SVB Financial Group
SILICON VALLEY BANCSHARES (Form: 10-Q, Received: 11/13/1997 11:47:36)
As filed with the Securities and Exchange Commission on November 13, 1997

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 September 30, 1997

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: 33-41102

SILICON VALLEY BANCSHARES
(Exact name of registrant as specified in its charter)

             California                                94-2856336
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)


           3003 Tasman Drive
        Santa Clara, California                         95054-1191
(Address of principal executive offices)                (Zip Code)


    Registrant's telephone number, including area code:  (408) 654-7282

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 ___

At October 31, 1997, 9,917,704 shares of the registrant's common stock (no par value) were outstanding.


This report contains a total of 29 pages.

1

                               TABLE OF CONTENTS

                                                                            PAGE
                        PART I - FINANCIAL INFORMATION

ITEM 1.   INTERIM CONSOLIDATED FINANCIAL STATEMENTS

          CONSOLIDATED BALANCE SHEETS                                          3

          CONSOLIDATED INCOME STATEMENTS                                       4

          CONSOLIDATED STATEMENTS OF CASH FLOWS                                5

          NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS                   6

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS                                 12

                          PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS                                                   28

ITEM 2.   CHANGES IN SECURITIES                                               28

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                     28

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 28

ITEM 5.   OTHER INFORMATION                                                   28

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                    28

SIGNATURES                                                                    29

2

PART I - FINANCIAL INFORMATION

ITEM 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

                                                                   September 30,             December 31,
                                                                       1997                      1996
(Dollars in thousands)                                              (Unaudited)
---------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks                                              $   142,031              $  122,836
Federal funds sold and securities purchased under
  agreement to resell                                                    386,290                 310,341
Investment securities, at fair value                                     837,372                 625,022
Loans, net of unearned income                                          1,037,268                 863,492
Allowance for loan losses                                                (38,600)                (32,700)
---------------------------------------------------------------------------------------------------------
  Net loans                                                              998,668                 830,792
Premises and equipment                                                     3,601                   4,155
Other real estate owned                                                      800                   1,948
Accrued interest receivable and other assets                              37,077                  29,450
---------------------------------------------------------------------------------------------------------
Total assets                                                          $2,405,839              $1,924,544
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity:
Liabilities:
Noninterest-bearing demand deposits                                  $   691,486              $  599,257
NOW deposits                                                              12,693                   8,443
Money market deposits                                                  1,406,922               1,081,391
Time deposits                                                            117,109                  85,213
---------------------------------------------------------------------------------------------------------
  Total deposits                                                       2,228,210               1,774,304
Other liabilities                                                         15,348                  14,840
---------------------------------------------------------------------------------------------------------
Total liabilities                                                      2,243,558               1,789,144
---------------------------------------------------------------------------------------------------------

Shareholders' Equity:
Preferred stock, no par value:
  20,000,000 shares authorized; none outstanding
Common stock, no par value:
  30,000,000 shares authorized; 9,880,647 and
  9,329,993 shares outstanding at September 30, 1997
  and December 31, 1996, respectively                                     79,283                  65,968
Retained earnings                                                         87,555                  67,321
Net unrealized gain on available-for-sale investments                      1,969                   2,456
Unearned compensation                                                     (6,526)                   (345)
---------------------------------------------------------------------------------------------------------
Total shareholders' equity                                               162,281                 135,400
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                            $2,405,839              $1,924,544
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------

See notes to interim consolidated financial statements.

3

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS

                                                                     For the three months ended   For the nine months ended
                                                                     --------------------------   -------------------------
                                                                    September 30, September 30,  September 30, September 30,
                                                                         1997         1996            1997         1996
(Dollars in thousands, except per share amounts)                      (Unaudited)  (Unaudited)     (Unaudited)  (Unaudited)
---------------------------------------------------------------------------------------------------------------------------
Interest income:
     Loans, including fees                                             $ 28,349     $ 23,236       $ 77,874       $ 65,536
     Investment securities                                               10,897        7,040         29,020         16,455
     Federal funds sold and securities purchased under
       agreement to resell                                                4,925        3,019         11,891          9,527
---------------------------------------------------------------------------------------------------------------------------
Total interest income                                                    44,171       33,295        118,785         91,518
---------------------------------------------------------------------------------------------------------------------------
Interest expense:
     Deposits                                                            15,117       10,353         38,791         27,438
---------------------------------------------------------------------------------------------------------------------------
Total interest expense                                                   15,117       10,353         38,791         27,438
---------------------------------------------------------------------------------------------------------------------------
Net interest income                                                      29,054       22,942         79,994         64,080
Provision for loan losses                                                 1,716        2,962          7,682          6,550
---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses                      27,338       19,980         72,312         57,530
---------------------------------------------------------------------------------------------------------------------------
Noninterest income:
     Disposition of client warrants                                         708          618          4,953          2,880
     Letter of credit and foreign exchange income                         1,159          759          3,249          2,493
     Deposit service charges                                                588          359          1,360          1,200
     Investment gains                                                        33            -             78              1
     Other                                                                  318          277            973            825
---------------------------------------------------------------------------------------------------------------------------
Total noninterest income                                                  2,806        2,013         10,613          7,399
---------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
     Compensation and benefits                                           10,625        7,914         29,100         23,259
     Professional services                                                1,958        1,329          5,088          3,538
     Business development and travel                                      1,077          683          3,063          1,961
     Furniture and equipment                                              1,178          859          2,602          2,452
     Net occupancy expense                                                  840          706          2,493          2,329
     Postage and supplies                                                   420          359          1,122          1,108
     Advertising and promotion                                              354          437          1,082          1,067
     Telephone                                                              370          355          1,004            956
     Cost of other real estate owned                                         30           19             56            345
     Other                                                                  766          546          2,429          1,939
---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense                                                17,618       13,207         48,039         38,954
---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense                                         12,526        8,786         34,886         25,975
Income tax expense                                                        5,261        3,514         14,652         10,390
---------------------------------------------------------------------------------------------------------------------------
Net income                                                             $  7,265     $  5,272       $ 20,234       $ 15,585
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Net income per common and
common equivalent share                                                $   0.71     $   0.54       $   1.99       $   1.61
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

See notes to interim consolidated financial statements.

4

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                    For the nine months ended
                                                                 --------------------------------
                                                                  September 30,    September 30,
                                                                      1997              1996
(Dollars in thousands)                                             (Unaudited)      (Unaudited)
-------------------------------------------------------------------------------------------------
Cash flows from operating activities:
     Net income                                                   $    20,234       $   15,585
     Adjustments to reconcile net income to net cash provided
       by operating activities:
         Provision for loan losses                                      7,682            6,550
         Provision for other real estate owned                              -              551
         Depreciation and amortization                                    974              880
         Net gain on sales of investment securities                       (78)              (1)
         Net gain on sales of other real estate owned                     (45)            (407)
         Increase in accrued interest receivable                       (5,260)          (3,671)
         (Increase) decrease in prepaid expenses                         (180)           2,594
         Increase in unearned income                                    1,757            1,182
         Increase (decrease) in accrued liabilities                       896           (1,866)
         Other, net                                                    (2,643)          (3,398)
-------------------------------------------------------------------------------------------------
Net cash provided by operating activities                              23,337           17,999
-------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Proceeds from maturities and paydowns of investment
       securities                                                     923,336          716,999
     Proceeds from sales of investment securities                     105,476            9,699
     Purchases of investment securities                            (1,236,675)        (893,856)
     Net increase in loans                                           (181,605)        (111,751)
     Proceeds from recoveries of charged off loans                      3,121            1,946
     Net proceeds from sales of other real estate owned                 1,193            2,092
     Purchases of premises and equipment                                 (426)            (310)
-------------------------------------------------------------------------------------------------
Net cash applied to investing activities                             (385,580)        (275,181)
-------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Net increase in deposits                                         453,906          278,772
     Proceeds from issuance of common stock, net of
       issuance costs                                                   3,481            1,957
-------------------------------------------------------------------------------------------------
Net cash provided by financing activities                             457,387          280,729
-------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                              95,144           23,547
Cash and cash equivalents at January                                1,433,177          342,325
-------------------------------------------------------------------------------------------------
Cash and cash equivalents at September 30,                        $   528,321       $  365,872
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------

Supplemental Disclosures:
     Interest Paid                                                $    38,514       $   27,405
     Income taxes paid                                            $    14,585       $   11,932
Non-cash investing activities:
     Transfer of loans to other foreclosed assets                 $     1,169       $        -
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------

See notes to interim consolidated financial statements.

5

SILICON VALLEY BANCSHARES AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Silicon Valley Bancshares (the "Company") and its subsidiaries conform with generally accepted accounting principles and prevailing practices within the banking industry. Certain reclassifications have been made to the Company's 1996 consolidated financial statements to conform to the 1997 presentations. Such reclassifications had no effect on the results of operations or shareholders' equity. The following is a summary of the significant accounting and reporting policies used in preparing the interim consolidated financial statements.

NATURE OF OPERATIONS

The Company is a bank holding company whose principal subsidiary is Silicon Valley Bank (the "Bank"), a California-chartered bank with headquarters in Santa Clara, California. The Bank maintains regional banking offices in Northern and Southern California, and additionally has loan offices in Arizona, Colorado, Georgia, Maryland, Massachusetts, Oregon, Texas, and Washington. The Bank serves emerging growth and middle-market companies in specific targeted niches, focusing on the technology and life sciences industries, while also identifying and capitalizing on opportunities to serve companies in other industries whose financial services needs are underserved. Substantially all of the assets, liabilities and earnings of the Company relate to its investment in the Bank.

CONSOLIDATION

The interim consolidated financial statements include the accounts of the Company and those of its wholly owned subsidiaries, the Bank and SVB Leasing Company (inactive). The revenues, expenses, assets, and liabilities of the subsidiaries are included in the respective line items in the interim consolidated financial statements after elimination of intercompany accounts and transactions.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of Management, the interim consolidated financial statements contain all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company's consolidated financial position at September 30, 1997, the results of its operations for the three and nine month periods ended September 30, 1997 and September 30, 1996 and the results of its cash flows for the nine month periods ended September 30, 1997 and September 30, 1996. The December 31, 1996 consolidated financial statements were derived from audited financial statements, and certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted.

The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1996 Annual Report on Form 10-K. The results of operations for the three and nine month periods ended September 30, 1997 may not necessarily be indicative of the Company's operating results for the full year.

6

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIS OF FINANCIAL STATEMENT PRESENTATION

The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and judgments that affect the reported amounts of assets and liabilities as of the balance sheet date and the results of operations for the period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to possible change in the near term relates to the determination of the allowance for loan losses. An estimate of possible changes or range of possible changes cannot be made.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents as reported in the consolidated statements of cash flows includes cash on hand, cash balances due from banks, federal funds sold, and securities purchased under agreement to resell. The cash equivalents are readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value.

FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL

Federal funds sold and securities purchased under agreement to resell as reported in the consolidated balance sheets includes interest-bearing deposits in other financial institutions of $290,000 and $341,000 at September 30, 1997 and December 31, 1996, respectively.

NONACCRUAL LOANS

Loans are placed on nonaccrual status when they become 90 days past due as to principal or interest payments (unless the principal and interest are well secured and in the process of collection), when the Company has determined, based upon currently known information, that the timely collection of principal or interest is doubtful, or when the loans otherwise become impaired under the provisions of Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan."

When a loan is placed on nonaccrual status, the accrued interest is reversed against interest income and the loan is accounted for on the cash or cost recovery method thereafter until qualifying for return to accrual status. Generally, a loan will be returned to accrual status when all delinquent principal and interest become current in accordance with the terms of the loan agreement and full collection of the principal appears probable.

7

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Net income per common and common equivalent share is calculated using weighted-average shares, including the dilutive effect of stock options outstanding during the period. Weighted-average shares outstanding were 10,288,505 and 10,143,837 for the three and nine month periods ended September 30, 1997 and 9,735,778 and 9,660,785 for the three and nine month periods ended September 30, 1996. Fully diluted earnings per common and common equivalent share were approximately equal to primary earnings per common and common equivalent share for the three and nine month periods ended September 30, 1997 and September 30, 1996.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings per Share." SFAS No. 128 establishes standards for computing and reporting earnings per share (EPS) and applies to entities with publicly held common stock or financial instruments that are potentially convertible into publicly held common stock. This statement supersedes Accounting Principles Board (APB) Opinion No. 15, "Earnings per Share." The presentation of primary EPS, as required by APB Opinion No. 15, is replaced with a presentation of basic EPS, which is defined in SFAS No. 128. In addition, dual presentation of basic EPS and diluted EPS, as defined in SFAS No. 128, is required on the face of the income statement for all entities that have complex capital structures. Disclosure of a reconciliation between basic EPS and diluted EPS is also required.

Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if financial instruments or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to the fully diluted EPS computation required by APB Opinion No. 15.

SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. However, an entity is permitted to disclose pro forma EPS amounts computed using this statement in the notes to interim financial statements in periods prior to required adoption.

8

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The pro forma EPS amounts, computed pursuant to the provisions of SFAS No. 128, for the three and nine month periods ended September 30, 1997 and 1996 were as follows:

                                       Three Months Ended          Nine Months Ended
                                         September 30,               September 30,
                                          (Unaudited)                 (Unaudited)
                                    -------------------------   -------------------------
(Dollars and shares in thousands,    Net            Per Share     Net           Per Share
except per share amounts)           Income  Shares   Amount     Income  Shares   Amount
-----------------------------------------------------------------------------------------
1997:
BASIC EPS:
Income available to common
  shareholders                      $7,265   9,740   $0.75      $20,234  9,606  $2.11

EFFECT OF DILUTIVE SECURITIES:
Stock options outstanding                -     549       -            -    538      -
-----------------------------------------------------------------------------------------
DILUTED EPS:
Income available to common
  shareholders plus assumed
  conversions                       $7,265  10,289   $0.71      $20,234 10,144  $1.99
-----------------------------------------------------------------------------------------
1996:
BASIC EPS:
Income available to common
  shareholders                      $5,272   9,259   $0.57       15,585  9,182  $1.70

EFFECT OF DILUTIVE SECURITIES:
Stock options outstanding                -     477       -            -    479      -
-----------------------------------------------------------------------------------------
DILUTED EPS:
Income available to common
  shareholders plus assumed
  conversions                       $5,272   9,736   $0.54      $15,585  9,661  $1.61
-----------------------------------------------------------------------------------------

In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS No. 129 establishes standards for disclosing information about an entity's capital structure and applies to all entities. This statement is effective for financial statements issued for periods ending after December 15, 1997. Management does not believe that the adoption of this statement will have a material impact on the Company's consolidated financial position or results of operations.

9

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for all entities for reporting comprehensive income and its components in financial statements. This statement requires that all items which are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is equal to net income plus the change in "other comprehensive income." The only component of other comprehensive income currently applicable to the Company, as defined by SFAS No. 130, is the net unrealized gain or loss on available-for-sale investments. SFAS No. 130 requires that an entity: (a) classify items of other comprehensive income by their nature in a financial statement, and (b) report the accumulated balance of other comprehensive income separately from common stock and retained earnings in the equity section of the statement of financial position. This statement is effective for financial statements issued for fiscal years beginning after December 15, 1997. Management does not believe that the adoption of this statement will have a material impact on the Company's consolidated financial position or results of operations.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for publicly held entities to follow in reporting information about operating segments in annual financial statements and requires that those entities report selected information about operating segments in interim financial statements. This statement also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement is effective for financial statements issued for periods beginning after December 15, 1997. Management does not believe that the adoption of this statement will have a material impact on the Company's consolidated financial position or results of operations.

In January 1997, the Securities and Exchange Commission (SEC) approved amendments (Release No. 33-7386) to Regulations S-X and S-K regarding the disclosure requirements for derivative financial instruments, other financial instruments and derivative commodity instruments (collectively, "market risk sensitive instruments"). The amendments require enhanced disclosure of accounting policies for derivative financial instruments and derivative commodity instruments in the notes to the financial statements. In addition, the amendments expand existing disclosure requirements to include quantitative and qualitative information regarding the market risk inherent in market risk sensitive instruments. The required quantitative and qualitative information should be disclosed outside of the financial statements and related notes thereto.

The accounting policies disclosure requirements are effective for all SEC registrants in filings that include financial statements issued for periods ending after June 15, 1997. As the Company's 1996 Annual Report on Form 10-K fully complied with the new disclosure requirements, no additional accounting policy disclosures are required during interim filings in 1997. The quantitative and qualitative information disclosure requirements regarding market risks are effective for all bank and thrift registrant filings which include annual financial statements issued for periods ending after June 15, 1997. Management does not believe that the adoption of the amendments will have a material impact on the Company's consolidated financial position or results of operations.

10

SILICON VALLEY BANCSHARES AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

2. LOANS

The detailed composition of loans is presented in the following table:

                                 September 30,   December 31,
                                     1997           1996
(Dollars in thousands)           (Unaudited)
-------------------------------------------------------------
Commercial                        $  919,275      $755,699
Real estate term                      49,643        44,475
Real estate construction              33,152        27,540
Consumer and other                    35,198        35,778
-------------------------------------------------------------
Total loans (1)                   $1,037,268      $863,492
-------------------------------------------------------------

(1) Net of unearned income of $7,415 and $5,658 at September 30, 1997 and December 31, 1996, respectively.

3. ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses for the three and nine month periods ended September 30, 1997 and 1996 was as follows:

                                     Three Months Ended     Nine Months Ended
                                        September 30,          September 30,
                                         (Unaudited)            (Unaudited)
                                     ------------------     -----------------
(Dollars in thousands)                 1997      1996         1997      1996
-----------------------------------------------------------------------------
Beginning balance                    $37,300    $29,000     $32,700   $29,700
Provision for loan losses              1,716      2,962       7,682     6,550
Loans charged off                     (1,700)    (2,502)     (4,903)   (8,196)
Recoveries                             1,284        540       3,121     1,946
-----------------------------------------------------------------------------
Balance at September 30,             $38,600    $30,000     $38,600   $30,000
-----------------------------------------------------------------------------

The aggregate recorded investment in loans for which impairment has been determined in accordance with SFAS No. 114 totaled $23.3 million and $19.9 million at September 30, 1997 and September 30, 1996, respectively. Allocations of the allowance for loan losses related to impaired loans totaled $11.5 million at September 30, 1997 and $6.5 million at September 30, 1996. Average impaired loans for the third quarter of 1997 and 1996 totaled $19.5 million and $18.7 million, respectively.

11

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's interim consolidated financial statements as presented in Item 1 of this report. In addition to historical information, this discussion and analysis includes certain forward-looking statements regarding events and trends which may affect the Company's future results. Such statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially. These risks and uncertainties include, but are not limited to, those described in the Company's 1996 Annual Report on Form 10-K.

Certain reclassifications have been made to the Company's 1996 consolidated financial statements to conform to the 1997 presentations. Such reclassifications had no effect on the results of operations or shareholders' equity.

EARNINGS SUMMARY

The Company reported net income of $7.3 million, or $0.71 per share, for the third quarter of 1997, compared with net income of $5.3 million, or $0.54 per share, for the third quarter of 1996. Net income totaled $20.2 million, or $1.99 per share, for the nine months ended September 30, 1997, versus $15.6 million, or $1.61 per share, for the respective 1996 period. The annualized return on average assets (ROA) was 1.3% for both the third quarter of 1997 and 1996. The annualized return on average equity (ROE) for the third quarter of 1997 was 18.4%, compared to 17.2% in the 1996 third quarter. For the first nine months of 1997, ROA was 1.3% and ROE was 18.4% versus 1.4% and 17.9%, respectively, for the comparable prior year period.

The increase in net income during the three and nine month periods ended September 30, 1997, as compared with the prior year respective periods, resulted primarily from growth in both net interest income and noninterest income, partially offset by an increase in noninterest expense. The major components of net income and changes in these components are summarized in the following table for the three and nine month periods ended September 30, 1997 and 1996, and are discussed in more detail below.

                                     Three Months Ended     Nine Months Ended
                                        September 30,          September 30,
                                         (Unaudited)            (Unaudited)
                                     ------------------     -----------------
(Dollars in thousands)                 1997      1996         1997      1996
-----------------------------------------------------------------------------
Net interest income                  $29,054    $22,942     $79,994   $64,080
Provision for loan losses              1,716      2,962       7,682     6,550
Noninterest income                     2,806      2,013      10,613     7,399
Noninterest expense                   17,618     13,207      48,039    38,954
-----------------------------------------------------------------------------
Income before income taxes            12,526      8,786      34,886    25,975
Income tax expense                     5,261      3,514      14,652    10,390
-----------------------------------------------------------------------------
Net income                           $ 7,265    $ 5,272     $20,234   $15,585
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

12

NET INTEREST INCOME AND MARGIN

Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits, and is the principal source of revenue for the Company. Net interest margin is the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets. The average yield earned on interest-earning assets is the amount of taxable-equivalent interest income expressed as a percentage of average interest-earning assets. The average rate paid on funding sources expresses interest expense as a percentage of average interest-earning assets.

The following tables set forth average assets, liabilities and shareholders' equity, interest income and interest expense, average yields and rates, and the composition of the Company's net interest margin for the three and nine month periods ended September 30, 1997 and 1996, respectively.

13


AVERAGE BALANCES, RATES AND YIELDS

                                                For the three months ended September 30,
                                      --------------------------------------------------------------
                                                   1997                             1996
                                                (Unaudited)                      (Unaudited)
                                      -----------------------------      ---------------------------
                                                            Average                          Average
                                        Average              Yield/      Average              Yield/
(Dollars in thousands)                  Balance    Interest   Rate       Balance    Interest   Rate
----------------------------------------------------------------------------------------------------
Interest-earning assets:
  Federal funds sold and
    securities purchased under
    agreement to resell (1)            $  350,786   $ 4,925    5.6%     $  226,543   $3,019    5.3%
  Investment securities:
    Taxable                               680,886    10,399    6.1         470,391    6,912    5.8
    Non-taxable (2)                        45,767       766    6.6           8,683      196    9.0
  Loans:
    Commercial                            885,577    25,265   11.3         684,832   20,203   11.7
    Real estate construction and term      80,269     2,169   10.7          90,841    2,062    9.0
    Consumer and other                     35,905       915   10.1          40,574      971    9.5
--------------------------------------  ---------------------------     ----------------------------
  Total loans                           1,001,751    28,349   11.2         816,247   23,236   11.3
--------------------------------------  ---------------------------     ----------------------------
Total interest-earning assets           2,079,190    44,439    8.5       1,521,864   33,363    8.7
--------------------------------------  ---------------------------     ----------------------------
Cash and due from banks                   147,834                          127,463
Allowance for loan losses                 (38,455)                         (30,004)
Other real estate owned                       921                            2,925
Other assets                               37,507                           28,515
--------------------------------------  ----------                      -----------
Total assets                           $2,226,997                       $1,650,763
--------------------------------------  ----------                      -----------
--------------------------------------  ----------                      -----------
Funding sources:
Interest-bearing liabilities:
  NOW deposits                         $   17,900        94    2.1      $    9,211       47    2.0
  Regular money market deposits           356,449     2,441    2.7         329,883    2,261    2.7
  Bonus money market deposits             967,974    11,338    4.6         652,427    7,293    4.4
  Time deposits                           113,082     1,244    4.4          73,129      752    4.1
--------------------------------------  ---------------------------     ----------------------------
Total interest-bearing liabilities      1,455,405    15,117    4.1       1,064,650   10,353    3.9
Portion of noninterest-bearing
  funding sources                         623,785                          457,214
--------------------------------------  ---------------------------     ----------------------------
Total funding sources                   2,079,190    15,117    2.9       1,521,864   10,353    2.7
--------------------------------------  ---------------------------     ----------------------------

Noninterest-bearing funding sources:
Demand deposits                           602,078                         452,322
Other liabilities                          13,033                          11,957
Shareholders' equity                      156,481                         121,834
Portion used to fund
  interest-earning assets                (623,785)                       (457,214)
--------------------------------------  ----------                      -----------
Total liabilities and shareholders'
  equity                               $2,226,997                      $1,650,763
--------------------------------------  ----------                      -----------
                                        ----------                      -----------
Net interest income and margin                      $29,322    5.6%                 $23,010    6.0%
--------------------------------------              -------    ----                 -------    ----
                                                    -------    ----                 -------    ----
Memorandum:  Total deposits            $2,057,483                      $1,516,972
--------------------------------------  ----------                      -----------
                                        ----------                      -----------

(1) Includes average interest-bearing deposits in other financial institutions of $298 and $402 for the three months ended September 30, 1997 and 1996, respectively.

(2) Interest income on non-taxable investments is presented on a fully taxable-equivalent basis using the federal statutory rate of 35% in 1997 and 1996. The tax equivalent adjustments were $268 and $68 for the three months ended September 30, 1997 and 1996, respectively.

14


AVERAGE BALANCES, RATES AND YIELDS

                                                For the nine months ended September 30,
                                      ---------------------------------------------------------
                                                   1997                             1996
                                                (Unaudited)                      (Unaudited)
                                      -----------------------------      ---------------------------
                                                            Average                          Average
                                        Average              Yield/      Average              Yield/
(Dollars in thousands)                  Balance    Interest   Rate       Balance    Interest   Rate
----------------------------------------------------------------------------------------------------
Interest-earning assets:
  Federal funds sold and
    securities purchased under
    agreement to resell (1)            $  288,685  $ 11,891    5.5%     $  238,334  $ 9,527   5.3%
  Investment securities:
    Taxable                               625,800    28,146    6.0         377,788   16,125   5.7
    Non-taxable (2)                        25,049     1,344    7.2           7,045      507   9.6
  Loans:
    Commercial                            833,120    69,475   11.1         647,670   56,201  11.6
    Real estate construction and term      75,319     5,775   10.3          79,534    6,421  10.8
    Consumer and other                     37,556     2,624    9.3          42,250    2,914   9.2
--------------------------------------  ---------------------------     ----------------------------
  Total loans                             945,995    77,874   11.0         769,454   65,536  11.4
--------------------------------------  ---------------------------     ----------------------------
Total interest-earning assets           1,885,529   119,255    8.5       1,392,621   91,695   8.8
--------------------------------------  ---------------------------     ----------------------------
Cash and due from banks                   155,725                          127,426
Allowance for loan losses                 (36,901)                         (30,266)
Other real estate owned                     1,334                            3,948
Other assets                               35,642                           28,171
--------------------------------------  ----------                      -----------
Total assets                           $2,041,329                       $1,521,900
--------------------------------------  ----------                      -----------
--------------------------------------  ----------                      -----------
Funding sources:
Interest-bearing liabilities:
  NOW deposits                         $   15,175       222    2.0      $   10,373      173   2.2
  Regular money market deposits           344,075     6,960    2.7         312,766    6,353   2.7
  Bonus money market deposits             834,645    28,381    4.5         562,000   18,875   4.5
  Time deposits                           103,132     3,228    4.2          68,461    2,037   4.0
--------------------------------------  ---------------------------     ----------------------------
Total interest-bearing liabilities      1,297,027    38,791    4.0         953,600   27,438   3.8
Portion of noninterest-bearing
  funding sources                         588,502                          439,021
--------------------------------------  ---------------------------     ----------------------------
Total funding sources                   1,885,529    38,791    2.8       1,392,621   27,438   2.6
--------------------------------------  ---------------------------     ----------------------------

Noninterest-bearing funding sources:
Demand deposits                           583,732                          440,851
Other liabilities                          13,448                           11,508
Shareholders' equity                      147,122                          115,941
Portion used to fund
  interest-earning assets                (588,502)                        (439,021)
--------------------------------------  ----------                      -----------
Total liabilities and shareholders'
  equity                               $2,041,329                       $1,521,900
--------------------------------------  ----------                      -----------
                                        ----------                      -----------
Net interest income and margin                      $80,464    5.7%                 $64,257   6.2%
--------------------------------------              -------    ----                 -------   ----
                                                    -------    ----                 -------   ----
Memorandum:  Total deposits            $1,880,759                       $1,394,451
--------------------------------------  ----------                      -----------
                                        ----------                      -----------

(1) Includes average interest-bearing deposits in other financial institutions of $315 and $341 for the nine months ended September 30, 1997 and 1996, respectively.

(2) Interest income on non-taxable investments is presented on a fully taxable-equivalent basis using the federal statutory rate of 35% in 1997 and 1996. The tax equivalent adjustments were $470 and $177 for the nine months ended September 30, 1997 and 1996, respectively.

15

Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as "volume change." Net interest income is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as "rate change." The following table sets forth changes in interest income and interest expense for each major category of interest-earning assets and interest-bearing liabilities. The table also reflects the amount of change attributable to both volume and rate changes for the periods indicated. Changes relating to investments in non-taxable municipal securities are presented on a fully taxable-equivalent basis using the federal statutory rate of 35% in 1997 and 1996.

                                                            1997 Compared to 1996
                                             ----------------------------------------------------
                                               Three Months Ended           Nine Months Ended
                                                 September 30,                September 30,
                                                  (Unaudited)                  (Unaudited)
                                             ---------------------         ---------------------
                                               Increase (Decrease)          Increase (Decrease)
                                                Due to Change in             Due to Change in
                                             ---------------------         ---------------------
(Dollars in thousands)                      Volume    Rate    Total       Volume    Rate    Total
---------------------------------------------------------------------------------------------------
Interest income:
  Federal funds sold and securities
    purchased under agreement to resell     $ 1,753  $ 153  $ 1,906       $ 2,065  $   299  $ 2,364
  Investment securities                       3,823    234    4,057        12,038      820   12,858
  Loans                                       5,313   (200)   5,113        14,473   (2,135)  12,338
---------------------------------------------------------------------------------------------------
Increase (decrease) in interest income       10,889    187   11,076        28,576   (1,016)  27,560
---------------------------------------------------------------------------------------------------

Interest expense:
  NOW deposits                                   46      1       47            70      (21)      49
  Regular money market deposits                 188     (8)     180           627      (20)     607
  Bonus money market deposits                 3,716    329    4,045         9,254      252    9,506
  Time deposits                                 442     50      492         1,083      108    1,191
---------------------------------------------------------------------------------------------------
Increase in interest expense                  4,392    372    4,764        11,034      319   11,353
---------------------------------------------------------------------------------------------------
Increase (decrease) in net interest income  $ 6,497  $(185) $ 6,312       $17,542  $(1,335) $16,207
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------

Net interest income, on a fully taxable-equivalent basis, totaled $29.3 million for the third quarter of 1997, an increase of $6.3 million, or 27.4%, from the $23.0 million total for the third quarter of 1996. The increase in net interest income was the result of a $11.1 million, or 33.2%, increase in interest income, offset by a $4.8 million, or 46.0%, increase in interest expense over the comparable prior year period.

The $11.1 million increase in interest income for the third quarter of 1997, as compared to the third quarter of 1996, was the result of a $10.9 million favorable volume variance combined with a $0.2 million favorable rate variance. The favorable volume variance resulted from a $557.3 million, or 36.6%, increase in average interest-earning assets over the comparable prior year period. The increase in average interest-earning assets resulted from strong growth in the Company's deposits, which increased $540.5 million, or 35.6%, from the prior year comparable period. The increase in average interest-earning assets consisted of loans, which were up $185.5 million, plus a combination of highly liquid, lower-yielding federal funds sold, securities purchased under agreement to resell and investment securities, which collectively increased $371.8 million accounting for 66.7% of the total increase in average interest-earning assets.

The growth in average loans for the 1997 third quarter, which were up 22.7% compared to the third quarter of 1996, was widely distributed throughout the loan portfolio. This diversified growth was evidenced by increased average loan balances in many of the Company's market niches, products and loan offices.

16

Average investment securities for the third quarter of 1997 increased $247.6 million, or 51.7%, over the respective prior year period, as excess funds generated as a result of the aforementioned deposit growth having exceeded the growth in loans were invested in U.S. agency securities, U.S. Treasury securities, mortgage-backed securities, and municipal securities. The nature of this growth in the investment portfolio reflected a continuation of Management's recent actions to increase the portfolio of longer-term investment securities in an effort to obtain available higher yields, as well as to further diversify the Company's portfolio of short-term investments in response to a significant increase in liquidity. Average federal funds sold and securities purchased under agreement to resell increased a combined $124.2 million, or 54.8%, in the third quarter of 1997 as compared to the 1996 third quarter. This increase was also a result of the aforementioned strong growth in deposits.

Interest income for the third quarter of 1997 increased $0.2 million from the comparable prior year period due to a favorable rate variance associated with federal funds sold, securities purchased under agreement to resell and investment securities, partially offset by an unfavorable rate variance related to loans. The overall decrease in the yield on average interest-earning assets of 20 basis points for the third quarter of 1997, as compared to the 1996 third quarter, was due to a shift in the composition of average interest-earning assets towards a higher percentage of highly liquid, lower-yielding federal funds sold, securities purchased under agreement to resell and investment securities. This shift in the composition of average interest-earning assets resulted from the aforementioned deposit growth having exceeded the growth in loans.

Total interest expense in the 1997 third quarter increased $4.8 million from the third quarter of 1996. This increase was due to an unfavorable volume variance of $4.4 million and an unfavorable rate variance of $0.4 million. The unfavorable volume variance resulted from a $390.8 million, or 36.7%, increase in average interest-bearing liabilities in the third quarter of 1997 as compared with the third quarter of 1996. This increase was largely concentrated in the Company's bonus money market deposit product, which increased $315.5 million, or 48.4%, and was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community and into the public equity markets during 1996 and 1997. The $0.4 million unfavorable rate variance was largely attributable to an increase in the average rate paid on the Company's bonus money market deposit product, as well as to a shift in the composition of average interest-bearing liabilities towards a higher percentage of deposits in the bonus money market deposit product.

Net interest income, on a fully taxable-equivalent basis, totaled $80.5 million for the first nine months of 1997, an increase of $16.2 million, or 25.2%, from the $64.3 million total for the first nine months of 1996. The increase in net interest income was the result of a $27.6 million, or 30.1%, increase in interest income, offset by a $11.4 million, or 41.4%, increase in interest expense over the comparable prior year period.

The $27.6 million increase in interest income for the first nine months of 1997, as compared to the first nine months of 1996, was explained by a $28.6 million favorable volume variance, offset by a $1.0 million unfavorable rate variance. The favorable volume variance was attributable to growth in average interest-earning assets, which increased $492.9 million, or 35.4%, from the prior year comparable period. The increase in average interest-earning assets resulted from strong growth in the Company's deposits, which were up $486.3 million, or 34.9%, from the comparable prior year period, and consisted of an increase in each component of the Company's interest-earning assets. The growth in average loans for the first nine months of 1997, which were up $176.5 million, or

17

22.9%, compared to the prior year respective period, was widely distributed among the Company's market niches, products and loan offices. Average investment securities for the first nine months of 1997 increased $266.0 million, or 69.1%, over the respective prior year period. The growth in average investment securities reflected a continuation of Management's recent actions to increase the portfolio of longer-term investment securities in an effort to obtain available higher yields, as well as to further diversify the Company's portfolio of short-term investments in response to a significant increase in liquidity. Average federal funds sold and securities purchased under agreement to resell for the first nine months of 1997 increased a combined $50.4 million, or 21.1%, over the comparable 1996 period due to the aforementioned strong growth in the Company's deposits.

The unfavorable rate variance of $1.0 million from the prior year comparable period resulted from an unfavorable rate variance related to loans, partially offset by favorable rate variances associated with federal funds sold, securities purchased under agreement to resell and investment securities. The overall decrease in the yield on average interest-earning assets of 30 basis points for the first nine months of 1997, as compared to the first nine months of 1996, was due to a decrease in the yield on average loans, resulting primarily from increased competition, combined with a shift in the composition of average interest-earning assets towards a higher percentage of highly liquid, lower-yielding federal funds sold, securities purchased under agreement to resell and investment securities. This shift in the composition of average interest-earning assets resulted from the aforementioned deposit growth having exceeded the growth in loans.

Total interest expense for the first nine months of 1997 increased $11.4 million from the first nine months of 1996. This increase was due to an unfavorable volume variance of $11.0 million and an unfavorable rate variance of $0.3 million. The unfavorable volume variance resulted from a $343.4 million, or 36.0%, increase in average interest-bearing liabilities for the first nine months of 1997 over the comparable prior year period. The growth in average interest-bearing liabilities was largely concentrated in the Company's bonus money market deposit product, which increased $272.6 million, or 48.5%, and was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community and into the public equity markets during 1996 and 1997. The $0.3 million unfavorable rate variance was largely attributable to a shift in the composition of average interest-bearing liabilities towards a higher percentage of deposits in the bonus money market deposit product.

PROVISION FOR LOAN LOSSES

The provision for loan losses is based on Management's evaluation of the adequacy of the existing allowance for loan losses in relation to total loans, and on Management's periodic assessment of the inherent and identified risk dynamics of the loan portfolio resulting from reviews of selected individual loans and loan commitments.

The Company's provision for loan losses totaled $1.7 million for the third quarter of 1997, a $1.2 million, or 42.1%, decrease compared to the $3.0 million provision for the third quarter of 1996. The provision for loan losses increased $1.1 million, or 17.3%, to a total of $7.7 million for the first nine months of 1997, versus $6.6 million for the comparable 1996 period. See "Financial Condition - Credit Quality and the Allowance for Loan Losses" for additional related discussion.

18

NONINTEREST INCOME

The following table summarizes the components of noninterest income for the three and nine month periods ended September 30, 1997 and 1996:

                                              Three Months Ended     Nine Months Ended
                                                 September 30,          September 30,
                                                  (Unaudited)            (Unaudited)
                                              ------------------     -----------------
(Dollars in thousands)                          1997      1996         1997      1996
--------------------------------------------------------------------------------------
Disposition of client warrants                $  708    $  618       $ 4,953   $2,880
Letter of credit and foreign exchange income   1,159       759         3,249    2,493
Deposit service charges                          588       359         1,360    1,200
Investment gains                                  33         -            78        1
Other                                            318       277           973      825
--------------------------------------------------------------------------------------
Total noninterest income                      $2,806    $2,013       $10,613   $7,399
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------

Noninterest income increased $0.8 million, or 39.4%, to a total of $2.8 million in the third quarter of 1997 versus $2.0 million in the prior year third quarter. The increase in noninterest income was largely due to both a $0.4 million increase in letter of credit fees, foreign exchange fees and other trade finance income and a $0.2 million increase in deposit service charges. Noninterest income totaled $10.6 million for the first nine months of 1997, an increase of $3.2 million, or 43.4%, from the $7.4 million total in the comparable prior year period. This increase was largely explained by a $2.1 million increase in income from the disposition of client warrants and a $0.8 million increase in letter of credit fees, foreign exchange fees and other trade finance income.

Income from the disposition of client warrants totaled $0.7 million in the third quarter of 1997 and $5.0 million for the first nine months of 1997 versus $0.6 million and $2.9 million for the respective 1996 periods. The Company has historically obtained rights to acquire stock (in the form of warrants) in certain clients as part of negotiated credit facilities. The receipt of warrants does not change the loan covenants or other collateral control techniques employed by the Company to mitigate the risk of a loan becoming nonperforming. Interest rates, loan fees and collateral requirements on loans with warrants are similar to lending arrangements where warrants are not obtained. The timing and amount of income from the disposition of client warrants typically depends upon factors beyond the control of the Company, including the general condition of the public equity markets, and therefore cannot be predicted with any degree of accuracy and is likely to vary materially from period to period. During the first nine months of 1997, as well as throughout 1996, a significant portion of the income realized by the Company from the disposition of client warrants was offset by expenses related to the Company's efforts to build an infrastructure sufficient to support present and prospective business activities, as well as evaluate and pursue new business opportunities, and was also offset by the need to increase the provision for loan losses during those periods. As opportunities present themselves in future periods, the Company may continue to reinvest some or all of the income realized from the disposition of client warrants in furthering the execution of its business strategies.

Letter of credit fees, foreign exchange fees and other trade finance income increased to a total of $1.2 million during the 1997 third quarter, and totaled $3.2 million for the first nine months of 1997, compared to $0.8 million for the 1996 third quarter and $2.5 million for the first nine months of 1996. The growth in this category of noninterest income reflects a concerted effort by Management to expand the penetration of trade finance-related products and services among the

19

Company's client base, a large percentage of which provide products and services in international markets.

Deposit service charges totaled $0.6 million and $1.4 million for the three and nine month periods ended September 30, 1997, respectively, and $0.4 million and $1.2 million for the three and nine month periods ended September 30, 1996, respectively. Clients compensate the Company for depository services either through earnings credits computed on their demand deposit balances, or via explicit payments recognized by the Company as deposit service charges income.

The Company realized a nominal gain on sales of investment securities for the three month period ended September 30, 1997 and realized a $0.1 million gain through such sales during the first nine months of 1997. The Company reported no gains or losses on sales of investment securities in the third quarter of 1996 and realized a nominal gain on sales of investment securities during the first nine months of 1996. All investment securities sold were classified as available-for-sale, and all sales were conducted as a normal component of the Company's asset/liability and liquidity management activities.

Other noninterest income, which largely consists of service-based fee income, totaled $0.3 million and $1.0 million for the three and nine month periods ended September 30, 1997, compared to $0.3 million and $0.8 million for the respective prior year periods. The increase during 1997 was primarily due to increased fees associated with cash management services provided to the Company's client base.

20

NONINTEREST EXPENSE

Noninterest expense in the third quarter of 1997 totaled $17.6 million, a $4.4 million, or 33.4%, increase from the $13.2 million incurred in the comparable 1996 period. Noninterest expense totaled $48.0 million for the first nine months of 1997, an increase of $9.1 million, or 23.3%, over the $39.0 million total for the comparable 1996 period. Management closely monitors the level of noninterest expense using a variety of financial ratios, including the efficiency ratio. The efficiency ratio is calculated by dividing the amount of noninterest expense, excluding costs associated with other real estate owned, by adjusted revenues, defined as the total of net interest income and noninterest income, excluding income from the disposition of client warrants and gains or losses related to sales of investment securities. This ratio reflects the level of operating expense required to generate $1 of operating revenue. The Company's efficiency ratio for the 1997 third quarter was 56.5% versus 54.2% for the third quarter of 1996. The Company's efficiency ratio was 56.1% for the first nine months of 1997, down slightly from 56.3% for the comparable 1996 period. The following tables present the detail of noninterest expense and the incremental contribution of each line item to the Company's efficiency ratio.

THREE MONTHS ENDED SEPTEMBER 30,

                                      1997                1996
                                   (UNAUDITED)         (UNAUDITED)
                                ---------------------------------------
                                         Percent of           Percent of
                                          Adjusted             Adjusted
(DOLLARS IN THOUSANDS)           Amount   Revenues    Amount   Revenues
-----------------------------------------------------------------------

Compensation and benefits       $10,625    34.1%    $  7,914    32.5%
Professional services             1,958     6.3        1,329     5.5
Business development and travel   1,077     3.5          683     2.8
Furniture and equipment           1,178     3.8          859     3.5
Net occupancy expense               840     2.7          706     2.9
Postage and supplies                420     1.3          359     1.5
Advertising and promotion           354     1.1          437     1.8
Telephone                           370     1.2          355     1.5
Other                               766     2.5          546     2.2
--------------------------------------------------------------------
Total, excluding cost of other
 real  estate owned              17,588    56.5%      13,188    54.2%
Cost of other real estate owned      30                   19
--------------------------------------------------------------------
Total noninterest expense       $17,618              $13,207
--------------------------------------------------------------------

21

NINE MONTHS ENDED SEPTEMBER 30,

                                      1997                1996
                                   (UNAUDITED)         (UNAUDITED)
                                ---------------------------------------
                                         Percent of           Percent of
                                          Adjusted             Adjusted
(DOLLARS IN THOUSANDS)           Amount   Revenues    Amount   Revenues
-----------------------------------------------------------------------

Compensation and benefits       $29,100    34.0%      $23,259   33.9%
Professional services             5,088     5.9         3,538    5.2
Business development and travel   3,063     3.6         1,961    2.9
Furniture and equipment           2,602     3.0         2,452    3.6
Net occupancy expense             2,493     2.9         2,329    3.4
Postage and supplies              1,122     1.3         1,108    1.6
Advertising and promotion         1,082     1.3         1,067    1.6
Telephone                         1,004     1.2           956    1.4
Other                             2,429     2.8         1,939    2.8
--------------------------------------------------------------------
Total, excluding cost of other
 real estate owned               47,983    56.1%       38,609   56.3%
Cost of other real estate owned      56                   345
--------------------------------------------------------------------
Total noninterest expense       $48,039               $38,954
--------------------------------------------------------------------

Compensation and benefits expenses totaled $10.6 million in the third quarter of 1997, a $2.7 million, or 34.3%, increase over the $7.9 million incurred in the third quarter of 1996. For the first nine months of 1997, compensation and benefits expenses totaled $29.1 million, an increase of $5.8 million, or 25.1%, over the $23.3 million total for the comparable 1996 period. The 1997 increase in compensation and benefits expenses was largely the result of an increase in the number of average full-time equivalent (FTE) staff employed by the Company. Average FTE were 428 and 407 for the three and nine month periods ended September 30, 1997, compared to 369 and 358 for the respective prior year periods. The increase in FTE was primarily due to a combination of the Company's efforts: to develop and support new markets through geographic expansion, to develop and expand products and niches, and to build an infrastructure sufficient to support present and prospective business activities. Further growth in the Company's FTE is likely to occur during future years as a result of the continued expansion of the Company's business activities.

During the third quarter of 1997, the Company granted a total of 103,000 shares of its common stock to numerous employees, subject to certain vesting requirements and resale restrictions (restricted stock). For these restricted stock grants, unearned compensation equivalent to the $5.8 million market value of the common stock on the date of grant was charged to shareholders' equity and will subsequently be amortized into compensation and benefits expense over the four-year vesting period.

Professional services expenses, which consist of costs associated with legal consultation, accounting and auditing, consulting, and the Company's board of directors, totaled $2.0 million in the third quarter of 1997, a $0.6 million, or 47.3%, increase from the $1.3 million incurred in the third quarter of 1996. Professional services expenses totaled $5.1 million for the first nine months of 1997, an increase of $1.6 million, or 43.8%, versus the $3.5 million total for the comparable 1996 period. The increase in professional services expenses in 1997 primarily relates to both an increase in consulting fees associated with several business initiatives and an increase in legal fees related to credit workouts.

22

Business development and travel expenses totaled $1.1 million and $3.1 million for the three and nine month periods ended September 30, 1997, an increase of $0.4 million, or 57.7%, and $1.1 million, or 56.2%, compared to the $0.7 million and 2.0 million totals for the comparable 1996 periods. The increase in business development and travel expenses in 1997 was largely attributable to a combination of the Company's expansion during recent quarters into new geographic markets and increased business development efforts in all aspects of the Company's business activities.

Net occupancy, furniture and equipment expenses totaled $2.0 million for the third quarter of 1997 versus $1.6 million for the third quarter of 1996 and $5.1 million versus $4.8 million for the first nine months of 1997 and 1996, respectively. The increase in net occupancy, furniture and equipment expenses in 1997 was primarily the result of investments in computer equipment and software associated with technology upgrades and the Company's aforementioned growth in personnel. In July 1997, the Bank finalized an amendment to the original lease associated with the Company's headquarters facility located at 3003 Tasman Drive in Santa Clara, California. The amendment provides for the leasing of additional premises, approximating 56,000 square feet, adjacent to the existing headquarters facility. Construction of the interior of the building is projected to begin shortly after the later of December 1, 1997 or the date that the current tenant vacates the premises. Assuming a build-out period of four to six months beginning January 1, 1998, the Bank could begin occupying the additional premises between May 1998 and July 1998, with additional future minimum rental payments of approximately $0.8 million for 1998, $1.1 million per year for 1999 through 2001, $1.2 million per year for 2002 through 2003, $1.3 million in the year 2004, and $0.6 million in the year 2005. The Company expects to incur other occupancy, furniture and equipment expenses in future periods associated with the construction, furnishing and maintenance of the additional premises, in addition to future minimum rental payments detailed above.

Other noninterest expenses totaled $0.8 million in the third quarter of 1997, a $0.2 million, or 40.3%, increase over the $0.5 million incurred in the third quarter of 1996. For the first nine months of 1997, other noninterest expenses increased $0.5 million, or 25.3%, to a total of $2.4 million compared to $1.9 million for the first nine months of 1996. These increases were largely due to both the timing of reimbursements related to client services and an increase in costs associated with certain vendor provided services.

The Company incurred minimal costs during the third quarters of 1997 and 1996 associated with other real estate owned (OREO). For the first nine months of 1997, OREO costs incurred decreased $0.3 million from the first nine months of 1996. The decrease in OREO costs in 1997 was primarily due to the write-down in the first quarter of 1996 of one property owned by the Company, partially offset by a gain realized in the second quarter of 1996 on the sale of one property. The Company's net costs associated with OREO include: maintenance expenses, property taxes, marketing costs, net operating expense or income associated with income-producing properties, property write-downs, and gains or losses on the sales of such properties.

INCOME TAXES

The Company's effective tax rate was 42.0% in both the three and nine month periods ended September 30, 1997, compared to 40.0% in the comparable prior year periods. The increase in the Company's effective income tax rate was attributable to adjustments in the Company's estimate of its tax liabilities.

23

FINANCIAL CONDITION

The Company's total assets were $2.4 billion at September 30, 1997 compared to $1.9 billion at December 31, 1996.

FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENT TO RESELL

Federal funds sold and securities purchased under agreement to resell totaled $386.3 million at September 30, 1997, an increase of $75.9 million, or 24.5%, compared to the $310.3 million total at December 31, 1996. The increase was attributable to the Company investing excess funds, resulting from the aforementioned strong growth in deposits during the first nine months of 1997, in these types of short-term, liquid investments.

INVESTMENT SECURITIES

Investment securities totaled $837.4 million at September 30, 1997. This represented a $212.4 million, or 34.0%, increase over the December 31, 1996 balance of $625.0 million. The increase in investment securities was related to strong growth in the Company's deposits during the first nine months of 1997, and primarily consisted of U.S. Treasury securities, U.S. agency securities, mortgage-backed securities, and municipal securities, partially offset by a decrease in commercial paper. This growth reflected a continuation of Management's recent actions to increase the portfolio of longer-term investment securities in an effort to obtain available higher yields, as well as to further diversify the Company's portfolio of short-term investments in response to a significant increase in liquidity.

LOANS

Total loans, net of unearned income, at September 30, 1997 were in excess of $1.0 billion, a $173.8 million, or 20.1%, increase compared to the roughly $0.9 billion total at December 31, 1996. The increase in loans from the 1996 year-end total was widely distributed throughout the loan portfolio. This diversified growth was evidenced by increased quarter-end loan balances in many of the Company's market niches, products and loan offices.

CREDIT QUALITY AND THE ALLOWANCE FOR LOAN LOSSES

Credit risk is defined as the possibility of sustaining a loss because other parties to the financial instrument fail to perform in accordance with the terms of the contract. While the Bank follows underwriting and credit monitoring procedures which it believes are appropriate in growing and managing the loan portfolio, in the event of nonperformance by these other parties, the Bank's potential exposure to credit losses could significantly affect the Company's consolidated financial position, earnings and growth.

Lending money involves an inherent risk of nonpayment. Through the administration of loan policies and monitoring of the portfolio, Management seeks to reduce such risks. The allowance for loan losses is an estimate to provide a financial buffer for losses, both identified and unidentified, in the loan portfolio.

Management regularly reviews and monitors the loan portfolio to determine the risk profile of each credit, and to identify credits whose risk profiles have changed. This review includes, but is not limited to, such factors as payment status, the financial condition of the borrower, borrower

24

compliance with loan covenants, underlying collateral values, potential loan concentrations, and general economic conditions. Potential problem credits are identified and, based upon known information, action plans are developed.

The allowance for loan losses totaled $38.6 million at September 30, 1997, an increase of $5.9 million, or 18.0%, compared to the $32.7 million balance at December 31, 1996. This increase was due to $7.7 million in additional provisions to the allowance for loan losses, offset by net charge-offs of $1.8 million for the first nine months of 1997. Gross charge-offs for the first nine months of 1997 were $4.9 million and included charge-offs totaling $2.6 million related to two credits.

In general, Management believes the allowance for loan losses is adequate as of September 30, 1997. However, future changes in circumstances, economic conditions or other factors could cause Management to increase or decrease the allowance for loan losses as deemed necessary.

Nonperforming assets consist of loans that are past due 90 days or more but still accruing interest, loans on nonaccrual status and OREO. The table below sets forth certain relationships between nonperforming loans, nonperforming assets and the allowance for loan losses:

                                          September 30,   December 31,
                                             1997            1996
(DOLLARS IN THOUSANDS)                    (UNAUDITED)      (UNAUDITED)
------------------------------------------------------------------------
Nonperforming assets:
Loans past due 90 days or more             $     530         $  8,556
Nonaccrual loans                              23,293           14,581
---------------------------------------------------------------------
Total nonperforming loans                     23,823           23,137
OREO and other foreclosed assets               1,969            1,948
---------------------------------------------------------------------
Total nonperforming assets                   $25,792          $25,085
---------------------------------------------------------------------
Nonperforming loans as a percentage of
  total loans                                    2.3%             2.7%
OREO and other foreclosed assets as a
 percentage of total assets                      0.1%             0.1%
Nonperforming assets as a percentage
 of total assets                                 1.1%             1.3%

Allowance for loan losses:                   $38,600          $32,700
  As a percentage of total loans                 3.7%             3.8%
  As a percentage of nonaccrual loans          165.7%           224.3%
  As a percentage of nonperforming loans       162.0%           141.3%

Nonperforming loans totaled $23.8 million, or 2.3% of total loans, at September 30, 1997, compared to $23.1 million, or 2.7% of total loans, at December 31, 1996. Total nonperforming loans as of September 30, 1997 increased $8.6 million, or 56.2%, from the June 30, 1997 total of $15.3 million. This increase from the prior quarter-end was primarily due to two credits, totaling approximately $12.4 million, being placed on nonaccrual status during the third quarter of 1997, partially offset by paydowns and payoffs on other nonaccrual loans.

In addition to the loans disclosed in the foregoing analysis, Management has identified six loans with principal amounts aggregating approximately $15.2 million, that, on the basis of information known by Management as of September 30, 1997, were judged to have a higher than normal risk

25

of becoming nonperforming. The Company is not aware of any other loans at September 30, 1997 where known information about possible problems of the borrower casts serious doubts about the ability of the borrower to comply with the loan repayment terms.

OREO and other foreclosed assets totaled $2.0 million and $1.9 million at September 30, 1997 and December 31, 1996, respectively. The OREO and other foreclosed assets balance at September 30, 1997 consisted of two OREO properties and one other foreclosed asset. The OREO properties each consist of multiple undeveloped lots and were acquired prior to June 1993. The OREO balance decreased $1.1 million during the first nine months of 1997 to a total of $0.8 million at September 30, 1997, resulting from sales of lots related to one of the aforementioned properties. The other foreclosed asset, which totaled $1.2 million at September 30, 1997, consisted of a favorable leasehold right under a master lease that the Bank acquired upon foreclosure of a loan during the third quarter of 1997.

DEPOSITS

Total deposits were $2.2 billion at September 30, 1997, an increase of $453.9 million, or 25.6%, from the prior year-end total of $1.8 billion. Although each category of the Company's deposit portfolio experienced growth during the first nine months of 1997, the largest portion of this increase was in the Company's bonus money market deposit product, which increased $304.4 million, or 40.3%, to $1.1 billion at September 30, 1997. The increase in the Company's bonus money market deposit product was explained by high levels of client liquidity attributable to a strong inflow of investment capital into the venture capital community and into the public equity markets during 1996 and 1997.

LIQUIDITY

The objective of liquidity management is to ensure that funds are available in a timely manner to meet loan demand and depositors' needs, and to service other liabilities as they come due, without causing an undue amount of cost or risk, and without causing a disruption to normal operating conditions.

The Company regularly assesses the amount and likelihood of projected funding requirements through a review of factors such as historical deposit volatility and funding patterns, present and forecasted market and economic conditions, individual client funding needs, and existing and planned Company business activities. The asset/liability committee of the Bank provides oversight to the liquidity management process and recommends policy guidelines, subject to Board of Directors approval, and courses of action to address the Company's actual and projected liquidity needs.

The ability to attract a stable, low-cost base of deposits is the Company's primary source of liquidity. Other sources of liquidity available to the Company include short-term borrowings, which consist of federal funds purchased, security repurchase agreements and other short-term borrowing arrangements. The Company's liquidity requirements can also be met through the use of its portfolio of liquid assets. Liquid assets, as defined, include cash and cash equivalents in excess of the minimum levels necessary to carry out normal business operations, federal funds sold, securities purchased under resale agreements, investment securities maturing within six months, investment securities eligible and available for pledging purposes with a maturity in excess of six months, and anticipated near term cash flows from investments.

26

Company policy guidelines provide that liquid assets as a percentage of total deposits should not fall below 20.0%. At September 30, 1997, the Company's liquid assets as a percentage of total deposits were 51.4%, compared to 47.3% at December 31, 1996. The increase in this ratio since year-end 1996 was largely due to increased balances in short-term, liquid investment securities as a result of the aforementioned strong growth in deposits during the first nine months of 1997.

CAPITAL RESOURCES

Management seeks to maintain adequate capital to support anticipated asset growth and credit risks, and to ensure that the Company is in compliance with all regulatory capital guidelines. The primary source of new capital for the Company has been the retention of earnings. Aside from current earnings, an additional source of new capital for the Company has been the issuance of common stock under the Company's employee benefit plans, including the Company's stock option plans, employee stock ownership plan and employee stock purchase plan.

Shareholders' equity totaled $162.3 million at September 30, 1997, an increase of $26.9 million from the $135.4 million balance at December 31, 1996. This increase resulted from net income of $20.2 million combined with capital generated through the Company's employee benefit plans of $7.1 million, offset by a decrease in the after-tax net unrealized gain on available-for-sale investments of $0.5 million from the prior year end.

The Company is subject to capital adequacy guidelines issued by the Federal Reserve Board. Under these capital guidelines, the minimum total risk-based capital and Tier 1 risk-based capital ratio requirements are 10.0% and 6.0%, respectively, of risk-weighted assets and certain off-balance sheet items for a "well capitalized" depository institution.

The Federal Reserve Board has also established minimum capital leverage ratio guidelines for state member banks. The ratio is determined using Tier 1 capital divided by quarterly average total assets. The guidelines require a minimum of 5.0% for a well capitalized depository institution.

The Company's risk-based capital ratios were in excess of regulatory guidelines for a well capitalized depository institution as of September 30, 1997 and December 31, 1996. Capital ratios for the Company are set forth below:

---------------------------------------------------------------------------
                                            September 30,     December 31,
                                               1997              1996
                                            (UNAUDITED)
---------------------------------------------------------------------------
Total risk-based capital ratio                 12.2%             11.5%
Tier 1 risk-based capital ratio                10.9%             10.2%
Tier 1 leverage ratio                           7.2%              7.7%


The improvement in the Company's total risk-based capital ratio and Tier 1 risk-based capital ratio from December 31, 1996 to September 30, 1997 was attributable to an increase in Tier 1 capital, partially offset by an increase in the lower risk-weighted asset categories primarily due to increased balances in short-term, liquid investment securities resulting from deposit growth exceeding loan growth during the first nine months of 1997. The increase in Tier 1 capital was largely due to the aforementioned net income and capital generated through the Company's employee benefit plans during the first nine months of 1997. The decrease in the Company's Tier

27

1 leverage ratio from December 31, 1996 to September 30, 1997 primarily resulted from an increase in average total assets due to the aforementioned strong growth in deposits during the first nine months of 1997.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

There were no legal proceedings requiring disclosure pursuant to this item pending at September 30, 1997, or at the date of this report.

ITEM 2 - CHANGES IN SECURITIES

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:

  3.2  Bylaws of the Company, amendment and restatement effective as
       of August 21, 1997

10.35  Silicon Valley Bancshares 1988
       Employee Stock Purchase Plan Effective June 22, 1988, revised
       October 17, 1997

(b) REPORTS ON FORM 8-K:

No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1997.

28

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.

SILICON VALLEY BANCSHARES

Date: November 13, 1997                 /s/ Christopher T. Lutes
                                        ------------------------------------
                                        Christopher T. Lutes
                                        Senior Vice President and Controller
                                        (Principal Accounting Officer)

29

EXHIBIT 3.2

BYLAWS
OF
SILICON VALLEY BANCSHARES

AMENDMENT AND RESTATEMENT EFFECTIVE AS OF
AUGUST 21, 1997

ARTICLE I

Offices

Section 1.1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of this corporation (the "Corporation") is hereby fixed and located at 3003 Tasman Drive, Santa Clara, California. The Board of Directors (the "Board") is hereby granted full power and authority to change the principal executive office from one location to another. Any such change shall be noted in the Bylaws by the Secretary, opposite this Section, or this
Section may be amended to state the new location.

Section 1.2. OTHER OFFICES. Other branch offices or places of business may at any time be established by the Board at any place or places deemed appropriate.

ARTICLE II

Meetings of Shareholders

Section 2.1. PLACE OF MEETINGS. All annual or other meetings of shareholders shall be held at the principal executive office of the Corporation, or at any other place which may be designated either by the Board or by the written consent of all persons entitled to vote thereat given either before or after the meeting and filed with the Secretary of the Corporation.

Section 2.2. ANNUAL MEETINGS.

(a) TIME. The Annual Meeting of shareholders shall be held each year on a date and at a time designated by the Board. The date so designated shall be within fifteen months after the last Annual Meeting.

(b) BUSINESS TO BE TRANSACTED. At each Annual Meeting, directors shall be elected, reports of the affairs of the Corporation shall be considered and any other business may be transacted which is within the powers of the shareholders.

(c) NOTICE. Written notice of each Annual Meeting shall be given to each shareholder entitled to vote, either personally or by first class mail or other means of written communication, charges prepaid, addressed to such shareholder at such shareholder's address appearing on the books of the Corporation, or given by the shareholder to the Corporation for the purpose of notice, or if no such address appears or is given, at the place where the principal executive office of the Corporation is located or by publication at least once in a newspaper of general circulation in the county in which

1

the principal executive office is located. If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the Corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. If a shareholder gives no address, notice shall be deemed to have been given to the shareholder if sent by mail or other means of written communication addressed to the place where the principal executive office of the Corporation is located, or if published at least once in some newspaper of general circulation in the county in which the principal executive office is located.

All notices shall be given to each shareholder entitled thereto not less than ten (10) days nor more than sixty (60) days before each Annual Meeting. Any such notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the Secretary, Assistant Secretary or any transfer agent of the Corporation shall be prima facie evidence of the giving of the notice. Such notices shall specify:

(i) the place, the date and the hour of each meeting;

(ii) those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders;

(iii) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by the Board for election;

(iv) the general nature of a proposal, if any, to take action with respect to approval of: (a) a contract or other transaction with an interested director, (b) a reorganization of the Corporation as defined in
Section 181 of the California General Corporation Law, (c) a voluntary dissolution of the Corporation, or (d) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any; and

(v) such other matters, if any, as may be required by law.

Section 2.3. SPECIAL MEETINGS. Special meetings of the shareholders, for the purpose of taking any action permitted by the shareholders under the California General Corporation Law, may be called at any time by the Chair of the Board or the President, or by the Board, or by one or more shareholders holding not less than ten percent (10%) of the votes entitled to be cast at the meeting. Upon request in writing that a special meeting of shareholders be called for any purpose, directed to the Chair of the Board, President, Vice President or Secretary by any person (other than the Board) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after receipt of the request. Except in special cases where other express provision is made by statute, notice of special meetings shall be given in the same manner as for annual meetings of shareholders. In addition to the matters required by items

2

(i), and if applicable, (ii) and (iii) of the preceding Section, notice of any special meeting shall specify the general nature of the business to be transacted, and no other business may be transacted at such meeting.

Section 2.4. QUORUM. The presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

Section 2.5. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but in the absence of a quorum no other business may be transacted at such meeting, except as provided in Section 2.4 above.

When any shareholders' meeting, either annual or special, is adjourned for forty-five (45) days or more, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. Except as provided above, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat, other than by announcement of the time and place thereof at the meeting at which such adjournment is taken.

Section 2.6. VOTING. Unless a record date for voting purposes be fixed as provided in Section 5.1 of these Bylaws, then, subject to the provisions of Sections 702 through 704 of the California Corporations Code (relating to voting of shares held by a fiduciary, in the name of a corporation or in joint ownership), only persons in whose names shares entitled to vote stand on the stock records of the Corporation at the close of business on the business day next preceding the day on which notice of the meeting is given or if such notice is waived, at the close of business on the business day next preceding the day on which the meeting of shareholders is held, shall be entitled to vote at such meeting, and such day shall be the record date for such meeting. Such vote may be oral or by ballot; provided, however, that all elections for directors must be by ballot upon demand made by a shareholder at any election and before the voting begins. If a quorum is present, except with respect to election of directors, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the California General Corporation Law. Subject to the requirements of the next sentence, every shareholder entitled to vote at any election for directors shall have the right to cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected, multiplied by the number of votes to which such shareholder's shares are entitled, or to distribute his or her votes on the same principal among as many candidates as the shareholder shall think fit. No shareholder shall be entitled to cumulate votes unless the name of the candidate or candidates for whom the votes would be cast has been placed in nomination prior to the voting and at least one shareholder has given notice at the meeting, prior to the voting, of the shareholder's intention to cumulate his or her votes. The candidates receiving the highest number of affirmative votes of shares entitled to be voted for them, up to the number of directors to

3

be elected, shall be elected. Votes against the directors and votes withheld shall have no legal effect.

Section 2.7. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy signs a waiver of notice or a consent to the holding of the meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in Section 2.2(c)(iv) of these Bylaws, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting.

Section 2.8. ACTION WITHOUT MEETING.

(a) ELECTION OF DIRECTORS. Directors may be elected without a meeting by a consent in writing, setting forth the action so taken, signed by all of the persons who would be entitled to vote for the election of directors, provided that, without notice, except as hereinafter set forth, a director may be elected at any time to fill a vacancy (other than one created by removal) not filled by the directors, by the written consent of persons holding a majority of the outstanding shares entitled to vote for the election of directors.

(b) OTHER ACTION. Any other action which, under any provision of the California General Corporation Law, may be taken at a meeting of the shareholders, may be taken without a meeting, and without prior notice except as hereinafter set forth, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all shareholders entitled to vote have been solicited in writing:

(i) Notice of any proposed shareholder approval of (a) a contract or other transaction with an interested director, (b) indemnification of an agent of the Corporation as authorized by Section 3.17 of these Bylaws, (c) a reorganization of the Corporation as defined in
Section 181 of the California General Corporation Law, or (d) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any, without a meeting by less than unanimous written consent, shall be given at least ten (10) days before the consummation of the action authorized by such approval; and

4

(ii) Prompt notice shall be given at the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote who have not consented in writing. Such notices shall be given as provided in Section 2.2(c) of these Bylaws.

Unless, as provided in Section 5.1 of these Bylaws, the Board has fixed a record date for the determination of shareholders entitled to notice of and to give such written consent, the record date for such determination shall be the day on which the first written consent is given. All such written consents shall be filed with the Secretary of the Corporation.

Any shareholder giving a written consent, or the shareholder's proxyholders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxyholders, may revoke the consent by a writing received by the Corporation prior to the time that written consents by the number of shares required to authorize the proposed action have been filed with the Secretary of the Corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the Corporation.

Section 2.9. PROXIES. Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy. A proxy may be in the form of a written authorization signed or an electronic transmission authorized by a shareholder or the shareholder's agent. A proxy may be transmitted by an oral telephonic transmission if it is submitted with information from which it may be determined that the proxy was authorized by the shareholder or the shareholder's agent. Any proxy duly executed is not revoked and continues in full force and effect until (i) an instrument revoking it or a duly executed proxy bearing a later date is filed with the Secretary of the Corporation prior to the vote pursuant thereto, (ii) the person executing the proxy attends the meeting and votes in person, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the Corporation before the vote pursuant thereto is counted; provided, that no such proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless the person executing it specifies therein the length of time for which said proxy is to continue in force.

Section 2.10. INSPECTORS OF ELECTION. In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the Chair of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed.

The duties of the inspectors shall be as prescribed in Section 707 of the California General Corporation Law and shall include: (i) determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; (ii) receiving votes, ballots or consents;
(iii) hearing and determining all challenges and questions in any way arising in connection with the right to vote; (iv) counting and tabulating all votes or consents; (v) determining when the polls shall close; (vi) determining the result; and (vii) such other acts as may be proper to conduct the election or vote with fairness to all

5

shareholders. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution on the proxies, regardless of postmark dates on the envelopes in which they are mailed.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

Section 2.11. NOMINATION OF DIRECTORS. Nominations for election of members of the Board may be made by the Board or by any shareholder of any outstanding class of capital stock of the Corporation entitled to vote for the election of directors. Notice of intention to make any nominations (other than for persons named in the notice of the meeting at which such nomination is to be made) shall be made in writing and shall be delivered or mailed to the Secretary of the Corporation by the later of: the close of business twenty-one (21) days prior to any meeting of shareholders called for election of directors, or ten (10) days after the date of mailing notice of the meeting to shareholders. Such notification shall contain the following information to the extent known to the notifying shareholder: (i) the name and address of each proposed nominee; (ii) the principal occupation of each proposed nominee; (iii) the number of shares of capital stock of the Corporation owned by each proposed nominee; (iv) the name and residence address of the notifying shareholder; (v) the number of shares of capital stock of the Corporation owned by the notifying shareholder; and (vi) with the written consent of the proposed nominee, a copy of which shall be furnished with the notification, whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The notice shall be signed by the nominating shareholder and by the nominee. Nominations not made in accordance herewith shall be disregarded by the Chair of the meeting, and upon the Chair's instructions, the inspectors of election shall disregard all votes cast for each such nominee. The restrictions set forth in this paragraph shall not apply to nomination of a person to replace a proposed nominee who has died or otherwise become incapacitated to serve as a director between the last day for giving notice hereunder and the date of election of directors if the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee.

A copy of the preceding paragraph shall be set forth in the notice to shareholders of any meeting at which directors are to be elected.

ARTICLE III

Directors

Section 3.1. POWERS. Subject to limitations of the California General Corporation Law as to action to be authorized or approved by the shareholders, and subject to the duties of directors as prescribed by the Bylaws, and subject to the rules and regulations as may be promulgated from time to time by applicable regulatory authorities, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be controlled by, the Board.

6

Section 3.2 - Number and Qualification of Directors. The authorized number of directors of the Corporation shall not be less than eight (8) nor more than fifteen (15) until changed by a bylaw amending this Section 3.2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, provided that a proposal to reduce the authorized minimum number of directors below five cannot be adopted. The exact number of directors shall be fixed from time to time, within the limits specified in this Section 3.2: (i) by a resolution duly adopted by the Board; (ii) by a Bylaw or amendment thereof duly adopted by the vote of a majority of the outstanding shares entitled to vote; or (iii) by approval of the shareholders (as defined in Section 153 of the California General Corporation Law). No amendment may change the stated maximum number of authorized directors to a number greater than two times the stated minimum number of directors minus one.

Subject to the foregoing provisions for changing the number of directors, the number of directors of this Corporation has been fixed at nine (9).

Section 3.3. ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of shareholders, but if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose or by written consent in accordance with Section 2.8 of these Bylaws. All directors shall hold office until their respective successors are elected, subject to the California General Corporation Law and the provisions of these Bylaws with respect to vacancies on the Board.

Section 3.4 [Reserved].

Section 3.5. REMOVAL OF DIRECTORS. The entire Board or any individual director may be removed from office by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors. Any individual who no longer serves on the Board shall cease automatically to be a member of any Board committee, effective as of the date such individual ceases to be a member of the Board. The Board shall consider the removal of:

(a) Any member whom the Board determines has materially breached his or her obligations as a Bancshares director, absent a waiver or exception of the breach having been granted by the Board;

(b) Any member who fails to attend a minimum of seventy-five percent (75%) of all general and special meetings of the Board and the Board committees, such determination to be made on an annual basis at the end of each fiscal year of the Bank, at which time the full Board of Directors must vote as to whether or not to retain the Director who has not met the attendance requirement;

(c) Any member who has attained the age of seventy (70) years. A member shall not stand for election or re-election to the Board if such individual will have attained the age of 70 years on or before the date of the Shareholders' meeting where the individual would have been standing for election (or re-election).

7

(d) Any member who has been convicted of a felony or who has engaged in any fraudulent activity, as determined by a court of competent jurisdiction;

(e) Any member who has grossly abused his or her authority as on officer, committee member and/or Board member of Bancshares, as determined by the Board; or

(f) Any member for whom the court has appointed a legal guardian or conservator.

However, unless the entire Board is removed, no individual director may be removed when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected.

Section 3.6. VACANCIES. A vacancy in the Board shall be deemed to exist (i) in case of the death, resignation or removal of any director, (ii) if a director has been declared of unsound mind by order of court or convicted of a felony, (iii) if the authorized number of directors be increased, or (iv) if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting.

Vacancies in the Board, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum or by a sole remaining director, and each director so elected shall hold office until his or her successor is elected at an annual or a special meting of the shareholders. A vacancy in the Board created by the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of all of the outstanding shares.

The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent (except to fill a vacancy created by removal) shall require the consent of holders of a majority of the outstanding shares entitled to vote.

Any director may resign effective upon giving written notice to the Chair of the Board, the President, the Secretary or the Board of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the Board accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders shall have the power to elect a successor to take office when the resignation is to become effective.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his or her term of office.

Section 3.7. FREQUENCY AND PLACE OF MEETING. The Board shall hold a meeting at least once each calendar quarter. Regular meetings of the Board shall be held at any place and time which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such

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designation, regular meetings shall be held at the principal executive office of the Corporation. Special meetings of the Board may be held either at a place so designated or at the principal executive office.

Section 3.8. ORGANIZATIONAL MEETING. Immediately following each annual meeting of shareholders, the Board shall hold a regular meeting at the place of the annual meeting or at such other place as shall be fixed by the Board, for the purpose of organization, election of officers and the transaction of other business. Call and notice of such meetings are hereby dispensed with.

Section 3.9. OTHER REGULAR MEETINGS. Other regular meetings of the Board shall be held at any place and time which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. Notice of all such regular meetings of the Board is hereby dispensed with.

Section 3.10. SPECIAL MEETINGS. Special meetings of the Board for any purpose or purposes may be called at any time by the Chair of the Board, the President or by any two directors.

Special meetings shall be held upon four days' notice by mail or other form of written communication, or 24 hours notice received personally, by telephone or by facsimile or comparable means of communication. Written notice of the time and place of special meetings shall be addressed to the director at the director's address as it is shown upon the records of the Corporation or, if it is not so shown on such records or is not readily ascertainable, at the place at which the meetings of the directors are regularly held.

Any notice shall state the date, place and hour of the meeting and may state the general nature of the business to be transacted and that other business may be transacted at the meeting.

Section 3.11. ACTION WITHOUT MEETING. Any action by the Board may be taken without a meeting if all members of the Board shall individually or collectively consent in writing to the action. The written consent or consents shall be filed with the minutes of the proceedings of the Board and shall have the same force and effect as a unanimous vote of the directors.

Section 3.12. ACTION AT A MEETING, QUORUM AND REQUIRED VOTE. Presence of a majority of the authorized number of directors at a meeting of the Board constitutes a quorum for the transaction of business, except as hereinafter provided. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. (Participation in a meeting as permitted in the preceding sentence constitutes presence in person at the meeting.) Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number, or the same number after disqualifying one or more directors from voting, is required by law or by these Bylaws. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of a director or directors, provided that any action taken is approved by at least a majority of the required quorum for the meeting.

Section 3.13. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The transactions of any meeting of the Board, however called and noticed or wherever held,

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shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the directors not present or who, though present, has prior to the meeting or at its commencement, protested the lack of proper notice: (i) signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof; or (ii) waives notice and withdraws his or her objection. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 3.14. ADJOURNMENT. A majority of the directors present at any directors' meeting, either regular or special, may adjourn to another time and place.

Section 3.15. NOTICE OF ADJOURNMENT. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of adjournment. Otherwise notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned.

Section 3.16. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board.

Section 3.17. INDEMNIFICATION OF AGENTS OF THE CORPORATION; PURCHASE OF LIABILITY INSURANCE.

(a) For the purposes of this Section: "agent" means any person who is or was a director, officer, employee or other agent of this Corporation, or is or was serving at the request of this Corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or was a director, officer, employee or agent of a foreign or domestic Corporation which was a predecessor corporation of this Corporation or of another enterprise at the request of such predecessor Corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under subdivision (d) or subdivision (e)(4) of this Section.

(b) This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this Corporation) by reason of the fact that such person is or was an agent of this Corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if the person acted in good faith and in a manner the person reasonably believed to be in the best interests of this Corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this Corporation or that the person had reasonable cause to believe that the person's conduct was unlawful.

(c) This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or

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in the right of this Corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of this Corporation, against expenses actually and reasonably incurred by the person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of this Corporation and its shareholders. No indemnification shall be made under this subdivision (c):

(1) In respect to any claim, issue or matter as to which the person shall have been adjudged to be liable to this Corporation and its shareholders, in the performance of the person's duty to this Corporation, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of this case, the person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine.

(2) Of amounts paid in settling or otherwise disposing of a pending action, without court approval.

(3) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval.

(d) To the extent that an agent of this Corporation has been successful on the merits in defense of any proceedings referred to in subdivision (b) or (c) or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.

(e) Except as provided in subdivision (d), any indemnification under this Section shall be made by this Corporation only if authorized in the specific case, upon a determination that indemnification of that agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b) or (c), by any of the following:

(1) A majority vote of a quorum consisting of directors who are not parties to such proceeding.

(2) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion.

(3) Approval of the shareholders, with the shares owned by the person to be indemnified not being entitled to vote thereon.

(4) The court in which the proceeding is or was pending upon application made by the Corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney or other person is opposed by the Corporation.

(f) Expenses incurred in defending any proceeding may be advanced by this Corporation prior to the final disposition of the proceeding upon receipt of a written undertaking by or on behalf of the agent to repay such amount if it shall be determined ultimately that the agent is not entitled to be indemnified as authorized in this Section.

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(g) Nothing in this Section shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise.

(h) No indemnification or advance shall be made under this Section, except as provided in subdivision (d) or subdivision (e)(4) of this Section, in any circumstance where it appears:

(1) That it would be inconsistent with a provision of the Bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification.

(2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

(i) Upon a determination by the Board, this Corporation may purchase and maintain insurance on behalf of any agent of the Corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this Corporation would have the power to indemnify the agent against such liability under the provisions of this Section.

(j) This Section does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in that person's capacity as such, even though the person may also be an agent, as defined in subdivision (a) of this Section, of the Corporation. The Corporation shall have power to indemnify such a trustee, investment manager or other fiduciary to the extent permitted by subdivision (f) of Section 207 of the California General Corporation Law.

Section 3.18. COMMITTEES. The Board may, by resolution or committee charter adopted by a majority of the authorized number of directors, designate one or more committees, each committee consisting of two or more directors, to serve at the pleasure of the Board. These committees may include, without limitation, an Executive Committee, an Audit Committee and any such other committees as the Board may deem appropriate. Any such committee, to the extent provided in the resolution of the Board or committee charter, may exercise those powers and responsibilities so designated, except that no committee shall be authorized to take action with respect to:

(i) The approval of any action for which shareholder approval or approval of the outstanding shares is required.

(ii) The filling of vacancies on the Board or in any committee.

(iii) The amendment or repeal of Bylaws or the adoption of new Bylaws.

(iv) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable.

(v) The appointment of other committees of the Board or the members thereof.

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(vi) A distribution, except at a rate, in a periodic amount or within a price range determined by the Board.

ARTICLE IV

Officers

Section 4.1. OFFICERS. The Officers of the Corporation shall be a Chief Executive Officer, President, Secretary, Chief Financial Officer and, at the discretion of the Board, such other officers as may be deemed necessary ("Officers"). Any two or more Officer positions, except those of the President and Secretary, may be held by the same person. In appropriate circumstances, an Officer of the Corporation may be excluded by resolution of the Board or by a provision of the Bylaws from participation, other than in the capacity of a director if applicable, in major policymaking functions of the Corporation.

Section 4.2. ELECTION. Except as otherwise provided in these Bylaws, the Officers of the Corporation shall be chosen by the Board, and each Officer shall be employed at will, unless employed for a determinate period of time pursuant to a written employment agreement approved by the Board, and shall have such authority and perform such duties as are provided in the Bylaws or as the Board may, from time to time, determine.

Section 4.3. SUBORDINATE OFFICERS. The Corporation may have such subordinate officers as the business of the Corporation may require ("Subordinate Officers"), including one or more Vice Presidents, a Cashier, one or more Assistant Cashiers, Operations Officers and Managers. Subordinate Officers may be chosen by the Board, the Chief Executive Officer or the President, and such Officers and Subordinate Officers upon whom authority is conferred by the Board, the Chief Executive Officer or the President ("Authorized Officers"). Subordinate Officers shall be employed at will, unless employed for a determinate period of time pursuant to a written employment agreement approved by the Board, and shall have such authority and perform such duties as are provided in the Bylaws or as the Board, Chief Executive Officers, President or Authorized Officers may, from time to time, determine.

Section 4.4. REMOVAL AND RESIGNATION. Any Officer may be removed, either with or without cause, by the Board, subject, in each case, to the rights, if any, of an Officer under any contract or employment. Any Subordinate Officer may be removed, with or without cause, by the Board, Chief Executive Officer, President or Authorized Officer, subject to such rights, if any, of a Subordinate Officer under a written employment agreement.

Any Officer or Subordinate Officer may resign at any time by giving written notice to the Board or to the President, or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 4.5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for regular appointments to such office.

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Section 4.6. CHAIR OF THE BOARD; VICE-CHAIR. The Executive Committee of the Board shall nominate the Chair of the Board, subject to approval by the Board. The Chair of the Board shall also serve as Chair of the Executive Committee and shall serve in such capacities subject to annual re-election to the Board. There shall be no limit as to the number of terms served. The Chair shall be an officer of the Board and shall, if present, preside at all meetings of the Board. The Chair may exercise and perform such other powers and duties as may be from time to time be assigned by the Board or prescribed by the Bylaws. The Chair shall not, however, be deemed an Officer of the Corporation.

The Executive Committee of the Board shall nominate a Vice-Chair of the Board, subject to approval by the Board. Any Vice-Chair so approved may serve subject to annual re-election to the Board. There shall be no limit as to the number of terms served. The Vice-Chair shall have such powers and perform such duties as may be from time to time be assigned by the Board or the Chair of the Board and shall preside at any meeting of the Board at which the Chair is absent or otherwise unable to serve. The Vice-Chair shall not be deemed an Officer of the Corporation.

Section 4.7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the control of the Board, have general supervision, direction and control of the business and officers of the Corporation. The Chief Executive Officer shall exercise and perform such other powers and duties as may be from time to time assigned by the Board or prescribed by the Bylaws.

Section 4.8. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board to the Chair of the Board, the President shall preside at all meetings of the shareholders and at all meetings of the Board when the Chair of the Board and the Vice-Chair of the Board are absent or otherwise unable to serve. The President shall have the general powers and duties of management usually vested in the office of the President of a bank and shall have such other powers and duties as may be prescribed by law, the Board or the Bylaws.

Section 4.9. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board or, if not ranked, the Vice President designated by the Board, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board or the Bylaws. No Vice President shall preside over meetings of the shareholders or at meetings of the Board in the absence or disability of the President and Chair of the Board unless the Vice President so serving is also a Director.

Section 4.10. SECRETARY. The Secretary shall record or cause to be recorded, and shall keep or cause to be kept, at the principal executive office and such other place or places as the Board may order, a book of minutes of actions taken at all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. In the event of any meeting in Executive Session or otherwise if the Secretary is not present, an Acting Secretary shall be designated by the Chair of the meeting for the purpose of recording the minutes of actions taken at the meeting or Executive Session thereof.

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The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the Corporation at the principal executive office or business office in accordance with Section 213 of the California General Corporation Law.

The Secretary shall keep, or cause to be kept, at the principal executive office, or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, or the number and date of cancellation of every certificate surrendered for cancellation.

The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and of the Board required by the Bylaws or by law to be given and shall have such other powers and perform such other duties as may be prescribed by the Board or by the Bylaws.

Section 4.11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the Corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, and shall send or cause to be sent to the shareholders of the Corporation such financial statements and reports as are required to be sent to them by law or these Bylaws.

The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board. The Chief Financial Officer shall disburse, or cause to be disbursed, the funds of the Corporation as may be ordered by the Board, shall render to the President and directors, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or the Bylaws.

ARTICLE V

Miscellaneous

Section 5.1. RECORD DATE. The Board may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meetings of shareholders or entitled to give consent to corporate action in writing without a meeting, to receive any report, to receive any dividend or distribution, or any allotment of rights or to exercise rights in respect to any change, conversion or exchange of shares. The record date so fixed shall be not more than sixty (60) days or less than ten (10) days prior to the date of any meeting or other event for the purpose of which it is fixed. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at any such meeting, to give consent without a meeting, to receive any report, to receive a dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date.

Section 5.2. INSPECTION OF CORPORATE RECORDS. Except as restricted or limited by applicable law, including Sections 1600 through 1605 of the California General Corporation Law, the accounting books and records, the record of shareholders and minutes of proceedings of the shareholders and the Board and committees of the Board of

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this Corporation and any subsidiary of this Corporation shall be open to inspection upon the written demand on the Corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interest as shareholder or as the holder of such voting trust certificate. Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts.

Section 5.3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board.

Section 5.4. ANNUAL AND OTHER REPORTS. The Board of the Corporation shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal or calendar year. Notwithstanding the foregoing sentence, however, the requirement for such annual report is dispensed with so long as this Corporation has less than 100 shareholders of record. If required to be sent to shareholders, the annual report shall contain a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the Corporation that such statements were prepared without audit from the books and records of the Corporation.

Section 5.5. CONTRACTS, ETC., HOW EXECUTED. The Board, except as in the Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

Section 5.6. CERTIFICATE OF SHARES. Every holder of shares in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chair or Vice Chair of the Board or the President or a Vice President and by the Chief Financial Officer or an assistant treasurer or the Secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time. The Board may, however, in case any certificate for shares is lost, stolen, mutilated or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions, including reasonable indemnification of the Corporation, as the Board shall determine.

Section 5.7. INSPECTION OF BYLAWS. The Corporation shall keep in its principal executive office the original or a copy of the Bylaws as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the shareholders at all reasonable times during office hours.

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Section 5.8. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the California General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of the foregoing, the masculine gender includes the feminine and neuter, the singular, number includes the plural and the plural number includes the singular, and the term "person" includes a Corporation as well as a natural person.

ARTICLE VI

Amendments

Section 6.1. POWER OF SHAREHOLDERS. New Bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote of a majority of the outstanding shares entitled to vote, or by written assent of shareholders entitled to vote such shares, except as otherwise provided by law.

Section 6.2. POWER OF DIRECTORS. Subject to the right of shareholders as provided in Section 6.1 to adopt, amend or repeal Bylaws, Bylaws may be adopted, amended or repealed by the Board provided, however, that the Board may adopt a bylaw or amendment thereof changing the authorized number of directors only for the purpose of fixing the exact number of directors within the limits specified in Section 3.2 of these Bylaws.

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                              TABLE OF CONTENTS

 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page

ARTICLE I Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

 Section 1.1. Principal Executive Office . . . . . . . . . . . . . . . . .   1

 Section 1.1. Other Offices. . . . . . . . . . . . . . . . . . . . . . . .   1



ARTICLE II Meetings of Shareholders. . . . . . . . . . . . . . . . . . . .   1

 Section 2.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . .   1

 Section 2.1 Section 2.1 Annual Meetings . . . . . . . . . . . . . . . . .   1

 Section 2.3.Special Meetings. . . . . . . . . . . . . . . . . . . . . . .   2

 Section 2.4 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

 Section 2.5 Adjourned Meetings and Notice Thereof . . . . . . . . . . . .   3

 Section 2.6 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

 Section 2.7 Validation of Defectively Called or Noticed Meetings. . . . .   4

 Section 2.8 Action Without Meeting. . . . . . . . . . . . . . . . . . . .   4

 Section 2.9 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . .   5

 Section 2.10 Inspectors of Election . . . . . . . . . . . . . . . . . . .   6

 Section 2.11 Nomination of Directors. . . . . . . . . . . . . . . . . . .   6



ARTICLE III Directors. . . . . . . . . . . . . . . . . . . . . . . . . . .   7

 Section 3.1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . .   7

 Section 3.2. Number and Qualification of Directors. . . . . . . . . . . .   7

 Section 3.3. Election and Term of Office. . . . . . . . . . . . . . . . .   8


                                       18

 Section 3.4 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . .   8

 Section 3.5. Removal of Directors . . . . . . . . . . . . . . . . . . . .   8

 Section 3.6. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . .   8

 Section 3.7. Frequency and Place of Meeting . . . . . . . . . . . . . . .   9

 Section 3.8. Organizational Meeting . . . . . . . . . . . . . . . . . . .   9

 Section 3.9. Other Regular Meetings . . . . . . . . . . . . . . . . . . .   9

 Section 3.10. Special Meetings. . . . . . . . . . . . . . . . . . . . . .   9

 Section 3.11. Action Without Meeting. . . . . . . . . . . . . . . . . . .  10

 Section 3.12. Action at a Meeting, Quorum and Required Vote . . . . . . .  10

 Section 3.13. Validation of Defectively Called or Noticed Meetings. . . .  10

 Section 3.14. Adjournment . . . . . . . . . . . . . . . . . . . . . . . .  10

 Section 3.15. Notice of Adjournment . . . . . . . . . . . . . . . . . . .  10

 Section 3.16. Fees and Compensation . . . . . . . . . . . . . . . . . . .  11

 Section 3.17. Indemnification of Agents of the Corporation; Purchase of
Liability Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

 Section 3.18. Committees. . . . . . . . . . . . . . . . . . . . . . . . .  13



ARTICLE IV Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

 Section 4.1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . .  14

 Section 4.2. Election . . . . . . . . . . . . . . . . . . . . . . . . . .  14

 Section 4.3. Subordinate Officers . . . . . . . . . . . . . . . . . . . .  14

 Section 4.4. Removal and Resignation. . . . . . . . . . . . . . . . . . .  14

 Section 4.5. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . .  15


                                       19

 Section 4.6. Chair of the Board; Vice-Chair . . . . . . . . . . . . . . .  15

 Section 4.7. Chief Executive Officer. . . . . . . . . . . . . . . . . . .  15

 Section 4.8. President. . . . . . . . . . . . . . . . . . . . . . . . . .  15

 Section 4.9.Vice President. . . . . . . . . . . . . . . . . . . . . . . .  15

 Section 4.10. Secretary . . . . . . . . . . . . . . . . . . . . . . . . .  16

 Section 4.11. Chief Financial Officer . . . . . . . . . . . . . . . . . .  16



ARTICLE V Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . .  17

 Section 5.1. Record Date. . . . . . . . . . . . . . . . . . . . . . . . .  17

 Section 5.2. Inspection of Corporate Records. . . . . . . . . . . . . . .  17

 Section 5.3. Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . .  17

 Section 5.4. Annual and Other Reports . . . . . . . . . . . . . . . . . .  17

 Section 5.5. Contracts, Etc., How Executed. . . . . . . . . . . . . . . .  18

 Section 5.6. Certificate of Shares. . . . . . . . . . . . . . . . . . . .  18

 Section 5.7.Inspection of Bylaws. . . . . . . . . . . . . . . . . . . . .  18

 Section 5.8. Construction and Definitions . . . . . . . . . . . . . . . .  18




ARTICLE VI Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . .  19

 Section 6.1. Power of Shareholders. . . . . . . . . . . . . . . . . . . .  19

 Section 6.2. Power of Directors . . . . . . . . . . . . . . . . . . . . .  19

20

21

Exhibit 10.35

SILICON VALLEY BANCSHARES
1988 EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE JUNE 22, 1988

(REVISED OCTOBER 17, 1997)


SILICON VALLEY BANCSHARES
1988 EMPLOYEE STOCK PURCHASE PLAN

The following constitutes the provisions of the 1988 Employee Stock Purchase Plan of Silicon Valley Bancshares.

1. PURPOSES.

The purpose of the Plan is to provide Employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan shall permit and limit participation in a manner consistent with the requirements of that section of the Code.

2. DEFINITIONS.

a. "BOARD" shall mean the Board of Directors of the Company.

b. "CODE" shall mean the Internal Revenue Code of 1986, as amended.

c. "COMPANY STOCK" shall mean the Common Stock, no par value, of the Company.

d. "COMPANY" shall mean Silicon Valley Bancshares, a California corporation.

e. "COMPENSATION" shall mean an Employee's regular salary or wages and shall include bonuses, commissions, overtime pay, incentive pay, profit sharing, other remuneration paid directly to the Employee, amounts elected to be deferred by the Employee that would otherwise have been paid under any arrangement established by the Company intended to comply with Section 401(k),
Section 402(e)(3), Section 125, Section 402(h), or Section 403(b) of the Code, and any deferrals under a non-qualified deferred compensation plan or arrangement established by the Company, but shall exclude the following items of compensation: the cost of employee benefits paid for by the Company or a Designated Subsidiary, education or tuition reimbursements, imputed income arising under any group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company or a Designated Subsidiary under any employee benefit plan, and similar items of compensation, as determined by the Plan Administrator.

f. "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any interruption of termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company,

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provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute.

g. "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan.

h. "EMPLOYEE" shall mean any person, including an officer, who is employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries.

i. "EXERCISE DATE" shall mean the last day of each offering period of the Plan.

j. "OFFERING DATE" shall mean the first day of each offering period of the Plan.

k. "PLAN" shall mean this 1988 Employee Stock Purchase Plan, as amended from time to time.

l. "PLAN ADMINISTRATOR" shall mean the Board or a committee of the Board responsible for the administration of the Plan.

m. "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than fifty percent (50%) of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.

3. ELIGIBILITY.

a. Any person who is an Employee as of the Offering Date of a given offering period (see Section 4) shall be eligible to participate in such offering period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code.

b. No Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) which permits such Employee's right to purchase stock under this Plan and all other employee stock purchase plans (described in Section 423 of the Code) of the Company to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.

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4. OFFERING PERIODS.

The Plan shall be implemented by one offering during each six (6)-month period (or such longer or shorter period) of the Plan, commencing on or about July 1, 1988 and continuing thereafter until terminated in accordance with Sections 19 or 23 hereof. The Board of Directors of the Company shall have the power to change the duration of offering periods with respect to future offerings without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first offering period to be affected.

5. PARTICIPATION.

a. An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions on the form provided by the Company and filing it with the Plan Administrator prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Plan Administrator for all eligible Employees with respect to a given offering period.

b. Payroll deductions for participants shall commence the first payroll following the Offering Date and shall end on the Exercise Date of the offering period or payroll which commences on or before the Exercise Date to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10.

c. Unless a participant withdraws from the Plan as provided in Section 10 or submits a new subscription agreement changing the payroll deduction amount (such change being allowed only at each new Offering Date), the participant's existing subscription agreement will be considered in effect as of and throughout each new Offering Date.

6. PAYROLL DEDUCTIONS.

a. At the time a participant files a subscription agreement, such participant shall elect to have payroll deductions (not exceeding ten percent (10%) of participant's Compensation (see Section 2(e)) deducted from his or her pay during the offering period (see Section 5(b)) and applied toward the purchase of Common Stock on the Exercise Date.

b. All payroll deductions made by a participant shall be credited to his account under the Plan. A participant may not make any additional voluntary payments into such account.

c. A participant may discontinue his participation in the Plan as provided in Section 10; otherwise, no changes in the payroll deduction amount may be made during the offering period.

7. GRANT OF OPTION.

a. On each Offering Date, each eligible Employee participating in the Plan shall be granted an option to purchase (at the per share option price) up to a number of shares of Common Stock determined by dividing such Employee's payroll deductions to be accumulated during such

4.


offering period (not to exceed an amount equal to ten percent (10%) of his Compensation during the applicable offering period) by the option price per share (see Section 7(b), subject to the limitations set forth in Sections 3(b) and 12 hereof.

b. The option price per share of the shares offered in a given offering period shall be the lower of:

(i) eighty-five percent (85%) of the fair market value of a share of Common Stock of the Company on the Offering Date, such fair market value being determined based on the closing price on the last trading date immediately preceding the Offering Date; or,

(ii) eighty-five percent (85%) of the fair market value of a share of Common Stock of the Company on the Purchase Date, such fair market value being determined based on the closing price on the Purchase Date or, if the Purchase Date falls on a weekend or holiday, on the last trading date immediately preceding the Purchase Date.

The closing price on a given date shall be the last price of the Common Stock for such date, as quoted on the Nasdaq National Market and as reported in the Wall Street Journal (or any other source the Plan Administrator deems reliable.

8. EXERCISE OF OPTION.

Unless a participant withdraws from the Plan as provided in Section 10, his option for the purchase of shares will be exercised automatically on the Exercise Date of the offering period, and the maximum number of full shares subject to option will be purchased for him at the option price per share with the accumulated payroll deductions in his account. The shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Exercise Date. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is less than the amount required to purchase a full share of stock on the Offering Date shall be held in such participant's account for the purchase of shares under the next offering period under the Plan, unless such participant withdraws from the Plan or is no longer eligible to participate in the Plan (see Section 10(c)), in which case such amount shall be distributed to the participant after the Offering Date, without interest. The amount, if any, of payroll deductions remaining in any participant's account after the purchase of shares which is equal to or greater than the amount required to purchase a full share of stock on the final Offering Date of the Plan shall be distributed in full to the participant, without interest.

5.


9. DELIVERY.

As promptly as practicable after the Exercise Date of each offering period, the Plan Administrator shall arrange the delivery to each participant a certificate representing the shares purchased upon exercise of his option or, at the participant's election, to have the certificate transferred directly to participant's brokerage account at such brokerage firm or firms previously designated by the Plan Administrator in its sole discretion.

10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.

a. A participant may withdraw all (but not less than all) the payroll deductions credited to his account under the Plan at any time prior to the Exercise Date of the offering period by giving fifteen (15) days written notice to the Plan Administrator. All of the participant's payroll deductions credited to his account will be paid to him promptly after the receipt of his notice of withdrawal and his option for the current period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the offering period.

b. Upon termination of the participant's Continuous Status as an Employee prior to the Exercise Date of the offering period for any reason, including retirement of death, the payroll deductions credited to his account will be returned to him or, in the case of his death, to the person or persons entitled thereto under Section 14, and his option will be automatically terminated.

c. In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the offering period in which the Employee is a participant, he will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his account will be returned to him and his option terminated.

d. A participant's withdrawal from an offering period will not have any effect upon his eligibility to participate in a succeeding offering period or in any similar plan which may thereafter be adopted by the Company.

11. INTEREST.

No interest shall accrue on the payroll deductions of a participant in the Plan.

6.


12. STOCK.

a. The maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be 100,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in Section
18. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) hereof on the Offering Date of an offering period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of payroll deductions, if necessary.

b. The participant will have no interest or voting right in shares covered by his option until such option has been exercised.

c. Shares to be delivered to a participant under the Plan will be registered (i) in the name of the participant or in the name of the participant and his or her spouse, or (ii) if directly transferred to participant's brokerage account, either pursuant to clause (i) above or in "street name."

13. ADMINISTRATION.

The Plan shall be administered by the Plan Administrator. The administration, interpretation or application of the Plan by the Plan Administrator shall be final, conclusive and binding upon all participants. Members of the Board who are eligible Employees are permitted to participate in the Plan, provided that:

a. Members of the Board who are eligible to participate in the Plan may not vote on any matter affecting the administration of the Plan or the grant of any option pursuant to the Plan.

b. If a Committee is established to administer the Plan, no member of the Board who is eligible to participate in the Plan may be a member of the Committee.

14. DESIGNATION OF BENEFICIARY.

a. A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of the offering period but prior to delivery of such shares. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Exercise Date of the offering period. Designation of beneficiary(ies) by the participant may be made on the subscription agreement.

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b. Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of a participant's death, and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares to the executor or administrator of participant's estate. In the event the Company is unaware that an executor or administrator has been appointed, the Company, at its discretion, may deliver such shares to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

15. TRANSFERABILITY.

Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in
Section 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with
Section 10.

16. USE OF FUNDS.

All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

17. REPORTS.

Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees promptly following the Exercise Date, which statements will set forth the amounts of payroll deductions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any, to be held in participant's account in accordance with Section 8.

18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected

8.


without receipt of consideration." Such adjustment shall be made by the Plan Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.

In the event of the proposed dissolution or liquidation of the Company, the offering period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the participant shall have the right to exercise the option as to all of the optioned stock, including shares as to which the option would not otherwise be exercisable. If the Board makes an option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the participant that the option shall be fully exercisable for a period of thirty (30) days from the date of such notice and the option will terminate upon the expiration of such period.

The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalization, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation.

19. AMENDMENT OR TERMINATION.

The Board may at any time terminate or amend the Plan. Except as provided in Section 18, no such termination can affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant, nor may an amendment be made without prior approval of the shareholders of the Company (obtained in the manner described in Section 21) if such amendment would:

a. Increase the number of shares that may be issued under the Plan;

b. Permit payroll deductions at a rate in excess of ten percent (10%) of the participant's Compensation;

c. Change the designation of the Employees (or class of Employees) eligible for participation in the Plan; or

d. Materially increase the benefits which may accrue to participants under the Plan.

20. NOTICES.

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All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have duly given when received in the form specified by the Company at the location of the Plan Administrator.

21. SHAREHOLDER APPROVAL.

Continuance of the Plan and any amendments to the Plan described in Section 19 shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan or such amendments thereto are adopted. If such shareholder approval is obtained at a duly held shareholders' meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon, which approval shall be:

a. (1) solicited substantially in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations promulgated thereunder, or (2) solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and

b. obtained at or prior to the first annual meeting of shareholders held subsequent to the first registration of Common Stock under Section 12 of the Exchange Act.

In the case of approval by written consent, it must be obtained by the unanimous written consent of all shareholders of the Company, or by written consent of a smaller percentage of shareholders but only if the Board determines that the written consent of such a smaller percentage of shareholders will comply with all applicable laws and will not adversely affect the qualifications of the Plan under Section 423 of the Code.

22. CONDITIONS UPON ISSUANCE OF SHARES.

Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of all, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed.

As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel of the Company, such a representation is required by any of the aforementioned applicable provisions of law.

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23. TERM OF PLAN.

The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company as described in
Section 21. It shall continue in effect for the term of twenty (20) years unless sooner terminated under Section 19.

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ARTICLE 9
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS, RELATED NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINED IN THE REPORT ON FORM 10-Q FILED BY SILICON VALLEY BANCSHARES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUAILFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
MULTIPLIER: 1,000


PERIOD TYPE 9 MOS
FISCAL YEAR END DEC 31 1997
PERIOD START JAN 01 1997
PERIOD END SEP 30 1997
CASH 142,031
INT BEARING DEPOSITS 290
FED FUNDS SOLD 386,000
TRADING ASSETS 0
INVESTMENTS HELD FOR SALE 837,372
INVESTMENTS CARRYING 0
INVESTMENTS MARKET 0
LOANS 1,037,268
ALLOWANCE 38,600
TOTAL ASSETS 2,405,839
DEPOSITS 2,228,210
SHORT TERM 0
LIABILITIES OTHER 15,348
LONG TERM 0
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 72,757
OTHER SE 89,524
TOTAL LIABILITIES AND EQUITY 2,405,839
INTEREST LOAN 77,874
INTEREST INVEST 29,020
INTEREST OTHER 11,891
INTEREST TOTAL 118,785
INTEREST DEPOSIT 38,791
INTEREST EXPENSE 38,791
INTEREST INCOME NET 79,994
LOAN LOSSES 7,682
SECURITIES GAINS 78
EXPENSE OTHER 48,039
INCOME PRETAX 34,886
INCOME PRE EXTRAORDINARY 20,234
EXTRAORDINARY 0
CHANGES 0
NET INCOME 20,234
EPS PRIMARY 1.99
EPS DILUTED 1.99
YIELD ACTUAL 5.7
LOANS NON 23,293
LOANS PAST 530
LOANS TROUBLED 0
LOANS PROBLEM 15,167
ALLOWANCE OPEN 32,700
CHARGE OFFS 4,903
RECOVERIES 3,121
ALLOWANCE CLOSE 38,600
ALLOWANCE DOMESTIC 38,600
ALLOWANCE FOREIGN 0
ALLOWANCE UNALLOCATED 11,118