UNITED STATES
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
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-22407
SVB Financial Services, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-3438058
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 East Main Street, Somerville, New Jersey 08876
(Address of principal executive officers) (Zip Code)
(908) 541-9500
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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.
(X) Yes ( ) No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
( ) Yes (X) No
As of May 12, 2005 there were 4,129,014 shares of common stock, $2.09 par value
outstanding.
SVB FINANCIAL SERVICES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
ITEM 4 - Controls and Procedures
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
ITEM 2 - Changes in Securities
ITEM 3 - Defaults Upon Senior Securities
ITEM 4 - Submission of Matters to a Vote of Security Holders
ITEM 5 - Other Information
ITEM 6 - Exhibits
SIGNATURES
CERTIFICATIONS
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2005 2004
--------------------------
(in thousands) (Unaudited)
ASSETS
Cash & Due from Banks $ 19,625 $ 21,242
Federal Funds Sold 4,467 3,761
Other Short Term Investments 228 154
--------------------------
Total Cash and Cash Equivalents 24,320 25,157
--------------------------
Interest Bearing Time Deposits 11,541 13,531
Securities
Available for Sale, at Fair Value 47,203 48,543
Held to Maturity (Fair Value $74,868 in 2005 75,728 74,696
and $74,439 in 2004)
--------------------------
Total Securities 122,931 123,239
--------------------------
Loans 298,758 302,671
Allowance for Loan Losses (3,073) (3,001)
Unearned Income (350) (342)
--------------------------
Net Loans 295,335 299,328
--------------------------
Premises & Equipment, Net 8,982 8,451
Bank Owned Life Insurance 7,979 7,911
Other Assets 5,657 5,341
--------------------------
Total Assets $ 476,745 $ 482,958
==========================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand
Non-interest Bearing $ 63,394 $ 66,906
NOW 82,409 86,709
Savings 42,387 44,804
Money Market 73,313 66,499
Time
Greater than $100,000 32,997 33,487
Less than $100,000 120,602 115,211
--------------------------
Total Deposits 415,102 413,616
--------------------------
Other Borrowings 22,123 31,184
Obligation Under Capital Lease 381 384
Subordinated Debentures 6,702 6,702
--------------------------
Total Borrowings 29,206 38,270
--------------------------
Other Liabilities 1,967 1,709
--------------------------
Total Liabilities 446,275 453,595
--------------------------
SHAREHOLDERS' EQUITY
Common Stock $2.09 Par Value: 10,000,000 8,589 8,486
Shares Authorized; 4,109,665 Shares in 2005 and
4,060,445 Shares in 2004 Issued and Outstanding
Additional Paid-in Capital 18,265 17,837
Retained Earnings 3,960 3,183
Accumulated Other Comprehensive Loss (344) (143)
--------------------------
Total Shareholders' Equity 30,470 29,363
--------------------------
Total Liabilities and Shareholders' Equity $ 476,745 $ 482,958
==========================
SVB FINANCIAL SERVICES, INC
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31 2005 2004
-----------------------
(Unaudited) (Unaudited)
(in thousands except per share data)
INTEREST INCOME
Loans $ 4,693 $ 4,291
Securities Available for Sale 383 324
Securities Held to Maturity 622 465
Other Short Term Investments 1 --
Interest Bearing Time Deposits 90 89
Federal Funds Sold 32 17
---------------------
Total Interest Income 5,821 5,186
---------------------
INTEREST EXPENSE
Deposits 1,591 1,189
Other Borrowings 190 141
Obligation Under Capital Lease 5 5
Subordinated Debentures 102 79
---------------------
Total Interest Expense 1,888 1,414
---------------------
Net Interest Income 3,933 3,772
PROVISION FOR LOAN LOSSES 70 125
---------------------
Net Interest Income after Provision for Loan Losses 3,863 3,647
---------------------
OTHER INCOME
Service Charges on Deposit Accounts 164 183
Gains on the Sale of Securities Available for Sale 5 31
Gains on the Sale of Loans 76 99
Bank Owned Life Insurance 68 40
Other Income 130 224
---------------------
Total Other Income 443 577
---------------------
OTHER EXPENSE
Salaries and Employee Benefits 1,664 1,573
Occupancy Expense 447 427
Equipment Expense 163 160
Other Expenses 894 826
---------------------
Total Other Expense 3,168 2,986
---------------------
Income Before Provision for Income Taxes 1,138 1,238
Provision for Income Taxes 361 408
---------------------
Net Income $ 777 $ 830
=====================
EARNINGS PER SHARE - Basic (1) (2) $ 0.19 $ 0.21
=====================
EARNINGS PER SHARE - Diluted (1) (2) $ 0.19 $ 0.20
=====================
(1) Amounts have been restated for stock dividends.
(2) Average shares outstanding were:
Restated
2005 2004
--------- ---------
Basic 4,078,275 4,045,473
Diluted 4,206,776 4,134,545
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Period Ended March 31, 2005
(Unaudited)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE SHAREHOLDERS'
(in thousands) STOCK CAPITAL EARNINGS LOSS INCOME EQUITY
---------------------------------------------------------------------------------------
Balance, January 1, 2005 $ 8,486 $17,837 $ 3,183 $ (143) $ 29,363
Exercise of Stock Options 103 428 531
Net Income 777 $ 777 777
Accumulated Other Comprehensive
Income Net of Reclassification
Adjustment and Taxes (201) (201) (201)
-------
Total Comprehensive Income $ 576
------------------------------------------------------------------------------------
Balance, March 31, 2005 $ 8,589 $18,265 $ 3,960 $ (344) $ 30,470
====================================================================================
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
For the Three Months Ended March 31,
2005 2004
--------------------------
(Unaudited) (Unaudited)
(in thousands)
Net Income $ 777 $ 830
Other Comprehensive Income, Net of Tax
Unrealized (Losses)/Gains Arising in the
Period, Net of Reclassification Adjustments (201) 156
-------------------
Comprehensive Income $ 576 $ 986
===================
SVB FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 2004
----------- ----------
(Unaudited) (Unaudited)
(in thousands)
OPERATING ACTIVITIES
Net Income $ 777 $ 830
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Provision for Loan Losses 70 125
Depreciation 192 183
Amortization of Securities Premium 158 136
Gains on the Sale of Securities Available for Sale (5) (31)
Gains on the Sale of Loans (76) (99)
(Increase)/Decrease in Other Assets (212) 84
Increase in Other Liabilities 258 273
Increase in Cash Surrender Value of Bank Owned Life Insurance (68) (40)
Increase in Unearned Income 8 3
-----------------------
Net Cash Provided By Operating Activities 1,102 1,464
-----------------------
INVESTING ACTIVITIES
Decrease/(Increase) in Interest Bearing Time Deposits 1,990 (195)
Proceeds from the Sale of Securities Available for Sale 8 1,031
Proceeds from Maturities of Securities
Available for Sale 2,686 6,285
Held to Maturity 2,446 12,583
Purchases of Securities
Available for Sale (1,729) (2,250)
Held to Maturity (3,561) (16,355)
Decrease/(Increase) in Loans, Net 3,991 (7,601)
Capital Expenditures (723) (814)
-----------------------
Net Cash Used for Investing Activities 5,108 (7,316)
-----------------------
FINANCING ACTIVITIES
Net (Decrease)/Increase in Demand Deposits (7,812) 625
Net Decrease in Savings Deposits (2,417) (407)
Net Increase in Money Market Deposits 6,814 8,223
Net Increase/(Decrease) in Time Deposits 4,901 (2,996)
Decrease in Fed Funds Purchased (6,450) --
Proceeds of Other Borrowings
One Year or Less 3,000 3,000
Over One Year 500 2,500
Repayment of Other Borrowings
One Year or Less (5,600) (3,000)
Over One Year (511) (509)
Decrease in Obligation Under Capital Lease (3) (3)
Proceeds from the Exercise of Stock Options 531 107
-----------------------
Net Cash Provided (Used For) by Financing Activities (7,047) 7,540
-----------------------
(Decrease)/Increase in Cash and Cash Equivalents (837) 1,688
Cash and Cash Equivalents, Beginning of Year 25,157 31,751
-----------------------
Cash and Cash Equivalents, End of Period $ 24,320 $ 33,439
=======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for Interest $ 1,862 $ 1,406
=======================
Cash Paid During the Period for Federal Income Taxes $ -- $ 300
=======================
SVB FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 (UNAUDITED)
1. General
SVB Financial Services, Inc. (the "Company") is a bank holding company and
the parent holding company for Somerset Valley Bank ("the Bank") a full service
commercial bank. SVB Bald Eagle Statutory Trust I and SVB Bald Eagle Statutory
Trust II, subsidiaries of the Company, were created to issue trust preferred
securities to assist the Company to raise additional regulatory capital. The
Bank has one subsidiary, Somerset Valley Investment Company, Inc. Somerset
Valley Investment Company, Inc. is the parent company of West End One Corp., a
company incorporated in the State of Delaware, which manages an investment
portfolio for the benefit of Somerset Valley Investment Company, Inc.
The consolidated financial statements included herein have been prepared
without an audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying condensed consolidated financial statements reflect all
adjustments, which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. Such adjustments are
of a normal recurring nature. These consolidated condensed financial statements
should be read in conjunction with the audited financial statements and the
notes thereto. The results for the three months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2005.
The consolidated financial statements include the accounts of Somerset
Valley Bank. All significant inter-company accounts and transactions have been
eliminated.
2. Merger with Fulton Financial Corporation
On January 11, 2005, the Company signed a definitive agreement to merge
with Fulton Financial Corporation ("FFC") based in Lancaster, Pennsylvania, with
$11.4 billion in assets.
FFC will acquire all issued and outstanding shares of common stock of the
Company. According to the merger agreement, each share of the Company's common
stock outstanding at the time of the merger will be exchanged for a combination
of FFC common stock and cash based on a "cash election merger" structure.
Each Company shareholder will have the ability to elect to receive 100% of
the merger consideration in FFC stock, 100% in cash, or a combination of FFC
stock and cash. Their elections will be subject to prorating to achieve a result
where, at a minimum, 20% and, at a maximum, 40% of the Company's outstanding
shares will be exchanged for cash consideration. Those shares of the Company's
stock that will be converted into FFC stock would be exchanged based on a fixed
exchange ratio of 1.1899 shares of FFC stock as adjusted for the 5 for 4 stock
split declared by FFC on April 13, 2005, payable on June 8, 2005 to shareholders
of record on May 17, 2005, for each share of the Company's stock. Those shares
of the Company's stock that will be converted into cash will be converted into a
per share amount of cash based on a fixed price of $21.00 per share of the
Company's stock.
Based on the $17.74 per share closing price of FFC stock, as adjusted for
the stock split, on January 11, 2005 and the minimum cash consideration, the
transaction is valued at approximately $89.0 million.
Pursuant to a Warrant Agreement dated as of January 12, 2005, between the
Company, as issuer and FFC, as grantee (the "Warrant Agreement"), the Company
has granted FFC an option to purchase the shares of the Company's Common Stock
under certain circumstances (the "Warrant"). Specifically, the Warrant grants
FFC the right to purchase up to 1,008,775 shares of the Company's Common Stock
(the "Warrant Shares") (which represent 19.9% of the number of shares
outstanding on January 12, 2005, giving effect to the issuance of the shares
pursuant to an exercise of the Warrant), subject to certain adjustments, at a
price, subject to certain adjustments, of $22.00 per share. The Warrant was
granted by the Company in connection with an Agreement and Plan of Merger, dated
as of January 11, 2005, between FFC and the Company (the "Merger Agreement").
3. Loans
At March 31, 2005 and December 31, 2004 the composition of outstanding
loans is summarized as follows:
March 31, December 31,
2005 2004
--------- ------------
(in thousands)
Secured by Real Estate:
Residential Mortgage $ 74,378 $ 75,502
Commercial Mortgage 161,286 153,609
Construction 34,488 38,262
Commercial and Industrial 22,673 25,690
Loans to Individuals 5,876 8,876
Other Loans 57 732
--------- -----------
$ 298,758 $ 302,671
========= ===========
There were $175,000 in restructured loans at March 31, 2005. There were
$143,000 in restructured loans at December 31, 2004. There was $1,000 in loans
past due 90 days or more and still accruing at March 31, 2005. There were no
loans past due 90 days or more and still accruing at December 31, 2004. Loans in
non-accrual status totaled $1,468,000 at March 31, 2005 and $1,484,000 at
December 31, 2004. Interest income that would have been earned for the three
months ended March 31, 2005 and March 31, 2004 totaled approximately $26,000 and
$20,000, respectively.
Loans considered to be impaired totaled $1,575,000 at March 31, 2005, a
valuation reserve of $112,000 is attributed to these loans and is included in
the allowance for loan losses.
4. Allowance for Loan Losses
The allowance for loan losses is based on estimates and ultimate losses
may vary from the current estimates. These estimates are reviewed periodically
and as adjustments become necessary, they are reflected in operations in the
period in which they become known. An analysis of the allowance for loan losses
is as follows:
Three Months
Ended Year Ended
March 31, December 31,
(in thousands) 2005 2004
------------- -------------
Balance January 1, $ 3,001 $ 2,680
Provision Charged to Operations 70 444
Charge Offs (2) (132)
Recoveries 4 9
------------- -------------
Balance End of Period $ 3,073 $ 3,001
============= =============
5. Commitments and Contingencies
The Bank, Investment Company, and West End One Corp. have not entered into
any interest rate swaps, caps or floors and are not party to any forward or
future transactions. However, the Bank is party to various other financial
instruments, which are not included in the financial statements, but are
required in the normal course of business to meet the financing needs of its
customers and to assist in managing its exposure to changes in interest rates.
Management does not expect any material losses from these transactions, which
include standby letters of credit and commitments to extend credit.
The Company had outstanding commitments to extend credit of $79.5 million
and $69.7 million at March 31, 2005 and December 31, 2004, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a portion of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the customer. There is no material difference
between the notional amount and estimated fair value of off-balance sheet
unfunded loan commitments as of March 31, 2005.
The Company issues financial and performance standby letters of credit,
both of which are subject to the disclosure and initial recognition and
measurement provisions of FIN 45. Financial and performance standby letters of
credit are conditional commitments issued by the Company to assure the financial
and performance obligations of a customer to a third party. At March 31, 2005,
the Company was contingently liable on financial letters of credit totaling
$5,790,000, of which $214,000 were originated during the quarter. The Company's
commitments under standby letters of credit expire at various dates through
April 12, 2006. Amounts due under these letters of credit would be reduced by
any proceeds that the Company would be able to obtain in liquidating the
collateral for the loans, which varies depending on the customer. The Company
generally holds collateral and/or obtains personal guarantees supporting these
commitments. The extent of collateral held for these commitments at March 31,
2005 varied from 0% to 100%, and averaged 24%.
6. New Accounting Pronouncements
Other Than Temporary Impairment
-------------------------------
The Company adopted Emerging Issues Task Force (EITF) 03-1, "The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments,"
as of December 31, 2003. EITF 03-1 includes certain disclosures regarding
quantitative and qualitative disclosures for investment securities accounted for
under SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities", that are impaired at the balance sheet date, but an
other-than-temporary impairment has not been recognized. In March 2004, the EITF
issued a Consensus on Issue 03-1 requiring that the provisions of EITF 03-1 be
applied for reporting periods beginning after June 15, 2004 to investments
accounted for under SFAS 115 and 124. EITF 03-1 establishes a three-step
approach for determining whether an investment is considered impaired, whether
that impairment is other-than-temporary and the measurement of an impairment
loss. In September 2004, the FASB issued a proposed Staff Position, EITF Issue
03-1-a, "Implementation Guidance for the Application of Paragraph 16 of EITF
03-1" (EITF 03-1-a). EITF 03-1-a would provide implementation guidance with
respect to debt securities that are impaired solely due to interest rates and/or
sector spreads and analyzed for other-than-temporary impairment under paragraph
16 of EITF 03-1. In September 2004, the FASB issued a Staff Position, EITF Issue
03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue 03-1" (EITF 03-1-1).
FASB Staff Position (FSP) EITF Issue 03-1-1, Effective Date of Paragraphs 10-20
of EITF Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, delays the effective date of
certain provisions of EITF Issue 03-1, including steps two and three of the
Issue's three-step approach for determining whether an investment is
other-than-temporarily impaired. However, step one of that approach must still
be initially applied for impairment evaluations in reporting periods beginning
after June 15, 2004. The delay of the effective date for paragraphs 10-20 of
EITF Issue 03-1 will be superseded with the final issuance of proposed FSP EITF
Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of
EITF Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. The disclosures under EITF 03-1 are required
for financial statements for years ending after December 15, 2003. Temporarily
impaired securities as of March 31, 2005 are as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
LESS THAN 12 12 MONTHS OR
MONTHS LONGER TOTAL
--------------------------------------------------------------------------------------------
Number
Description of Securities of Fair Unrealized Fair Unrealized Fair Unrealized
($ in thousands) Securities Value Losses Value Losses Value Losses
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities 1 $ 998 $ (2) $ -- $ -- $ 999 $ (2)
U.S. Government Agency Securities 67 36,803 (365) 17,144 (364) 53,947 (729)
Mortgage-Backed Securities 88 22,432 (269) 15,329 (388) 37,761 (657)
Other Securities 9 3,733 (29) 1,860 (35) 5,593 (64)
Municipal Securities 30 5,667 (48) -- -- 5,667 (48)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Temporarily Impaired Securities 195 $69,633 $(713) $34,333 $(787) $103,966 $(1,500)
- -----------------------------------------------------------------------------------------------------------------------------------
Management has considered factors regarding other than temporarily
impaired securities and determined that there are no securities that are other
than temporarily impaired as of March 31, 2005. The Company invests in U.S.
Treasury, U. S. Government Agency and U.S. Government Sponsored Agency
securities, all of which have AAA credit ratings by Standard and Poor's. With
regard to Other Securities and Municipal Securities, there were no securities
rated less than A+ by Standard and Poor's. Management believes that the
unrealized losses shown in the table are related to the interest rates and
sector spreads and the collection of all principal and interest is a reasonable
certainty.
Stock Options
-------------
In December 2004, the Financial Accounting Standards Board (the "FASB")
issued a Statement No. 123(R), Share-Based Payment an Amendment of FASB
Statements No. 123 and APB No. 25, that addresses the accounting for share-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on the fair value of the enterprise's equity instruments or that may
be settled by the issuance of such equity instruments. Under FASB Statement No.
123(R), all forms of share-based payments to employees, including employee stock
options, would be treated the same as other forms of compensation by recognizing
the related cost in the income statement. The expense of the award would
generally be measured at fair value at the grant date. Current accounting
guidance requires that the expense relating to so-called fixed plan employee
stock options only be disclosed in the footnotes to the financial statements.
The Statement would eliminate the ability to account for share-based
compensation transactions using APB Opinion No. 25, Accounting for Stock Issued
to Employees. This statement is effective for public entities that do not file
as small business issuers as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The Company is currently
evaluating this statement and its effects on the Company's results of
operations.
On March 29, 2005, the SEC released Staff Accounting Bulletin 107, Share
Based Payments (SAB 107). The interpretations in SAB 107 express views of the
SEC staff regarding the application of Statement No. 123(R). Among other things,
SAB 107 provides interpretive guidance related to the interaction between
Statement 123(R) and certain SEC rules and regulations, as well as provides the
staff's views regarding the valuation of share-based payment
arrangements for public companies. The Company is evaluating the impact that the
implementation of SAB 107 and Statement 123(R) will have on future option
grants.
Loan and Investments
--------------------
In December 2003, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position (SOP) 03-3, Accounting for Certain
Loans or Debt Securities Acquired in a Transfer. SOP 03-3 requires acquired
loans, including debt securities, to be recorded at the amount of the
purchaser's initial investment and prohibits carrying over valuation allowances
from the seller for those individually-evaluated loans that have evidence of
deterioration in credit quality since origination, and it is probable all
contractual cash flows on the loan will be unable to be collected. SOP 03-3 also
requires the excess of all undiscounted cash flows expected to be collected at
acquisition over the purchaser's initial investment to be recognized as interest
income on a level-yield basis over the life of the loan. Subsequent increases in
cash flows expected to be collected are recognized prospectively through an
adjustment of the loan's yield over its remaining life, while subsequent
decreases are recognized as impairment. Loans carried at fair value, mortgage
loans held for sale, and loans to borrowers in good standing under revolving
credit agreements are excluded from the scope of SOP 03-3. The guidance is
effective for loans acquired in fiscal years beginning after December 15, 2004.
The implementation of SOP 03-3 on January 1, 2005 did not have a material impact
on financial condition, results of operations, or liquidity of the Company.
7. Stock-Based Compensation
For the three months ended March 31, 2005, there were no stock options
granted. For the three months ended March 31, 2004, there were 122,897 stock
options granted. The fair value of each option granted during this period was
$3.06, as adjusted, and was estimated on the date of grant using the Black
Scholes pricing model with the following assumptions: no dividend yield,
expected volatility 13.00%, a risk-free interest rate of 2.73% and an expected
life of 5.00 years.
Had compensation costs for the first three months been determined based on
the fair value of the options at the grant dates consistent with the method SFAS
No. 123 "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share, basic and diluted, would have been as reduced to the
proforma amounts indicated below for the three month period ended March 31,
2005:
For the Three Months
Ended March 31
- ----------------------------------------------------------------
(in thousands except per share data) 2005 2004
- ----------------------------------------------------------------
Net Income as Reported $ 777 $ 830
Less: Stock-Based Compensation Costs -- (248)
-------------------
Proforma Net Income $ 777 $ 582
Earnings Per Share Basic
As Reported $0.19 $0.21
Proforma $0.19 $0.14
Earnings Per Share Diluted
As Reported $0.19 $0.20
Proforma $0.19 $0.14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
The Company's business is dynamic and complex. Consequently, management
must exercise judgment in choosing and applying accounting policies and
methodologies. These choices are important; not only are they necessary to
comply with accounting principles generally accepted in the United States, they
also reflect the exercise of management's judgment in determining the most
appropriate manner in which to record and report the Company's overall financial
performance. All accounting policies are important, and all policies contained
in Note 3 ("Significant Accounting Policies"), which begins on page 33 of the
Annual Report on Form 10-K for 2004, should be reviewed for greater
understanding of how the Company's financial performance is recorded and
reported.
In management's opinion, some areas of accounting are likely to have a
more significant effect than others on the Company's financial results and
expose those results to potentially greater volatility. This is because they
apply to areas of relatively greater business importance and/or require
management to exercise judgment in making assumptions and estimates that affect
amounts reported in the financial statements. Because these assumptions and
estimates are based on current circumstances, they may change over time or prove
to be inaccurate based on actual experience. For the Company, the area that
relies most heavily on the use of assumptions and estimates includes, but is not
limited to, accounting for the allowance for loan losses. Our accounting
policies related to these areas are discussed in this report under the section
labeled "Allowance for Loan Losses."
Overview
- --------
Other than the merger with Fulton Financial Corporation mentioned earlier
in this report, management of SVB Financial Services, Inc. (the "Company") is
not aware of any known trends, events or uncertainties that will have or are
reasonably likely to have a material effect on the Company's liquidity, capital
resources or results of operations. The following discussion and analysis should
be read in conjunction with the detailed information and consolidated financial
statements, including notes thereto, included elsewhere in this report. This
discussion and analysis is generally the financial condition and results of
operations for the three month period ended March 31, 2005 and 2004. The
consolidated financial condition and results of operations of the Company are
essentially those of the Bank. Therefore, the analysis that follows is directed
to the performance of the Bank. Such financial condition and results of
operations are not intended to be indicative of future performance.
In addition to historical information, this discussion and analysis
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as the date hereof. The
Company undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date hereof.
Non Banking Products and Affiliations
- -------------------------------------
On March 2, 2005, the Company terminated its relationship with Linsco
Private Ledger Corp for the sale of annuities, mutual funds and other investment
products. The Company signed a non discretionary full service brokerage
agreement and an Administrative Services and Facilities Agreement with Primevest
Financial Services of St. Cloud, Minnesota, a member of the ING group.
The Company has a service agreement with Aurora Financial Group, Inc. to
provide origination/processing and closing services for residential mortgage
loans. The Company sells mortgage loans to Aurora Financial Group, Inc. on a
non-recourse basis and receives fee income. An employee of Aurora Financial
Group, Inc. is on- site for these purposes.
The Company acts as an agent for AIG Annuity Insurance Company under an
agreement defining the terms and conditions under which the Company's licensed
producers generate fixed insurance products.
Results of Operations
- ---------------------
Net income for the three months ended March 31, 2005 was $777,000 a
decrease of $53,000 or 4% as compared to the same period in 2004. Earnings per
share-Basic were $0.19 in 2005 and $0.21 in 2004. Earnings per share-Diluted
were $0.19 in 2005 and $0.20 in 2004.
A decline in the net interest margin of 22 basis points and a decline in
non interest income of $134,000, as more fully described below were the primary
causes of the decline in earnings.
Net Interest Income
- -------------------
Net interest income for the three months ended March 31, 2005 was
$3,933,000 an increase of $161,000 or 4% from the same period in 2004. In these
same comparable periods the Company's net interest margin declined from 3.83% to
3.61%.
After two years of historically low interest rates, the Federal Reserve
began raising interest rates on June 30, 2004. Six twenty-five basis point
increases in the Federal Funds rate occurred between that date and March 31,
2005. The Prime lending rate increased in lockstep with Federal Funds.
The yield on the Company's earning assets increased only 7 basis points
when the first quarter of 2005 is compared with the same period in 2004. This
occurred for a number of reasons. While short-term rates rose significantly,
rates on 2, 3 and 5 year investments remained relatively stable causing the
yield on the Company's investment portfolio to increase only 16 basis points
even though the average balance of investments increased by $24 million.
The lack of increase in 2, 3 and 5 year rates combined with competitive
pricing by other banks for three and five-year fixed rate loans, which apply to
most of the Company's commercial mortgages have kept these rates at
approximately the same level during the period of rising interest rates. As a
result, the yield on loans increased only 3 basis points. Average loans
increased $26 million but loans declined as a percentage of average earning
assets from 69% in the first quarter of 2004 to 68% in the current quarter.
Since they are the highest yielding asset, any decline in this percentage will
negatively impact the yield on earning assets.
The cost of funding the Bank's earning assets increased by 29 basis points
in comparison to last year. The rate paid on NOW accounts, which make up 25% of
average deposits, increased by 70 basis points over the first quarter of last
year. This was the result of rate indexed pricing of municipal accounts and
newly court mandated pricing on certain attorney trust accounts known as IOLTA
accounts.
The growth in the Company's earning assets contributed approximately
$395,000 to net interest income which was offset by a decline in net interest
income of $234,000 as a result of the reduction in the net interest margin. The
result being a $161,000 increase in net interest income.
Non Interest Income
- -------------------
Non interest income was $443,000 for the first three months of 2005, a
reduction of $134,000 or 23% in comparison with the same period in 2004.
Gains on the sale of securities and gains on the sale of loans declined
$26,000 and $23,000, respectively. These amounts can fluctuate from quarter to
quarter and are dependent on such factors as the level of interest rates, the
need for liquidity and the ability of the Company to originate SBA loans and
sell them in the secondary market.
Service charges on deposit accounts dropped $19,000 compared to 2004 as a
result of lower volumes in account maintenance fees and overdraft charges.
The most significant reduction was in other income, which fell $94,000 or
42%. Half of this amount ($47,000) resulted from a drop in commissions on the
sale of insurance and investment products. The Company's sales force dropped
from two individuals to one and created additional administrative burden for the
remaining individual, thus reducing sales efforts. A reduction in fees on
letters of credit($4,000) and commission on mortgage loans ($27,000) accounted
for most of the remaining difference.
Non Interest Expense
- --------------------
Non interest expenses increased $182,000 or 6% for the first three months
of 2005 in comparison with 2004.
Salaries and benefits expense accounted for $91,000 of the increase and
rose 6% in the year-to-year comparison. The number of full time equivalent
employees increased from 110 in 2004 to 113 in 2005. Employees also received
annual salary increases. Also included in the increase was an 11% rise in
employee benefit expenses.
Occupancy expense grew $20,000 or 5%, while equipment expense grew $3,000
or 2%. Other expenses expanded $68,000 or 8% mostly on increases in data
processing and other outsourced service costs.
Provision for Loan Losses
- -------------------------
The provision for loan losses was $70,000 for the first three months of
2005 compared to $125,000 for the same period in 2004. The reduction was a
result of the decline in loan balances during the first three months of 2005 of
$4 million. As a percentage of total loans, the allowance for loan losses
increased from 0.99% at December 31, 2004 to 1.03% at March 31, 2005.
Financial Condition
March 31, 2005 compared to December 31, 2004
- --------------------------------------------
At March 31, 2005, total assets were $477 million, a decrease of $6
million or 1% from December 31, 2004. Loans accounted for $4 million of the
decrease as a result of declines in construction loans and commercial and
industrial loans. Deposits increased by $1 million as a result of growth in time
deposits under $100,000. Rising rates have made these instruments more
attractive to retail borrowers.
Asset Quality
- -------------
There was $1,000 in loans past due 90 days or more and still accruing as
of March 31, 2005. There were no loans past due 90 days and still accruing as of
December 31, 2004.
Loans in a non-accrual status totaled $1,468,000 at March 31, 2005 and
represented 0.49% of total loans. Loans in non-accrual status totaled $1,484,000
at December 31, 2004 and represented 0.37% of total loans.
The Company had no other real estate owned at March 31, 2005 or December
31, 2004.
Allowance for Loan Losses
- -------------------------
The Company maintains an allowance for loan losses at a level deemed
sufficient to absorb losses, which are inherent in the loan portfolio at each
balance sheet date. Management determines the adequacy of the allowance on a
monthly basis to ensure that the provision for loan losses has been charged
against earnings in an amount necessary to maintain the allowance at a level
that is appropriate based on management's assessment of probable estimated
losses. The Company's methodology for assessing the appropriateness of the
allowance for loan losses consists of several key elements. These elements
include a specific allowance for all commercial loans based upon a risk rating
assigned to the loan, an allowance for homogeneous types of loans such as
consumer installment loans, residential mortgage loans and home equity loans,
and an additional allowance for loans deemed to be impaired and an unallocated
portion. The Company consistently applies the following comprehensive
methodology:
All commercial loans are assigned a two-digit risk rating at the time of
closing. The first digit of the rating refers to the strength of the borrower
based on their financial condition and past history. Current economic conditions
and the effect on the borrower's business are also taken into account. The
second digit refers to the collateral strength and liquidity, with zero being
assigned to unsecured loans. An allowance amount is then assigned to each risk
rating. Since, in its thirteen-year history, the Company has had very few
commercial loan losses, the amount of the allowance is based on the experience
of management and their judgment with respect to these types of loans. A risk
rating may be changed with the approval of the senior loan officer and the Audit
Committee of the Board of Directors. A rating change may be requested if the
individual loan officer or the Bank's credit analyst is aware of a change in the
borrower's financial condition. In addition, approximately 60% of the dollar
amount of commercial loans are reviewed on an annual basis by an outside
independent loan review firm at which time a change to the risk rating may be
recommended.
The allowance for homogenous loans is established based on a number of
factors, including current economic conditions and the loss experience with
these types of loans, as well as management's judgment.
The AICPA's Accounting Standards Executive Committee has issued an
exposure draft of a proposed Statement of Position (SOP), "Allowance for Credit
Losses." The proposed SOP addresses the recognition and measurement by creditors
of the allowance for credit losses related to all loans, as that term is defined
in Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," with
certain exceptions. If adopted, the proposed SOP would apply to all creditors
other than state and local governmental entities and federal governmental
entities. The Company is currently reviewing the components of the proposed SOP
and the impact it will have on its consolidated financial position and results
of operations.
Loans are deemed to be impaired if they are 60 days or more past due for
principal or interest or are in a non-accrual status. If there is insufficient
collateral to pay the amount of the loan, an allowance is determined over and
above the amount required by the risk rating by taking the difference between
the carrying amount of the loan and the present value of expected future cash
flows discounted at the loan's current rate less any amounts already established
by the risk rating.
The Company also maintains an unallocated allowance. The unallocated
allowance is used to cover any factors or conditions, which may cause a
potential loan loss but are not specifically identifiable. This amount totaled
$104,000 at March 31, 2005. It is prudent to maintain an unallocated portion of
the allowance because no matter how detailed an analysis of potential loan
losses is performed, these estimates by definition lack precision.
Since all identified losses are immediately charged off, no portion of the
allowance for loan losses is restricted to any individual loan or groups of
loans, and the entire allowance is available to absorb any and all loan losses.
A loan is placed in a non-accrual status at the time when ultimate
collectibility of principal or interest, wholly or partially, is in doubt. Past
due loans are those loans which were contractually past due 90 days or more as
to interest or principal payments but are well secured and in the process of
collection.
At March 31, 2005, the allowance for loan losses was $3.1 million and
represented 1.03% of total loans and 229% of non-performing loans compared to an
allowance for loan losses at December 31, 2004 of $3.0 million or 0.99% of total
loans and 185% of non-performing loans.
Net charge-offs for the first three months of 2004 totaled $2,000 compared
to $123,000 for the year ended December 31, 2004.
Capital Resources
- -----------------
Total Shareholders' Equity was $30.5 million at March 31, 2005 compared to
$29.4 million at December 31, 2004. Listed below are the Company's regulatory
capital ratios for the comparable periods. Subordinated debentures in the amount
of $6.5 million are also included in the calculation of regulatory capital
ratios with certain limitations as permitted by FDIC regulations.
Under the FDIC Improvement Act of 1991, banks are required to maintain a
minimum ratio of total capital to risk based assets of 8% of which at least 4%
must be in the form of Tier I Capital (primarily Shareholders' Equity). The
following are the Company's capital ratios at the end of the periods indicated.
March 31, 2005 December 31, 2004
-------------- -----------------
Leverage Ratio 7.44% 7.48%
Tier 1 Capital to Risk Weighted Assets 10.22% 9.87%
Total Capital to Risk Weighted Assets 11.10% 10.73%
Liquidity
- ---------
Cash and Cash Equivalents totaled $24 million at March 31, 2005, a
decrease of $1 million since December 31, 2004.
Operating activities provided cash of $1 million. Investing activities
also provided cash of $5 million as loans, investments and interest bearing time
deposits due from other banks declined. This was used to fund the reduction in
deposits and other borrowings.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET AND LIABILITY MANAGEMENT
Interest rate risk is defined as the sensitivity of the Company's current
and future earnings as well as its capital to changes in the level of market
interest rates. The Company's exposure to interest rate risk results from, among
other things, the difference in maturities on interest earning assets and
interest bearing liabilities. The relationship between the interest rate
sensitivity of the Company's assets and liabilities is continually monitored by
the Company's Asset/Liability Management Committee (the "ALCO"). The purpose of
the ALCO is to review and monitor the volume, mix and pricing of the interest
earning assets and interest bearing liabilities consistent with the Company's
overall liquidity, capital, growth, profitability and interest rate risk goals.
Loans make up the largest portion of the Company's assets. In making
commercial loans, the emphasis is placed on either floating rate loans tied to
the Prime Lending rate or fixed rate loans with prepayment penalties depending
upon the Company's overall rate sensitivity position. Fixed rate commercial
loans are generally written so that the rates can be adjusted within 3 to 7
years with payouts up to 25 years. Mortgage loans are currently written to be
adjusted annually after the first 3, 5 or 10-year term with payouts up to 30
years. Home equity lines of credit are tied to the Prime Lending rate although
special promotions may offer a fixed rate for periods of not greater than one
year. Fixed rate home equity loans are offered with a maturity of 5 or 10 years,
amortizing over a 15-year period. These loans also contain interest rate floors.
Installment loans are written at fixed rates amortizing over 1 to 5 years.
The Company also takes into consideration any off-balance sheet items when
evaluating and managing its liquidity. At March 31, 2005 off-balance sheet items
consisted of unfunded loan commitments, lease commitments and financial standby
letters of credit.
Generally, when evaluating the Company's liquidity, all unused loan
commitments and letters of credit are included in the analysis as estimated
draw-downs of 25% of the total commitment. Although economic conditions,
interest rates and numerous other factors can affect the amount of loans to be
drawn-down, management feels through experience, that this is a reasonable
estimate to use when evaluating liquidity needs.
The Company utilizes its securities to manage its liquidity and rate
sensitivity. U. S. Treasury, fixed rate agency and corporate securities are
purchased for terms of less than 5 years. Tax-free municipal securities are
purchased for a period of less than 7 years. Adjustable rate securities require
an estimated average life at time of purchase of 10 years or less. Callable
securities can be purchased for terms of 5 years or less with a call period of
three months to 2 years. Fixed rate mortgage-backed securities are purchased
with estimated average lives at the time of purchase of not more than 5 years.
These securities are reviewed for changes in yield and average life resulting
from changes in interest rates. The Company also invests in FDIC insured
certificates of deposit (CDs) of other financial institutions with a maturity of
three months to three years for amounts up to $100,000.
Short-term liquidity is also managed through the investment in high
quality short-term money market securities, U.S. Government securities and/or
U.S. Treasury securities made available through money market funds, which can be
liquidated at any time. In general, the day-to-day liquidity is managed through
the sale or purchase of Federal Funds from approved correspondent banks and
through the borrowing of overnight lines of credit from the Federal Home Loan
Bank.
A significant portion of the Company's assets have been funded with CDs
including CDs over $100,000. Unlike other deposit products, such as checking and
savings accounts, CDs carry a high degree of interest rate sensitivity and
competitiveness of the Company's interest rates. The Company has attempted to
price its CDs competitively. Interest
rates on savings accounts, NOW and money market accounts are variable and can be
changed at the discretion of the Company. These accounts are not tied to any
particular index with the exception of certain municipal, NOW and money market
accounts.
As a member of the Federal Home Loan Bank, the Bank can borrow advances at
a fixed or floating rate and on a non-amortizing or amortizing basis. These
advances can be for terms ranging from overnight to up to 30 years. The advances
can be matched against various earning assets. At March 31, 2005 and December
31, 2004, the Company had outstanding advances of $22.1 million and $24.7
million, respectively.
The nature of the Company's current operations is such that it is not
subject to foreign currency exchange or commodity price risk. Additionally,
neither the Company nor the Bank owns any trading assets. At March 31, 2005 and
December 31, 2004, the Bank did not have any hedging transactions in place.
The following table depicts the Company's rate sensitivity as of March 31,
2005.
INTEREST RATE SENSITIVITY AT
March 31, 2005
MATURITY OR REPRICING IN (1)
DUE IN BETWEEN AFTER NON-
90 DAYS 91 DAYS - ONE INTEREST
($ in thousands) OR LESS ONE YEAR YEAR BEARING TOTAL
- ------------------------------------------------------------------------------------------------------------
ASSETS:
Securities $ 16,820 $ 34,204 $ 71,907 $ -- $ 122,931
Federal Funds Sold 4,467 -- -- -- 4,467
Other Short Term Investments 228 -- -- -- 228
Interest Bearing Time Deposits 2,591 3,189 5,761 -- 11,541
Loans 97,365 9,576 190,349 1,118 298,408
Allowance For Loan Losses -- -- -- (3,073) (3,073)
Non-interest Earning Assets -- -- -- 42,243 42,243
- ------------------------------------------------------------------------------------------------------------
Total Assets $ 121,471 $ 46,969 $ 268,017 $ 40,288 $ 476,745
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Money Market $ 16,129 $ 30,058 $ 27,126 $ -- $ 73,313
NOW 4,120 27,195 51,094 -- 82,409
Savings Deposits 2,543 8,054 31,790 -- 42,387
Time Deposits over $100,000 12,022 12,427 8,548 -- 32,997
Other Time Deposits 27,327 45,038 48,237 -- 120,602
Other Borrowings 6,000 4,000 12,123 -- 22,123
Obligation Under Capital Lease 4 11 366 -- 381
Subordinated Debentures 6,702 -- -- -- 6,702
- ------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities 74,847 126,783 179,284 -- 380,914
- ------------------------------------------------------------------------------------------------------------
Non-interest Bearing Demand Deposits 6,339 11,411 45,644 -- 63,394
Other Liabilities -- -- -- 1,967 1,967
Stockholder's Equity -- -- -- 30,470 30,470
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 81,186 $ 138,194 $ 224,928 $ 32,437 $ 476,745
- ------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap $ 40,285 $ (91,225) $ 43,089 $ 7,851
- ------------------------------------------------------------------------------------------------------------
Cumulative Gap $ 40,285 $ (50,940) $ (7,851)
- ------------------------------------------------------------------------------------------------------------
Cumulative Gap to Total Assets 8.45% (10.68)% (1.65)%
- ------------------------------------------------------------------------------------------------------------
(1) The following are the assumptions that were used to prepare the Gap
analysis:
(A) A prime rate of 5.75% and a Federal Funds rate of 2.75%.
(B) Callable agency securities are spread at their call dates or
maturity date depending upon the relationship of the rate of the
securities to the treasury yield curve as dictated by the rates
listed in (A).
(C) Prepayments on mortgage-backed securities as well as various types
of loans are based on estimates in relationship to the rates listed
in (A).
(D) Loans are spread based on the earlier of their actual maturity date
or the date of their first potential rate adjustment.
(E) The maturity or decay rate of non maturity deposits, i.e. money
market, NOW, savings and non-interest bearing demand deposits is
estimated.
(F) Time deposits are spread based on their actual maturity dates.
While gap analysis is a general indicator of the potential effect that
changing interest rates may have on net interest income, the gap itself does not
present a complete picture of interest rate sensitivity. First, changes in the
general level of interest rates do not affect all categories of assets and
liabilities equally or simultaneously. Second, assumptions must be made to
construct a gap analysis. Management can influence the actual repricing of the
deposits independent of the gap assumption. Third, certain securities are
callable and, therefore, repriceable prior to their maturity dates depending on
the level of interest rates. The cash flows of certain loans and mortgage-
backed securities and the repricing of those cash flows will vary under
different interest rates. Fourth, the gap analysis represents a one-day position
and cannot incorporate a changing mix of assets and liabilities over time as
interest rates change. Volatility in interest rates can also result in
disintermediation, which is the flow of funds away from financial institutions
into direct investments, such as U.S. Government and corporate securities and
other investment vehicles, including mutual funds, which, because of the absence
of federal insurance premiums and reserve requirements, generally pay higher
rates of return than financial institutions.
As indicated in the previous table, the Bank has had a positive gap
position in the period of 1 to 90 days. During periods of continual increases in
short-term rates the Company will generally experience expansion of its net
interest margin. This was not the result during the first quarter of 2004.
Please see "Net Interest Income" for additional information.
In 2003, the Federal Funds Rate and the Prime Lending Rate remained flat
for 5 months and were then reduced 25 basis points in June to 1.00% and 4.00%,
respectively. These rates had not been this low since 1958. They remained at
this level until June 30, 2004 when they were increased to 1.25% and 4.25%,
respectively. Since that time, both the Federal Funds Rate and the Prime Lending
Rate have increased to 2.75% and 5.75%, respectively.
Past performance is no indication of future results. The net interest
margin can be affected by more than the change in the level of interest rates.
Such items as the changes in the mix of assets and liabilities and a change in
the competitive factors governing the pricing of assets and liabilities can also
greatly impact the net interest margin.
An additional analysis of the Bank's interest rate risk is a forecast of
changes in the Bank's Market Value of Portfolio Equity (MVPE) under alternative
interest rate environments. The MVPE is defined as the net present value of the
Bank's existing assets, liabilities and off-balance sheet instruments. The
calculated estimated change in MVPE for the Bank at March 31, 2005 is as
follows:
(in thousands) +200 BASIS POINTS -200 BASIS POINTS
- ----------------------------------------------------------------------------
Change from MVPE $1,546 $(2,097)
Percentage of Equity 5.27% (7.14)%
- ----------------------------------------------------------------------------
The policy of the Company requires that a parallel shock of +/-200 basis points
may not change the MVPE by more than 20% of total equity. For March 31, 2005,
this amount would be $6.1 million.
ITEM 4 - CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer
(collectively, the "Certifying Officers") are responsible for establishing and
maintaining disclosure controls and procedures for the Company. Such officers
have concluded (based upon their evaluation of these controls and procedures as
of a date within 90 days of the filing of this report) that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in this report is accumulated and
communicated to the Company's management, including its principal executive
officers as appropriate, to allow timely decisions regarding required
disclosure.
The Certifying Officers also have indicated that there were no significant
changes in the Company's internal controls or other factors that could
significantly affect such controls subsequent to the date of their evaluation,
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.
PART II-OTHER INFORMATION
-------------------------
ITEM 1- Legal Proceedings
-----------------
The Company is party in the ordinary course of business to
litigation involving collection matters, contract claims and other
miscellaneous causes of action arising from its business. Management
does not consider that such proceedings depart from usual routine
litigation and, in its judgment, the Company's financial position
and results of operations will not be affected materially by such
proceedings.
ITEM 2- Unregistered Shares of Equity Securities and Use of Proceeds
------------------------------------------------------------
None.
ITEM 3- Defaults upon Senior Securities
-------------------------------
None.
ITEM 4- Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
ITEM 5- Other Information
-----------------
The common stock of the Company is traded on the Nasdaq National
Market Small-Cap, under the trading symbol SVBF. On March 31, 2005,
the closing bid of the Company's common stock was $20.61 per share.
The Company has a web site located at www.somersetvalleybank.com.
ITEM 6- Exhibits
--------
(a) Exhibits
--------
3.1 Amended and Restated Certificate of Incorporation
3.2 Certificate of Correction Filed with New Jersey Department
of Treasury
31 Certifications
32 906 Certification
SIGNATURES
I, Robert P. Corcoran, hereby certify that the periodic report being filed
herewith containing financial statements fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (16 U.S. C. 78m or
78o(d)) and that information contained in said periodic report fairly presents,
in all material respects, the financial condition and results of operations of
SVB Financial Services, Inc. for the period covered by said periodic report.
SVB FINANCIAL SERVICES, INC.
----------------------------
(Registrant)
/s/ Robert P. Corcoran
--------------------------------
Robert P. Corcoran
Chief Executive Officer
I, Keith B. McCarthy, hereby certify that the periodic report being filed
herewith containing financial statements fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (16 U.S. C. 78m or
78o(d)) and that information contained in said periodic report fairly presents,
in all material respects, the financial condition and results of operations of
SVB Financial Services, Inc. for the period covered by said periodic report.
SVB FINANCIAL SERVICES, INC.
----------------------------
(Registrant)
/s/ Keith B. McCarthy
-------------------------------
Keith B. McCarthy
Chief Financial Officer
Chief Accounting Officer
Dated: May 12, 2005