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Greater Bay Bank Conference/Matsco
Op. Change Highlights from the Conference call ---Didn’t sell any Matsco
loans (securitizations last quarter due to operational problems, these loans are
in the 1 ˝ million to 2 million
dollar range---problem is primarily due to a front system conversion, not complete, that will allow Matsco to save a quarter million
a month in operation expenses when it is up and running ( said in question and
answer session at end of conference). Basically
Greater Bay Bank is a “business bank” and should not be compared to peers who are more into consumer finance,
they are a relationship bank and want to continue in that manner. Personal guarantees are important in real estate because in many instances the president of the bank can go
to the person directly and ask them to stand up; the bank plans to be tight on operations
and even more so, the local economy has been one of the toughest, especially
the last couple of years, but the bank is in a strong position when the bay area turns
around, capital level is very strong, although loans have been sluggish recently,
but perhaps will move soon as there are some signs, less commercial real estate
loans, no residential mortgages on balance sheet, loans were “flat,”
didn’t sell any Matsco loans this last quarter due to operational problems,
but plan to soon in the 1 ˝ to 2 million dollar range) A telephone replay is available through midnight on July
30, 2003, by dialing 800-642-1687 or 706-645-9291 and providing Conference
ID 1572019. Stock closed at $19.879. Day’s Range: $18.90 - $20.00 52 week range $12.69-$27.25 http://finance.yahoo.com/q?s=GBBK&d=t More about the bank and its locations: http://www.gbbk.com/banks/banks.html Here is the bank press release: Greater Bay Bancorp Reports Net Income of $48 Million for
the First Six Months of 2003; Credit Quality Stable PALO ALTO, Calif., -- Greater Bay Bancorp (Nasdaq:GBBK),
an $8.1 billion in assets financial services holding company, announced results for the second quarter and
six months ended June 30, 2003. For the second quarter of 2003, Greater Bay Bancorp's net
income was $23.1 million, or $0.41 per diluted share, compared to $33.5
million, or $0.62 per diluted share, for the second quarter of 2002.
Based on net income for the second quarter of 2003, Greater Bay Bancorp's
return on average equity was 12.97% and return on average assets was
1.15%. For the second quarter of 2002, net income resulted in a return
on average equity of 22.48% and a return on average assets of 1.60%. For the first six months of 2003, Greater Bay Bancorp's net
income was $48.2 million, or $0.86 per diluted share, compared to $61.1
million, or $1.14 per diluted share, for the first six months of 2002.
Based on net income for the first six months of 2003, Greater Bay Bancorp's
return on average equity was 13.80% and return on average assets was
1.22%. For the first six months of 2002, net income resulted in a return
on average equity of 21.47% and a return on average assets of 1.50%. The $0.21 decline in earnings per diluted share for the second
quarter of 2003 and the $0.28 decline in earnings per diluted share
for the first six months of 2003, compared to the same periods a year
ago, were attributable primarily to the following factors: -- market interest rate reductions reduced the
Company's net interest margin by
48 basis points in the second quarter of 2003 and 43 basis
points in the first six months of 2003, resulting in approximately
an $(0.11) and $(0.19) decline in earnings per diluted
share, respectively, -- planned reduction in the Company's interest
earning asset base (primarily the investment
securities portfolio) reduced earnings per diluted
share by approximately $(0.07) and $(0.12) for the second
quarter of 2003 and first six months of 2003, respectively, -- outside consulting costs related to enterprise-wide
risk management and regulatory
compliance amounted to approximately $1.3 million in the
second quarter of 2003 and $2.2 million in the first six months
of 2003, or approximately $(0.02) and $(0.03) per diluted
share, respectively. Non-Interest Income The Company continues to focus on increasing non-interest
income. Non-interest income for the second quarter of 2003 increased
to $42.3 million from $39.5 million in the second quarter of 2002. Non-interest
income for the first quarter of 2003 was $44.8 million. While gains
on investment securities were $1.1 million higher in the second quarter
of 2003 compared to the first quarter of 2003, gains on the sale of
loans were $1.2 million lower for the same period due to the Company's
decision not to sell any Matsco loans in the second quarter. Non-interest
income for the first six months of 2003 increased to $87.1 million from
$62.1 million in the first six months of 2002, of which $20.1 million
was related to an additional two and one-half months of ABD's commissions
and fees. Non-interest income as a percentage of total revenues for
the second quarter and first half of 2003 was 36.44% and 36.74%, respectively,
compared with 30.83% and 26.06% for the second quarter and first half
of 2002 and 37.02% for the first quarter of 2003. The first half of
2002 included only three and one-half months of ABD's commissions and
fees. In July 2003, ABD completed the acquisition of Sullivan and
Curtis Insurance Brokers of Washington LLC (S&C), an insurance brokerage
firm located in Seattle, Washington. The acquisition, which we anticipate
will be neutral to 2003 earnings and marginally accretive to 2004 earnings,
was a strategic move for ABD, as it allows ABD to expand its market
reach and enhance its position as the premier regional West Coast firm.
The S&C acquisition also adds new business lines to ABD's product
offerings, including marine insurance. Greater Bay Bancorp estimates
that the acquisition will add approximately 8% to ABD's revenue stream. Balance Sheet At June 30, 2003, Greater Bay Bancorp's total assets were
$8.1 billion, total loans were $4.7 billion, total investments, primarily
mortgage-backed securities, were $2.7 billion and total deposits were
$5.5 billion. From June 30, 2002 to June 30, 2003, total loans were
flat, total investments decreased 17% to $2.7 billion, and total deposits
increased 5% to $5.5 billion. The net deposit growth for the 12 month
period reflects a reduction of $107.3 million in wholesale deposits.
Core deposits, which exclude wholesale deposits, grew by $356.4 million
or 8% from the second quarter of 2002 versus the second quarter of 2003. Credit Quality Net charge-offs in the second quarter of 2003 were $6.5 million,
or 0.55% of average annualized loans, compared to 0.72% in the second
quarter of 2002. Non-performing assets of $49 million at June 30, 2003
increased from $40 million at March 31, 2003. The net increase was primarily
the result of one Shared National Credit (SNC) loan becoming non-performing.
The ratio of non-performing assets to total assets was 0.61% at June
30, 2003, compared to 0.51% at March 31, 2003 and 0.50% at June 30,
2002. The allowance for loan losses was $130 million or 2.75% of total
loans at June 30, 2003, compared to $130 million or 2.74% at March 31,
2003 and $126 million or 2.68% at June 30, 2002. During the past year, total commitments in our SNC portfolio
have been reduced by $107 million, or 60%, and the funded amount has
been reduced by $80 million, or 58%. The total SNC non-relationship
portfolio as of June 30, 2003 had commitments of only $31 million and
a funded amount of $28 million. Subsequent to quarter-end, the Company
further reduced its SNC non-relationship loan portfolio by selling a
loan with a net book value of $5.07 million for $5.04 million, resulting
in a $30,000 loss. After the loan sale, the SNC non-relationship loans
outstanding comprise less than 0.5% of loans outstanding. David Kalkbrenner, President and CEO, stated, "The efforts
of our relationship managers continue to show positive results on the
levels of net charge-offs and nonperforming assets. With a strong loan
loss reserve, we believe we are well-positioned to weather current economic
conditions." Capital Ratios The capital ratios of Greater Bay Bancorp and each of its
subsidiary banks remain above the well-capitalized guidelines established
by the bank regulatory agencies. The Company's tangible equity to asset
ratio increased to 6.91% at June 30, 2003 from 6.69% at March 31, 2003
and 5.43% at June 30, 2002. The Company's leverage ratio also increased
during the second quarter of 2003 to 9.29% from 9.18% in the first quarter
of 2003 and 7.77% one year ago, while the total risk-based capital ratio
increased to 13.55% at June 30, 2003 from 13.34% at March 31, 2003 and
12.26% at June 30, 2002. When the Company's capital ratios are compared to those of
the top 75 U.S. Banks (by asset size) at March 31, 2003, the Company
(ranked 62nd by asset size) had tangible equity, leverage, tier 1 and
total risk-based capital ratios equal to or exceeding the top 75 U.S.
Banks' average ratios. Mr. Kalkbrenner commented, "During this last quarter,
we engaged an outside firm to help us develop an economic capital allocation
model that incorporates economic factors, historical factors and our
actual operating results to measure our capital levels in relation to
our risk profile. The preliminary results of this project indicate that
our risk profile and capital position should provide us with the flexibility
to continue to manage capital in the best interests of our shareholders." Net Interest Margin Greater Bay Bancorp's average net interest margin for the
second quarter of 2003 was 4.11% compared to 4.33% for the first quarter
of 2003 and 4.59% for the second quarter of 2002. The end-of-period
net interest margin remained relatively flat at 4.10%. Mr. Kalkbrenner commented, "Low market interest rates
continue to put significant pressure on our net interest margin. Beginning
in the second quarter of 2002, we began to defensively position the
balance sheet to be more asset sensitive by reducing our fixed rate
investment portfolio from $3.2 billion to $2.7 billion with a year-end
target of $2.2 billion." Mr. Kalkbrenner continued, "We have had many opportunities
to add to our net interest income in the short-term by extending investment
security maturities or expanding the balance sheet, but we believe the
risks of that strategy in this low interest rate environment would not
be prudent interest rate risk management. When market interest rates
begin to rise, our balance sheet will be positioned for growth and margin
expansion and will not be saddled with assets that could hinder our
flexibility." Interest Rate Risk Management The Company continues to proactively manage its interest
rate risk exposure to ensure that it is positioned for long-term success
compared to short-term earnings goals that would not be sustainable
in a rising interest rate environment. The Company's current strategy,
which is continually reviewed in relationship to market conditions,
includes a gradual reduction of the investment securities portfolio.
This strategy will continue to reduce current net interest income in
the near-term, but will position the Company to take advantage of an
improving economy and rising market interest rates over the longer term.
Because the balance sheet is positioned to be more asset sensitive,
the Company's net interest margin will continue to be pressured by the
latest declines in market interest rates. Should rates continue to trend
down or remain at their current low levels, the Company's net interest
margin would decline further. Operating Expenses Operating expenses decreased by $1.1 million to $72.2 million
(which included $1.3 million in regulatory related consulting costs)
during the second quarter of 2003 from $73.3 million in the first quarter
of 2003, which was primarily the result of the seasonal impact of payroll
taxes and benefit costs. Operating expenses increased by $6.7 million
to $72.2 million during the second quarter of 2003 compared to $65.5
million in the second quarter of 2002, primarily due to increased salary
and benefits of $3.4 million, regulatory related consulting costs of
$1.3 million and increases in professional and legal fees of $1.2 million. The Company's efficiency ratio for the second quarter of
2003 was 62.21% (56.04% excluding the income and expenses of ABD), compared
to 51.10% (43.93% excluding ABD) for the second quarter of 2002. For
the first half of 2003, the efficiency ratio was 61.42% (55.66% excluding
the income and expenses of ABD), compared to 48.47% (43.42% excluding
ABD) for the first half of 2002. Mr. Kalkbrenner commented, "We have incurred considerable
expenses in proactively enhancing our risk management systems to ensure
they will support our future growth. While it is difficult to quantify
the value of the investment in systems and people that we have made,
I am confident that it will position us to enhance the Company's performance
as the economy recovers." Outlook for Remainder
of 2003 -- Loan growth -- continued focus on quality and
relationships -- business loan growth
is expected to increase slightly in the last half of 2003, -- Deposit growth -- commensurate with our relationship philosophy, the Company
is committed to expanding its deposit base and selectively
adding new clients -- the Company anticipates deposit
growth in the range of 5% to 10% for the remainder of the
year, -- Net interest margin -- the Company anticipates
slight margin compression throughout
2003 without market interest rate reductions -- if
market interest rates decline, the Company would expect continued
margin pressure. For every 25 basis point decline in
market interest rates, the net interest margin is estimated to decline approximately
10 basis points to 20 basis points,
depending on the mix of assets and liabilities, -- Credit Quality -- continued aggressive management
of credit risk, and based on
the current outlook, the Company believes net charge-offs will
be in the range of 60 basis points to 70 basis points for
2003. CONTACT: At Greater
Bay Bancorp: David L. Kalkbrenner,
650-614-5767 Steven C. Smith, 650-813-8222 or At Silverman Heller
Associates: Philip Bourdillon/Gene
Heller, 310-208-2550 full financials and
release here: http://ir.thomsonfn.com/InvestorRelations/PubNewsStory.aspx?partner=Mzg0TkRJek1nPT1QJFk EQUALSTO&product=MzgwU1ZJPVAkWQEQUALSTOEQUALSTO&storyId=91340
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