations). California law also imposes certain restrictions with
respect to transactions involving Greater Bay and other controlling persons of
the Banks. Additional restrictions on transactions with affiliates may be
imposed on the Banks under the prompt corrective action provisions of federal
law. See "--Prompt Corrective Action and Other Enforcement Mechanisms."
Capital Standards
The federal banking agencies have adopted risk-based minimum capital
guidelines intended to provide a measure of capital that reflects the degree of
risk associated with a banking organization's operations for both transactions
reported on the balance sheet as assets and transactions, such as letters of
credit and recourse arrangements, which are recorded as off balance sheet
items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as commercial loans.
The guidelines require a minimum ratio of qualifying total capital to
risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal
banking regulators require banking organizations to maintain a minimum amount
of Tier 1 capital to total assets, referred to as the leverage ratio. For a
banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. In addition to these uniform risk-based
capital guidelines and leverage ratios that apply across the industry, the
regulators have the discretion to set individual minimum capital requirements
for specific institutions at rates significantly above the minimum guidelines
and ratios.
The federal banking regulators may set capital requirements higher than the
minimums described above for holding companies whose circumstances warrant it.
For example, a financial institution experiencing or anticipating significant
growth may be expected to maintain capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
The Federal Reserve has also indicated that it will consider a "tangible Tier 1
capital leverage ratio" (deducting all intangibles) and other indications of
capital strength in evaluating proposals for expansion or new activities.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal banking agencies possess broad powers to take corrective and other
supervisory action to resolve the problems of insured depository institutions,
including but not limited to those institutions that fall below one or more
prescribed minimum capital ratios. Each federal banking agency has promulgated
regulations defining the following five categories in which an insured
depository institution will be placed, based on its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. At December 31, 2001, each
of the Banks and Greater Bay exceeded the required ratios for classification as
well capitalized.
18
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
critically undercapitalized unless its capital ratio actually warrants such
treatment.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement
actions by the federal regulators for unsafe or unsound practices in conducting
their businesses or for violations of any law, rule, regulation, or any
condition imposed in writing by the agency or any written agreement with the
agency.
Safety and Soundness Standards
The federal banking agencies have adopted guidelines designed to assist the
federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to:
. internal controls, information systems and internal audit systems;
. loan documentation;
. credit underwriting;
. asset growth;
. earnings; and
. compensation, fees and benefits.
In addition, the federal banking agencies have also adopted safety and
soundness guidelines with respect to asset quality and earnings standards.
These guidelines provide six standards for establishing and maintaining a
system to identify problem assets and prevent those assets from deteriorating.
Under these standards, an insured depository institution should:
. conduct periodic asset quality reviews to identify problem assets;
. estimate the inherent losses in problem assets and establish reserves
that are sufficient to absorb estimated losses;
. compare problem asset totals to capital;
. take appropriate corrective action to resolve problem assets;
. consider the size and potential risks of material asset concentrations;
and
. provide periodic asset quality reports with adequate information for
management and the board of directors to assess the level of asset risk.
These new guidelines also set forth standards for evaluating and monitoring
earnings and for ensuring that earnings are sufficient for the maintenance of
adequate capital and reserves.
Premiums for Deposit Insurance
Through the Bank Insurance Fund ("BIF"), the FDIC insures the deposits of
Greater Bay's depository institution subsidiaries up to prescribed limits for
each depositor. The amount of FDIC assessments paid by each BIF member
institution is based on its relative risk of default as measured by regulatory
capital ratios and other factors. Specifically, the assessment rate is based on
the institution's capitalization risk category and supervisory subgroup
category. An institution's capitalization risk category is based on the FDIC's
determination of whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. An institution's supervisory
subgroup category is based on the FDIC's assessment of the financial condition
of the institution and the probability that FDIC intervention or other
corrective action will be required.
19
The assessment rate currently ranges from zero to 27 cents per $100 of
domestic deposits. The FDIC may increase or decrease the assessment rate
schedule on a semi-annual basis. An increase in the assessment rate could have
a material adverse effect on Greater Bay's earnings, depending on the amount of
the increase. The FDIC is authorized to terminate a depository institution's
deposit insurance upon a finding by the FDIC that the institution's financial
condition is unsafe or unsound or that the institution has engaged in unsafe or
unsound practices or has violated any applicable rule, regulation, order or
condition enacted or imposed by the institution's regulatory agency. The
termination of deposit insurance for one or more of Greater Bay's subsidiary
depository institutions could have a material adverse effect on Greater Bay's
earnings, depending on the collective size of the particular institutions
involved.
All FDIC-insured depository institutions must pay an annual assessment to
provide funds for the payment of interest on bonds issued by the Financing
Corporation, a federal corporation chartered under the authority of the Federal
Housing Finance Board. The bonds, commonly referred to as FICO bonds, were
issued to capitalize the Federal Savings and Loan Insurance Corporation. The
FDIC established the FICO assessment rates effective for the fourth quarter of
2001 at approximately $.0184 per $100 annually for assessable deposits. The
FICO assessments are adjusted quarterly to reflect changes in the assessment
bases of the FDIC's insurance funds and do not vary depending on a depository
institution's capitalization or supervisory evaluations.
Interstate Banking and Branching
The BHCA permits bank holding companies from any state to acquire banks and
bank holding companies located in any other state, subject to certain
conditions, including certain nationwide- and state-imposed concentration
limits. The Banks have the ability, subject to certain restrictions, to acquire
by acquisition or merger branches outside their home state. The establishment
of new interstate branches is also possible in those states with laws that
expressly permit it. Interstate branches are subject to certain laws of the
states in which they are located. Competition may increase further as banks
branch across state lines and enter new markets.
Community Reinvestment Act and Fair Lending Developments
The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act activities. The Community Reinvestment Act generally requires
the federal banking agencies to evaluate the record of a financial institution
in meeting the credit needs of its local communities, including low- and
moderate-income neighborhoods. A bank may be subject to substantial penalties
and corrective measures for a violation of certain fair lending laws. The
federal banking agencies may take compliance with such laws and Community
Reinvestment Act obligations into account when regulating and supervising other
activities. In December 2000, the federal banking agencies established annual
reporting and public disclosure requirements for certain written agreements
that are entered into between insured depository institutions or their
affiliates and nongovernmental entities or persons that are made pursuant to,
or in connection with, the fulfillment of the Community Reinvestment Act.
A bank's compliance with its Community Reinvestment Act obligations is based
on a performance-based evaluation system which bases Community Reinvestment Act
ratings on an institution's lending service and investment performance. When a
bank holding company applies for approval to acquire a bank or other bank
holding company, the Federal Reserve will review the assessment of each
subsidiary bank of the applicant bank holding company, and such records may be
the basis for denying the application. In connection with its assessment of
Community Reinvestment Act performance, the appropriate bank regulatory agency
assigns a rating of "outstanding", "satisfactory", "needs to improve" or
"substantial noncompliance". The results of the most recent exam for each of
the Banks are as follows.
20
Date of most
recent
Bank examination CRA rating
---- -------------- ------------
Bay Area Bank November 1999 Satisfactory
Bay Bank of Commerce October 1997 Satisfactory
Bank of Petaluma September 1998 Outstanding
Bank of Santa Clara December 2000 Satisfactory
Coast Commercial Bank May 1999 Outstanding
Cupertino National Bank October 1999 Outstanding
Golden Gate Bank November 1999 Satisfactory
Mt. Diablo National Bank February 1999 Satisfactory
Mid-Peninsula Bank November 1999 Outstanding
Peninsula Bank of Commerce November 1999 Satisfactory
San Jose National Bank October 1999 Satisfactory
The regulatory agencies for Bay Bank of Commerce, Coast Commercial Bank,
Mid-Peninsula Bank, and Peninsula Bank of Commerce completed examinations of
those institutions in December 2001. The regulatory agencies have not yet
issued any reports on those examinations. Management does not expect any
significant changes in these banks' ratings.
Employees
At December 31, 2001, we had 1,160 full-time employees. None of the
employees is covered by a collective bargaining agreement. We consider our
employee relations to be satisfactory.
Factors That May Affect Future Results of Operations
In addition to the other information contained in this report, the following
risks may affect us. If any of these risks occurs, our business, financial
condition or operating results could be adversely affected.
Failure to successfully execute our growth strategy or to integrate recently
acquired subsidiaries could adversely affect our performance.
Our financial performance and profitability will depend on our ability to
execute our corporate growth strategy and manage our recent and possible future
growth. Although management believes that it has substantially integrated the
business and operations of recently acquired subsidiaries, there can be no
assurance that unforeseen issues relating to the assimilation of these
subsidiaries will not adversely affect us. In addition, any future acquisitions
and our continued growth may present operating and other problems that could
have an adverse effect on our business, financial condition and results of
operations. Our financial performance will also depend on our ability to
maintain profitable operations through implementation of our Regional Community
Banking Philosophy, which is described earlier. Accordingly, there can be no
assurance that we will be able to execute our growth strategy or maintain the
level of profitability that we have recently experienced.
Changes in market interest rates may adversely affect our performance.
Our earnings are impacted by changing interest rates. Changes in interest
rates impact the demand for new loans, the credit profile of existing loans,
the rates received on loans and securities and rates paid on deposits and
borrowings. The relationship between the rates received on loans and securities
and the rates paid on deposits and borrowings is known as interest rate spread.
Given our current volume and mix of interest-bearing liabilities and
interest-earning assets, our interest rate spread could be expected to increase
during times of rising interest rates and, conversely, to decline during times
of falling interest rates. Although we believe our current level of interest
rate sensitivity is reasonable, significant fluctuations in interest rates may
have an adverse effect on our business, financial condition and results of
operations.
21
Our Bay Area business focus and economic conditions in the Bay Area could
adversely affect our operations.
Our Bay Area business focus and economic conditions in the Bay Area could
adversely affect our operations. Our operations are located in Northern
California and concentrated primarily in Alameda, Contra Costa, Marin,
Monterey, San Francisco, San Mateo, Santa Cruz, Santa Clara and Sonoma
counties, which includes the area known as the "Silicon Valley". As a result of
this geographic concentration, our results depend largely upon economic and
business conditions in these areas. The economy in our market areas has
exhibited weakness.
Many publicly and privately held technology firms have experienced a decline
in their stock prices and valuations. At the same time, firms in the technology
industry have experienced greater difficulty than in the past in obtaining
capital and funding. The inability of such firms to obtain necessary capital
and funding has adversely affected existing business and resulted in a
significant slowdown in the growth of the technology industry. A prolonged or
further decline in economic and business conditions in our market areas,
particularly in the technology and real estate industries on which the Bay Area
depends, could have a material impact on the quality of our loan portfolio or
the demand for our products and services, which in turn may have a material
adverse effect on our results of operations. A continued weakening in the
national economy might further exacerbate local economic conditions. The extent
of the future impact of these events on economic and business conditions cannot
be predicted.
Our future warrant income can not be predicted.
We have historically obtained rights to acquire stock, in the form of
warrants, in certain clients as part of negotiated credit facilities. We may
not be able to realize gains from these equity instruments in future periods
due to fluctuations in the market prices of the underlying common stock of
these companies. The timing and amount of income, if any, from the disposition
of client warrants typically depend upon factors beyond our control, including
the general condition of the public equity markets, levels of mergers and
acquisitions activity, and legal and contractual restrictions on our ability to
sell the underlying securities. Therefore, future gains cannot be predicted
with any degree of accuracy and are likely to vary materially from period to
period. In addition, a significant portion of the income we realize from the
disposition of client warrants may be offset by expenses related to our efforts
to build an infrastructure sufficient to support our present and future
business activities, as well as expenses incurred in evaluating and pursuing
new business opportunities.
We are subject to government regulation that could limit or restrict our
activities, which in turn could adversely impact our operations.
The financial services industry is regulated extensively. Federal and state
regulation is designed primarily to protect the deposit insurance funds and
consumers, and not to benefit our shareholders. These regulations can sometimes
impose significant limitations on our operations. In addition, these
regulations are constantly evolving and may change significantly over time.
Significant new laws or changes in existing laws or repeal of existing laws may
cause our results to differ materially. Further, federal monetary policy,
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions for us.
Competition may adversely affect our performance.
The financial services business in our market areas is highly competitive.
It is becoming increasingly competitive due to changes in regulation,
technological advances, and the accelerating pace of consolidation among
financial services providers. We face competition both in attracting deposits
and in making loans. We compete for loans principally through the interest
rates and loan fees we charge and the efficiency and quality of services we
provide. Increasing levels of competition in the banking and financial services
businesses may reduce our market share or cause the prices we charge for our
services to fall. Our results may differ in future periods depending upon the
nature or level of competition.
22
If a significant number of borrowers, guarantors and related parties fail to
perform as required by the terms of their loans, we will sustain losses.
A significant source of risk arises from the possibility that losses will be
sustained if a significant number of our borrowers, guarantors and related
parties fail to perform in accordance with the terms of their loans. We have
adopted underwriting and credit monitoring procedures and credit policies,
including the establishment and review of the allowance for credit losses, that
management believes are appropriate to minimize this risk by assessing the
likelihood of nonperformance, tracking loan performance and diversifying our
credit portfolio. These policies and procedures, however, may not prevent
unexpected losses that could materially adversely affect our results of
operations.
ITEM 2. PROPERTIES.
We occupy our administrative offices under a lease which, including options
to renew, expires in 2007. The Banks own eleven of their offices and lease 62
additional offices throughout the San Francisco Bay Area. Those leases expire
under various dates, including options to renew, through December 2017.
We believe our present facilities are adequate for our present needs but
anticipate the need for additional facilities as we continue to grow. We
believe that, if necessary, we could secure suitable alternative facilities on
similar terms without adversely affecting operations.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we are involved in certain legal proceedings arising in
the normal course of our business. Management believes that the outcome of
these matters will not have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) We held a special meeting of shareholders on October 23, 2001.
(b) Not applicable.
(c) At the special meeting, shareholders voted to approve (1) the merger
with SJNB Financial Corp. and (2) an increase of 4,000,000 shares reserved
for issuance under the Company's Amended and Restated 1996 Stock Option
Plan. The results of the voting were as follows:
Votes Broker
Matter Votes for against Withheld Abstentions non-votes
------ ---------- --------- -------- ----------- ---------
Merger with SJNB Financial Corp. 28,414,598 1,001,988 NA 94,130 -0-
Option share increase 21,887,712 7,333,404 NA 289,600 -0-
(d) Not applicable.
23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our stock is traded on the Nasdaq National Market ("Nasdaq") under the
symbol "GBBK". The quotations shown reflect the high and low closing sales
prices for our common stock as reported by Nasdaq. The following information
has been restated to reflect the 2-for-1 stock split which became effective on
October 4, 2000.
Cash
dividends
For the period indicated High Low declared
------------------------ ------ ------ ---------
2001
Fourth quarter $29.73 $19.98 $0.115
Third quarter 28.45 21.30 0.115
Second quarter 27.46 21.00 0.10
First quarter 42.88 24.81 0.10
2000
Fourth quarter $43.31 $28.12 $ 0.10
Third quarter 34.72 22.38 0.10
Second quarter 24.75 20.00 0.075
First quarter 21.13 18.03 0.075
We estimate that there were approximately 4,100 shareholders of record at
December 31, 2001.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Information regarding Selected Consolidated Financial Data appears on pages
A-1 and A-2 under the caption "Selected Financial Highlights" and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information regarding Management's Discussion and Analysis of Financial
Condition and Results of Operations appears on pages A-3 through A-26 under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding Quantitative and Qualitative Disclosures About Market
Risk appears on pages A-22 through A-24 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quantitative and Qualitative Disclosures About Market Risk" and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information regarding Financial Statements and Supplementary Data appears
A-27 through A-67 under the caption "Consolidated Balance Sheets",
"Consolidated Statements of Operations", "Consolidated Statements of
Comprehensive Income", "Consolidated Statements of Shareholders' Equity",
"Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial
Statements" and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
We intend to file a definitive proxy statement for the 2002 Annual Meeting
of Shareholders (the "Proxy Statement") with the Securities and Exchange
Commission within 120 days of December 31, 2001. Information regarding
directors of Greater Bay will appear under the caption "DISCUSSION OF THE
PROPOSALS RECOMMENDED BY THE BOARD--Proposal 1: "Election of Directors" in the
Proxy Statement and is incorporated herein by reference. Information regarding
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, and executive officers will appear under the captions "INFORMATION
ABOUT DIRECTORS AND EXECUTIVE OFFICERS--Section 16(a) Beneficial Ownership
Reporting Compliance by Directors and Executive Officers" and "--Executive
Officers" in the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation will appear under the captions
"INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS--How We Compensate
Executive Officers", "--How We Compensate Directors", "--Employment Contracts,
Termination of Employment and Change of Control Arrangements", "--Executive
Committee's Report on Executive Compensation", "--Compensation Committee
Interlocks and Insider Participation" and "--Performance Graph" in the Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management will appear under the caption "INFORMATION ABOUT GREATER BAY STOCK
OWNERSHIP" in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions will
appear under the caption "INFORMATION ABOUT DIRECTORS AND EXECUTIVE
OFFICERS--Certain Relationships and Related Transactions" in the Proxy
Statement and is incorporated herein by reference.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following documents are filed as part of this report:
Consolidated Balance Sheets at December 31, 2001 and 2000 A-27
Consolidated Statements of Operations for each of the years in the three-year period ended
December 31, 2001 A-28
Consolidated Statements of Comprehensive Income for each of the years in the three-year A-29
period ended December 31, 2001
Consolidated Statements of Shareholders' Equity for each of years in the three-year
period ended December 31, 2001 A-30
Consolidated Statements of Cash Flows for each of the years in the three-year period ended
December 31, 2001 A-31
Notes to the Consolidated Financial Statements A-32
Report of Independent Accountants A-68
2. Financial Statement Schedules
Not applicable.
3. Exhibits
See Item 14(c) below.
(b) Reports on Form 8-K
During the fourth quarter of 2001, the Company filed the following Current
Reports on Form 8-K: (1) October 9, 2001 (reporting under Item 5 and 9 the
timing of the release of the third quarter 2001 financial results and guidance
for the quarter and year ended December 31, 2001); (2) October 17, 2001, as
amended on October 18, 2001 (reporting under Item 5 and 9 third quarter 2001
financial results and performance goals for 2001 and 2002); (3) October 24,
2001 (reporting under Item 5 completion of the Company's merger with SJNB
Financial Corp.; (4) October 26, 2001 (reporting under Item 5 supplemental
consolidated financial information relating to the Company's merger with SJNB
Financial Corp); (5) November 6, 2001 (reporting under Item 5 and 9 the
presentation for analysts' reference); and (6) December 19, 2001 (reporting
under Item 5 and 9 the acquisition of ABD Insurance and Financial Services,
Inc. and reaffirmation of guidance).
(c) Exhibits Required by Item 601 of Regulation S-K
Reference is made to the Exhibit Index on pages 29 through 31 for exhibits
filed as part of this report.
(d) Additional Financial Statements
Not applicable.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 15th day of
February, 2002.
GREATER BAY BANCORP
By: /s/ DAVID L. KALKBRENNER
----------------------------------
David L. Kalkbrenner
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ DAVID L. KALKBRENNER President, Chief Executive February 15, 2002
- ----------------------------- Officer and Director
David L. Kalkbrenner (Principal Executive
Officer)
/s/ STEVEN C. SMITH Executive Vice President, February 15, 2002
- ----------------------------- Chief Administrative
Steven C. Smith Officer and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
/s/ ROBERT A. ARCHER Director February 15, 2002
- -----------------------------
Robert A. Archer
/s/ JOHN M. GATTO Director February 15, 2002
- -----------------------------
John M. Gatto
/s/ JOHN J. HOUNSLOW Director February 15, 2002
- -----------------------------
John J. Hounslow
/s/ JAMES E. JACKSON Director February 15, 2002
- -----------------------------
James E. Jackson
/s/ STANLEY A. KANGAS Director February 15, 2002
- -----------------------------
Stanley A. Kangas
/s/ DANIEL G. LIBARLE Director February 15, 2002
- -----------------------------
Daniel G. Libarle
- ----------------------------- Director
Rex D. Lindsay
- ----------------------------- Director
Arthur K. Lund
27
ANNUAL REPORT ON FORM 10-K (CONTINUED)
Signature Title Date
--------- ----- ----
/s/ GEORGE M. MARCUS Director February 15, 2002
- -----------------------------
George M. Marcus
/s/ DUNCAN L. MATTESON Director February 15, 2002
- -----------------------------
Duncan L. Matteson
/s/ GLEN MCLAUGHLIN Director February 15, 2002
- -----------------------------
Glen McLaughlin
/s/ LINDA R. MEIER Director February 15, 2002
- -----------------------------
Linda R. Meier
/s/ DICK J. RANDALL Director February 15, 2002
- -----------------------------
Dick J. Randall
/s/ DONALD H. SEILER Director February 15, 2002
- -----------------------------
Donald H. Seiler
/s/ WARREN R. THOITS Director February 15, 2002
- -----------------------------
Warren R. Thoits
/s/ JAMES C. THOMPSON Director February 15, 2002
- -----------------------------
James C. Thompson
/s/ THADDEUS J. WHALEN, JR. Director February 15, 2002
- -----------------------------
Thaddeus J. Whalen, Jr.
28
EXHIBIT INDEX
Exhibit
No. Exhibit
- ------- -------
2 Agreement and Plan of Merger and Reorganization, dated as of December 18, 2001, by and among
Greater Bay Bancorp, Alburger Basso deGrosz Insurance Services Inc., and GBBK Corp. (15)
3.1 Articles of Incorporation of Greater Bay Bancorp, as amended and restated (1)
3.2 Bylaws of Greater Bay Bancorp, as amended and restated
3.3 Certificate of Determination of Series A Preferred Stock of Greater Bay Bancorp (filed as Exhibit A to
Exhibit 4.1 hereto)
4.1 Rights Agreement (2)
4.2 Junior Subordinated Indenture dated as of March 31, 1997 between Greater Bay Bancorp and
Wilmington Trust Company, as Trustee (3)
4.3(a) Amended and Restated Trust Agreement of GBB Capital I, among Greater Bay Bancorp, Wilmington
Trust Company and the Administrative Trustees named therein dated as of March 31, 1997 (3)
4.3(b) Successor Administrative Trustee and First Amendment to Amended and Restated Trust Agreement (4)
4.4 Trust Preferred Certificate of GBB Capital I (3)
4.5 Guarantee Agreement between Greater Bay Bancorp and Wilmington Trust Company, dated as of
March 31, 1997 (3)
4.6 Agreement as to Expenses and Liabilities, dated as of March 31, 1997 (3)
4.7 Indenture between Greater Bay Bancorp and Wilmington Trust Company, as Debenture Trustee, dated
as of August 12, 1998 (5)
4.8 Amended and Restated Trust Agreement of GBB Capital II, among Greater Bay Bancorp, Wilmington
Trust Company and the Administrative Trustees named therein dated as of August 12, 1998 (5)
4.9 Common Securities Guarantee Agreement of Greater Bay Bancorp, dated as of August 12, 1998 (5)
4.10 Series B Capital Securities Guarantee Agreement of Greater Bay Bancorp and Wilmington Trust
Company dated as of November 27, 1998 (4)
4.11 Amended and Restated Declaration of Trust of GBB Capital III, dated as of March 23, 2000 (6)
4.12 Indenture, dated as of March 23, 2000, between Greater Bay Bancorp and The Bank of New York, as
Trustee (6)
4.13 Guarantee Agreement, dated as of March 23, 2000, by and between Greater Bay Bancorp and The Bank
of New York, as Trustee (6)
4.14 Amended and Restated Declaration of Trust of GBB Capital IV, dated as of May 19, 2000 (7)
4.15 Indenture, dated as of May 19, 2000, between Greater Bay Bancorp and Wilmington Trust Company,
as Trustee (7)
4.16 Common Securities Guarantee Agreement, dated as of May 19, 2000 between Greater Bay Bancorp
and Wilmington Trust Company, as Trustee (7)
4.17 Capital Securities Guarantee Agreement, dated as of November 20, 2000, between Greater Bay
Bancorp and Wilmington Trust Company, as Trustee (1)
4.18 Form of Amended and Restated Declaration of Trust of GBB Capital V (8)
29
Exhibit
No. Exhibit
- -------- -------
4.19 Form of Indenture between Greater Bay Bancorp and Wilmington Trust Company, as Trustee (8)
4.20 Form of Capital Securities Guarantee Agreement (8)
4.21 Form of Common Securities Guarantee Agreement (8)
4.22 Amended and Restated Declaration of Trust of GBB Capital VI dated July 16, 2001 (8)
4.23 Indenture, dated as of July 16, 2001, between Greater Bay Bancorp and The Bank of New York, as
Trustee (8)
4.24 Guarantee Agreement, dated as of July 16, 2001, between Greater Bay Bancorp and The Bank of New
York, as Trustee (8)
10.1 (a) Employment Agreement with David L. Kalkbrenner, dated as of January 1, 1999 (9)(10)
10.1 (b) Amendment No. 1 to Employment Agreement with David L. Kalkbrenner, dated as of December 11,
2000 (1)(9)
10.2 Employment Agreement with Byron Scordelis, dated March 26, 2001, effective as of May 15, 2001
(9)(11)
10.3 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Greater Bay Bancorp and David L. Kalkbrenner (9)(10)
10.4 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Mid-Peninsula Bank and Susan K. Black (9)(10)
10.5 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Cupertino National Bank and David R. Hood (9)(10)
10.6 Employee Supplemental Compensation Benefits Agreement, dated as of April 6, 1998, between
Greater Bay Bancorp and Gregg A. Johnson (9)(10)
10.7 Employee Supplemental Compensation Benefits Agreement, dated as of January 1, 1998, between
Greater Bay Bancorp and Steven C. Smith (9)(10)
10.8 Greater Bay Bancorp 401(k) Profit Sharing Plan (9)
10.9 Greater Bay Bancorp Employee Stock Purchase Plan, as amended (1)(9)
10.10 Greater Bay Bancorp Change in Control Pay Plan I (9)(12)
10.11(a) Greater Bay Bancorp Change in Control Pay Plan II (9)(12)
10.11(b) Amendment No. 1 to Greater Bay Bancorp Change in Control Pay Plan II (9)(13)
10.12 Greater Bay Bancorp Termination and Layoff Pay Plan I (9)(12)
10.13(a) Greater Bay Bancorp Termination and Layoff Pay Plan II (9)(12)
10.13(b) Amendment No. 1 to Greater Bay Bancorp Termination and Layoff Pay Plan II (9)(13)
10.14 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan, as amended (1)(9)
10.15 Greater Bay Bancorp Amended and Restated 1996 Stock Option Plan (9)(14)
10.16 Form of Indemnification Agreement between Greater Bay Bancorp and with directors and certain
executive officers (3)
10.17(a) Agreement, dated November 4, 1999, between Greater Bay Bancorp and Wells Fargo Bank, National
Association (13)
30
Exhibit
No. Exhibit
- -------- -------
10.17(b) Letter Amendment and Revolving Line of Credit Note, effective October 19, 2000, between Greater
Bay Bancorp and Wells Fargo Bank, National Association (1)
10.17(c) Letter Amendment and Revolving Line of Credit Note, effective October 31, 2001, between Greater
Bay Bancorp and Wells Fargo Bank, National Association
10.18(a) Line of Credit Agreement and Note, dated as of November 1, 2000, by and between Greater Bay
Bancorp and Union Bank of California, N.A. (1)
10.18(b) First Amendment to Line of Credit Agreement, dated as of October 30, 2001, between Greater Bay
Bancorp and Union Bank of California, N.A.
12.1 Statement re Computation of Ratios of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
- --------
1. Incorporated by reference from Greater Bay Bancorp's 2000 Annual Report on
Form 10-K filed with the SEC on February 1, 2001
2. Incorporated by reference from Greater Bay Bancorp's Form 8-A12G filed with
the SEC on November 25, 1998
3. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K dated June 5, 1997
4. Incorporated by reference from Greater Bay Bancorp's 1998 Annual Report on
Form 10-K filed with the SEC on February 17, 1999
5. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on August 28, 1998
6. Incorporated herein by reference from Greater Bay Bancorp's Quarterly
Report on Form 10-Q filed with the SEC on May 12, 2000
7. Incorporated by reference from Greater Bay Bancorp's Quarterly Report on
Form 10-Q filed with the SEC on August 1, 2000
8. Incorporated by reference from Greater Bay Bancorp's Registration Statement
on Form S-3 (File Nos. 333-65772 and 333-65772-01) filed with the SEC on
July 25, 2001
9. Represents executive compensation plans and arrangements of Greater Bay
Bancorp
10. Incorporated by reference from Greater Bay Bancorp's 1999 Annual Report on
Form 10-K filed with the SEC on January 31, 2000
11. Incorporated by reference from Greater Bay Bancorp's Quarterly Report on
Form 10-Q filed with the SEC on August 3, 2001
12. Incorporated by reference from Greater Bay Bancorp's Annual Report on Form
10-K filed with the SEC on March 31, 1998
13. Incorporated by reference from Greater Bay Bancorp's Quarterly Report on
Form 10-Q filed with the SEC on May 4, 1999
14. Incorporated by reference from Greater Bay Bancorp's Registration Statement
on Form S-8 (File No. 333-76004) filed with the SEC on December 27, 2001
15. Incorporated by reference from Greater Bay Bancorp's Current Report on Form
8-K filed with the SEC on December 19, 2001
31
SELECTED FINANCIAL INFORMATION
The following table represents the selected financial information at and for
the five years ended December 31, 2001:
2001 2000* 1999* 1998* 1997*
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Statement of Operations Data
Interest income $ 507,241 $ 423,639 $ 298,634 $ 244,269 $ 202,367
Interest expense 186,232 158,050 106,509 87,395 69,869
----------- ----------- ----------- ----------- -----------
Net interest income 321,009 265,589 192,125 156,874 132,498
Provision for loan losses 54,727 28,821 14,901 8,715 9,836
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan
losses 266,282 236,768 177,224 148,159 122,662
Other income 44,261 34,145 30,337 22,820 19,669
Nonrecurring--warrant income 581 12,986 14,508 945 1,162
----------- ----------- ----------- ----------- -----------
Total other income 44,842 47,131 44,845 23,765 20,831
Operating expenses 175,591 139,544 121,328 103,491 90,613
Other expenses--nonrecurring -- -- 12,160 1,341 (1,700)
----------- ----------- ----------- ----------- -----------
Total operating expenses 175,591 139,544 133,488 104,832 88,913
----------- ----------- ----------- ----------- -----------
Income before income tax expense & merger and other
related nonrecurring costs 135,533 144,355 88,581 67,092 54,580
Income tax expense 38,106 55,340 30,485 24,145 20,392
----------- ----------- ----------- ----------- -----------
Income before merger and other related nonrecurring
costs 97,427 89,015 58,096 42,947 34,188
Merger and other related nonrecurring costs, net of tax (17,611) (21,851) (6,795) (1,674) (2,283)
----------- ----------- ----------- ----------- -----------
Net income $ 79,816 $ 67,164 $ 51,301 $ 41,273 $ 31,905
=========== =========== =========== =========== ===========
Per Share Data(1)
Net income per share
Basic $ 1.61 $ 1.40 $ 1.15 $ 0.95 $ 0.75
Diluted 1.57 1.33 1.09 0.88 0.71
Income per share (before merger and nonrecurring
items)(3)
Basic $ 1.96 $ 1.70 $ 1.20 $ 0.98 $ 0.77
Diluted 1.91 1.61 1.14 0.91 0.72
Cash dividends per share(2) $ 0.43 $ 0.35 $ 0.24 $ 0.19 $ 0.15
Book value per common share 9.31 7.92 6.63 5.73 5.13
Shares outstanding at year end 49,831,682 48,748,713 46,174,308 43,876,750 42,510,962
Average common shares outstanding 49,498,000 47,899,000 44,599,000 43,664,000 42,403,000
Averag