GREATER BAY BANCORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2004

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

For the transition period from to .

Commission file number 0-25034

GREATER BAY BANCORP

(Exact name of registrant as specified in its charter)

California

77-0387041

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer Identification No.)

2860 West Bayshore Road, Palo Alto, California 94303

(Address of principal executive offices)(Zip Code)

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

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

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

Outstanding shares of Common Stock, no par value, as of May 4, 2004: 51,355,815

GREATER BAY BANCORP

QUARTERLY REPORT ON FORM 10-Q

INDEX

Part I. Financial Information


Item 1. Consolidated Financial Statements

Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003		1
Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003		2
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2004 and 2003		3
Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2004 and 2003		4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003		5
Notes to Consolidated Financial Statements
Note 1—Summary of Significant Accounting Policies		7
Note 2—Goodwill and Other Intangible Assets		11
Note 3—Borrowings		13
Note 4—Derivative Instruments and Hedging Activities		15
Note 5—Earnings Per Common Share		16
Note 6—Activity of Business Segments		17
Note 7—Guarantees		20
Note 8—Variable Interest Entities		21
Note 9—Common Stock		22
Note 10—Supplemental Employee Retirement Plan		23
Note 11—Subsequent Event		23

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview		24
Critical Accounting Policies		26
Results of Operations		28
Net Interest Income		29
Our Interest Rate Risk Strategy		29
Results for the Quarters Ended March 31, 2004, December 31, 2003 and March 31, 2003		30
Provision for Loan and Lease Losses		33
Non-interest Income		33
Operating Expenses		35
Income Taxes		36
Income of Business Segments		37
Financial Condition		38
Securities Available for Sale		38
Loans		38
Nonperforming Assets and Other Risk Factors		40
Allowance for Loan and Lease Losses		42
Deposits		44
Borrowings		44
Liquidity and Cash Flow		44
Capital Resources		45
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations		47
Recent Accounting Developments		47

GREATER BAY BANCORP

QUARTERLY REPORT ON FORM 10-Q

INDEX (continued)


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Market Value of Portfolio Equity		49
Net Interest Income		50
Gap Analysis		51

Item 4.	Controls and Procedures	52

Part II. Other Information

Item 1.	Legal Proceedings	53

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities	53

Item 3.	Defaults Upon Senior Security	54

Item 4.	Submission of Matters to a Vote of Security Holders	54

Item 5.	Other Information	54

Item 6.	Exhibits and Reports on Form 8-K	54

Signature		55

PART I. FINANCIAL INFORMATION

ITEM 1.

Consolidated Financial Statements

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(Dollars in thousands)	March 31, 2004 (unaudited)			December 31, 2003
ASSETS
Cash and cash equivalents	$	467,895		$	275,891
Securities available for sale, at fair value		2,177,330			2,227,152
Loans		4,436,207			4,537,807
Allowance for loan and lease losses		(122,609	)		(126,168	)

Total loans, net		4,313,598			4,411,639
Property, premises and equipment, net		86,563			83,816
Goodwill		178,317			177,991
Other intangible assets		45,778			47,238
Interest receivable and other assets		371,866			377,696

Total assets	$	7,641,347		$	7,601,423

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	5,181,443		$	5,312,667
Borrowings		1,480,566			1,282,191
Other liabilities		227,877			240,746

Total liabilities		6,889,886			6,835,604

Preferred stock of real estate investment trust subsidiaries		15,302			15,302

Commitments and contingencies

SHAREHOLDERS’ EQUITY
Preferred stock, no par value: 10,500,000 shares authorized		—			—
7.25% convertible preferred stock, stated value $50.00: 2,356,606 reserved shares; 1,825,593 and 1,825,504 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively		92,050			91,752
Common stock, no par value: 80,000,000 shares authorized; 51,238,680 and 52,529,850 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively		250,561			252,650
Unearned compensation		(1,487	)		(344	)
Accumulated other comprehensive income		11,421			209
Retained earnings		383,614			406,250

Total shareholders’ equity		736,159			750,517

Total liabilities and shareholders’ equity	$	7,641,347		$	7,601,423

See notes to consolidated financial statements.

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three months ended March 31,
(Dollars in thousands, except per share amounts)	2004		2003
INTEREST INCOME
Loans	$	73,127	$	80,877
Securities available for sale:
Taxable		21,637		23,789
Tax-exempt		1,116		1,223

Total interest on securities available for sale		22,753		25,012
Other interest income		865		1,455

Total interest income		96,745		107,344

INTEREST EXPENSE
Deposits		11,275		16,533
Long-term borrowings		7,188		7,711
Other borrowings		2,911		6,933

Total interest expense		21,374		31,177

Net interest income		75,371		76,167
Provision for loan and lease losses		2,000		6,495

Net interest income after provision for loan and lease losses		73,371		69,672

NON-INTEREST INCOME
Insurance agency commissions and fees		34,581		30,642
Service charges and other fees		2,623		2,831
Rental revenues on operating leases		2,317		877
Loan and international banking fees		1,974		2,038
Gain on sale of securities, net		1,166		2,023
Trust fees		851		757
Gain on sale of loans		400		1,543
ATM network revenue		360		406
Other income		3,201		3,647

Total non-interest income		47,473		44,764

OPERATING EXPENSES
Compensation and benefits		49,584		45,432
Occupancy and equipment		10,205		9,642
Amortization of intangibles		2,071		1,671
Dividends paid on preferred stock of real estate investment trusts		456		453
Other expenses		17,728		16,144

Total operating expenses		80,044		73,342

Income before provision for income taxes		40,800		41,094
Provision for income taxes		15,948		15,997

Net income	$	24,852	$	25,097

Net income per common share - basic	$	0.44	$	0.46

Net income per common share - diluted	$	0.43	$	0.45

Cash dividends per share of common stock	$	0.1425	$	0.1350

See notes to consolidated financial statements.

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three months ended March 31,
(Dollars in thousands)	2004			2003
Net income	$	24,852		$	25,097

Other comprehensive income/(loss):
Unrealized net gains/(losses) on securities:
Unrealized net holding gains/(losses) arising during period (net of taxes of $8.6 million and $(2.5) million for the three months ended March 31, 2004 and 2003, respectively		11,888			(3,600	)
Less: reclassification adjustment for net gains included in net income		(676	)		(1,191	)

Net change		11,212			(4,791	)
Cash flow hedge:
Net gains arising during period (net of taxes of $0 and $688,000 for the three months ended March 31, 2004 and 2003, respectively)		—			948
Less: reclassification adjustment for income included in net income		—			(866	)

Net change		—			82
Other comprehensive income/(loss)		11,212			(4,709	)

Comprehensive income	$	36,064		$	20,388

See notes to consolidated financial statements.

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


For the periods indicated	Common stock			Unearned compensation			Accumulated other comprehensive income / (loss)		Retained earnings		Convertible preferred stock amount		Total shareholders’ equity
(Dollars in thousands, except per share amounts)	Shares	Amount		Unearned compensation			Accumulated other comprehensive income / (loss)		Retained earnings		Convertible preferred stock amount		Total shareholders’ equity
Balance, December 31, 2003	52,529,850	$	252,650	$	(344	)	$	209	$	406,250	$	91,752	$	750,517
Net income	—		—		—			—		24,852		—		24,852
Other comprehensive income, net of taxes	—		—		—			11,212		—		—		11,212
7.25% convertible preferred stock issued in purchase accounting transaction - valuation adjustment	—		—		—			—		—		298		298
Stock options exercised, including related tax benefits	326,802		4,233		—			—		—		—		4,233
Restricted stock grants	44,200		1,282		(1,143	)		—		—		—		139
Stock issued in Employee Stock Purchase Plan	26,461		474		—

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