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 September 30, 2004

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

For the transition period from to .

Commission file number 0-25034

GREATER BAY BANCORP

(Exact name of registrant as specified in its charter)

California

77-0387041

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification No.)

2860 West Bayshore Road, Palo Alto, California 94303

(Address of principal executive offices)(Zip Code)

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

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

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

Outstanding shares of Common Stock, no par value, as of October 29, 2004: 50,996,429

GREATER BAY BANCORP

QUARTERLY REPORT ON FORM 10-Q

INDEX

Part I. Financial Information


Item 1.	Consolidated Financial Statements

Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003		1
Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2004 and 2003		2
Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2004 and 2003		3
Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2004 and 2003		4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003		5
Notes to Consolidated Financial Statements
	Note 1-Summary of Significant Accounting Policies	7
	Note 2-Goodwill and Other Intangible Assets	11
	Note 3-Securities	13
	Note 4-Allowance for Loan and Lease Losses	15
	Note 5-Borrowings	15
	Note 6-Derivative Instruments and Hedging Activities	18
	Note 7-Common Stock	19
	Note 8-Income Taxes	20
	Note 9-Earnings Per Common Share	21
	Note 10-Activity of Business Segments	23
	Note 11-Guarantees	27
	Note 12-Variable Interest Entities	28
	Note 13-Supplemental Employee Retirement Plan	29
	Note 14-Commitments and Contingencies	29
	Note 15-Recent Accounting Developments	31

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

Overview		33
Critical Accounting Policies		35
Results of Operations		38
Net Interest Income		39
Our Interest Rate Risk Strategy		39
Results for the Quarters Ended September 30, 2004, September 30, 2003 and June 30, 2004		41
Results for the Nine Months Ended September 30, 2004 and September 30, 2003		44
Provision for Loan and Lease Losses		45
Non-interest Income		46
Operating Expenses		49
Income Taxes		52

GREATER BAY BANCORP

QUARTERLY REPORT ON FORM 10-Q

INDEX (continued)


Financial Condition		52
Securities		52
Loans		52
Nonperforming Assets and Other Risk Factors		54
Allowance for Loan and Lease Losses		56
Property, Premises and Equipment		59
Deposits		59
Borrowings		60
Liquidity and Cash Flow		60
Capital Resources		60
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations		62
Results of Business Segments		63
Recent Accounting Developments		70

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Market Value of Portfolio Equity		72
Net Interest Income		73

Item 4.	Controls and Procedures	74

Part II. Other Information

Item 1.	Legal Proceedings	75

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	75

Item 3.	Defaults Upon Senior Security	75

Item 4.	Submission of Matters to a Vote of Security Holders	75

Item 5.	Other Information	75

Item 6.	Exhibits	75

Signature		76

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


*(Dollars in thousands)*	*September 30, 2004*			*December 31, 2003*
ASSETS
Cash and cash equivalents	$	192,639		$	275,891
Securities:
Securities available for sale, at fair value		1,293,214			2,153,930
Securities held to maturity, at amortized cost (fair value: $494,124)		482,361			—
Other securities		60,072			73,222

Total securities		1,835,647			2,227,152
Loans		4,469,694			4,537,807
Allowance for loan and lease losses		(118,349	)		(126,168	)

Total loans, net		4,351,345			4,411,639
Property, premises and equipment, net		93,203			83,816
Goodwill		178,317			177,991
Other intangible assets		41,310			47,238
Interest receivable and other assets		414,143			374,556

Total assets	$	7,106,604		$	7,598,283

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	5,195,557		$	5,312,667
Borrowings		925,194			1,282,191
Other liabilities		233,332			240,746

Total liabilities		6,354,083			6,835,604

Preferred stock of real estate investment trust subsidiaries		12,582			12,162


Commitments and contingencies (Note 14)

SHAREHOLDERS’ EQUITY
Preferred stock, no par value: 10,500,000 shares authorized		—			—
7.25% convertible preferred stock, stated value $50.00: 2,353,970 reserved shares; 1,822,957 and 1,825,504 shares issued and outstanding as of September 30, 2004 and December 31, 2003, respectively		91,917			91,752
Common stock, no par value: 160,000,000 shares authorized; 50,907,052 and 52,529,850 shares issued and outstanding as of September 30, 2004 and December 31, 2003, respectively		256,762			252,650
Unearned compensation		(2,031	)		(344	)
Accumulated other comprehensive income/(loss)		(11,018	)		209
Retained earnings		404,309			406,250

Total shareholders’ equity		739,939			750,517

Total liabilities and shareholders’ equity	$	7,106,604		$	7,598,283

See notes to consolidated financial statements.

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	*Three months ended September 30,*				*Nine months ended September 30,*
*(Dollars in thousands, except per share amounts)*	*2004*		*2003*		*2004*		*2003*
INTEREST INCOME
Loans	$	70,953	$	78,305	$	215,514	$	240,321
Securities:
Taxable		20,646		18,184		62,320		61,894
Tax-exempt		1,088		1,186		3,351		3,650

Total interest on securities		21,734		19,370		65,671		65,544
Other interest income		887		1,053		2,738		3,657

Total interest income		93,574		98,728		283,923		309,522

INTEREST EXPENSE
Deposits		14,007		13,175		37,464		45,753
Long-term borrowings		6,440		8,532		20,369		25,366
Other borrowings		2,860		4,333		8,570		15,744

Total interest expense		23,307		26,040		66,403		86,863

Net interest income		70,267		72,688		217,520		222,659
Provision for loan and lease losses		1,308		8,000		5,308		21,195

Net interest income after provision for loan and lease losses		68,959		64,688		212,212		201,464

NON-INTEREST INCOME
Insurance commissions and fees		33,276		31,174		100,773		89,761
Rental revenues on operating leases		3,067		1,537		8,049		3,648
Gain on sale of securities, net		2,825		277		5,119		7,258
Service charges and other fees		2,599		2,792		7,846		8,618
Loan and international banking fees		2,013		2,785		6,131		7,715
Trust fees		972		813		2,797		2,389
ATM network revenue		314		492		1,007		1,343
Gain on sale of loans		69		1,398		986		2,834
Other income		2,632		2,656		9,157		7,443

Total non-interest income		47,767		43,924		141,865		131,009

OPERATING EXPENSES
Compensation and benefits		44,510		43,309		139,720		130,742
Occupancy and equipment		11,570		10,695		32,026		30,508
Amortization of intangibles		2,071		1,949		6,214		5,291
Dividends paid on preferred stock of real estate investment trusts		456		453		1,368		1,360
Other expenses		20,108		16,135		56,506		50,228

Total operating expenses		78,715		72,541		235,834		218,129

Income before provision for income taxes		38,011		36,071		118,243		114,344
Provision for income taxes		15,556		13,710		46,403		43,761

Net income	$	22,455	$	22,361	$	71,840	$	70,583

Net income per common share - basic	$	0.41	$	0.40	$	1.30	$	1.27

Net income per common share - diluted	$	0.40	$	0.39	$	1.26	$	1.26

Cash dividends per share of common stock	$	0.1425	$	0.1350	$	0.4275	$	0.4050

See notes to consolidated financial statements.

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Three months ended September 30,

Nine months ended September 30,

(Dollars in thousands)

2004

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