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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[ ] 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, 1996
OR
[ ] 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 333-12305
SVB Financial Services, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-3438058
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification Number)
103 West End Avenue, Somerville, NJ 08876
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (908) 704-1188
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $4.17 par value
(Title of Class)
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 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of December 31, 1996, was $17,764,799.
The number of shares of the Registrant's Common Stock, no par value,
outstanding as of December 31, 1996, was 1,366,523.
PART I
ITEM 1. BUSINESS.
General
SVB Financial Services, Inc. (the "Company") is a New Jersey business
company and a bank holding company. The Company was incorporated on February 7,
1996 for the purpose of acquiring Somerset Valley Bank (the "Bank") and thereby
enabling the Bank to operate within a holding company structure. On May 30,
1996, the shareholders of the Bank approved the acquisition by the Company. On
September 3, 1996, the shares of the Company were exchanged for those of the
Bank. The Bank is the Company's only subsidiary.
The Bank is a New Jersey commercial bank and was granted a charter by
the New Jersey Department of Banking on February 21, 1990. The Bank opened for
business on December 20, 1991 at its Somerville facility after obtaining the
necessary capital in its initial offering and the approval of the Federal
Deposit Insurance Corporation (FDIC). At December 31, 1996, the Bank had total
assets of $125.0 million and is considered a small bank relative to other banks
in New Jersey. On February 6, 1996, the Bank opened its first branch office in
Hillsborough Township, New Jersey. The Hillsborough office is a full service
branch with drive-through banking and an ATM.
The Bank received approval from the Township of Bridgewater to
construct a branch office on North Bridge Street, Bridgewater, New Jersey,
adjacent to the Post Office. Approvals have also been received from the FDIC and
the New Jersey Department of Banking for this branch office. The Bridgewater
office will be a full service branch with drive-through banking and an ATM. The
anticipated opening is July 1997. North Bridge Street is a major thoroughfare in
Bridgewater Township and provides access to Routes 22 and 202/206 as well as the
Bridgewater Commons Mall. There is significant residential development along the
length of the road.
The Bank provides a wide range of commercial and consumer banking
services.
Deposit services include business and personal checking accounts,
interest-bearing NOW accounts, Money Market Deposit Accounts, Savings Accounts
and Certificates of Deposit. In order to compete with the larger banks for
deposit accounts, the Bank gives favorable terms (interest rates, minimum
balances, service charges, etc.). As of December 31, 1996, the Bank had $112.5
million in deposits and approximately 7,900 deposit accounts.
The Bank makes secured and unsecured loans to small and mid-sized
businesses and professionals in its market area. Because Somerville is the
county seat of Somerset County and home to Somerset Medical Center, the Bank is
uniquely positioned to provide loans and other services to the medical,
accounting and legal professionals. Small and medium-sized businesses and
professionals make up the primary focus of the Bank's lending efforts. It is
also a preferred SBA lender and as such it originates SBA loans and sells the
government guaranteed portion in the secondary market while retaining the
servicing of such loans.
Secured and unsecured personal loans to finance the purchase of
consumer goods are also available. Through its relationship with nine local
automobile dealerships, the Bank indirectly finances automobile loans.
Residential and commercial mortgages are also provided by the Bank.
Residential mortgages are currently written by the Bank with a three or
five year fixed rate which adjusts annually thereafter for the life of the loan
which may be up to 30 years. Long term fixed rate mortgages are provided through
a correspondent bank.
As of December 31, 1996, the Bank had approximately 2,300 loans of all
types totaling $86.9 million.
Other services provided by the Bank include wire transfers, safe
deposit boxes, money orders, travelers cheques, direct deposit of payroll and
social security checks, ACH origination and Visa/MasterCard processing. The Bank
has two ATM machines and the Bank is a member of the MAC network. The Bank
currently employs three licensed agents to sell annuities. A messenger service
is provided by the Bank for pick up of non-cash deposits for selected customers.
The Bank's data processing services are provided by Fiserv, which is
one of the leading data processing service providers to financial institutions
in the United States. As such, the Bank has access to many banking products and
services that are technologically competitive with other Banks. Not all of these
services, however, are economically feasible to the Bank at this time.
Market Area
The Bank's market area is primarily Somerset County which is located
midway between New York and Philadelphia. Somerset County is considered an
affluent suburban area with significant commercial and residential activity. A
number of large national firms such as ATT, Metropolitan Life and Johnson and
Johnson companies locate their offices in Somerset County. The county is
crisscrossed by five major highways including interstate Routes 78 and 287 and
U.S. Routes 22, 202 and 206, adding to its desirability as a commercial center.
A large regional shopping mall is located in Bridgewater Township with several
small shopping centers located throughout the county.
Although the Bank serves primarily Somerset County, it also draws
business from the contiguous counties of Hunterdon, Middlesex, Union and Mercer.
Competition
All phases of the Bank's business are highly competitive. As of June
30, 1996 (the latest date for which figures are available), Somerset County had
23 banks and saving banks with 98 offices. In just 4 1/2 years and having only
two locations, the Bank was ranked 13th of 23 in terms of total deposits.
Somerset County has experienced significant merger activity in the past two
years. These mergers will result in the closing of several branch locations
throughout the Bank's market area. A possibility exists that there will be
competition for acquisition of one or more of these existing branches. Such
competition could come from not only New Jersey financial institutions but,
under recent amendments to New Jersey banking statutes, also from out-of-state
and foreign banks as well.
Management of the Bank believes that loans to small and mid-size
businesses and professionals are not always of primary importance to the larger
banking institutions, whereas they represent the main commercial loan business
of the Bank. The Bank can compete for this segment of the market because it
provides responsive personalized services, local decision-making and knowledge
of its customers and their businesses.
By virtue of their greater total capital, certain commercial banks have
substantially higher lending limits. These banks can also finance broad
advertising campaigns. Accordingly, there are certain borrowers that the Bank
will not be able to service and others who will be reached by the more extensive
advertising of larger competing banks.
Employees
At December 31, 1996, the Company employed 38 full time and two part
time employees. None of these employees is covered by a collective bargaining
agreement and the Company believes that its employees' relations are good. The
Company offers its employees health, life, dental benefits, as well as a 401(k)
Plan.
ITEM 2. PROPERTIES.
The Company presently owns no properties. The Bank leases its banking
facilities at 103 West End Avenue and its back-office facility at 117 West End
Avenue in Somerville from a partnership consisting of all but one of the members
of its Board of Directors and one non director. The lease for 103 West End
Avenue expires in July of 2001, but contains four five-year renewal options
allowing the Bank to extend the lease. The lease for 117 West End Avenue expires
in 2003. The Bank also leases property from the partnership described above
located at 48 North Middaugh Street, Somerville on a month-to-month basis for
possible future expansion. The lease for 103 West End Avenue, was reviewed by
both the FDIC and the Department of Banking prior to the Bank's opening to
determine that the terms of the lease are comparable to those the Bank would
receive in an arms length transaction with an unaffiliated third party. Neither
the FDIC nor the Department of Banking objected to the terms of the lease. The
office space at 117 West End Avenue is also leased at such comparable terms.
The Hillsborough office located at 649 Route 206, Belle Mead, New
Jersey, is leased from an unaffiliated partnership and the lease expires in 2004
with two five year renewal options.
The Bank is currently leasing the land for the construction of the
Bridgewater office on North Bridge Street on a month-to-month basis from an
unaffiliated partnership. A long-term lease will be established when final
construction costs are determined.
ITEM 3. LEGAL PROCEEDINGS.
The Company is periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce
liens, claims involving the making and servicing of real property loans, and
other issues incident to the Company's business. There are no pending legal
proceedings to which the Company is a party nor has it been threatened with any
litigation. Management does not believe that there is any pending or threatened
proceeding against the Company which, if determined adversely, would have a
material effect on the business or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted for a vote of the Registrant's shareholders
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no established public trading market for the shares of common
stock of the Company. The shares are neither listed on any exchange nor quoted
on the NASDAQ system. During the fourth quarter of 1996, the Company offered for
sale 200,000 shares of common stock at a price of $13.00 per share. All of the
shares were sold.
Prior to the acquisition of the Bank by the Company, on an exchange
basis of six shares for five, there were a limited number of privately
negotiated transfers of the Bank's stock, the price of which was not always made
known to management. In those instances where the price was disclosed, the
consideration was $10.00 per share.
There are approximately 480 shareholders of the Company's common stock
as of December 31, 1996.
The Company has never paid a dividend and there are no plans to pay
cash dividends at this time.
ITEM 6. SELECTED FINANCIAL DATA.
This information is incorporated by reference from the Company's 1996
Annual Report to Shareholders at page 3 under the caption "Selected Consolidated
Financial Information."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This information is incorporated by reference from the Company's 1996
Annual Report to Shareholders at pages 18-30 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Independent Auditors Report thereon is incorporated by reference
from pages 6-17 of the 1996 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Arthur Andersen LLP was the Company and its subsidiary Bank's
independent public accountants from its inception in 1991 through the year ended
December 31, 1996. Effective March 27, 1997, the firm of Grant Thornton LLP has
been appointed as the Company's independent public accountants for 1997.
The report of Arthur Andersen LLP on the consolidated financial
statements of the Company as of and for the year ended December 31, 1996 did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope, or accounting principles.
The decision to change accountants was recommended by the Audit
Committee of the Board of Directors and approved by the Board of Directors.
There were no disagreements with Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference from
page 2 under the caption "Directors/Principal Shareholders, Executive Officers"
of the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
This information required by this item is incorporated by reference
from page 6 under the caption "Executive Compensation" of the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
page 2 under the caption "Directors/Principal Shareholders/Executive Officers"
of the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information required by this item is incorporated by reference
from page 15 under the caption "Transactions with Related Persons" of the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules
The following documents are filed as part of this report:
1 Financial Statements of SVB Financial Services, Inc.
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity -
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended December
31, 1996, 1995 and 1994
Report of Independent Accountants
These statements are incorporated by reference to the Company's Annual
Report to Shareholders for the year ended December 31, 1996.
2 All schedules are omitted because either they are inapplicable
or not required, or because the information required therein
is included in the Consolidated Financial Statements and Notes
thereto.
3 Exhibits
Exhibit
Number Description
------ -----------
3(i) Certificate of Incorporation (1)
3(ii) By-Laws(1)
4.1 Specimen Stock Certificate (1)
4.2 Pages 3, 4, 5, 6, 7, 8, 9, 10 and 11 from the
Certificate of Incorporation of SVB Financial
Services, Inc. (1)
4.3 Pages 1, 2, 3, 9, 10, 11, 14 and 15 from the
By-Laws of SVB Financial Services, Inc. (1)
10.1 Employment Agreements (1)
10.2 SVB Financial Services, Inc. Nonstatutory Stock
Option Plan
10.3 SVB Financial Services, Inc. Restated Incentive
Stock Option Plan
13 Annual Report to Security-Holders
16 Letter re change in certifying accountants
20 Proxy Statement for the 1997 Annual Meeting
of Shareholders
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Registration
Statement on Form SB-2.) Registration Number 333-12305.
3 (b) A report on Form 8-K was filed on October 10, 1996 under
Item 5 "Other Events" concerning the acquisition of Somerset
Valley Bank by SVB Financial Services, Inc. The following
financial statements were filed:
Unaudited Consolidated Financial Statements of the Company
Consolidated Statement of Condition as of June 30, 1996
Consolidated Statements of Income for the Six Months Ended
June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995
Audited Consolidated Financial Statements of the Company
Consolidated Statements of Condition as of December 31, 1995
and 1994
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
SVB FINANCIAL SERVICES, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10.2 SVB Financial Services, Inc. Nonstatutory Stock Option Plan
10.3 SVB Financial Services, Inc. Incentive Stock Option Plan
13 Annual Report to Security-Holders
16 Letters re change in certifying accountants
20 Proxy Statement for 1997 Annual Meeting of Shareholders
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
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.
/s/Keith B. McCarthy
--------------------
Keith B. McCarthy
Principal Financial Officer and
Principal Accounting Officer
March 27, 1997
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 and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/John K. Kitchen
- ------------------- Director and Chairman of the Board March 27, 1997
John K. Kitchen
/s/Robert P. Corcoran
- ---------------------- President and Chief Executive Officer March 27, 1997
Robert P. Corcoran and Director
/s/Keith B. McCarthy
- -------------------- Chief Financial Officer/Chief March 27, 1997
Keith B. McCarthy Accounting Officer
/s/Bernard Bernstein
- -------------------- Director March 27, 1997
Bernard Bernstein
/s/Mark S. Gold
- --------------- Director March 27, 1997
Mark S. Gold, MD
- -------------------- Director March 27, 1997
Raymond L. Hughes
- -------------------- Director March 27, 1997
S. Tucker S. Johnson
/s/Willem Kooyker
- ----------------- Director March 27, 1997
Willem Kooyker
/s/Frank Orlando
- ---------------- Director March 27, 1997
Frank Orlando
/s/Gilbert E. Pittenger
- ----------------------- Director March 27, 1997
Gilbert E. Pittenger
/s/Frederick D. Quick
- --------------------- Director March 27, 1997
Frederick D. Quick
/s/Anthony J.Santye, Jr.
- ------------------------ Director March 27, 1997
Anthony J. Santye, Jr.
/s/G. Robert Santye
- ------------------- Director March 27, 1997
G. Robert Santye
- ------------------- Director March 27, 1997
Donald Sciaretta
/s/Herman C. Simonse
- -------------------- Director March 27, 1997
Herman C. Simonse
/s/Donald R. Tourville
- ---------------------- Director March 27, 1997
Donald R. Tourville