<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
SUMMIT BANK CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 6711 58-1722476
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
4360 CHAMBLEE-DUNWOODY ROAD
ATLANTA, GEORGIA 30341
(770) 454-0400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GARY K. MCCLUNG
SUMMIT BANK CORPORATION
4360 CHAMBLEE-DUNWOODY ROAD
ATLANTA, GEORGIA 30341
(770) 454-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
JEFFREY A. ALLRED
W. THOMAS CARTER III
ALSTON & BIRD LLP
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
(404) 881-7000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
_________________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Price Per Share (1) Aggregate Price (1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 463,235 $10.00 $4,632,350.00 $1,404.00
============================ ============ =================== =================== ================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(g) under the Securities Act of
1933, as amended.
___________________________
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION,
DATED APRIL 30, 1997
SUMMIT BANK CORPORATION
463,235 Shares of Common Stock
Issuable upon Exercise of Warrants
Summit Bank Corporation (the "Company" or "Summit") hereby offers 463,235
shares of its $.01 par value common stock ("Common Stock" or "Shares") upon
exercise of 463,235 warrants ("Warrants") at a price of $10.00 per Share (the
"Exercise Price") in accordance with the terms of those certain outstanding
Warrant Agreements by and between the Company and the holders of the Warrants
(the "Warrant Holders").
THE COMMON STOCK OFFERED HEREBY INVOLVE CERTAIN RISKS. SEE "RISK FACTORS"
ON PAGE 5.
The Shares are listed on The Nasdaq Stock Market's National Market under
the symbol "SBGA."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Underwriting
Discounts Proceeds
Price to Public and Commissions to the Company (2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share for Company Warrants $ 10.00(1) $0 $ 10.00
- ------------------------------------------------------------------------------------------
Total(3) $ 4,632,350 $0 $ 4,632,350
- ------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) Calculated using the Exercise Price of $10.00 per Share.
(2) Before deducting expenses payable by the Company, estimated to be
$33,604.
(3) Based on 463,235 outstanding Warrants.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information and representations must not be relied upon as having
been authorized by the Company. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof or
that any information contained or incorporated by reference herein is correct as
of any time subsequent to its date. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to purchase any securities other
than the Shares to which it relates or an offer to any person in any
jurisdiction where such offer or solicitation is not authorized or would be
unlawful.
The date of this Prospectus is April __, 1997.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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<S> <C>
SUMMARY ........................................................ 1
The Company .................................................. 1
The Offering ................................................. 1
Risk Factors ................................................. 2
Selected Consolidated Financial Data ......................... 3
RISK FACTORS ................................................... 4
THE COMPANY .................................................... 5
General ...................................................... 5
DETERMINATION OF OFFERING PRICE ................................ 5
THE OFFERING ................................................... 5
USE OF PROCEEDS ................................................ 6
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ........................ 6
BUSINESS ....................................................... 7
Banking Services ............................................. 7
Location and Service Area .................................... 8
Asian American Market ........................................ 8
International Services Market ................................ 9
Vinings Acquisition .......................................... 9
Employees .................................................... 10
Properties ................................................... 10
Competition .................................................. 11
Fiscal and Monetary Policy ................................... 11
Legal Proceedings ............................................ 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Performance Overview for 1996 ................................ 12
Fourth Quarter 1996 Results .................................. 13
Net Interest Income .......................................... 13
Average Balance Sheets ....................................... 14
Changes in Net Interest Income ............................... 15
Non-interest Income .......................................... 16
Non-interest Expenses ........................................ 17
Loan Portfolio ............................................... 18
Allowance and Provision for Loan Losses ...................... 19
Non-Performing Assets ........................................ 21
Liquidity and Interest Rate Sensitivity ...................... 22
Investment Portfolio ......................................... 24
Deposits ..................................................... 24
Capital Adequacy ............................................. 25
Inflation .................................................... 25
Line of Business Information ................................. 25
MARKET INFORMATION AND DIVIDENDS ............................... 26
PRINCIPAL SHAREHOLDERS AND MANAGEMENT .......................... 27
Directors and Executive Officers of the Registrant ........... 28
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
EXECUTIVE COMPENSATION ......................................... 35
Summary Compensation Table ................................... 35
Stock Option Grants .......................................... 35
Option Exercises and Holdings ................................ 36
Severance Agreements ......................................... 36
Director Compensation ........................................ 36
Compensation Committee Interlocks and Insider Participation .. 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 37
DESCRIPTION OF WARRANTS ........................................ 37
General ...................................................... 37
Exercise ..................................................... 37
Transfer Restrictions ........................................ 38
Anti-Dilution Provisions ..................................... 38
DESCRIPTION OF COMPANY CAPITAL STOCK ........................... 38
Company Common Stock ......................................... 38
Special Stock ................................................ 39
SUPERVISION AND REGULATION ..................................... 39
Federal Bank Holding Company Regulation ...................... 39
The Bank ..................................................... 40
Enforcement Policies and Actions ............................. 42
Deposit Insurance ............................................ 42
Dividends .................................................... 43
Capital Regulations .......................................... 43
Recent Legislative Developments .............................. 45
EXPERTS ........................................................ 45
LEGAL MATTERS .................................................. 45
INDEMNIFICATION ................................................ 45
</TABLE>
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<PAGE> 5
AVAILABLE INFORMATION
The Company is also subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, is required to file reports, proxy statements, and other
information with the Securities and Exchange Commission (the "SEC"). Copies of
such reports, proxy statements, and other information can be obtained, at
prescribed rates, from the SEC by addressing written requests for such copies
to the Public Reference Section at the SEC at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. In addition, such reports, proxy statements,
and other information can be inspected at the public reference facilities
referred to above and at the regional offices of the SEC at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC also
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants such as the Company that file
electronically with the SEC. The address of such Web site is
http://www.sec.gov.
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act of 1933, as amended ("Securities Act") with respect to
the shares of Common Stock hereby offered. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. Certain items are omitted in accordance with the rules
and regulations of the SEC. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules filed as part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected and copied, at prescribed rates, at the
SEC's public reference facilities at the addresses set forth above. In
addition, Company Common Stock is traded on the Nasdaq National Market.
Reports, proxy statements and other information concerning the Company may be
inspected at the office of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
- iii -
<PAGE> 6
SUMMARY
THE FOLLOWING MATERIAL, WHICH IS PRESENTED HEREIN SOLELY TO FURNISH
LIMITED INTRODUCTORY INFORMATION REGARDING THE COMPANY HAS BEEN SELECTED FROM,
OR IS BASED UPON, AND IS QUALIFIED IN ITS ENTIRETY BY, THE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS, AND SHOULD BE READ TOGETHER THEREWITH.
THE COMPANY
Summit Bank Corporation (the "Company"), a Georgia corporation, was
incorporated on October 15, 1986, primarily to become a bank holding company by
acquiring all the common stock of the Summit National Bank (the "Bank") upon
its formation. The Bank commenced business on March 10, 1988, and the primary
activity of the Company since then has been the ownership and operation of the
Bank.
The Bank was organized as a banking association under the laws of the
United States. The Bank is engaged in the commercial banking business from its
main office and four branch offices, which are located in its primary service
area in northern metropolitan Atlanta, Georgia. The Bank seeks to serve four
principal markets: (i) individuals, professionals, and small to medium-sized
businesses in the Bank's primary service area; (ii) ethnic communities,
principally Asian-Americans, located in the Atlanta metropolitan area,
including businesses operated by members of such communities; (iii)
individuals, professionals, and businesses in the Atlanta metropolitan area
requiring the international financial transaction services offered by the Bank;
and (iv) foreign corporations and individuals requiring specialized banking
services (international private banking) in the Atlanta metropolitan area.
Management believes the identified markets are not now adequately served
and an opportunity exists for the Bank to further penetrate these markets by
offering a variety of traditional and specialized banking services emphasizing
personal service, cultural sensitivity and accessibility of management.
As of December 31, 1996, the Company had total consolidated assets of
approximately $154,248,000, total consolidated deposits of approximately
$132,899,000 and total consolidated stockholders' equity of approximately
$16,936,000.
The Company maintains its principal executive offices at 4360
Chamblee-Dunwoody Road, Atlanta, Georgia 30341, and its telephone number is
770-454-0400.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered...................................... 463,235 Shares upon
exercise of 463,235
Warrants at an
exercise price of
$10.00 per share.
Common Stock to be outstanding after the Offering if all
Warrants are exercised.................................. Up to 1,870,923 Shares.
Use of proceeds by the Company.......................... To provide additional
equity capital to the
Company and its
subsidiaries to
support growth,
including possible
future acquisitions,
and for general
corporate purposes
</TABLE>
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<PAGE> 7
RISK FACTORS
The Shares offered pursuant to the exercise of Warrants involve certain
risks including, among others, the restrictions on the dividends payable by the
Bank to the Company, competition, the control over the Company which management
enjoys, and restrictions on the acquisition of the Company. See "THE COMPANY";
"RISK FACTORS"; "BUSINESS -- Competition"; and "SUPERVISION AND REGULATION".
- 2 -
<PAGE> 8
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
years ended December 31, 1996, 1995, 1994, 1993, and 1992, is unaudited and has
been derived from the Consolidated Financial Statements of the Company and its
subsidiaries, and from records of the Company. The information presented below
should be read in conjunction with the Consolidated Financial Statements, the
Notes to Consolidated Financial Statements and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Averages are
derived from daily balances.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) As of December 31,
=================================================================================================================
Balance Sheet Data 1996 1995 1994 1993 1992
- ------------------ --- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $ 154,248 $ 130,076 $ 108,146 $ 104,526 $ 78,119
Investment securities 38,584 32,702 19,274 19,970 9,575
Loans 85,808 78,177 73,801 73,190 57,661
Allowance for loan losses 1,931 1,686 1,603 1,774 858
Deposits 132,899 109,816 90,639 88,376 65,275
Other borrowed funds 1,657 -- -- 750 715
Obligations under capital lease 118 152 166 -- 24
Stockholders' equity 16,936 15,413 13,273 11,441 9,783
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
========================================= =====================================================================
Statement of Income Data 1996 1995 1994 1993 1992
- ------------------------ ---- ---- ---- ---- ----
Interest income $ 11,356 $ 10,101 $ 8,155 $ 6,117 $ 5,957
Interest expense 4,520 4,070 2,800 2,354 2,610
Net interest income 6,836 6,031 5,355 3,763 3,347
Provision for loan losses 404 397 430 611 711
Net interest income after
provision for loan losses 6,432 5,634 4,925 3,152 2,636
Non-interest income 3,361 3,311 3,050 2,635 2,935
Non-interest expenses 6,411 5,802 5,209 4,211 4,525
Income tax expense (benefit) 1,174 1,042 838 (82) 25
Net income $ 2,208 $ 2,101 $ 1,928 $ 1,658 $ 1,021
Per Share Data
- --------------
Book value per share at year end $ 12.03 $ 10.95 $ 9.43 $ 8.13 $ 6.95
Net income per share 1.38 1.33 1.37 1.18 .73
Weighted-average shares and common
equivalent shares outstanding $1,630,610 $1,630,610 1,407,688 1,407,688 1,407,688
Dividends declared $ .31 $ .28 -- -- --
Dividend payout ratio 22.46% 21.05% -- -- --
Ratios
- ------
Return on average assets 1.59% 1.74% 1.78% 1.95% 1.38%
Return on average equity 13.80 15.09 15.65 16.02 11.16
Average equity/average assets 11.53 11.51 11.37 12.21 12.37
Net interest margin 5.44 5.50 5.39 4.82 4.94
Non-performing assets/total loans
and other real estate 1.07 .14 .37 2.67 3.70
Allowance for loan losses/total loans 2.25 2.16 2.17 2.42 1.49
Non-interest expense/net
interest income and non-interest income 62.87 62.11 61.98 65.82 72.03
</TABLE>
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<PAGE> 9
RISK FACTORS
The purchase of Shares upon the exercise of Warrants involves various
risks. Prospective purchasers should consider the following risks, among
others, before making a decision to exercise Warrants and purchase Shares.
Restrictions on Dividends. Dividends are payable on Shares only when, as
and if declared by the Company's Board of Directors from funds available
therefor. In its determination whether to pay dividends, the Company must also
ensure the maintenance of adequate capital. The principal source of the
Company's income is derived from dividends and other payments by the Bank. The
Bank is also subject to statutory and regulatory restrictions on the payment of
dividends and must also maintain adequate capital. Such considerations
necessarily reduce the amount of the Bank's capital available for dividends.
See "MARKET INFORMATION AND DIVIDENDS" and "SUPERVISION AND REGULATION".
Competition. The Bank operates in a highly competitive market with other
banks and financial institutions, many of which possess financial and other
resources superior to those available to the Company. The Bank competes with
many entities that are affiliated with larger financial institutions operating
on a statewide and regional basis. The Company's long-term success will depend
on the ability of the Bank to compete successfully in its service area. See
"BUSINESS -- Competition".
Control by Management and Directors. As of March 31, 1997, Company
directors and executive officers, as a group, beneficially owned approximately
687,780 shares of Company Common Stock, representing approximately 35.97% of
the total outstanding Shares after giving effect to the exercise of all
outstanding stock options and Warrants. Existing Company management and
directors, therefore, may exercise a large degree of control over the Company.
However, the potential exercise of management and directors' Warrants would not
result in a material change from existing control of the Company. The amount
of Shares held by Company directors and executive officers may effectively
reduce the volume of trading in Shares.
Restrictions on Acquisition of the Company. Any proposed acquisition of
the Company will be subject to the Bank Holding Company Act of 1956, as amended
(the "BHCA") and the Financial Institutions Code of Georgia and the regulatory
approvals required under such laws. Section 7-1-608 of the Financial
Institutions Code of Georgia will not permit the acquisition of a bank located
in Georgia unless such bank has been in existence and continuously operating
for a period of five years. However, Section 7-1-608 permits a bank holding
company that is the parent entity of a banking subsidiary that has been
incorporated for not less than two years to acquire directly or indirectly a
bank that is five-years old or older. See "SUPERVISION AND REGULATION."
Dilution. As a result of the exercise of Warrants and the issuance of
Shares, each of the Company's shareholders may experience dilution in per share
earnings and voting power of their Shares.
Special Cautionary Notice Regarding Forward-Looking Statements. Certain
of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this Prospectus may constitute forward-looking statements for the purposes of
the Securities Act and the Exchange Act and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. The Company's actual results may differ materially
from the results anticipated in these forward looking statements due to a
variety of factors, including, without limitation: the effects of the Company's
growth and whether such growth is sustainable in future economic circumstances;
the effects of future economic conditions; governmental monetary and fiscal
policies, as well as legislative and regulatory changes; the risks of changes
in interest rates on the level and composition of deposits, loan demand, and
the values of loan collateral, securities, and interest rate risks; the effects
of competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms,
insurance companies, money market and other mutual funds and other financial
institutions operating in the Company's market area and elsewhere, including
institutions operating locally, regionally, nationally and internationally,
together with such competitors offering banking products and
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<PAGE> 10
services by mail, telephone, and computer and the Internet; and the failure of
assumptions underlying the establishment of the allowance for possible loan
losses. All written or oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by these Cautionary
Statements.
THE COMPANY
GENERAL
The Company is a Georgia corporation, which is registered as a "bank
holding company" with the Federal Reserve under the Bank Holding Company Act of
1956, as amended (the "BHCA") and with the Georgia Department of Banking and
Finance (the "Georgia Department") under the Financial Institutions Code of
Georgia (the "Financial Institutions Code"). Through its bank subsidiary, the
Company provides a broad range of banking and financial services in the
Atlanta, Georgia metropolitan area. The Company engages in no significant
operations other than the ownership of its subsidiaries.
The Bank was organized as a banking association under the laws of the
United States. The Bank is engaged in the commercial banking business from its
main office and four branch offices, which are located in its primary service
area in northern metropolitan Atlanta, Georgia. The Bank seeks to serve four
principal markets: (i) individuals, professionals, and small to medium-sized
businesses in the Bank's primary service area; (ii) ethnic communities,
principally Asian-Americans, located in the Atlanta metropolitan area,
including businesses operated by members of such communities; (iii)
individuals, professionals, and businesses in the Atlanta metropolitan area
requiring the international financial transaction services offered by the Bank;
and (iv) foreign corporations and individuals requiring specialized banking
services (international private banking) in the Atlanta metropolitan area.
Management believes the identified markets are not now adequately served
and an opportunity exists for the Bank to further penetrate these markets by
offering a variety of traditional and specialized banking services emphasizing
personal service, cultural sensitivity and accessibility of management.
As of December 31, 1996, the Company had total consolidated assets of
approximately $154,248,000, total consolidated deposits of approximately
$132,899,000 and total stockholders' equity of approximately $16,936,000.
DETERMINATION OF OFFERING PRICE
The terms, conditions and exercise prices per share for the Warrants were
determined by the Company. The Warrant Agreements provide that each
outstanding Warrant may be converted on a one-for-one basis into Company Shares
for a price of $10.00 per Share. The Warrants were issued in 1988, and the
Exercise Price of $10.00 is equivalent to the price at which the Company
offered its stock to the public in connection with the Company's initial public
offering. The Warrants were issued primarily to the organizers of the Company.
See "DESCRIPTION OF WARRANTS".
THE OFFERING
The Shares issuable upon exercise of Warrants are offered solely by the
Company. No underwriters are participating in this Offering. It is
anticipated that the Shares offered will be previously authorized but unissued,
but may include Shares held by the Company as treasury stock. Warrants may be
exercised by giving written notice and paying the exercise price to the
Company, and as otherwise required by the Warrant Agreements. See "DESCRIPTION
OF WARRANTS".
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<PAGE> 11
USE OF PROCEEDS
Net proceeds estimated at approximately $4,632,350 would be realized if
all 463,235 Warrants were exercised at the Exercise Price. Net proceeds, if
any, will be used for general corporate purposes including support of the
capital adequacy of the Company, to support growth, including possible future
acquisitions, and for general corporate purposes. It is anticipated that
Warrants will be exercised from time to time based upon decisions of the
individual Warrant holders and that the Company will receive the net proceeds
gradually through March 10, 1998, when the Warrants expire.
To the extent Warrants are not exercised, the net proceeds to the Company
will be reduced. There is no assurance that all Warrants will be exercised or
that the Company will receive the net proceeds which would be available if all
Warrants had been exercised.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income
tax considerations relating to the exercise of Warrants for Common Stock and is
not intended to be tax advice to any person, nor is it binding upon the
Internal Revenue Service (the "IRS"). This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), existing, temporary, and
proposed Treasury Regulations, laws, rulings and decisions now in effect, all
of which are subject to change. This summary deals only with holders that will
hold Common Stock as a "capital asset" (within the meaning of Section 1221 of
the Code) and that are (i) citizens or residents of the United States, (ii)
domestic corporations, or (iii) otherwise subject to United States federal
income taxation on a net income basis in respect of the Common Stock. This
summary does not address tax considerations applicable to investors that may be
subject to special tax rules, such as banks, tax-exempt organizations,
insurance companies, dealers in securities or currencies, or persons that will
hold the Common Stock as a position in a hedging transaction, "straddle" or
"conversion transaction" for tax purposes. This summary discusses the
material tax considerations applicable to the initial owners of the Common
Stock who acquire the Common Stock upon the exercise of Warrants.
INVESTORS CONSIDERING THE OWNERSHIP OF COMMON STOCK SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL
INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
The Company has not sought and will not seek any rulings from the IRS with
respect to the matters discussed below. There can be no assurance that the IRS
will not take a different position concerning the tax consequences of
exercising Warrants for Common Stock.
EXERCISE OF WARRANTS FOR COMMON STOCK
A holder of a Warrant will not recognize gain or loss on the exercise of
the Warrant for shares of Common Stock. The holder's basis in a share of
Common Stock received upon exercise of the Warrant will be equal to the
holder's basis in the exercised Warrant plus the Exercise Price. The holding
period of the shares of Common Stock received by the holder upon exercise of
the Warrants will include the period during which the holder held the Warrant
prior to exercise.
SALE OR EXCHANGE OF SHARES OF COMMON STOCK
In general, each holder of Common Stock into which the Warrants have been
converted will recognize gain or loss upon the sale, exchange, redemption, or
other disposition of the Common Stock measured by the difference between the
amount of cash and fair market value of any other property received and the
holder's adjusted tax basis in the Common Stock. Special rules may apply to
redemptions of Common Stock which may result in the amount
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<PAGE> 12
paid being treated as a dividend. The gain or loss on the disposition of shares
of Common Stock will be capital gain or loss and will be long-term gain or loss
if the shares of Common Stock have been held for more than one year at the time
of such disposition.
DIVIDENDS ON SHARES OF COMMON STOCK
Distributions on shares of Common Stock will constitute dividends for
federal income tax purposes to the extent of current and accumulated earnings
and profits of the Company as determined under federal income tax principles.
Dividends paid to holders that are United States corporations may qualify for
the dividends-received deduction. To the extent, if any, that a holder
receives a distribution on shares of Common Stock that would otherwise
constitute a dividend for federal income tax purposes but that exceeds current
and accumulated earnings and profits of the Company, such distribution will be
treated first as a non-taxable return of capital reducing the holder's tax
basis in the shares of Common Stock. Any such distribution in excess of the
holder's tax basis in the shares of Common Stock will be treated as a capital
gain.
Backup Withholding and Information Reporting. In general, information
reporting requirements will apply to dividends paid on the Common Stock to
holders other than certain exempt recipients (such as corporations).
Information reporting will also be required upon a payment of the proceeds of
the sale (including a redemption) of shares of Common Stock to holders, other
than exempt recipients. A 31% backup withholding tax may apply to such
payments if the holder fails to timely provide a taxpayer identification number
or certification of exempt status or fails to report in full dividend income.
BUSINESS
BANKING SERVICES
The Bank offers a full range of deposit services that are typically
available at most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposits. The transaction accounts and time certificates are tailored to the
principal market areas at rates competitive to those offered in the area. In
addition, retirement accounts such as Individual Retirement Accounts ("IRAs")
are available. All deposit accounts are insured by the Federal Deposit
Insurance Corporation (the "FDIC") up to the maximum amount ($100,000 per
depositor). The Bank solicits these accounts from individuals, businesses,
associations, and governmental authorities.
The Bank offers a full range of short to medium-term commercial and
personal loans. Commercial loans include both secured and unsecured loans for
working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements), and purchase of
equipment and machinery. The Bank offers government guaranteed loans under the
Small Business Administration ("SBA") loan program. After origination of these
loans, the Bank usually sells the guaranteed portion of the loan (approximately
75%) resulting in gains on the sale. In addition, the Bank retains the
servicing rights to these loans which generate servicing income on the portion
sold. Personal (or consumer) loans include secured and unsecured loans for
financing automobiles, home improvements, education, and personal investments.
The Bank also offers, through an alliance with Independent Mortgage Associates,
Inc. ("IMA"), permanent mortgage loans. IMA pays a referral fee to the Bank
for each mortgage loan closed.
In addition to deposit and loan services, the Bank's other domestic
services include 24-hour telephone banking, cash management services,
investment sweep accounts, safe deposit boxes, travelers checks, direct deposit
of payroll and social security checks, as well as automatic drafts for various
accounts. The Bank is a member of the HONOR and CIRRUS networks of automated
teller machines that may be used by Bank customers in major cities throughout
Georgia, the United States, and in various cities worldwide. The Bank also
offers VISA and MasterCard credit cards and merchant credit card processing to
its customers through third party vendors.
- 7 -
<PAGE> 13
The Bank's international banking services include inbound and outbound
international funds transfers, foreign collections, and import and export
letters of credit. The Bank is also actively involved in the issuance of
bankers acceptances. These drafts or bills of exchange facilitate
international trade and are available upon completion of a diligent credit
review process. In addition, the Bank offers private banking services to
foreign individuals and corporations in the establishment of business
operations in Atlanta. Specialized private banking services include bill
paying, statement and mail holding, currency exchange, international funds
transfers and arranging personal lines of credit (including credit card
services) for qualified foreign nationals conducting business in the United
States.
In addition, the Bank's private banking group assists U.S. domiciled
executives with a variety of personal banking services designed to support
international business objectives. These services include introductions to
correspondent financial services, as well as to general business contacts
maintained by the Company in international trade markets.
The Bank does not presently offer personal or corporate trust services
(other than retirement custodial services for IRAs and similar plans).
LOCATION AND SERVICE AREA
The Bank leases its main office at 4360 Chamblee-Dunwoody Road, Atlanta,
Georgia 30341, which is in a five-story office building near the intersection
of Interstate 285 and Chamblee-Dunwoody Road, in DeKalb County. The Bank has a
6,000 square foot branch facility situated within an 18,000 square foot office
building owned by the Company which was completed in August 1994 and is located
at 3490 Shallowford Road in Chamblee, DeKalb County, Georgia. The Bank has
also leased a branch facility at One Paces West, Suite 150, 2727 Paces Ferry
Road in Vinings which it acquired in December 1993 through the purchase of
Vinings. In January 1996, the Bank purchased a 4,500 square foot building
situated on approximately 1.2 acres located at 595 Franklin Road, Marietta,
Georgia to serve as its fourth office. This branch opened in May, 1996. In
August, 1996 the Bank purchased a 7,700 square foot building situated on
approximately 1.3 acres located at 3280 Holcomb Bridge Road, Norcross, Georgia
to serve as its fifth office. This branch opened in November 1996.
The Bank's primary service area ("PSA") is comprised of a section of North
Atlanta, Georgia located in portions of DeKalb, Fulton, Cobb, and Gwinnett
Counties. The PSA includes the city of Chamblee, portions of the cities of
Doraville and Norcross, the DeKalb-Peachtree Airport, the Northlake and
Perimeter Malls in DeKalb County; Cumberland and Town Center Malls in Cobb
County; Northpoint Mall in North Fulton County; Gwinnett Place Mall in Gwinnett
County; the Perimeter Business Park and the Peachtree Corners area including
Technology Park. The PSA is traversed by major thoroughfares such as
Interstate 285 to the North, Buford Highway and Peachtree Industrial Boulevard
in the South, Clairmont and Shallowford Roads in the East, and Interstate 75 in
the West.
ASIAN-AMERICAN MARKET
The Atlanta Asian-American population, one of the Bank's principal target
markets, consists of members of the Korean, Chinese, Japanese, Indian, and
Southeast Asian communities. The 1990 United States census indicates that the
Atlanta Asian-American population exceeds 75,000 people, with the majority of
this population located in north Atlanta including parts of DeKalb, Fulton, and
Cobb counties.
Management believes the Bank's main and branch offices are convenient to a
large number of Atlanta's Asian-Americans. At year-end 1996, approximately 50%
of the Bank's customers were Asian-American. The oldest and largest church
serving the Korean community is also located within the Bank's PSA.
- 8 -
<PAGE> 14
Management believes the Atlanta Asian-American community can be
characterized as generally having a high savings rate, low unemployment, and a
commitment to economic advancement through education and hard work. A
significant percentage of the Atlanta Asian-American population consists of
first generation U.S. immigrants, many of whom management believes are
constrained in their current use of banking services at other institutions by
language and other cultural barriers.
The Bank has employed, and will continue to employ, personnel with Asian
language skills and first-hand knowledge of the communities to be served.
Management believes language ability and cultural sensitivity combined with
accessibility to senior management enhances the Bank's competitive position in
this market.
INTERNATIONAL SERVICES MARKET
Management believes a growing number of domestic businesses in the Atlanta
metropolitan area (and, in particular, a growing number of small to
medium-sized businesses) require the international services provided by the
Bank. While a number of financial institutions operating in the Bank's markets
offer such services, they are typically offered from international banking
departments located in downtown office facilities or an out-of-state location;
personnel in branch facilities closer to smaller businesses generally are not
trained to address these specialized needs. Management believes the Bank has
penetrated, and will be able to further penetrate, this market by providing
those businesses with convenient access to personnel specially trained to
provide such services.
The Bank does not engage in off-shore buyer financing or cross border
lending. Occasionally, the Bank discounts short-term letters of credit drafts
for selected correspondent banks under approved facilities. Management is of
the opinion that the commercial and political risks are acceptable based on our
assessment of available information on the correspondent banks and the
respective countries. As of December 31, 1996, total outstanding under such
facilities was $879,000.
In addition to domestic businesses requiring international banking
services, management believes a growing number of foreign businesses operating
in Atlanta along with their executives and employees, frequently require the
type of international banking services provided by the Bank. Foreign nationals
associated with such businesses are often unfamiliar with United States banking
practices. The Bank has personnel with the requisite language and cultural
skills suited to serve this clientele. Management further believes the
international banking experience of management of the Bank, along with the
contacts of the directors of the Company and the Bank in the international and
domestic business communities, enhances the Bank's ability to compete in this
target market.
VININGS ACQUISITION
On December 31, 1993, the Bank acquired Vinings Bank & Trust, N.A.
("Vinings"), a Cobb County, Georgia-based community national bank formed in
1987. Vinings operated from one location which the Bank retained as a branch
office location. The Vinings acquisition provided further opportunities for
the Bank to pursue its identified markets in Cobb County in addition to DeKalb
and Fulton Counties. The acquisition was accounted for as a purchase. In the
acquisition, Vinings was merged into the Bank and the Bank acquired all the
assets of Vinings and assumed all of its liabilities. As of the acquisition
date, Vinings had approximately $13 million in loans, $3 million in investment
securities and $2 million in non-earning assets (including furniture, fixtures
and equipment and real estate owned) and it had approximately $16 million in
deposits. The Bank paid $.34 in cash for each outstanding share of Vinings
common stock, for a total purchase price of $255,000.
The acquisition of Vinings allowed the Bank to enter the Cobb County
market at a price considered by the Board of Directors to be attractive.
Management believes that Cobb County offers the opportunity to expand
geographically the provision of services in the Bank's traditional markets.
According to the 1990 United States Census, Cobb County had the next largest
Asian-American population in Georgia (behind Fulton and DeKalb
- 9 -
<PAGE> 15
Counties), and Cobb County is the home of numerous small to medium-sized
businesses serving this important suburban area of Atlanta.
EMPLOYEES
As of March 31, 1997, the bank had 85 full-time equivalent employees.
Except to support normal growth of business, additional hiring is not
anticipated in 1997. The employees are not part of any collective bargaining
agreement and employee relations with the Company are considered good.
PROPERTIES
The Bank's main office is at 4360 Chamblee-Dunwoody Road, Atlanta, DeKalb
County, Georgia 30341 on the ground floor of a five-story. 100,000 square foot
office building near the intersection of Interstate 285 and Chamblee-Dunwoody
Road. The Bank has signed a lease for 19,141 square feet on the main and third
floors of the building, which lease provides base rental at $14.25 per square
foot per annum during the term of the lease and rights to extend its occupancy
of the leased space twice, for one additional year each, at a base rate of
$14.50 per square foot per annum. The initial term of the lease expires in
December 1998. The main office on the first floor contains 8,897 square feet
of space which includes six teller stations, two customer services stations,
the loan operations department, offices for loan officers, and the main
conference room. The Bank has an ATM attached to the building. The third
floor of the main office houses the international department, personnel
department, the operations department, and the executive offices.
The Company owns an office building containing 16,338 square feet of
leasable space located on 2.77 acres of land in Atlanta's Asian-American
business district on Shallowford Road near Buford Highway. The Company leases
6,000 square feet of space to the Bank at a cost of $12.00 per square foot for
a branch office. The Bank also leases 760 square feet on the third floor which
is provided for Independent Mortgage Associates. The Company currently has
leased 9,578 square feet to seven other tenants which leases provide base
rental rates from $12.50 to $17.88 per square foot per annum. The Company
incurred a total cost of $2.2 million for the land and building including
improvements and tenant finishes. In addition, the branch has approximately
$200,000 in furniture, fixtures and equipment at this site. This branch office
provides six teller stations, five customer service stations, and five offices
for lending officers and management. The Bank also has a drive-thru ATM and
drive-thru teller window at this office.
The Bank's branch office in the Vinings area of Cobb County is located at
One Paces West, Suite 150, 2727 Paces Ferry Road, N.W., Atlanta, Georgia 30339.
The office building contains 246,515 square feet of leasable space near the
intersection of Interstate 285 and Paces Ferry Road. The Vinings branch office
contains 5,266 square feet of space which the Bank has leased at a base rate of
$17.25 per square foot per annum. This space consists of four teller stations,
two drive-in windows, four customer service stations, five offices for
management and lending officers and a conference room. The Bank also has a
walk-up ATM at this location. The initial term of the lease expires June 2002.
In January 1996, the Bank acquired a 4,560 square foot building situated
on 1.2 acres located at 595 Franklin Road, Marietta, Georgia. This office
contains six teller stations, one drive-up window, three drive-in lanes, three
offices for lending officers and management, and a walk-up ATM. The branch
opened in May 1996.
In August 1996, the Bank acquired a two-story 7,700 square foot building
situated on 1.3 acres located at 3280 Holcomb Bridge Road, Norcross, Georgia.
This office contains eight teller stations, one drive-up window, three drive-in
lanes, six offices for lending officers and management on the ground floor and
a drive-thru ATM. The second floor contains additional office space which will
be used at a later date. This branch opened in November 1996.
- 10 -
<PAGE> 16
COMPETITION
The banking business is highly competitive, particularly in the
metropolitan Atlanta area. In one or more aspects of their businesses, the
Company and the Bank compete with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking companies operating in the
metropolitan Atlanta area and elsewhere. Recent changes in interstate banking
laws also now permit financial institutions outside the Atlanta market to
establish branches nationwide, including the Company's local market. Many of
these competitors have substantially greater resources and lending limits than
the Bank and may offer certain services, such as trust services, the Company
and the Bank do not provide. The Bank has several employees who are fluent in
foreign languages including Mandarin, Cantonese, Korean, German, French,
Spanish and others which further enhances the Bank's ability to compete in
target markets. A competing new bank was opened in August 1995 which targets
the same Asian-American customer base as the Bank. The competition from this
new bank has not materially adversely impacted the Bank's performance or
profitability to date. Management believes that the Company and the Bank will
be able to continue to compete effectively with these financial institutions,
but no assurances can be given in this regard.
FISCAL AND MONETARY POLICY
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of the Company and the Bank are subject to the
influence of economic conditions generally, both domestic and foreign, and also
to the monetary and fiscal policies of the United States and its agencies,
particularly the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). The Federal Reserve regulates the supply of money through various
means, including open market dealings in United States government securities,
the discount rate at which banks may borrow from the Federal Reserve, and the
reserve requirements on deposits.
The monetary policies of the Federal Reserve historically have had a
significant effect on the operating results of commercial banks and will
continue to do so in the future. The conditions in the national and
international economies and money markets, as well as the actions and changes
in policy by monetary and fiscal authorities, and their effect on the Company
and the Bank, cannot be predicted.
LEGAL PROCEEDINGS
While the Company and the Bank are from time to time parties to various
legal proceedings arising in the ordinary course of their business, management
believes after consultation with legal counsel that there are no proceedings
threatened or pending against the Company or its subsidiaries that will,
individually or in the aggregate, have a material adverse effect on the
business or consolidated financial condition of the Company.
- 11 -
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PERFORMANCE OVERVIEW FOR 1996
Summit Bank Corporation (the "Company" or "Summit") reported record net
income of $2,208,000 in 1996 representing an increase of 5% over the prior
year. Management attributes the improvement to stronger net interest income
resulting from an increase in average earning assets. The Company's average
earning assets grew 15% in 1996 and over the last four years have grown at a
compound rate of nearly 17% per year. During 1996, Summit's average total
assets increased $18 million to $139 million compared to $121 million in 1995.
Net income per share for 1996 increased to $1.38 from $1.33 in 1995, an
improvement of 4%. Net income per share in 1994 was $1.37. The decline in
earnings per share from 1994 to 1995 was the effect of the Company's
outstanding stock warrants and options which were antidilutive prior to 1995.
The Company has 504,460 warrants and options outstanding for common stock that
were primarily issued to the organizers of the Company. Since 1995 the
Company's common stock has traded at a market price in excess of the $10
exercise price for these warrants and options. The dilutive effect resulted in
weighted-average shares and common equivalent shares outstanding in 1996 and
1995 of 1,630,610 compared to 1,407,688 in 1994.
The Company's strong profitability continues to place Summit in a group of
the nation's higher-performing community based financial institutions. The
return on average assets was 1.59% in 1996 as compared to 1.74% in the previous
year. The decline was attributed to the high growth rate in total assets which
outpaced the modest improvement in 1996 earnings. By comparison, according to
the Uniform Bank Performance Report as of September 30, 1996, the Bank's peer
group - commercial banks with assets between $100 million and $300 million and
three or more branches in a metropolitan area, posted an average return of
1.22% of average assets. Despite higher net earnings, Summit's return on
average equity was 13.8% in 1996 compared to 15.1% in 1995. Stockholders'
equity rose to $16.9 million at year end 1996, an increase of 10% as compared
to year end 1995.
The Company increased cash dividends in 1996 to $.31 per share, an
increase of 11% over 1995 dividends of $.28 per share. Management engaged the
services of two additional investment brokerage firms in 1996 to help improve
liquidity in the Company's stock. Three brokerage firms now make a primary
market in the stock. On October 18, 1996, the Company became listed on the
Nasdaq National Market under the trading symbol of "SBGA." Liquidity in the
Company's stock has improved as evidenced by the trading volume and market
appreciation of the stock during 1996. At December 31, 1996 the most recent
trade of the Company's stock was $17.25 per share, an increase of 68% compared
to $10.25 per share at year-end 1995.
Total assets reported by the Company at December 31, 1996 were $154
million compared to $130 million at the prior year end, reflecting an increase
of 19%. Asset growth was primarily fueled by deposits which increased 21%, or
$23 million, in 1996. A new source of deposits in 1996 was Summit's fourth
branch which opened in May and posted $7 million in new deposits by year end
1996. The Bank also introduced a new investment vehicle in 1996, Corporate
Overnight Sweep Accounts, resulting in balances of $657,000 at year end. Much
of this new deposit growth was absorbed by expansion of the loan portfolio.
Summit's net loan volume increased 10%, or $7 million, to $84 million at year
end 1996 compared to $76 million at December 31, 1995. The majority of this
loan growth was centered in commercial and SBA loans. During the last four
years the Company's average loans outstanding have grown at a rate of more than
9% compounded annually. Additional deposit funds generated during 1996 were
invested in adjustable-rate investment securities for improved short-term yield
and liquidity purposes.
Net interest income increased $800,000 to $6.8 million in 1996, a growth
of 13%. The Company continues to experience a strong net interest margin. The
net interest margin for 1996 was 5.44%, which is higher than the peer group
average of 4.91%. Improved loan quality resulted in a second consecutive year
of significantly reduced
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<PAGE> 18
net loan charge-offs. As a result, the provision for loan losses was unchanged
at $400,000 from 1995 to 1996, despite the loan growth. Non-interest income
improved 2% in 1996 despite a decline in gains from the sale of SBA loans and
international service fees. The Company posted a 9% increase in non-interest
income, or $261,000, in 1995 to $3.3 million compared to $3.1 million in 1994.
The Company's business plan to increase branch banking locations resulted
in the addition of two new offices during 1996 thus creating higher
non-interest expenses during 1996. Most of this increase was related to
additional personnel, occupancy and equipment costs for these new offices.
Total non-interest expenses were $6.4 million in 1996 and $5.8 million in 1995,
an increase of $600,000. Personnel expenses accounted for over half of this
increase, $310,000, while equipment and occupancy costs represented $74,000 and
$24,000 of the increase, respectively. The Company has also heightened its
marketing efforts to increase the visibility of the Company and the Bank. As a
result, expenses for marketing and advertising increased $114,000 in 1996 to
$271,000. An additional $78,000 of the non-interest expense increase was
attributed to other general operating expenses. Despite a slight increase of
the operating efficiency ratio (operating expenses as a percentage of net
interest income and non-interest income) in 1996 of 62.8% from 62.1%,
management feels that non-interest expenses are under control and are monitored
constantly. Non-interest expenses increased in 1995 by 11.4%, or $593,000, as
compared to 1994 due primarily to additional staff expenses and a new data
processing system.
FOURTH QUARTER 1996 RESULTS
Net income for the fourth quarter of 1996 was $650,000, a 27% decrease
from $894,000 for the same period in 1995. The decline was due to lower gains
from sales of SBA loans which were $141,000 in the fourth quarter of 1996
compared to $467,000 in the same period of 1995. Fluctuations are common in
quarterly SBA loan volumes because of construction lending cycles and year-end
business sales by customers. Net earnings per share for the fourth quarter
were $.41 and $.55 per share for 1996 and 1995, respectively.
NET INTEREST INCOME
Net interest income, the primary source of revenue for the Company, is a
function of the yield earned on average interest-earning assets and the rate
paid on average interest-bearing liabilities. Changes in net interest income
from period to period reflect the increases or decreases in average
interest-earning assets, average interest-bearing liabilities and the interest
rate spread which is affected by the degree of mismatch in maturity and
repricing characteristics of the Company's interest-earning assets and
interest-bearing liabilities.
Net interest income increased $800,000, or 13%, to $6.8 million in 1996
compared to 1995. The Company's interest margin for 1996 declined slightly to
5.44% as compared to 5.50% in 1995. Average interest-earning assets increased
15%, or $16 million, which helped offset the decline in the yield due to a
falling rate environment, during 1996. Loan volumes represented the majority
of the increase in average interest-earning assets, increasing $10 million in
1996, while average investment securities also grew $6 million. Average
interest-bearing liabilities increased 16%, or $13 million, in 1996, with other
time deposits and money market accounts increasing $9.4 million and $2.7
million, respectively.
Net interest income for 1995 increased 13% to $6 million from $5.4 million
in 1994. The increase was due to larger volumes of average interest earning
assets, which grew 11%, or $10.4 million in 1995. The average interest bearing
liabilities also increased 8%, or $6.3 million. The increase in the net
interest margin from 5.39% in 1994 to 5.50% in 1995 was due to higher volumes
of average interest earning assets.
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<PAGE> 19
The following table sets forth information with respect to the average
balances, interest income and average yield by major categories of assets; the
average balances, interest expense and average rate by major categories of
liabilities; the average balances of noninterest-earning assets,
noninterest-bearing liabilities and stockholders' equity; and net interest
income, interest rate spread, and net interest margin for the years ended
December 31, 1996 and 1995.
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
AVERAGE INCOME/ YIELDS/ Average Income/ Yields/
(Dollars in thousands) BALANCES EXPENSE RATES Balances Expense Rates
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) $ 84,071 $ 8,615 10.25% $ 73,647 $ 7,704 10.46%
Investment securities - taxable 37,252 2,509 6.74% 30,970 2,100 6.78%
Federal funds sold 4,331 228 5.26% 4,998 294 5.88%
Interest-bearing deposits in other banks 67 4 5.97% 81 3 3.70%
- -----------------------------------------------------------------------------------------------------
Total interest-earning assets 125,721 11,356 9.03% 109,696 10,101 9.21%
- -----------------------------------------------------------------------------------------------------
Noninterest-earning assets:
Cash and due from banks 6,374 5,736
Premises and equipment, net 3,903 2,809
Allowance for loan losses (1,905) (1,777)
Other assets 4,699 4,446
- -----------------------------------------------------------------------------------------------------
Total noninterest-earning assets 13,071 11,214
- -----------------------------------------------------------------------------------------------------
Total assets $138,792 $120,910
=====================================================================================================
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
NOW accounts $ 8,301 169 2.04% $ 7,595 171 2.25%
Money market 23,466 924 3.94% 20,806 890 4.28%
Savings deposits 7,673 288 3.75% 8,459 278 3.29%
Other time deposits 54,408 3,067 5.64% 45,002 2,711 6.02%
- -----------------------------------------------------------------------------------------------------
Total interest-bearing deposits 93,848 4,448 4.74% 81,862 4,050 4.95%
- -----------------------------------------------------------------------------------------------------
Other interest-bearing liabilities:
Federal funds purchased 86 5 5.81% 19 1 5.26%
Short-term borrowings and obligations
under capital lease 1,189 67 5.63% 167 19 11.38%
- -----------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 95,123 4,520 4.75% 82,048 4,070 4.96%
- -----------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 23,628 20,109
Other liabilities 4,042 4,831
Stockholders' equity 15,999 13,922
- -----------------------------------------------------------------------------------------------------
Total noninterest-bearing
liabilities and stockholders' equity 43,669 38,862
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $138,792 $120,910
=====================================================================================================
Interest rate spread 4.28% 4.25%
Net interest income $ 6,836 $ 6,031
======= =======
Net interest margin (2) 5.44% 5.50%
</TABLE>
(1) Average loans include non-performing loans. Interest on loans includes
loan fees of $495,000 in 1996 and $258,000 in 1995.
(2) Net interest margin is net interest income divided by average total
interest-earning assets.
- 14 -
<PAGE> 20
CHANGES IN NET INTEREST INCOME
The table below details the components of the changes in net interest
income for the last two years. For each major category of interest-earning
assets and interest-bearing liabilities, information is provided with respect
to changes due to average volumes, changes due to rates, and the proportionate
allocation of changes in both volumes and rates to the changes due to volumes
and the changes due to rates.
<TABLE>
<CAPTION>
1996 COMPARED WITH 1995(1) 1995 Compared with 1994(1)
DUE TO CHANGES IN Due to changes in
========================================== ================================
(In thousands) NET Net
AVERAGE AVERAGE INCREASE Average Average Increase
Interest Income VOLUME RATE (DECREASE) Volume Rate (Decrease)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $1,064 $ (153) $911 $(194) $ 951 $ 757
Investment securities 423 (14) 409 683 405 1,088
Federal funds sold (37) (29) (66) 60 82 142
Interest-bearing deposits in other banks -- 1 1 1 -- 1
- -------------------------------------------------------------------------------------------------------------------
Total interest income 1,450 (195) 1,255 550 1,438 1,988
- -------------------------------------------------------------------------------------------------------------------
Interest expense
- -------------------------------------------------------------------------------------------------------------------
NOW accounts 67 (69) (2) (39) 4 (35)
Money market 90 (56) 34 107 205 312
Savings deposits (19) 29 10 (40) 70 30
Other time deposits 514 (158) 356 338 629 967
Federal funds purchased 4 -- 4 -- 1 1
Short-term borrowings and
obligations under capital lease 52 (4) 48 (25) 20 (5)
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 708 (258) 450 341 929 1,270
- -------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 742 $63 $805 $209 $ 509 $ 718
===================================================================================================================
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
the volume and rate components in proportion to the relationship of the
dollar amounts of the absolute change in each.
- 15 -
<PAGE> 21
NON-INTEREST INCOME
The following table presents the principal components of non-interest
income for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fees for international banking services $1,057 $1,145 $ 932
Gains on sales of loans 581 713 1,024
Other 557 439 299
SBA servicing fees 462 438 390
Overdraft and NSF charges 369 362 222
Service charge income 209 216 227
Net gains/losses on sales of investment securities 126 (2) (121)
Gains on sales of other real estate -- -- 77
- ----------------------------------------------------------------------------------------------------------
Total non-interest income $3,361 $3,311 $3,050
==========================================================================================================
</TABLE>
Non-interest income, at $3.4 million, was up $50,000 from 1995, due
primarily to additional other income and miscellaneous fees. Other
non-interest income increased $118,000 in 1996. This increase mainly consisted
of improvements in Automatic Teller Machine (ATM) fees, private banking fees
and other income. The Bank began charging a $1.00 access fee in 1996 to all
non-Summit customers utilizing the Bank's ATM's for cash withdrawals. In 1996
this resulted in an increase in ATM fees of $30,000 from 1995 to 1996. There
were no other individually significant items affecting other income in 1996.
Additionally, the Bank realized $126,000 of gains on sales of investment
securities in 1996 compared to a loss of $2,000 in 1995.
These improvements were offset primarily by decreases in gains on sales of
SBA loans and international fee income. During 1996, the Bank originated $10.4
million of new SBA loans as compared to $9.8 million in 1995. Although the
amount of originated loans increased, the volume of originated loans decreased
from 52 to 42. Total guaranteed amounts sold for the comparable years were
$5.2 million and $7.6 million in 1996 and 1995, respectively. Management also
attributes the decrease in gains to a decrease in the average premium received
for sold loans in 1996 compared to 1995. Gains on sales of loans decreased
$132,000 to a 1996 total of $581,000. Despite the decline in the number of
SBA loans originated, the Company was again recognized by SBA as the most
active lending institution in the state of Georgia, a distinction held by
Summit for the last five consecutive years. The Bank's loan servicing
portfolio for third parties increased from $49 million at year end 1995 to $62
million at year end 1996. International fee income also decreased $88,000 in
1996 due to a reduction in the volume of transactions processed. The decline
was attributed partly to a slowing of customers' import and export activities
during the 1996 Summer Olympic Games.
Non-interest income increased $261,000 to $3.3 million during 1995 as
compared to 1994. The main contributing factors to the increase were
improvements in international fee income of $213,000 and insufficient funds and
overdraft fees of $140,000 both due to increased volumes. Other income also
increased $140,000, and there were lower net losses from sales of investment
securities that benefited income $119,000. These improvements were somewhat
offset by declines in gains from SBA loan sales of $311,000 due to a
significant decrease in SBA loan originations in 1995 compared to 1994.
- 16 -
<PAGE> 22
NON-INTEREST EXPENSES
The following table presents the principal components of non-interest
expenses for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $3,356 $3,046 $2,672
Equipment 482 408 380
Net occupancy 476 452 403
Data/item processing 332 218 110
Accounting, legal, and other professional 315 286 318
Marketing and community relations 271 157 137
Other losses 167 137 111
Postage and courier 163 168 133
Office supplies 157 130 136
Telephone 136 132 103
Property Taxes 86 86 53
Insurance 78 181 277
Directors fees 53 64 25
Dues and memberships 51 58 53
Provision for losses on sales of other real estate -- -- 62
Other operating expenses 288 279 236
- ---------------------------------------------------------------------------------------------------------------------
Total non-interest expenses $6,411 $5,802 $5,209
=====================================================================================================================
</TABLE>
While the Bank has continued a strong earnings growth trend, the
non-interest expenses have increased a consistent 10% in each of the past two
years. In 1996, non-interest expenses were $6.4 million, up from $5.8 million
in 1995. This increase was primarily attributed to increased staffing, data
and item processing expenses and marketing costs. During 1996, fifteen new
positions were created and filled, thirteen of which were related to branch
functions since two new branches were opened in this year. Salaries increased
$400,000 in 1996. Offsetting a portion of this increase were reductions in
overtime expenses of $30,000, temporary expenses of $26,000, and commission of
$33,000. As of December 31, 1996, the Bank had 86.5 full-time equivalent
employees compared to 71.5 at the end of 1995.
The Company completed implementation of a new bank-wide network computer
system in 1995, as well as contracting with a new third party data processing
service provider and outsourcing the check processing functions. These steps
taken in 1995 established the infrastructure allowing the Company to
effectively offer technologically advanced products, some of which were
introduced in 1995 and 1996. These new products include multi-lingual ATMs, 24
hour telephone banking (also multi-lingual) and corporate cash management
systems. As a result of these enhancements, equipment costs increased $74,000
in 1996.
Implementation of new data processing systems in mid-year 1995 contributed
to higher data processing costs in 1996. The data processing service contract
also included a six-month concession equal to approximately $21,000 which
benefited 1995. The item processing expenses also increased because the
outsourcing did not begin until April of 1995, in addition to processing for
two more branches this year.
In 1996, the Bank enhanced its marketing efforts to improve Summit's
visibility in the markets served. This also included the introduction of
several new products and services and marketing campaigns for branch expansion.
Marketing expenses increased to $271,000 in 1996 as compared to $157,000 in
1995.
- 17 -
<PAGE> 23
In mid-1995, the Federal Deposit Insurance Corporation ("FDIC") suspended
the Bank's requirement to pay deposit insurance premiums, with the exception of
a minimum $2,000 annual premium, since the Bank has a "well-capitalized"
position. Therefore, FDIC insurance premiums were $106,000 less than the
premiums paid in 1995. The FDIC reinstated the assessment of insurance
premiums in January 1997. Because the Bank's risk classification is the lowest
allowable, the Bank will not be required to pay an assessment for deposit
insurance in 1997. The Bank will be required to pay a premium for the new
"Financing Corporation (FICO) payment" which is a result of the Deposit
Insurance Act of 1996. This payment will result in approximately $16,000 of
FDIC expense in 1997. However, there can be no assurance that the rate
assessed will not change at some future date.
Non-interest expenses increased $593,000 in 1995 compared to 1994 due
primarily to expansion of personnel expenses and equipment and data/item
processing costs associated with the implementation of a new data processing
system. Net occupancy increased as a result of the completed construction of
the office building on Shallowford Road in Chamblee, Georgia at the end of
1994. The first floor of the building is leased by the Bank with the
additional two floors almost completely leased as of December 31, 1996.
Postage and courier expenses increased $35,000 due to increased overnight mail
volume in the international department and additional courier costs associated
with extended processing times. The suspension of the FDIC insurance
assessment in 1995 resulted in a decrease of $87,000 from 1994.
LOAN PORTFOLIO
Loans are expected to produce higher yields than investment securities and
other interest earning assets (assuming that credit losses are not excessive).
Thus the absolute volume of loans and the volume as a percentage of total
earning assets are important determinants of the net interest margin. The
Company experienced a strong increase in average loan volumes in 1996 of $10.4
million. Net loans outstanding increased to $84 million as compared to $76
million at year end 1995, an increase of 10%. Commercial loans secured by real
estate accounted for most of this increase, growing from $50 million to $56
million at the comparable year ends. Consumer loans increased $309,000 to $5.1
million at December 31, 1996. This loan growth is consistent with growth in
the prior year as net loans outstanding increased 6% from $72 million at year
end 1994 to $76 million at year end 1995. Commercial loans secured by real
estate accounted for $3 million of this increase. Consumer loans increased
$437,000 to $4.8 million during 1995.
At year end 1996 and 1995, the Company had loans held for sale of $3
million and $1.5 million, respectively. The Company maintains a posture of
originating loans with rates that fluctuate with the prime lending rate. At
December 31, 1996, 62% of the total loan portfolio had floating or adjustable
rates.
- 18 -
<PAGE> 24
The following table presents the composition of the Company's loan
portfolio at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
(Dollars in thousands) AMOUNT % OF LOANS Amount % of Loans
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $22,769 28% $22,615 30%
Real estate - construction 1,704 2 269 --
Real estate mortgage-primarily commercial 54,538 66 50,174 65
Installment loans to individuals 5,125 6 4,816 6
Less: unearned income (1,358) (2) (1,179) (1)
- -------------------------------------------------------------------------------------
Loans, net of unearned income 82,778 100% 76,695 100%
Loans held for sale - SBA 3,030 1,482
Less: allowance for loan losses (1,931) (1,686)
- -------------------------------------------------------------------------------------
Net loans $83,877 $76,491
=====================================================================================
</TABLE>
The following table presents a maturity analysis of the Company's loan
portfolio segregated between loans with predetermined interest rates and loans
with floating or adjustable rates at December 31, 1996.
<TABLE>
<CAPTION>
Loan Maturing
-------------------------------------
Within 1-5 After 5
(In thousands) 1 Year Years Years Total
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans with:
Predetermined interest rates $ 9,233 $21,587 $ 2,070 $32,890
Floating or adjustable rates 17,024 12,788 23,106 52,918
- -----------------------------------------------------------------------
Total loans $26,257 $34,375 $25,176 $85,808
=======================================================================
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with particular
emphasis on impaired, non-accruing, past due, and other loans that management
believes require special attention.
For significant problem loans, management's review consists of evaluation
of the financial strengths of the borrower, the related collateral, and the
effects of economic conditions. General unallocated reserves against the
remaining loan portfolio are based on an analysis of historical loan loss
ratios, loan charge-offs, delinquency trends, and previous collection
experience, along with an assessment of the effects of external economic
conditions. The Company also utilizes an independent loan review process in
assessing the overall adequacy of the allowance for loan losses.
The provision for loan losses is a charge to income in the current period
to replenish the allowance and maintain it at a level that management has
determined to be adequate. The Company's provision for loan losses for 1996
was $404,000 as compared to $397,000 in 1995, despite loan growth, reflecting
the Company's continued reduction in net charge-off experience and the
maintaining of strong asset quality during the year. While non performing
assets increased from $111,000 at year end 1995 to $922,000, at year end 1996,
the December 31, 1996 balance reflects one credit for $773,000 fully secured by
real estate and two fully guaranteed SBA loans totaling $149,000.
- 19 -
<PAGE> 25
Net loan charge-offs in 1996 dropped significantly for a third year of
improvement to .19% of average net loans outstanding from .43% in 1995. Most
of this improvement was a reduction in gross charge-offs of $584,000 from the
previous year, a decline of 65%, although recoveries also decreased $429,000
over 1995.
Net loan charge-offs for 1995 represented .43% of average loans
outstanding, or $314,000, compared to .80% of average loans, or $601,000, for
1994. Gross charge-offs for 1995 declined $235,000 in 1995 while recoveries
improved $52,000.
The allowance for loan losses represented 2.25% of total loans at December
31, 1996 compared to 2.16% at year end 1995. The determination of the
allowance for loan losses rests upon management's judgment about factors
affecting loan quality, assumptions about the economy, and other factors.
Management considers the year end allowance adequate to cover possible losses
in the loan portfolio; however, management's judgment is based upon a number of
assumptions about future events, which are believed to be reasonable, but which
may or may not prove valid. Thus, there can be no assurance that charge-offs
in future periods will not exceed the allowance for loan losses or that
additional increases in the allowance for loan losses will not be required. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
The following table represents an analysis of the Company's allowance for
loan losses including the provision for loan losses and net loan charge-offs
for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
(Dollars in thousands) 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses at beginning of year $1,686 $1,603
- ---------------------------------------------------------------------------------
Charge-offs:
Commercial, financial, and agricultural 271 364
Real estate 0 453
Installment loans to individuals 41 79
- ---------------------------------------------------------------------------------
Total 312 896
- ---------------------------------------------------------------------------------
Recoveries:
Commercial, financial, and agricultural 99 500
Real estate 16 6
Installment loans to individuals 38 76
- ---------------------------------------------------------------------------------
Total 153 582
- ---------------------------------------------------------------------------------
Net charge-offs 159 314
Provision for loan losses 404 397
- ---------------------------------------------------------------------------------
Allowance for loan losses at end of year $1,931 $1,686
=================================================================================
Allowance for loan losses to average loans outstanding 2.30% 2.29%
Allowance for loan losses to net charge offs 12X 5x
</TABLE>
- 20 -
<PAGE> 26
The amounts and percentages of such components of the allowance for loan
losses at December 31, 1996 and 1995, and the percentage of loans in each
category to total loans are presented in the table below.
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
ALLOWANCE % OF Allowance % of
(Dollars in thousands) $ (%) LOANS $ (%) Loans
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $1,382 71% 27% $1,051 62% 29%
Real estate 422 22% 67% 525 31% 65%
Installment loans to individuals 127 7% 6% 110 7% 6%
- --------------------------------------------------------------------------------------
Total $1,931 100% 100% $1,686 100% 100%
======================================================================================
</TABLE>
NON-PERFORMING ASSETS
As a result of management's ongoing review of the loan portfolio, loans
are classified as non-accrual when reasonable doubt exists as to the full or
timely collection of interest or principal or when a loan becomes contractually
past due by 90 days or more with respect to interest or principal. These loans
are classified as non-accrual, even though the presence of collateral or the
borrower's financial strength may be sufficient to provide for ultimate
repayment. Where appropriate, when a loan is placed on non-accrual status, all
interest previously accrued but not collected is reversed against current
period interest income. Interest on non-accrual loans is recognized only when
received. The amount of interest that would have been recorded during 1996 and
1995, had such loans classified as non-accrual been current in accordance with
their original terms, amounted to $29,900 and $8,200, respectively. During
1996 and 1995, no interest was recognized on non-accrual loans outstanding at
the end of each year.
Non-performing assets are defined as non-accrual and renegotiated loans
and other real estate acquired by foreclosure. The Company's non-performing
assets as a percentage of total loans and other real estate was 1.07% at
December 31, 1996 as compared to .14% in the prior year. The Bank had
non-accrual loans representing one fully secured real estate loan totaling
$773,000 and two fully guaranteed SBA loans totaling $149,000 at December 31,
1996 compared to only one loan totaling $111,000 at December 31, 1995.
Additionally, the Company had no restructured loans at year-end 1996 or 1995.
There were no loans past due 90 days or more as to principal or interest
payments at either December 31, 1996 or 1995.
- 21 -
<PAGE> 27
The following table presents an analysis of the Company's non-performing
assets as of December 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
--------------
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Loans on non-accrual $ 922 $111
Restructured loans -- --
- ----------------------------------------------------------------------
Total non-performing assets $ 922 $111
======================================================================
Loans 90 days past due and still accruing interest $ -- $ --
Total non-performing assets
as a percentage of total loans and other real estate 1.07% .14%
Loans 90 days past due and still accruing interest
as a percentage of total loans -- % -- %
</TABLE>
Impaired loans are defined as those loans which management believes it is
probable that the Company will be unable to collect all principal or interest
according to the contractual terms of the note agreement. At year-end 1996 and
1995, respectively, the Company had loans totaling $1,534,000 and $1,344,000
which were considered impaired. Included in the allowance for loan losses at
the end of 1996 and 1995, respectively, the Bank specifically allocated
$398,000 and $363,000 for these loans. Management is not aware of any loans
classified for regulatory purposes as loss, doubtful, substandard, or special
mention that have not been disclosed which 1) represent or result from trends
or uncertainties, which management reasonably expects will materially impact
future operating results, liquidity, or capital resources, or 2) represent
material credits about which management is aware of any information which
causes management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payment of debt, off-balance sheet
obligations and operating obligations. These funds can be obtained by
converting assets to cash or by attracting new deposits. The Bank also has
lines of credit available from other funding sources to provide additional
funds as needed. These sources include the Federal Home Loan Bank and other
correspondent financial institutions.
At December 31, 1996, the Bank's net loans to deposit ratio was 63%
compared to a ratio of 70% at December 31, 1995. Management monitors and
assesses the adequacy of the Company's liquidity position on a monthly basis to
ensure that sufficient sources of liquidity are maintained and available. This
decrease is primarily the result of temporary deposits made on December 31,
1996. Subsequently, the net loan to deposit ratio has increased to 65% as of
February 28, 1997.
Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to changes in market interest rates. The rate-sensitive
position, or gap, is the difference in the volume of rate-sensitive assets and
liabilities, at a given interval. The general objective of gap management is
to actively manage rate-sensitive assets and liabilities to reduce the impact
of interest rate fluctuations on the net interest margin. Management and the
Asset/Liability Committee generally attempt to maintain a balance between
rate-sensitive assets and liabilities as the exposure period is lengthened to
minimize the overall interest rate risk to the Company. The asset mix of the
balance sheet is continually evaluated in terms of several variables: yield,
credit quality, appropriate funding sources, and liquidity. Management of the
liability mix of the balance sheet focuses on expanding the various funding
sources.
- 22 -
<PAGE> 28
The Company's interest rate sensitivity position at December 31, 1996 is
presented in the table below.
<TABLE>
<CAPTION>
(Dollars in thousands) ASSETS AND LIABILITIES REPRICING WITHIN
- ---------------------------------------------------------------------------------------------------
3 MONTHS 4 TO 6 7 TO 12 1-5 OVER 5
OR LESS MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $60,882 $ 3,221 $ 4,971 $15,272 $ 1,462 $ 85,808
Investment securities 3,342 3,850 7,005 14,955 9,432 38,584
Interest-bearing deposits
in other banks 74 -- -- -- -- 74
Federal funds sold 15,900 -- -- -- -- 15,900
- ---------------------------------------------------------------------------------------------------
Total interest-earning assets 80,198 7,071 11,976 30,227 10,894 140,366
- ---------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 65,104 16,284 12,516 11,533 81 105,518
Other borrowed funds 1,657 -- -- -- -- 1,657
- ---------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 66,761 16,284 12,516 11,533 81 107,175
- ---------------------------------------------------------------------------------------------------
Interest sensitivity gap 13,437 (9,213) (540) 18,694 10,813 33,191
- ---------------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap 13,437 4,224 3,684 22,378 33,191 33,191
===================================================================================================
Cumulative sensitivity ratio
(Cumulative interest-earning assets/
cumulative interest-bearing liabilities.) 1.20 1.05 1.04 1.21 1.31 1.31
===================================================================================================
</TABLE>
The Company is asset sensitive through December 31, 1997. This suggests
that if interest rates should decrease over the twelve-month period, the net
interest margin should decrease. Conversely, if rates increase the net
interest margin would increase. Since all interest rates and yields do not
adjust at the same velocity, the gap is only a general indicator of rate
sensitivity. For purposes of the above repricing presentation, all demand and
savings deposits are considered repricable within the shortest time period, 3
months or less, while time deposits are presented based on their contractual
terms. It is the Company's policy to maintain its one year gap position in the
.8 to 1.2 range. The one year gap reflected by the interest rate sensitivity
table is 1.04, clearly indicating adherence to Company policy. Management
closely monitors the Company's position, and if rates should change in either
direction, will take steps to reposition itself to minimize the impact of a gap
exposure.
- 23 -
<PAGE> 29
INVESTMENT PORTFOLIO
The following table presents maturity distribution and yields of
investment securities available for sale.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- --------------------
YEAR-END
AMORTIZED FAIR WEIGHTED AVG. Amortized Fair
(Dollars in thousands) COST VALUE YIELD Cost Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY
One year or less $ 3,994 $ 3,998 5.92% $ 500 $ 506
Over one through five years -- -- -- 1,012 1,027
- -----------------------------------------------------------------------------------------
Total U.S. Treasury 3,994 3,998 5.92% 1,512 1,533
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES
One year or less 500 509 7.46% 250 254
Over one through five years 5,391 5,426 6.70% 3,837 3,923
Over five years 497 489 6.54% -- --
- -----------------------------------------------------------------------------------------
Total U.S. Government Agencies 6,388 6,424 6.75% 4,087 4,177
- -----------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
One year or less 393 393 6.62% -- --
Over one through five years 2,506 2,516 7.10% 2,656 2,690
Over five through ten years 3,110 3,143 7.49% 2,321 2,352
Over ten years 21,367 21,426 6.81% 20,992 21,356
- -----------------------------------------------------------------------------------------
Total mortgage-backed securities 27,376 27,478 7.01% 25,969 26,398
- -----------------------------------------------------------------------------------------
OTHER INVESTMENTS
Over ten years 3 3 -- 2 2
- -----------------------------------------------------------------------------------------
Total other investments 3 3 -- 2 2
- -----------------------------------------------------------------------------------------
Total investment securities
available for sale $37,761 $37,903 6.85% $31,570 $32,110
=========================================================================================
</TABLE>
There were no investment securities classified as held to maturity at
December 31, 1996 or December 31, 1995.
DEPOSITS
The following table presents the average amount outstanding and the
average rate paid on deposits by the Company for the years ended December 31,
1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
AVERAGE AVERAGE Average Average
(Dollars in thousands) AMOUNT RATE Amount Rate
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 23,628 --% $ 20,109 --%
Interest-bearing deposits:
NOW Accounts 8,301 2.04% 7,595 2.25%
Money market 23,466 3.94% 20,806 4.28%
Savings deposits 7,673 3.75% 8,459 3.29%
Other time deposits 54,408 5.64% 45,002 6.02%
- -----------------------------------------------------------------
Total $117,476 3.84% $101,971 3.98%
=================================================================
</TABLE>
- 24 -
<PAGE> 30
The following table presents the maturity of the Company's time deposits at
December 31, 1996.
<TABLE>
<CAPTION>
Other Time Other Time
Deposits Deposits
$100,000 Less Than
(Dollars in thousands) and Greater $100,000 Total
- ----------------------------------------------------------
<S> <C> <C> <C>
Months to Maturity:
3 or less $ 9,764 $ 9,565 $19,329
Over 3 through 6 8,420 7,864 16,284
Over 6 through 12 3,427 9,089 12,516
Over 12 1,498 10,116 11,614
- ---------------------------------------------------------
Total $ 23,109 $ 36,634 $59,743
=========================================================
</TABLE>
CAPITAL ADEQUACY
There are various primary measures of capital adequacy for banks and bank
holding companies such as risk-based capital guidelines and the leverage
capital ratio. See "SUPERVISION AND REGULATION - Capital Regulations."
As of December 31, 1996, the Bank exceeded its required levels of capital.
The Bank's risk-based capital ratio of Tier 1 capital to risk-weighted assets
was 14.2%; its risk-based ratio of total capital to risk-weighted assets was
15.6%; and its leverage ratio was 10.2%.
INFLATION
Inflation has an important impact on the growth of total assets in the
banking industry and causes a need to increase equity capital at higher than
normal rates in order to maintain an appropriate equity to assets ratio. The
Company has been able to maintain an adequate level of equity, as previously
mentioned, and, though inflation has not been a material factor during the last
two years, management will address any future effects of inflation by managing
its interest rate sensitivity gap position through its asset/liability
management program, and by periodically adjusting its pricing of services and
banking products to take into consideration current costs.
LINE OF BUSINESS INFORMATION
During the past five years, the consolidated income of the Company and its
subsidiaries has been provided primarily through banking activities.
- 25 -
<PAGE> 31
MARKET INFORMATION AND DIVIDENDS
On October 18, 1996, the Company's Shares became listed on the Nasdaq
National Market under the symbol "SBGA". All transactions involving the sale
and purchase of shares of the Common Stock known to the Company since October
18, 1996 have been facilitated through three market makers: The
Robinson-Humphrey Company, Inc., J.C. Bradford and Company and Stearne, Agee
and Leach. Prior to the Company's listing on the Nasdaq National Market in
October 1996, Company Common Stock was not actively traded.
The following table sets forth the high and low sale prices per share of
Company Common Stock on the Nasdaq National Market, and the dividends paid per
share of Company Common Stock, with respect to each period subsequent to the
listing of Company Common Stock on the Nasdaq National Market on October 18,
1996. Prior to October 18, 1996, there was no established trading market for
the Company Common Stock and no reliable information is available as to trades
of such shares or the prices at which such shares were traded prior to October
18, 1996. Based upon the limited information available to it, the Company is
aware of transactions which have resulted in shares being traded between
January 1, 1995 and October 18, 1996, at prices ranging from a low of
approximately $8.25 per share to a high of approximately $15.50 per share. The
Company paid cash dividends of $.28 and $.31 in 1995 and 1996, respectively.
As of April 25, 1997, the quoted purchase price for the Company's shares
was $18.00 per share. There were 371 holders of record of the Company's Common
Stock at April 25, 1997.
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW DECLARED
---------------------------
<S> <C> <C> <C> <C>
1996
Fourth Quarter (beginning October 18, 1996)...... 17 1/2 14 1/2 .08
1997
First Quarter.................................... 20 5/8 16 1/2 .08
Second Quarter (through April 25, 1997)......... 20 5/8 18 --
</TABLE>
- 26 -
<PAGE> 32
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, the number of shares
of common stock of the Company beneficially owned by each person known to the
Company to own more than five percent of the outstanding shares of common
stock, by each director of the Company, and by all of the directors and
executive officers of the Company as a group. Except where otherwise
indicated, each individual has sole voting and investment power over the common
stock listed by his or her name.
<TABLE>
<CAPTION>
Number of Shares Percent of Class
Beneficial Owner Beneficially Owned Beneficially Owned(1)
- ---------------- ----------------------- ---------------------
<S> <C> <C> <C>
P. Carl Unger 30,123 (2) 1.87%
Jack N. Halpern 35,000 (3) 2.17%
David Yu 47,719 (4) 2.96%
James S. Lai 20,000 (5) 1.24%
Pin Pin Chau 13,500 (6) .84%
Aaron I. Alembik 25,980 (7) 1.61%
Gerald L. Allison 6,602 (8) .41%
Bruno C. Bucari 2,800 (9) .17%
Peter M. Cohen 16,543 (10) 1.03%
Paul C.Y. Chu 131,188 (11) 8.14%
H.A. Dudley, Jr. 5,000 (12) .31%
Donald R. Harkleroad 31,400 (13) 1.95%
Daniel T. Huang 130,100 (14) 8.07%
Shafik H. Ladha 20,000 (15) 1.24%
Sion Nyen (Francis) Lai 40,000 (16) 2.48%
Roger C.C. Lin 30,000 (17) 1.86%
Shih Chien (Raymond) Lo 2,708 (18) .17%
Gary K. McClung 3,000 (19) .19%
Nack Y. Paek 20,100 (20) 1.25%
Carl L. Patrick, Jr. 38,990 (21) 2.42%
Cecil M. Phillips 4,390 (22) .27%
W. Clayton Sparrow, Jr. 12,637 (23) .78%
Howard H.L. Tai 20,000 (24) 1.24%
All directors and executive
officers as a group (24 people) 687,780 (25) 42.67%
</TABLE>
- ---------------------
(1) Based on 1,407,688 shares outstanding as of March 31, 1997, and in the
case of beneficial owners who hold options and/or warrants for shares
exercisable within 60 days, includes as outstanding the number of shares
subject to such options and/or warrants.
(2) Includes 13,595 shares subject to warrants received for service as an
organizer of the Company.
(3) Includes 10,000 shares held by Halpern Enterprises of which Mr. Halpern
is President and 17,500 shares subject to warrants received for service as
an organizer of the Company.
(4) Includes 36,719 shares held by Mr. Yu and his wife, and 11,000 shares
subject to options received under the Company's Key Employee Stock Option
Plan.
(5) Includes 10,000 shares subject to warrants received for service as an
organizer of the Company.
(6) Includes 10,000 shares subject to options received under the Company's
Key Employee Stock Option Plan.
- 27 -
<PAGE> 33
(7) Includes 13,040 shares held by Mr. Alembik and his wife and 12,940 shares
subject to warrants received for service as an organizer of the Company.
(8) Includes 1,951 shares subject to warrants received for service as an
organizer of the Company.
(9) Includes 1,300 shares subject to warrants received for service as an
organizer of the Company.
(10) Includes 340 shares held by Mr. Cohen and his wife and 3,630 shares
subject to warrants received for service as an organizer of the Company.
(11) Includes 95,000 shares held by May Foong Corporation of which Mr. Chu is
President and 4,000 shares subject to warrants received for service as an
organizer of the Company.
(12) Represents 5,000 shares subject to options received under The Company's
Key Employee Stock Option Plan.
(13) Includes 15,000 shares held by Bristol Summit Company and 1,200 shares
held by The Bristol Company, both of which Mr. Harkleroad is President and
15,100 shares subject to warrants received for service as an organizer of
the Company.
(14) Includes 130,100 shares held by Mr. Huang, his wife and various family
members.
(15) Includes 10,000 shares held by Ladha Holdings Inc. of which Mr. Ladha is
President and 10,000 shares subject to warrants received for service as an
organizer of the Company.
(16) Includes 20,000 shares held by U.S. Pacific Investment Group of which Mr.
Lai is President and 20,000 shares subject to warrants received for
service as an organizer of the Company.
(17) Includes 15,000 shares held by a partnership of which Mr. Lin is a
partner and 15,000 shares subject to warrants received for service as an
organizer of the Company.
(18) Includes 208 shares subject to warrants received for service as an
organizer of the Company.
(19) Represents 1,000 shares subject to warrants received from the purchase of
an organizer's shares of the Company and 2,000 shares subject to options
received under the Company's Key Employee Stock Option Plan.
(20) Includes 9,000 shares subject to warrants received for service as an
organizer of the Company and 1,000 shares subject to warrants received
from the purchase of an organizer's shares of the Company.
(21) Includes 19,495 shares subject to warrants received for service as an
organizer of the Company.
(22) Represents 4,390 shares subject to warrants received for service as an
organizer of the Company.
(23) Includes 6,503 shares held by Mr. Sparrow and his wife and 6,134 shares
subject to warrants received for service as an organizer of the Company.
(24) Includes 10,000 shares held by Mr. Tai and his wife and 10,000 shares
subject to warrants received for service as an organizer of the Company.
(25) Includes 174,243 shares subject to warrants for services as organizers of
the Company, 2,000 shares subject to warrants received from the purchase
of organizers' shares of the Company and 28,000 shares subject to stock
options received under the Company's Key Employee Stock Option Plan
exercisable within 60 days.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors of the Company is elected by its shareholders. The
officers of the Company are selected by the Company's Board of Directors. The
Company's Articles of Incorporation provide that the Board of Directors of the
Company shall be divided into three classes, with each class to be as nearly
equal in number as possible. The Articles of Incorporation also provide that
the three classes of directors are to have staggered terms, so that the terms
of only one class will expire at each annual meeting of the shareholders. The
Class I directors, who were elected to three year terms at the 1996 annual
meeting are Messrs. Alembik, Halpern, Francis Lai, Lo, Sparrow, Bucari, and Ms.
Chau. The Class II directors, who were elected to three year terms at the 1994
annual meeting, are Messrs. Cohen, Harkleroad, Huang, Ladha, Chu, Phillips,
Tai and Unger. The Class III directors, who were elected to three year terms
at the 1995 annual meeting, are Messrs. Allison, James Lai, Lin, Paek, Patrick
and Yu.
- 28 -
<PAGE> 34
The Board of Directors of the Bank is elected by the Company as sole
shareholder of the Bank. The officers of the Bank are selected by the Bank's
Board of Directors. No family relationships exist among the Directors and
executive officers of the Company or the Directors and executive officers of
the Bank.
The following table sets forth the directors and executive officers of the
Company and the Bank, and the position each holds with the Bank:
<TABLE>
<CAPTION>
Position Position
Name Age with the Company with the Bank
- ---- --- --------------------------- -------------
<S> <C> <C> <C>
P. Carl Unger (1) 69 Chairman of the Director
Board of Directors
Jack N. Halpern (2) 48 Vice Chairman of --
the Board of Directors
David Yu (3) 46 Director, President Chairman of the
and Chief Executive Officer Board of Directors
James S. Lai (4) 59 Director Vice Chairman of
the Board of
Directors
Pin Pin Chau (5) 57 Director, Executive Vice Director, President
President and Chief Executive
Officer
H.A. Dudley, Jr. (6) 48 Executive Vice President Executive Vice
President, Senior
Lending Officer
Gary K. McClung (7) 41 Executive Vice President, Executive Vice
Chief Financial Officer President, Chief
and Secretary Financial Officer
and Secretary
Aaron I. Alembik (8) 66 Director Director
Gerald L. Allison (9) 59 Director Director
Bruno C. Bucari (10) 56 Director Director
Paul C. Y. Chu (11) 46 Director --
Peter M. Cohen (12) 49 Director --
Donald R. Harkleroad (13) 53 Director --
Daniel T. Huang (14) 47 Director --
</TABLE>
- 29 -
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
Shafik H. Ladha (15) 50 Director --
Sion Nyen (Francis) Lai (16) 42 Director Director
Roger C.C. Lin (17) 49 Director --
Shih Chien (Raymond) Lo (18) 52 Director --
Nack Y. Paek (19) 55 Director Director
Carl L. Patrick, Jr. (20) 50 Director --
Cecil M. Phillips (21) 50 Director --
W. Clayton Sparrow, Jr. (22) 50 Director --
Howard H.L. Tai (23) 65 Director --
</TABLE>
(1) Dr. P. Carl Unger, has been Chairman of the Company since April 1996 and
was Vice Chairman of the Bank from May 1992 through April 1995. He has
been a director of the Company since its inception in July 1987, has been
self-employed since 1985 as a consultant specializing in the field of
human resources with clients in Europe, Australia, Canada and the United
States. From 1978 to 1985, he was employed by the Campbell Soup Company.
Dr. Unger was educated at Chestnut College Cambridge, Liverpool University
and Columbia Pacific University. He is a member of the Royal Society of
Health, the Institute of Marketing, the British Marketing Association, the
American Marketing Association, and is an Incorporated Business Counsellor
(UK).
(2) Jack N. Halpern, Vice Chairman of the Company since April 1996, has been
a director of the Company since its inception in July 1987. Mr. Halpern
is the President of Halpern Enterprises, Inc., an Atlanta-based owner,
operator and manager of various commercial real estate ventures. His
companies currently control in excess of three million square feet of
retail and office space in the Atlanta area. In his capacity as a
principal of Halpern Enterprises, Inc., Mr. Halpern has assisted numerous
Korean and Chinese immigrants in the establishment of retail businesses in
the Atlanta area. Mr. Halpern holds degrees from Harvard University and
the University of Georgia Law School. He is active in various civic
organizations, including serving as Campaign Chairman of the Atlanta
Jewish Federation and as a Trustee of the Epstein School.
(3) David Yu is the founder and organizer of the Summit Bank Corporation and
The Summit National Bank. He served as President and CEO of the company
until December 1989, at which time he was elected Chairman of the Board of
Directors of the Bank.
Before organizing Summit Bank Corporation and The Summit National Bank, Mr.
Yu worked for The Citizens and Southern National Bank (C&S) and First
National Bank of Atlanta. From 1976 to 1980, Mr. Yu was employed as an
Assistant National Bank Examiner by the Office of the Comptroller of the
Currency in Atlanta.
Mr. Yu is founder and Chairman of the Board of the Chinese Community Center
and member of the Chinese American Lions Club of Atlanta. Mr. Yu serves on
the Board of the Atlanta Chamber of Commerce, Zoo Atlanta, Arts and
Business Council, Latin American Association, and Leadership Atlanta. Mr.
Yu also serves on the Georgia Human Relations Commission and Atlanta Sister
Cities Commission.
Mr. Yu received his MBA degree in International Business from Georgia State
University and his BS degree in Business Administration from Virginia
Commonwealth University.
- 30 -
<PAGE> 36
(4) James S. Lai a director of the Company since its inception in July 1987,
is a Professor of Civil Engineering at the Georgia Institute of
Technology. He taught at the University of Utah from 1967 to 1975, and
has been at the Georgia Institute of Technology since 1975. Dr. Lai is
the sole owner of Pavtec Engineering Technology, Inc. which specializes in
engineering consulting. Since 1979, Dr. Lai has served as the managing
partner of several real estate investments which currently include the
ownership and management of Atlanta Chinatown Square. Dr. Lai was elected
President of the Association of Chinese Scholars in the Southeastern
United States in 1985. Dr. Lai received his Ph.D. from Brown University
in 1967.
(5) Pin Pin Chau has served as President and Chief Executive Officer of the
Bank and Executive Vice President of the Company since February 1993.
Prior to joining the Bank, Mrs. Chau was President, Chief Executive
Officer and Director of the United Orient Bank, a Manhattan based bank
serving New York's Chinese Community. Her previous experience at United
Orient Bank included Executive Vice President and Chief Operating Officer
from July 1988 to April 1989, and Executive Vice President and Chief
Lending Officer from November 1987 to July 1988.
Mrs. Chau began her banking career in 1970 at National Westminster Bank USA
where she remained until 1987. Her experience included, at various times,
commercial lending for small and middle market clients, metropolitan New
York branch management, management of international lending and marketing
for Asia, and international trade finance for Fortune 500 companies in West
and Northwest United States.
Mrs. Chau serves on the Board of Directors for various community and
educational organizations including the DeKalb Chamber of Commerce, the
Atlanta College of Art, the Georgia Council on Economic Education, Consumer
Credit Counseling Service, Georgia Korean American Community Center
Foundation and Georgia Chinese American Association. She is a member of
the Board of Deacons of the Atlanta Chinese Christian Church.
A naturalized U.S. citizen, Mrs. Chau is a native of Hong Kong and holds a
B.A. degree from Coe College, Cedar Rapids, Iowa and an M.A. degree from
Yale University, New Haven, Connecticut.
(6) H.A. Dudley, Jr. has served as Executive Vice President and Senior
Lending Officer of the Bank since January 1991 and was elected Executive
Vice President of the Company in April 1995. Prior to joining the Bank,
Mr. Dudley was a Vice President of the Wachovia Bank and Trust where he
served from 1983 to 1991 as a District Manager in the Atlanta Retail Bank.
From 1977 to 1983, Mr. Dudley was a Vice President and Branch Coordinator
of the Trust Company Bank of Columbus, Columbus, Georgia. From 1973 to
1977, Mr. Dudley served at various times as Assistant to the President and
Management Auditor with First Southern Savings and Loan Association,
Mobile Alabama. Mr. Dudley began his banking career in 1971 with Citizens
and Southern Bank of Atlanta. Active in various community
organizations, Mr. Dudley previously has served on the Board of Directors
of the Sandy Springs Chamber of Commerce and the Rotary Club of Dunwoody.
Mr. Dudley received his B.S. in Business Administration from Auburn
University in 1971.
(7) Gary K. McClung has served as Executive Vice President, Chief Financial
Officer and Secretary of the Company, and Executive Vice President, Chief
Financial Officer of the Bank since April 1992. Prior to joining the
Company, Mr. McClung served as the Senior Vice President/Chief Financial
Officer of Fidelity National Bank and Fidelity Southern Corporation, its
parent holding company, in Decatur, Georgia from 1986 to 1992. Mr.
McClung also served as the Controller/Corporate Secretary of Fidelity
National Bank from 1983 to 1986.
From 1978 to 1983, Mr. McClung served as Assistant Cashier of the Bank of
Sissonville in Sissonville, West Virginia. Mr. McClung began his banking
career in 1972 with One Valley Bank in Charleston, West
- 31 -
<PAGE> 37
Virginia. Mr. McClung received his Bachelors Degree in Business
Administration/Accounting from West Virginia State College.
(8) Aaron I. Alembik, a director of the Company since its inception in July
1987, is a partner in the Atlanta law firm of Alembik and Alembik. Since
1958 he has been actively engaged in the practice of real estate, business
and corporate law.
In addition to his legal practice, Mr. Alembik is involved in the
ownership, management and operation of numerous real estate ventures. Mr.
Alembik, who was born in France, is a naturalized U.S. citizen, and has
been a resident of Atlanta since 1957. Mr. Alembik is a graduate of the
School of Foreign Service, Georgetown University and the National Law
Center of George Washington University. Mr. Alembik is a member of the
Atlanta, Georgia, Virginia and American Bar Associations, the Atlanta
Lawyers Club, and the Southern Center for International Studies.
(9) Gerald L. Allison, became a director of the Company in April 1989, and
served as elected Vice Chairman of the Board of Directors of the Company
from February 1990 to May 1992. Mr. Allison is the CEO and Chairman of
AJC International, Inc., a major Atlanta-based export and import trading
company for food and agricultural products. Mr. Allison obtained his B.A.
in Economics from Northern Illinois University and has been a resident of
Atlanta since 1967.
(10) Bruno C. Bucari, a director of the Company since February 1994, and the
Bank since January 1990, served as Executive Vice President of the Company
and the President of the Merchant Bank until January 31, 1991. Mr. Bucari
resigned as an officer of the Company with the deactivation of the
Merchant Bank and is currently a private investor. Mr. Bucari was a
general manager of International Mercantile Bank in Luxembourg from 1984
(when he was hired to establish and operate the bank) until the bank was
sold in December 1986.
Mr. Bucari was a Vice President of Mercantile Bank in St. Louis, Missouri
from 1974 until 1984, with responsibility for trade finance in Europe, the
Middle East and Africa. Mr. Bucari was a mathematics instructor in the St.
Louis public schools from 1967 until 1974, and served in the United States
Peace Corps in Nigeria from 1965 to 1967. He holds a degree in Physics
from the University of Illinois and an M.B.A. from the University of
Missouri.
(11) Paul C.Y. Chu, a director of the Company since May 1993, is the Chairman
of the Novax Group of computer software development companies. Novax was
organized to provide financial management software such as accounting and
point of sale for specific vertical market applicators.
Trained as an attorney at law and certified public accountant, Mr. Chu
spent three years from 1976 to 1979 with Ernst & Young as an auditor and
tax consultant. From 1980 to 1983, he worked for Amerex Trading Co. as
President in charge of its Taiwan operation. From 1983 to 1987 he served
as chief of investments for the Ministry of Economic Affairs of Taiwan
responsible for attracting foreign investments.
Mr. Chu received his Juris Doctor degree from Pace University Law School
and his MBA in finance from Columbia University Business School. He
graduated from Soochaw University in Taiwan with a B.A. in Economics.
(12) Peter M. Cohen has been a director of the Company since its inception in
July 1987, and served as Vice Chairman of the Board of Directors and
Secretary of the Company from December 1987 until February 1990. Since
1984, Mr. Cohen has been President of Trident Corporate Services Inc., a
member of the International Trident Trust Group, which provides
international corporate, trust & mutual fund administration services to
foreign and U.S. clients. He is also the President of Trident Trust
Company (V.I.) Limited, located in St.
- 32 -
<PAGE> 38
Thomas, U.S. Virgin Islands, which provides trust and management services
to U.S. exporters including various Fortune 500 companies.
Mr. Cohen has practiced as an attorney both abroad and in the U.S. He was
associated with the Atlanta-based office of the Wildman, Harrold, Allen,
Dixon & Branch law firm from 1980 until 1984 and is a member of the
Atlanta, Georgia, American and International Bar Associations. Mr. Cohen
also has been a member of the adjunct faculty of Emory Law School in the
areas of international law and international tax. Mr. Cohen, who is a
naturalized citizen, holds degrees from Rhodes University, the University
of Stellenbosch Law School and University College, University of London.
(13) Donald R. Harkleroad, a director of the Company since its inception in
July 1987, is the senior partner of Harkleroad & Hermance, P.C., a law
firm specializing in taxation, corporate acquisitions and financing,
financial institutions, investment law, and international practice. Mr.
Harkleroad is also president of The Bristol Company, a diversified
investment and management holding company. Mr. Harkleroad is a graduate
of the University of Georgia, and of New York University School of Law,
where he was Editor-in-Chief of the Journal of International Law &
Politics and is a Weinfeld Associate. Mr. Harkleroad is past Chairman of
the International Law Section and of the Corporation and Banking Law
Section of the State Bar of Georgia, as well as Chairman of the Taxation
Committee of the American Bar Association's Business Law Section. He is
Chairman of the Policy Council of the Society of International Business
Fellows, and is a member of the World Economic Forum.
(14) Daniel T. Huang, a director of the company since April 1994, is President
of Polyarn Corporation of Norcross, Georgia. Polyarn manufactures nylon
monofilament replacement line for distribution to Central and South
America and Europe in addition to the United States. Prior to
establishing the United States operations of Polyarn in 1992, Mr. Huang
served as General Manager for Polyarn in Taiwan.
Prior to 1992, Mr. Huang served as manager of export and import operation
for M/S San Yuan Industries, Ltd., of Taiwan. Prior to 1976, Mr. Huang
managed the Research and Development Division of M/S Formosa Fishing Tackle
Co.
(15) Shafik H. Ladha, has been a director of the Company since February 1988
and served as Vice Chairman of the Company from April 1994 to April 1996.
Mr. Ladha has been the President/CEO of Ladha Holdings, Inc. and its
wholly owned subsidiaries, a closely held business engaged in the import,
export and distribution of domestic and foreign products, in the ownership
and operation of hotels, and the purchase and sale of real estate. Mr.
Ladha has been President/CEO of International Realty Properties (IRP), a
closely held corporation engaged primarily in the business of owning and
operating hotels, since 1979. The assets and liabilities of International
Realty Properties, Inc. were acquired by Ladha Holdings, Inc. as of April
2, 1989. Mr. Ladha is a nationalized American citizen and is past
chairman (1987-1990) of the Aga Khan Foundation, USA National Committee,
and past member of the Board of Governors of the International Club of
Atlanta, 1994 and 1995.
(16) Sion Nyen (Francis) Lai, a director of the Company since December 1987,
has been President and principal shareholder of Fulton Beverage Center,
Inc. since 1984. Prior to 1984, Mr. Lai worked with Hock Hua Bank Berhad
in Sabah, Malaysia. Mr. Lai earned an Associates Degree from New York
State University, and B.A. in Economics, and M.B.A. degrees from Mercer
University in Atlanta.
(17) Roger C.C. Lin, a director of the Company since its inception in July
1987, has been the President of Oriental Treasure Imports, Inc., an
importer and distributor of merchandise to the U.S. since 1983. From 1978
to 1982, he was President of Li Kun Enterprises Company, Ltd., an
import-export concern. Mr. Lin is a founder and the Charter President of
the Chinese-American Lions Club of Atlanta, and a founder and vice
president of the Taiwan Chamber of Commerce in Atlanta. In addition, Mr.
Lin is a honorary member of the Board of
- 33 -
<PAGE> 39
Directors of the National Chinese-American Jewelry Association, Chairman of
the Board of Directors of the Chinese Buddhist Association in Atlanta, and
is a majority shareholder and sole general partner of Asian Square Shopping
Center in Atlanta. Mr. Lin received his degree from Tang-Kang University
in Taiwan.
(18) Shih Chien (Raymond) Lo, a director of the Company since December 1987,
is the President of Lo Brothers Associates, an exporter of lumber and
importer of woodworking machinery. Prior to that, Mr. Lo was employed by
Roberts and Company, architects, and by Portman and Associates. Mr. Lo
earned a Masters Degree in Architecture from the Georgia Institute of
Technology.
(19) Nack Y. Paek, a director of the Company since its inception in July 1987,
served as Chairman of the Board from May 1992 to April 1994. He is
President of Government Loan Service Corp., Inc. which specializes in
originating and servicing SBA loans. Mr. Paek obtained a B.S. degree from
Seoul National University and an M.B.A. from Northern Illinois University.
His business experience includes management positions with Korea
Explosive Manufacturing Co., Seoul, and Continental Insurance Co.,
Atlanta, where he was Director of Regional Auditing. From 1980 to 1990,
Mr. Paek was sole owner of the local accounting firm of Nack Y. Paek, P.C.
with its clientele being predominantly members of the Korean, Chinese and
Japanese immigrant communities. Mr. Paek is a member of the American
Institute of Certified Public Accountants and the Georgia Society of
Certified Public Accountants.
(20) Carl L. Patrick, Jr., has been a director since the inception of the
Company in July 1987 and served as Chairman of the Board of Directors of
the Company from February 1990 to May 1992. Mr. Patrick is a lawyer and a
certified public accountant (CPA) with degrees from Duke University,
Georgia State University and the University of Georgia School of Law. As
a CPA with Arthur Andersen & Co. and with Arthur Young & Co. for an
aggregate of approximately ten years, Mr. Patrick had extensive exposure
to the accounting and tax aspects of real estate, banking, insurance, and
manufacturing. Mr. Patrick is a member of the American and Georgia Bar
Associations, and the American Institute of Certified Public Accountants.
He is a director and principal shareholder of Carmike Cinemas, Inc., a
publicly-owned company whose shares are traded on the NYSE, and
co-Chairman of PGL Entertainment Corporation, a local motion picture
production company in Atlanta.
(21) Cecil M. Phillips, has been a director of the Company since its inception
in July 1987, and was Chairman of the Board of Directors of the Company
from July 1987 until December 1989. Mr. Phillips is the principal of
Phillips International L.P., a merchant banking and investment firm
established in 1983 which focuses on off-shore financings, reverse
investments and exporting and importing. Mr. Phillips received his B.A.
from the University of Missouri and J.D. degree from the University of
Michigan.
Mr. Phillips began practicing law in 1971 with the Atlanta law firm of
Alston & Bird. From 1979 to 1983 he was also the Executive Assistant to
Governor George Busbee. Mr. Phillips previously served as Vice President
and General Counsel of Rock Tenn Company. Mr. Phillips is a member and
past Chairman of the Board of the International Business Council, and a
past member of the Board of Directors of Fortune Financial Group, Inc. He
currently is a Director of U.K. Capital, Inc. and Regina, PLC.
(22) W. Clayton Sparrow, Jr., Chairman of the Board from April 1994 through
April 1996, has been a director of the Company since its inception in
July 1987 and is a partner in the Atlanta law firm of Glass, McCullough,
Sherrill & Harrold. Mr. Sparrow's corporate and business law practice
includes the general counsel representation of domestic and multinational
sales and manufacturing businesses. His professional activities include
membership in the American and International Bar Associations, the State
Bar of Georgia, and past Chairman of the International Transactions
Section and Director of the Atlanta Bar Association. Mr. Sparrow is a
graduate of the Georgia Institute of Technology (BS Physics), Georgia
State University (MBA Finance) and the University of Georgia Law School.
He is a Director and past President of the Georgia State University Alumni
Association, and has held Director and officer positions with the DeKalb
Chamber of Commerce, the
- 34 -
<PAGE> 40
Japan-American Society, the Korea U.S. Chamber of Commerce and the Georgia
Tech Alumni Association. He retired from the Naval Reserve in the rank of
Captain.
(23) Howard H. L. Tai, a director of the Company since its inception in July
1987, served as Executive Vice President of the Company from October 1987
until September 1988. Mr. Tai has been an Atlanta-based real estate
investor since 1981. Mr. Tai is a graduate of the College of Law of the
National University of Taiwan and holds a master of law degree from Waseda
University of Tokyo, Japan. Prior business experience includes serving as
Executive Vice President of Shin-kong Synthetic Fibers Corporation located
in Taiwan, the Republic of China.
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company during
the years ended December 31, 1996, 1995, and 1994, to the Company's Chief
Executive Officer and each of the other executive officers of the Company who
earned more than $100,000 in compensation during the year ended December 31,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- -----------
OTHER SECURITIES
NAME AND PRINCIPAL COMPANY ANNUAL UNDERLYING ALL OTHER
OR SUBSIDIARY POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- ------------------------------- ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DAVID YU....................... 1996 $107,200 $36,872 -- -- --
President and Chief Executive 1995 103,100 41,544 -- -- --
Officer of the Company 1994 96,667 39,049 -- -- --
PIN PIN CHAU................... 1996 131,250 73,744 $ 9,711(1) -- $4,400(3)
Executive Vice President of the 1995 130,729 83,088 9,611(1) -- 4,400(3)
Company; President and Chief 1994 125,000 78,098 14,384(2) $10,000 4,400(3)
Executive Officer of the Bank
GARY K. MCCLUNG................ 1996 88,000 36,872 -- -- --
Executive Vice President and 1995 83,900 41,544 -- -- --
Chief Financial Officer 1994 78,575 39,049 -- 2,000 --
of the Company and the Bank
H.A. DUDLEY, JR................ 1996 85,000 36,872 -- -- --
Executive Vice President 1995 81,400 41,544 -- -- --
of the Bank 1994 77,300 39,049 -- 2,000 --
=======================================================================================================
</TABLE>
(1) Non-cash compensation representing personal use of a vehicle provided by
the Company.
(2) Includes $5,000 of payments by the Company for relocation expenses of Ms.
Chau and $9,384 of non-cash compensation representing personal use of a
vehicle provided by the Company.
(3) Consists of deferred compensation paid by the Company.
STOCK OPTION GRANTS
There were no stock options or stock appreciation rights granted to any
executive officers listed in the Summary Compensation Table during the fiscal
year ended December 31, 1996.
- 35 -
<PAGE> 41
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the executive
officers listed in the Summary Compensation Table concerning unexercised
options held as of the end of 1996. There were no options exercised during the
year ended December 31, 1996.
1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT 1996 YEAR END OPTIONS AT 1996 YEAR END(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
David Yu 11,000/0 $79,750/0
Pin Pin Chau 10,000/0 $72,500/0
Gary K. McClung 2,000/0 $14,500/0
H.A. Dudley, Jr. 5,000/0 $36,250/0
</TABLE>
- --------------------
(1) Based on the quoted market value per share of the Company's common stock
on December 31, 1996 of $17.25 per share.
SEVERANCE AGREEMENTS
In August 1995, the Board of Directors entered into severance agreements
with each of the four (4) executive officers of the Bank. The agreements
basically provide that in the event of involuntary termination or a change in
the executive's position or compensation resulting from a change in the control
of the Company due to a merger, consolidation or reorganization, each executive
would be entitled to receive an amount equal to 100% of the executive's base
salary. The agreements also provide for the awarding of certain ungranted
long-term stock option incentives to the executives in the event of an
involuntary termination. At December 31, 1996, there were 16,000 ungranted
long-term stock options available to executives, 6,400 of which would be
available to Bank President/CEO Chau and 3,200 of which would be available to
each of the remaining three executives. These agreements have continuing three
(3) year terms.
DIRECTOR COMPENSATION
During 1996, the Company paid directors of the Company a fee of $300 per
meeting for their services as directors. Total fees of $21,300 were paid to
Company directors under this arrangement. The Bank pays each director who is
not an employee of the Bank a fee of $300 for each meeting of the Board of
Directors of the Bank and $50 for each board committee meeting attended.
Pursuant to this arrangement, the Bank paid $31,700 in directors' fees in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation committee consists of James S. Lai, Aaron I.
Alembik, and Sion Nyen (Francis) Lai. No member of the compensation committee
is an employee of the Company or the Bank.
- 36 -
<PAGE> 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain officers and directors of the Company have deposit accounts with
the Bank and may have other transactions with the Company or the Bank,
including loans in the ordinary course of business. All loans or other
extensions of credit made by the Bank or the Company to officers, directors and
principal shareholders of the Company and to affiliates of such persons have
been made in the ordinary course of business on terms, including interest rates
and collateral, deemed by the Bank or the Company to be substantially the same
as those prevailing at the time of comparable transactions with independent
third parties and do not involve more than the normal risk of collectibility or
present other unfavorable features.
During the last fiscal year, the Company retained the following law firms
(as well as others) to provide certain legal services to the Company, and may
employ each of the firms during the current fiscal year: Alembik and Alembik,
of which Mr. Alembik, a director of the Company and the Bank, is a partner;
Harkleroad & Hermence, P.C., of which Mr. Harkleroad, a director of the
Company, is a partner; and Glass, McCullough, Sherrill & Harrold, of which Mr.
Sparrow, a director of the Company, is a partner.
The Bank entered into an agreement in 1990 with Government Loan Service
Corporation, Inc., a company in which a director, Mr. Nack Paek, is sole
shareholder. The loan agreement governs the referral and presentation of
completed SBA loan applications to the Bank of this company on behalf of
certain prospective borrowers. The agreement includes certain conditions
designed to safeguard the Bank from prospective losses, including requirements
that all referred loans be subjected to full review by a Bank loan committee
and that any income derived by this company from an approved referred loan is
subject to recourse by the Bank in the event of any loss within 24 months of
such specific loan approval. There were no loans originated under this
agreement in 1996.
DESCRIPTION OF WARRANTS
GENERAL
The Warrants are exerciseable for cash at an exercise price (the "Exercise
Price") equal to $10.00 per share.
EXERCISE
Each Warrant Agreement may be exercised in whole or in part any time prior
to the close of business on March 10, 1998. A Warrant may be exercised by a
written notice (an "Exercise Notice") delivered to the Company's Secretary at
the Company's principal executive offices stating the holder's election to
exercise and the number of Shares with respect to which the Warrant is being
exercised. The Warrant Agreement must be surrendered.
Payment of the Exercise Price must be by a certified or bank cashier's
check. In the event of a partial exercise, the Company may issue either a new
Warrant Agreement or may conspicuously note on the original Warrant Agreement
the number of Shares purchased pursuant to such exercise and the number of
Shares thereafter covered by such agreement.
The Company is not required to issue or deliver any certificates for
Shares of the Company Common Stock purchased upon exercise of the Warrant or
any portion thereof prior to the fulfillment of the following conditions: (i)
the admission of such Shares for listing on all stock exchanges on which the
Common Stock is then listed, (ii) the completion of any registration or other
qualification of such Shares which the Company shall deem necessary or
advisable under any federal or state law or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory
body, (iii) the obtaining of any approval or other clearance from any federal
or state governmental agency or body, which the Company shall determine to be
necessary or advisable, and (iv) the lapse of such reasonable period of time
following the exercise of the Warrant as the Company from time to time may
establish for reasons of administrative convenience. Furthermore, the
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<PAGE> 43
Company has no obligation to obtain the fulfillment of these conditions.
However, as of the date of this Prospectus, the conditions set forth in (i),
(ii) and (iii) above have been satisfied, and while no assurances can be given,
the Company anticipates that such conditions shall remain satisfied throughout
the period during which the Warrants may be exercised.
Until the issuance of Shares upon exercise of a Warrant, the holder of
such Warrant shall have no rights as a Company shareholder with respect to the
Shares issuable upon such exercise.
TRANSFER RESTRICTIONS
Transfer of the Warrants is restricted. Neither the Warrant nor any
interest therein may be transferred in any manner except to the partners of any
partnerships which received warrants, or by will or the laws of descent or
distribution or as otherwise approved by the Company. All such persons,
including the original holders, and their administrators, executors, heirs,
legal and personal representatives, successors and assigns shall be bound by
the Warrant Agreement.
ANTI-DILUTION PROVISIONS
The anti-dilution provisions specify that in the event of any subdivision,
dividend payable in Common Stock, or combination of Shares into a smaller
number of Shares, the Exercise Price and the number and kind of Shares
receivable upon exercise of a Warrant shall be proportionally adjusted.
Adjustments shall also be made in the event of any capital reorganization
or reclassification or any merger or consolidation with any other corporation,
or the sale of all or substantially all assets of the Company. After such
event, each Warrant shall be exercisable upon the terms and conditions
specified in the Warrant Agreement for the same number of shares of capital
stock, other securities, assets or cash of the Company or successor entity (or
its parent entity) to which a holder of the number of Shares receivable upon
exercise of the Warrants at the time of such event would be entitled.
DESCRIPTION OF COMPANY CAPITAL STOCK
The following information concerning the Company's capital stock
summarizes certain provisions of the Company's Articles of Incorporation and
certain statutes regulating the rights of holders of Company capital stock.
The information does not purport to be a complete description of such matters
and is qualified in all respects by the provisions of the Company's Articles of
Incorporation and the corporate laws of the State of Georgia.
COMPANY COMMON STOCK
The Company's Articles of Incorporation authorize the Company's Board of
Directors to issue a maximum of 100,000,000 shares of $.01 par value Common
Stock. As of the date of this Prospectus, 1,407,688 Shares were issued and
outstanding. Holders of Company Common Stock are entitled to receive such
dividends as may be declared by the Company's Board from funds legally
available therefor. Presently, all voting rights are vested in the holders of
Shares, with each such Share being entitled to one vote. The holders of
Company Common Stock are not entitled to cumulative voting rights in the
election of directors. In the event of liquidation, holders of Common Stock
are entitled to receive pro rata any assets distributable to shareholders in
respect of shares hold by them. Holders of Company Common Stock do not have
any preemptive rights to subscribe to any additional securities which may be
issued by the Company. The outstanding Shares are fully paid and
nonassessable. Pursuant to the Company's Articles of Incorporation, the rights
of the holders of Company Common Stock are subject to the rights of the holders
of Company Special Stock. See "MARKET INFORMATION AND DIVIDENDS".
In the event that the Company intends to undertake a transaction
effectuating (i) a business merger or consolidation of the Company with another
entity which is directly or indirectly the beneficial owner of more than five
percent (5%) of all outstanding shares of Company Common Stock (a "Related
Entity"); (ii) the sale or exchange by the Company of all or a substantial part
of its assets with a Related Entity; (iii) the issuance or
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<PAGE> 44
delivery by the Company of any stock or other securities in exchange or payment
for any properties or assets of a Related Entity; or (iv) the dissolution of the
Company, then the Articles of Incorporation of the Company shall require for
approval of the transaction the affirmative vote of the holders of not less than
sixty-six and two thirds percent (66 2/3%) of the outstanding Common Stock of
the Company entitled to vote with respect to such transaction (the "Special
Voting Requirement"). Notwithstanding the foregoing, the Special Voting
Requirement shall not apply to transactions approved by the affirmative vote of
not less than eighty percent (80%) of the directors, nor shall it apply to
transactions solely between the Company and another entity fifty percent (50%)
or more of the voting stock or voting equity interests of which is owned by the
Company.
SPECIAL STOCK
The Company's Articles of Incorporation authorize the Company's Board,
without further shareholder action, to issue, from time to time, a maximum of
20,000,000 shares of special stock, no par value ("Special Stock"), in one or
more series, upon such terms, at such times and for such consideration as the
Company's Board may determine. The Board's authority includes determination
of: (i) the number of shares in any series and the designation thereof; (ii)
rights as to dividends; (iii) redemption and sinking funds provisions, if any;
(iv) voting rights, if any; (v) conversion of exchange rights, if any; and (vi)
the rights of the holders upon the dissolution, or upon the distribution of
assets, of the Company. Any shares of special stock which may be issued may
have priority over Shares of Company Common Stock as to payment of dividends
and upon liquidation.
SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions and provide for
general regulatory oversight with respect to virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not stockholders. To the extent that the following summary
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in applicable laws or regulations may have a material effect on the business
and prospects of the Company. Beginning with the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and
following with the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), numerous additional regulatory requirements have been placed
on the banking industry in the past five years, and additional changes have
been proposed. The operations of the Company and the Bank may be affected by
legislative changes and the policies of various regulatory authorities. The
Company is unable to predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies, economic control, or
new federal or state legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "BHCA").
Under the BHCA, the Company is subject to periodic examination by the
Federal Reserve and is required to file periodic reports of its operations and
such additional information as the Federal Reserve may require. The Company's
and the Bank's activities are limited to banking, managing or controlling
banks, furnishing services to or performing services for its subsidiaries, or
engaging in any other activity that the Federal Reserve determines to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
Investments, Control, and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of
the Federal Reserve before (i) acquiring substantially all the assets of any
bank, (ii) acquiring direct or indirect ownership or control of any voting
shares of any bank if after such acquisition it would own or control more than
5% of the voting shares of such bank (unless it already owns or controls the
majority of such shares), or (iii) merging or consolidating with another bank
holding company.
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<PAGE> 45
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the circumstances, no notice of disapproval) prior
to any person or company acquiring "control" of a bank holding company, such as
the Company. Control is conclusively presumed to exist if an individual or
company acquires 25% or more of any class of voting securities of the bank
holding company. In the case of the Company, under Federal Reserve regulations
control will be rebuttably presumed to exist if a person acquires at least 10%
of the outstanding shares of any class of voting securities since the Company
has registered the Common Stock under the Securities Exchange Act. The
regulations provide a procedure for challenge of the rebuttable control
presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in nonbanking activities, unless the Federal Reserve, by
order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve has determined by regulation to
be proper incidents to the business of banking include making or servicing
loans and certain types of leases, engaging in certain insurance and discount
brokerage activities, performing certain data processing services, acting in
certain circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in certain corporations or
projects designed primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances in which the
Company might not otherwise do so. Under the BHCA, the Federal Reserve may
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition. The Bank may be required to indemnify, or cross-guarantee, the FDIC
against losses it incurs with respect to any other bank controlled by the
Company, which in effect makes the Company's equity investments in healthy bank
subsidiaries available to the FDIC to assist any failing or failed bank
subsidiary of the Company.
THE BANK
General. The Bank is a national banking association and member of the
Federal Reserve System. The Office of Comptroller of the Currency (the "OCC")
is the primary regulator for the Bank. The OCC regulates or monitors all areas
of the Bank's operations, including security devices and procedures, adequacy
of capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rates payable
on deposits, interest rates or fees chargeable on loans, establishment of
branches, corporate reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and deposit gathering
practices. The Bank must maintain certain capital ratios and is subject to
limitations on aggregate investments in real estate, bank premises, and
furniture and fixtures.
Under FDICIA, all insured institutions must undergo regular on-site
examination by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a
method for insured depository institutions to provide supplemental disclosure
of the estimated fair market value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet, financial statement, report of
condition or
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<PAGE> 46
any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, information
systems, and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. In addition,
most of these loans and certain other transactions must be secured in
prescribed amounts. The Bank is also subject to the provisions of Section 23B
of the Federal Reserve Act that, among other things, prohibit an institution
from engaging in certain transactions with certain affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with non-affiliated companies. The Bank is subject to
certain restrictions on extensions of credit to executive officers, directors,
certain principal stockholders, and their related interests. Such extensions
of credit (i) must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with third parties and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features.
Branching and Geographic Expansion. Georgia law presently permits the
establishment of branches by a state or national bank located in Georgia with
certain limitations. In 1996 the State Legislature passed a bill allowing
banks in the State of Georgia to establish branches in any three additional
counties after July 1, 1996. Additionally, the bill allows banks to establish
branches in any county after July 1, 1998.
The BHCA, as amended by the Interstate banking provisions of the
Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994 ("Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company and any other bank holding company located in
Georgia may now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any bank based in another
state, regardless of state law to the contrary, in either case subject to
certain deposit-percentage, aging requirements, and other restrictions. The
Interstate Banking Act also generally provides that, after June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions
of banks in other states. By adopting legislation prior to that date, a state
has the ability either to "opt in" and accelerate the date after which
interstate branching is permissible or "opt out" and prohibit interstate
branching altogether. In March 1996, the Georgia legislature adopted
legislation opting into interstate branching. The Georgia legislation also
provides that an out-of-state bank may not enter the State of Georgia through a
de novo branch, nor may it enter through the acquisition of less than
substantially all of the assets of an existing bank.
Community Reinvestment Act. The Community Reinvestment Act requires that
each insured depository institution shall be evaluated by its primary federal
regulator with respect to its record in meeting the credit needs of its local
community, including low and moderate income neighborhoods, consistent with the
safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. The Bank received a satisfactory rating in its most recent
evaluation.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials
to determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the community it serves, the Equal Credit
Opportunity Act prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit, the Fair Credit Reporting Act of 1978
governing the use and provision of information to credit reporting
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<PAGE> 47
agencies, the Fair Debt Collection Act governing the manner in which consumer
debts may be collected by collection agencies, and the rules and regulations of
the various federal agencies charged with the responsibility of implementing
such federal laws. The deposit operations of the Bank also are subject to the
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality
of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that act,
which governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
system, loan documentation, credit underwriting, interest rate exposure, asset
growth compensation, a maximum ratio of classified assets to capital, minimum
earnings sufficient to absorb losses, a minimum ratio of market value to book
value for publicly traded shares, and such other standards as the agency deems
appropriate. FDICIA also contains a variety of other provisions that may
affect the operations of the Company and the Bank, including new reporting
requirements, regulatory standards for estate lending, "truth in savings"
provisions, the requirement that a depository institution give 90 days prior
notice to customers and regulatory authorities before closing any branch, and a
prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized or are adequately capitalized and
have not received a waiver from the FDIC. Under regulations relating to
brokered deposits, the Bank is well capitalized and not restricted.
ENFORCEMENT POLICIES AND ACTIONS
FIRREA and subsequent federal legislation significantly increased the
enforcement authorities of the FDIC and other federal depository institution
regulators, and authorizes the imposition of civil money penalties up to $1
million per day. Persons who are affiliated with depository institutions can
be removed from any office held in such institution and banned for life from
participating in the affairs of any such institution. The banking regulators
have not hesitated to use the new enforcement authorities provided under
FIRREA.
DEPOSIT INSURANCE
The deposits of the Bank are currently insured to a maximum of $100,000
per depositor, subject to certain aggregation rules. The FDIC establishes
rates for the payment of premiums by federally insured banks and thrifts for
deposit insurance. Separate insurance funds (BIF, the Bank Insurance Fund, and
SAIF, the Savings Association Insurance Fund) are maintained for commercial
banks and thrifts, with insurance premiums from the industry used to offset
losses from insurance payouts when banks and thrifts fail. Due to the high
rate of failures in recent years, the FDIC has adopted a risk-based deposit
insurance premium system for all insured depository institutions, including the
Bank, which requires that a depository institution pay to BIF or SAIF from $.04
to $.31 per $100 of insured deposits depending on its capital levels and risk
profile, as determined by its primary federal regulator on a semi-annual basis.
In 1995, the FDIC declared the BIF fully funded, and assessments were
suspended on certain financial institutions until further notice. The
assessment for the Bank was suspended through December 1996 under this ruling,
however, in 1996 the Bank was notified that assessments will be reinstated in
1997. Because the Bank's risk classification is the lowest allowable, the Bank
will not be required to pay an assessment for deposit insurance in 1997. The
Bank will be required to pay a premium for the new "Financing Corporation
(FICO) payment" which is a result of the Deposit Insurance Act of 1996. Any
increase in deposit insurance premiums for the Bank will increase its cost of
funds, and there can be no assurance that such cost can be passed on to the
Bank's customers.
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<PAGE> 48
DIVIDENDS
The principal source of the Company's cash revenues comes from dividends
received from the Bank. The amount of dividends that may be paid by the Bank to
the Company depends on the Bank's earnings and capital position and is limited
by federal and state law, regulations, and policies. In addition, the Board of
Governors of the Federal Reserve Bank has stated that bank holding companies
should refrain from or limit dividend increases or reduce or eliminate dividends
under circumstances in which the bank holding company fails to meet minimum
capital requirements or in which its earnings are impaired.
As a national bank, the Bank may not pay dividends from its
paid-in-capital. All dividends must be paid out of undivided profits then on
hand, after deducting expenses, including reserves for losses and bad debts.
In addition, a national bank is prohibited from declaring a dividend on its
shares of common stock until its surplus equals its stated capital, unless
there has been transferred to surplus no less than one-tenth of the bank's net
profits of the preceding two consecutive half-year periods (in the case of an
annual dividend). The approval of the OCC is required if the total of all
dividends declared by a national bank in any calendar year exceeds the total of
its net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus.
Under FDICIA, the Bank may not pay a dividend if, after paying the
dividend, the Bank would be undercapitalized. See "-- Capital Regulations"
below.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure,
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance sheet items. The guidelines are minimums, and the
federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes stockholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but
excludes goodwill and most other intangible assets and excludes the allowance
for loan and lease losses. Tier 2 capital includes the excess of any preferred
stock not included in Tier 1 capital, mandatory convertible securities, hybrid
capital instruments, subordinated debt and intermediate-term preferred stock,
and general reserves for loan and lease losses up to 1.25% of risk-weighted
assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are
assigned to the 20% category, except for municipal or state revenue bonds,
which have a 50% rating, and direct obligations of or obligations guaranteed by
the United States Treasury or United States Government agencies, which have a
0% rating.
The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangible assets, to be used as a supplement to the risk-based guidelines.
The principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%,
but most institutions are required to maintain an additional cushion of at
least 100 to 200 basis points.
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<PAGE> 49
FDICIA established a capital-based regulatory plan designed to promote
early intervention for troubled banks and requires the FDIC to choose the least
expensive resolution of bank failures. The capital-based regulatory framework
contains five categories of compliance with regulatory capital requirements,
including "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." To qualify
as a "well capitalized" institution, a bank must have a leverage ratio of no
less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total
risk-based capital ratio of no less than 10%, and the bank must not be under any
order or directive from the appropriate regulatory agency to meet and maintain a
specific capital level. As of December 31, 1996, the Company and the Bank were
qualified as "well-capitalized." See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice.
The degree of regulatory scrutiny of a financial institution will increase, and
the permissible activities of the institution will decrease, as it moves
downward through the capital categories. Institutions that fall into one of
the three undercapitalized categories may be required to (i) submit a capital
restoration plan; (ii) raise additional capital; (iii) restrict their growth,
deposit interest rates, and other activities; (iv) improve their management;
(v) eliminate management fees; or (vi) divest themselves of all or a part of
their operations. Bank holding companies controlling financial institutions
can be called upon to boost the institutions' capital and to partially
guarantee the institutions' performance under their capital restoration plans.
These capital guidelines can affect the Company in several ways. Rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Company's capital position in a
relatively short period of time, making an additional capital infusion
necessary.
FDICIA requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest-rate risk,
concentration of credit risk, and the risks of non-traditional activities. It
is uncertain what effect these regulations, when implemented, would have on the
Company and the Bank.
The following table shows the leverage and risk-based regulatory capital
ratios at December 31, 1996, and December 31, 1995 for the Bank.
<TABLE>
<CAPTION>
ANALYSIS OF CAPITAL
------------------------------------------------------
REQUIRED ACTUAL EXCESS
-------- ------ ------
AMOUNT % AMOUNT % AMOUNT %
------------------------------------------------------
(Amounts in thousands,
except percentages)
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
Risk-based capital:
Total capital $7,838 8.0% $15,146 15.6% $7,308 7.6%
Tier 1 capital 3,919 4.0 $13,913 14.2 9,994 10.2
Tier 1 leverage ratio 5,467 4.0 $13,913 10.2 8,446 6.2
DECEMBER 31, 1995:
Risk-based capital:
Total capital $7,103 8.0% $13,678 15.4% $6,576 7.4%
Tier 1 capital 3,551 4.0 12,568 14.2 9,017 10.2
Tier 1 leverage ratio 4,753 4.0 12,568 10.6 7,815 6.6
</TABLE>
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<PAGE> 50
RECENT LEGISLATIVE DEVELOPMENTS
Revisions to the Bank Secrecy Act in 1996 affected numerous issues,
including suspicious activity reporting, funds transfer recording keeping,
interim exemption rules, and the definition of "exempt persons" and the way in
which banks designate exempt customers.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was
enacted in September 1996. This Act primarily provided arrangements for the
recapitalization of the SAIF and regulatory relief for bank holding companies
in several significant areas. Bank holding companies, that also owned savings
associations and were, therefore, subject to regulation by the Office of Thrift
Supervision ("OTS") as savings and loan holding companies, were relieved of
such duplicative regulation, and neither future acquisitions of savings
associations by bank holding companies nor mergers of savings associations into
banks will any longer require application to and approval by the OTS.
Acquisitions by well-capitalized and well managed bank holding companies of
companies engaging in permissible nonbanking activities (other than savings
associations) may now be made with only 12 days prior notice to the Federal
Reserve, and de novo engagement in such activities by such bank holding
companies may be commenced without prior notice and with only subsequent notice
to the Federal Reserve. The same legislation also gave regulatory relief to
banks in regard to corporate governance, branching, disclosure (under the Real
Estate Settlement Procedures Act and the Truth in Lending Act) and other
operational areas.
The Federal Reserve also recently adopted regulations providing for a
streamlined application process in connection with acquisitions of banks and
bank holding companies by well-capitalized, well-managed bank holding
companies. During 1996, changes were also made to the current system used to
rate banks.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and bank
and bank holding company powers, are being considered by the executive branch
of the Federal government, Congress and various state governments, including
Georgia. Among other items under consideration are the possible combination of
the BIF and SAIF, changes in or repeal of the Glass-Steagall Act which
separates commercial banking from investment banking, and changes in the BHCA
to broaden the powers of "financial services" companies to own and control
depository institutions and engage in activities not closely related to
banking. Certain of these proposals, if adopted, could significantly change
the regulation of banks and the financial services industry. It cannot be
predicted whether any of these proposals will be adopted, and, if adopted, how
these proposals will affect the Company and the Bank.
EXPERTS
The consolidated financial statements of Summit Bank Corporation and
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of Company Common Stock offered hereby will be
passed upon for the Company by Alston & Bird LLP, Atlanta, Georgia.
INDEMNIFICATION
The Georgia Business Corporation Code permits, under certain
circumstances, the indemnification of officers, directors, employees and agents
of a corporation with respect to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
to which such person was or is a party or is threatened to be made a party by
reason of his action in such capacity for, or at the request of, such
corporation. To the extent that such person is successful in defending any
such suit, Georgia law provides that he shall be
- 45 -
<PAGE> 51
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
The Company's Bylaws provide for the indemnification of the Company's
directors, officers, employees and agents in accordance with the Georgia
Business Corporation Code. Georgia law also provides that, with certain
exceptions, the above rights will not be deemed exclusive of other rights of
indemnification contained in any Bylaw, resolution or agreement approved by the
holders of a majority of the stock. The Company's Bylaws provide that the
Company may purchase and maintain insurance on behalf of directors, officers,
employees and agents, as well as others serving at their request, against any
liabilities asserted against such persons whether or not the Company would have
the power to indemnify such persons against such liability under the Georgia
Business Corporation Code. The Company has purchased and maintains such
insurance.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
- 46 -
<PAGE> 52
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report - KPMG Peat Marwick LLP F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Summit Bank Corporation:
We have audited the accompanying consolidated balance sheets of Summit Bank
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Summit Bank
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 7, 1997
F-2
<PAGE> 54
CONSOLIDATED BALANCE SHEETS
SUMMIT BANK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
(In thousands, except share and per share amounts) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ------
Cash and due from banks (Note 6) $ 7,443 $ 7,220
Federal funds sold 15,900 3,525
Interest-bearing deposits in other banks 74 60
Investment securities available for sale (Note 2) 37,903 32,110
Other investments (Note 3) 681 592
Loans, net of unearned income of $1,358 and $1,179 in 1996
and 1995, respectively 82,778 76,695
Loans held for sale 3,030 1,482
Less: allowance for loan losses (1,931) (1,686)
- -------------------------------------------------------------------------------
Net loans (Note 4) 83,877 76,491
- -------------------------------------------------------------------------------
Premises and equipment, net (Notes 5 and 9) 4,574 2,932
Customers' acceptance liability 1,184 1,907
Deferred income taxes (Note 10) 392 205
Other assets 2,220 5,034
- -------------------------------------------------------------------------------
Total assets $154,248 $130,076
===============================================================================
Liabilities and stockholders' equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand $ 27,381 $ 23,090
Interest-bearing:
Demand 39,487 30,183
Savings 6,288 7,734
Time, $100,000 and over (Note 7) 23,109 22,766
Other time (Note 7) 36,634 26,043
- -------------------------------------------------------------------------------
Total deposits 132,899 109,816
- -------------------------------------------------------------------------------
Acceptances outstanding 1,184 1,907
Obligation under capital lease (Note 9) 118 152
Other borrowed funds (Note 8) 1,657 --
Other liabilities 1,454 2,788
- -------------------------------------------------------------------------------
Total liabilities 137,312 114,663
- -------------------------------------------------------------------------------
Stockholders' equity (Notes 12, 13 and 14):
Common stock, $0.01 par value; 100,000,000 shares
authorized; 1,407,688 shares issued and outstanding 14 14
Additional paid-in capital 12,123 12,123
Net unrealized holding gains on investment securities
available for sale, net of income taxes 89 337
Retained earnings 4,710 2,939
- -------------------------------------------------------------------------------
Total stockholders' equity 16,936 15,413
- -------------------------------------------------------------------------------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity $154,248 $130,076
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 55
CONSOLIDATED STATEMENTS OF INCOME
SUMMIT BANK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the years ended December 31,
(In thousands, except share and per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 8,615 $ 7,704 $ 6,995
Interest-bearing deposits in other banks 4 3 2
Federal funds sold 228 294 152
Investment securities-taxable 658 946 561
Investment securities - tax-exempt -- -- 12
Mortgage-backed securities 1,851 1,154 433
- ----------------------------------------------------------------------------------------------------
Total interest income 11,356 10,101 8,155
- ----------------------------------------------------------------------------------------------------
Interest expense:
Time deposits, $100,000 and over 1,365 1,016 692
Other deposits 3,083 3,034 2,084
Short-term borrowings and obligation under capital lease 72 20 24
- ----------------------------------------------------------------------------------------------------
Total interest expense 4,520 4,070 2,800
- ----------------------------------------------------------------------------------------------------
Net interest income 6,836 6,031 5,355
Provision for loan losses (Note 4) 404 397 430
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 6,432 5,634 4,925
- -----------------------------------------------------------------------------------------------------
Non-interest income:
Gains on sales of loans (Note 4) 581 713 1,024
Fees for international banking services 1,057 1,145 932
SBA servicing fees 462 438 390
Overdraft and NSF charges 369 362 222
Service charge income 209 216 227
Net gains/(losses) on sales of investment securities (Note 2) 126 (2) (121)
Other 557 439 376
- ----------------------------------------------------------------------------------------------------
Total non-interest income 3,361 3,311 3,050
- ----------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits (Note 13) 3,356 3,046 2,672
Equipment 482 408 380
Net occupancy 476 452 403
Other (Note 17) 2,097 1,896 1,754
- ----------------------------------------------------------------------------------------------------
Total non-interest expenses 6,411 5,802 5,209
- ----------------------------------------------------------------------------------------------------
Income before income taxes 3,382 3,143 2,766
Income tax expense (Note 10) 1,174 1,042 838
- ----------------------------------------------------------------------------------------------------
Net income $ 2,208 $ 2,101 $ 1,928
====================================================================================================
Net income per common share and common share equivalents $ 1.38 $ 1.33 $ 1.37
====================================================================================================
Weighted-average common shares outstanding and
common share equivalents 1,630,610 1,630,610 1,407,688
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 56
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SUMMIT BANK CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Net Unrealized
Holding Gains
(Losses) on
Investment Retained
Common Stock Additional Securities Earnings
(In thousands, except ----------------- Paid-In Available (Accumulated
share and per share amounts) Shares Amount Capital for Sale Deficit) Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,407,688 $14 $12,123 $ -- $ (696) $11,441
- -------------------------------------------------------------------------------------------------------------
Net unrealized holding gains on
investment securities available
for sale upon adoption of SFAS
No. 115, net of tax effect of $59 -- -- -- 114 -- 114
Change in unrealized holding
gains (losses) on investment
securities available for sale,
net of tax effect -- -- -- (210) -- (210)
Net income -- -- -- -- 1,928 1,928
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,407,688 14 12,123 (96) 1,232 13,273
- -------------------------------------------------------------------------------------------------------------
Change in unrealized holding
gains (losses) on investment
securities available for sale,
net of tax effect -- -- -- 433 -- 433
Cash dividend paid, $.28 per share -- -- -- -- (394) (394)
Net income -- -- -- -- 2,101 2,101
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,407,688 14 12,123 337 2,939 15,413
- -------------------------------------------------------------------------------------------------------------
Change in unrealized holding
gains (losses) on investment
securities available for sale,
net of tax effect -- -- -- (248) -- (248)
Cash dividend paid, $.31 per share -- -- -- -- (437) (437)
Net income -- -- -- -- 2,208 2,208
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,407,688 $14 $12,123 $ 89 $4,710 $16,936
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 57
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUMMIT BANK CORPORATION AND SUBSIDIARIES For the years ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,208 $ 2,101 $ 1,928
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of leasehold improvements 337 257 137
Deferred tax (benefit) expense (37) (39) 266
Net amortization of premiums/discounts on investment securities 54 91 249
Amortization of negative goodwill (110) (109) (75)
Provision for loan losses 404 397 430
Gains on sales of loans (581) (713) (929)
Proceeds from sales of loans 9,116 4,858 15,397
Net (gains) losses on sales of investment securities (126) 2 121
Provision for losses on sales of other real estate --- --- 62
Recovery of losses on other real estate --- --- (11)
Gains on sales of other real estate --- --- (77)
Gain on sale of premises and equipment --- (3) ---
Changes in other assets and liabilities:
Decrease (increase) in other assets 2,814 (67) (154)
(Decrease) increase in other liabilities (1,224) 781 (201)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,855 7,556 17,143
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 6,745 1,991 7,920
Purchases of investment securities available for sale and other investments (22,950) (15,220) (3,298)
Proceeds from maturities of investment securities available for sale 5,350 8,560 1,250
Principal collections on investment securities available for sale 4,647 398 ---
Purchases of investment securities held to maturity --- (19,401) (9,143)
Proceeds from maturities of investment securities held to maturity --- 8,000 500
Principal collections on investment securities held to maturity --- 2,847 2,941
Proceeds from sales of other real estate --- --- 1,025
Loans made to customers, net of principal collected on loans (16,325) (11,881) (15,966)
Purchases of premises and equipment and leasehold improvements (1,979) (689) (1,374)
Proceeds from sale of premises and equipment --- 3 ---
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (24,512) (25,392) (16,145)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 12,149 11,383 2,605
Net increase (decrease) in time deposits 10,934 7,794 (342)
Principal payments for obligation under capital lease (34) (14) ---
Net increase (decrease) in other borrowed funds 1,657 --- (750)
Dividends paid (437) (394) ---
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 24,269 18,769 1,513
- ---------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 12,612 933 2,511
Cash and cash equivalents at beginning of year 10,805 9,872 7,361
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 23,417 $ 10,805 $ 9,872
- ---------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash paid during the year:
Interest, net of amounts capitalized $ 5,350 $ 3,979 $ 2,943
Income taxes 1,407 1,376 137
Supplemental schedule of noncash investing and financing activities:
Investment securities transferred from held to maturity to available for sale --- 22,059 ---
Real estate acquired through foreclosure --- --- 28
Real estate sold and financed by the Company --- --- 146
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 58
SUMMIT BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1. Summary of Significant Accounting Policies
(a) General
Summit Bank Corporation (the "Company") was organized on October 15, 1986 for
the purpose of becoming a bank holding company. The Company was approved to
become a bank holding company by the Federal Reserve Bank of Atlanta on
September 11, 1987. On March 4, 1988, the Company acquired 100% of the stock
of The Summit National Bank (the "Bank"). The organizers received final
approval for the charter of the Bank from the Office of Comptroller of the
Currency on March 10, 1988, and the Bank began operations on that date. On
July 1, 1989, the Company incorporated as a wholly-owned subsidiary, The Summit
Merchant Banking Corporation (the "Merchant Bank") with an initial investment
of $250,000.
On January 21, 1991, the Company's Board of Directors approved a resolution
deactivating the Merchant Bank effective January 31, 1991. If the economic
environment should change and merchant banking opportunities arise, the
Merchant Bank may be reactivated; until then, no further funding will be
provided to this inactive subsidiary.
(b) Business
The Company provides a full range of banking services to individual and
corporate customers through its subsidiary bank located in Atlanta, Georgia.
The Company is subject to competition from other financial institutions. The
Company is subject to the regulations of certain state and Federal agencies and
undergoes periodic examinations by those regulatory authorities.
(c) Basis of Presentation
The consolidated financial statements include the accounts of Summit Bank
Corporation and its subsidiaries, the Bank and the Merchant Bank, after
elimination of all significant intercompany balances and transactions.
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination
of the allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection with
the determination of the allowance for loan losses and the valuation of other
real estate, management obtains independent appraisals for significant
properties.
A substantial portion of the Company's loans are secured by real estate in the
northeast metropolitan Atlanta area. Accordingly, the ultimate collectibility
of a substantial portion of the Company's loan portfolio is susceptible to
changes in the real estate market conditions of this market area.
F-7
<PAGE> 59
(d) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest-bearing deposits in other banks with maturities
less than 90 days, and federal funds sold. Federal funds are generally sold
for one-day periods.
(e) Investment Securities
Investment securities at December 31, 1996 and 1995 consist of U.S. Treasury
securities, obligations of U.S. Government agencies, mortgage-backed
securities, and equity securities. The Company's investment securities are
classified into three categories: trading securities, available for sale
securities, or held to maturity securities.
Investment securities in the held to maturity category are stated at cost,
adjusted for accretion of discounts and amortization of premiums, because
management has the intention and ability to hold these securities to maturity.
All other securities not included in the held to maturity category are
classified as available for sale and are reported at fair value. Unrealized
holding gains or losses, net of the related tax effect, on available for sale
securities are excluded from income and are reported as a separate component of
stockholders' equity until realized. The Company does not hold any trading
securities nor does the Company engage in the trading or holding of financial
derivatives.
Purchase premiums and discounts on investment securities are amortized and
accreted to interest income using the level yield method on the outstanding
principal balances. In establishing the accretion of discounts and
amortization of premiums, the Company utilizes market based prepayment
assumptions. Interest and dividend income are recognized when earned.
Realized gains and losses for securities sold are included in income and are
derived using the specific identification method for determining the costs of
securities sold.
A decline in the fair value of any available for sale or held to maturity
security below cost that is deemed other than temporary is charged to income
resulting in the establishment of a new cost basis for the security.
(f) Loans
Loans are stated at the amount of unpaid principal, reduced by unearned income
and the allowance for loan losses. Unearned income, primarily arising from
discount basis installment loans and deferred gains on the sale of the Small
Business Administration ("SBA") guaranteed portion of loans, is recognized as
interest income over the terms of the loans by the interest method. Interest
on loans is recorded by using the simple interest method on the daily balance
of the principal amount outstanding.
Loans held for sale are stated at the lower of aggregate cost or market value
with market determined on the basis of open purchase commitments from
independent buyers. Gains or losses on disposition are recorded in other
income, based on the net proceeds received and the recorded investment in the
loan sold. For sales of the SBA guaranteed portion of loans, the basis in the
portion of the loan sold is determined by allocating the loan carrying value to
the portion sold and portion retained based on the relative fair values of the
portion sold and portion retained. Such gains or losses are adjusted by the
amount of any excess servicing fee receivables resulting from the transactions.
Accrual of interest on loans is discontinued either when reasonable doubt
exists as to the full or timely collection of interest or principal or when a
loan becomes contractually past due by 90 days or more with respect to interest
or principal. When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current period
interest income. Income on such loans is then recognized only to the extent
that cash is received and where the future collection of principal is probable.
Loans are returned to accruing status only when
F-8
<PAGE> 60
they are brought fully current with respect to interest and principal and when,
in the judgement of management, the loans are estimated to be fully collectible
as to both principal and interest.
Loan fees, net of certain origination costs, are deferred and amortized over
the lives of the underlying loans using a method which approximates a level
yield.
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan." SFAS No. 114 requires impaired loans to be measured
based on the present value of expected future cash flows, discounted at the
loan's effective interest rate, or at the loan's observable market price, or
the fair value of the collateral if the loan is collateral dependent, beginning
in 1995. Loans that are determined to be impaired require a valuation
allowance equivalent to the amount of the impairment. The valuation allowance
is to be established by a charge to the provision for loan losses. In October
1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures," which amends the requirements of
SFAS No. 114 regarding interest income recognition and related disclosure
requirements. The Company adopted SFAS No. 114 and SFAS No. 118 prospectively
on January 1, 1995. The initial adoption required no increase to the allowance
for loan losses.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the note agreement. Cash receipts on
impaired loans which are accruing interest are applied to principal and
interest under the contractual terms of the loan agreement. Cash receipts on
impaired loans for which the accrual of interest has been discontinued are
applied to reduce the principal amount of such loans until the principal has
been recovered and are recognized as interest income thereafter.
(g) Allowance For Loan Losses
The allowance for loan losses is established through provisions for loan losses
charged to operations. Loans are charged against the allowance for loan losses
when management believes that the collection of the principal is not probable.
Subsequent recoveries are added to the allowance. The allowance is an amount
that management believes will be adequate, determined through use of its
allowance for loan losses methodology, to absorb possible losses on existing
loans and commitments to extend credit. The allowance is established through
consideration of such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, the
underlying value of the collateral, and current economic conditions that may
affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions, the financial condition of borrowers and other factors. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
(h) Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets, which are from three to forty years.
Leasehold improvements are amortized over the estimated useful lives of the
improvements or the term of the related lease, including expected renewal
periods for which there are renewal options, using the straight-line method.
F-9
<PAGE> 61
(i) Other Real Estate
Other real estate, consisting of properties obtained through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure, is reported on an
individual asset basis at the lower of cost (fair value at date of foreclosure)
or fair value less disposal costs. Fair value is determined on the basis of
current appraisals, comparable sales, and other estimates of value obtained
principally from independent sources. When properties are acquired through
foreclosure, any excess of the loan balance at the time of foreclosure over the
fair value of the real estate held as collateral is recognized as a loss and
charged to the allowance for loan losses. Subsequent write-downs are charged
to a separate allowance for losses pertaining to other real estate, established
through provisions for estimated losses on other real estate charged to
operations. Based upon management's evaluation of the other real estate,
additional expense is recorded when necessary in an amount sufficient to
restore the allowance to an adequate level. Gains recognized on the
disposition of the properties are recorded in non-interest income.
Costs of improvements to other real estate are capitalized, while costs
associated with holding other real estate are charged to operations.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(k) Loan Servicing Rights
The guaranteed portion of SBA loans originated are normally sold on a servicing
retained basis. At the time of sale, an excess servicing fee receivable is
recorded for the present value of the difference between the yield on the loans
less a normal servicing fee and the yield paid to the investor over the
estimated life of the loans. The excess servicing fees receivable, included in
other assets, are amortized on a method which approximates a level yield over
the estimated life of the serviced loans considering assumed prepayment
patterns.
(l) Net Income Per Share
Net income per common share and common share equivalents is based on the
weighted average number of shares outstanding during each period, including
consideration of common stock equivalents, determined using the modified
treasury stock method, derived from dilutive stock options and warrants.
During 1996 and 1995, such stock options and warrants are dilutive because the
market price of the Company's common stock exceeds the exercise price of the
stock options and warrants. During 1994, the market price of the Company's
stock did not exceed the exercise price of the stock options and warrants,
therefore, the stock options and warrants were antidilutive.
F-10
<PAGE> 62
(m) Reclassifications
Certain 1995 and 1994 amounts have been reclassified for comparative purposes
in order to conform the prior periods to the 1996 presentation. Such
reclassifications had no impact on net income or stockholders' equity.
2. Investment Securities
Investment securities available for sale at December 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Gains Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and Obligations of
U.S. Government Agencies $10,382 $ 52 $ 12 $10,422
Other investments 3 -- -- 3
Mortgage-backed securities 27,376 233 131 27,478
- ----------------------------------------------------------------------------------------------
Total $37,761 $285 $143 $37,903
==============================================================================================
</TABLE>
Investment securities available for sale at December 31, 1995 are summarized as
follows:
<TABLE>
<CAPTION> Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Gains Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and Obligations of
U.S. Government Agencies $ 5,599 $111 -- $ 5,710
Other investments 2 -- -- 2
Mortgage-backed securities 25,969 452 23 26,398
- ---------------------------------------------------------------------------------------------------
Total $31,570 $563 $23 $32,110
===================================================================================================
</TABLE>
F-11
<PAGE> 63
The amortized costs and estimated fair values of investment securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Amortized Estimated Fair
(In thousands) Cost Value
- -----------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 4,494 $ 4,507
Due after one year through five years 5,391 5,426
Due after five years through ten years 497 489
Due after ten years 3 3
Mortgage-backed securities 27,376 27,478
- -----------------------------------------------------------------
Total $37,761 $37,903
=================================================================
</TABLE>
Proceeds from the sales of investment securities available for sale during
1996, 1995 and 1994, were $6,745,000, $1,991,000 and $7,920,000, respectively.
Gross gains of $170,000, $24,000 and $50,000 and gross losses of $44,000,
$26,000, and $171,000 were realized on those sales in 1996, 1995, and 1994,
respectively.
Investment securities with aggregate carrying amounts of approximately
$12,833,000 and $5,604,000 at December 31, 1996 and 1995, respectively, were
pledged to secure public deposits and for other purposes required or permitted
by law.
3. Other Investments
Other investments consist of Federal Home Loan Bank of Atlanta stock and
Federal Reserve Bank of Atlanta stock. Investment in stock of the Federal Home
Loan Bank of Atlanta is required for membership. Investment in stock of the
Federal Reserve Bank of Atlanta is required for national banks. No ready
market exists for either stock, and neither stock has a quoted market value.
Accordingly, both Federal Home Loan Bank and Federal Reserve Bank stock are
reported in the consolidated financial statements at cost.
4. Loans
Classifications of loans at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $22,769 $22,615
Real estate - construction 1,704 269
Real estate - mortgage 54,538 50,174
Installment loans to individuals 5,125 4,816
Less: unearned income (1,358) (1,179)
- ----------------------------------------------------------
Loans, net of unearned income 82,778 76,695
Loans held for sale - SBA 3,030 1,482
Less: allowance for loan losses (1,931) (1,686)
- ----------------------------------------------------------
Net loans $83,877 $76,491
==========================================================
</TABLE>
F-12
<PAGE> 64
In 1990, the Bank entered into an agreement with a company in which a director
of the Company is sole shareholder. The agreement governs the referral and
presentation of completed SBA loan applications to the Bank by this company on
behalf of certain prospective borrowers. The agreement includes certain
conditions designed to safeguard the Bank from prospective losses, including
the requirements that all referred loans be subjected to full review by a Bank
loan committee and that any income derived by this company from an approved
referred loan is subject to recourse by the Bank in the event of any loss
within 24 months of such specific loan approval. There were no sales of loans
generated under this agreement in 1996 or 1995. In 1994, the Bank sold into
the secondary market $133,172 of loans generated under this agreement, and
recognized $8,000 as gains on the sale of the loans. The Bank paid the
referring company in 1994, $4,000 of the sales premiums as commissions in
accordance with the agreement. In 1995, the Bank realized a loss of $59,349
for a loan generated under this agreement in 1992. No other losses from this
arrangement have been realized or are anticipated by management.
In the ordinary course of business the Company extends loans to its directors,
executive officers, and principal stockholders and their affiliates at terms
and rates comparable to those prevailing at the time for comparable
transactions with other customers. In the opinion of management, these loans
do not involve more than the normal credit risk nor present other unfavorable
features. The following is a summary of activity during 1996 with respect to
such aggregate loans to these individuals and their associates:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------
<S> <C>
Balance at December 31, 1995 $ 856
New loans ---
Repayments (289)
- ------------------------------------
Balance at December 31, 1996 $ 567
====================================
</TABLE>
Activity in the allowance for loan losses for the years ended December 31,
1996, 1995, and 1994 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $1,686 $1,603 $ 1,774
Provision for loan losses 404 397 430
Loans charged off (312) (896) (1,131)
Recoveries 153 582 530
- -------------------------------------------------------------
Balance, end of year $1,931 $1,686 $ 1,603
=============================================================
</TABLE>
Impaired loans and related amounts included in the allowance for loan losses at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
(Amounts in thousands) BALANCE ALLOWANCE Balance Allowance
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Impaired loans, with a related allowance $1,385 $398 $1,233 $363
Impaired loans, without allowance 149 -- 111 --
</TABLE>
F-13
<PAGE> 65
The allowance for impaired loans was primarily determined based on the fair
value of the respective loans' collateral. The average recorded investment in
impaired loans for the years ended December 31, 1996 and 1995 was $1,309,000
and $1,079,000, respectively. Interest income recognized on impaired loans for
the years ended December 31, 1996 and 1995, was approximately $161,000 and
$93,000, respectively.
Non-accrual loans amounted to approximately $922,000 and $111,000 at December
31, 1996 and 1995, respectively. Interest income on non-accrual loans, at
December 31, 1996 and 1995, which would have been reported on an accrual basis
in 1996 and 1995, amounted to approximately $29,900 and $8,200, respectively.
During 1996 and 1995, no interest income was recognized on non-accrual loans
outstanding at December 31, 1996 and 1995.
At December 31, 1996, 1995, and 1994, the Company was servicing loans for
others with aggregate principal balances of approximately $62,280,000,
$49,190,000 and $47,214,000, respectively.
5. Premises and Equipment
Premises and equipment at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Land $ 985 $ 685
Building 2,720 1,474
Furniture and equipment under capital lease 183 183
Other furniture and equipment 1,458 1,053
Leasehold Improvements 494 466
- -----------------------------------------------------------------
5,840 3,861
Less: accumulated depreciation and amortization (1,266) (929)
- -----------------------------------------------------------------
Premises and equipment, net $ 4,574 2,932
==================================================================
</TABLE>
6. Reserve Requirements
At December 31, 1996 and 1995, the Federal Reserve Bank required that the Bank
maintain an average reserve balance of $789,000 and $628,000, respectively.
7. Time Deposits
A summary of time deposits by maturity as of December 31, 1996 follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------
<S> <C>
Months to Maturity:
One year or less $48,129
Over one year through two years 9,636
Over two years through three years 796
Over three years through four years 493
Over four years through five years 608
Over five years 81
- --------------------------------------------
Total $59,743
============================================
</TABLE>
F-14
<PAGE> 66
8. Other Borrowed Funds
The Bank has available under a line of credit with the Federal Home Loan Bank
of Atlanta approximately $16,000,000. At December 31, 1996 the Bank had drawn
and outstanding $1 million under this credit line. Such outstanding amount
bore interest at 5.18% and matured on February 7, 1997.
Other borrowed funds at December 31, 1996, includes retail repurchase
agreements totaling $657,000. Retail repurchase agreements principally
represent overnight borrowings from commercial customers. The weighted average
interest rate on these repurchase agreements was 4.00% on December 31, 1996.
The repurchase agreements are collateralized by U.S. Treasury securities with
an aggregate carrying value of $685,205.
9. Obligation Under Capital Lease
On December 30, 1994, the Company obtained approximately $166,000 of furniture
and equipment under a capital lease agreement. An additional $17,000 of
furniture and equipment were acquired under a capital lease agreement in
January 1995. The obligation under the capital lease represents the present
value of the net future minimum payments. The leases expire in 2000 but
provide for $6,500 in quarterly rental payments for one additional year at the
Company's option.
Future minimum capital lease payments as of December 31, 1996 are:
<TABLE>
<CAPTION>
- ----------------------------------------------------
(In thousands)
Year Ending December 31,
- ----------------------------------------------------
<S> <C>
1997 $ 49
1998 49
1999 49
2000 1
- ----------------------------------------------------
Total minimum lease payments 148
Less: amount representing interest at 10.5% (30)
- ---------------------------------------------------
Present value of net minimum lease payments $118
===================================================
</TABLE>
10. Income Taxes
Income tax expense (benefit) attributable to income from continuing operations
for the years ended December 31, 1996, 1995 and 1994 consists of:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- -------------------------------------------------------
<S> <C> <C> <C>
Federal - current $1,092 $1,032 $572
State - current 119 49 --
Federal - deferred (31) (39) 266
State-deferred (6) -- --
- -------------------------------------------------------
Total $1,174 $1,042 $838
- -------------------------------------------------------
</TABLE>
F-15
<PAGE> 67
Income tax expense (benefit) attributable to income from continuing operations
for the years ended December 31, 1996, 1995, and 1994 differed from the amount
computed by applying the U.S. Federal income tax rate of 34% to income before
income taxes as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" income tax expense $1,150 $1,069 $ 941
Increase (decrease) resulting from:
Utilization of Federal net operating loss carryforwards -- (4) --
State income taxes, net of Federal tax benefit 75 33 --
Change in the beginning-of-the-year balance
of the valuation allowance for deferred tax assets
allocated to income tax expense -- (104) (79)
Amortization of negative goodwill (37) (37) (26)
Meals and entertainment expenses 13 3 2
Other (27) 82 --
- -----------------------------------------------------------------------------------
Total $1,174 $1,042 $ 838
===================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 1996 and 1995 are
presented below:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Loans, principally due to allowance for loan losses $ 328 $ 206
Merger costs amortization 25 37
Premises and equipment, principally due to differences in depreciation 35 28
Accrued liabilities -- 74
Net Federal and State operating loss carryforwards 2,435 2,441
Net unrealized holding gains on investment securities available for sale (53) (203)
- ------------------------------------------------------------------------------------------
Total deferred tax assets 2,770 2,583
Less valuation allowance (2,378) (2,378)
- ------------------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance $ 392 $ 205
==========================================================================================
</TABLE>
There was no change in the valuation allowance during 1996. The net change in
the valuation allowance during 1995 was a decrease of $104,000. In assessing
the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projection for future taxable income over the
periods which the temporary differences resulting in the deferred tax assets
are deductible, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences, net of the existing
valuation allowance at December 31, 1996.
F-16
<PAGE> 68
At December 31, 1996, the Company has net operating loss carryforwards for
Federal and state income tax purposes of approximately $6,330,000 and
$7,641,000, respectively, which are available to offset future Federal and
state taxable income, subject to certain annual maximum limitations. The net
operating loss carryforwards expire at various amounts through 2008.
11. Commitments and Contingencies
In August 1995, the Company's Board of Directors entered into severance
agreements with each of the four (4) executive officers of the Bank. The
agreements basically provide that in the event of involuntary termination or a
change in the executive's position or compensation resulting from a change in
the control of the Company due to a merger, consolidation or reorganization,
each executive would be entitled to receive an amount equal to 100% of the
executive's base salary. The agreements also provide for awarding of certain
ungranted long term stock option incentives to be allocated to the executives
in the event of an involuntary termination. At December 31, 1996, there were
16,000 ungranted long-term stock options available to executives. These
agreements are continuing three (3) year terms.
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit is
represented by the contractual amount of these instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments. The Bank does not anticipate any
material losses as a result of these commitments and conditional obligations.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being funded, the total commitment amounts do not necessarily
represent future liquidity requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies,
but may include accounts receivable, inventory, property, plant, and equipment,
residential real estate, income producing properties, and cash on deposit. At
December 31, 1996, the Bank had outstanding loan commitments totaling
$12,483,000 primarily at floating rates of interest with terms of less than one
year.
Standby and commercial letters of credit are conditional commitments issued by
the Bank guaranteeing the performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Bank holds collateral supporting these commitments, as deemed
necessary. At December 31, 1996, commitments under standby and commercial
letters of credit and guarantees aggregated $5,757,000.
F-17
<PAGE> 69
The Company has several noncancelable operating leases, primarily for banking
offices, that expire over the next five years. One of these leases contains
rights to extend the Company's occupancy of the leased space twice, for one
additional year each. Rental expense for operating leases (except those with
lease terms of a month or less that were not renewed) during 1996, 1995, and
1994, was, $380,000, $451,000 and $460,000, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are:
<TABLE>
<CAPTION>
- ----------------------------------
(In thousands)
Year ending December 31,
- ----------------------------------
<S> <C>
1997 $110
1998 96
1999 76
2000 44
2001 2
Thereafter --
- ----------------------------------
Total minimum lease payments $328
==================================
</TABLE>
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
12. Stockholders' Equity
The organizers of the Company were issued warrants to purchase one share of
common stock for each share purchased by them in connection with the initial
public offering of the Company's common stock. Subject to certain limitations,
these warrants are exercisable at any time through March 10, 1998, at a per
share exercise price of $10. At December 31, 1996 warrants to purchase
463,235 shares at $10 per share were outstanding and exercisable. As of
December 31, 1996, no warrants had been exercised.
The Company is authorized to issue up to 20,000,000 shares of special stock,
with no par value. Liquidation preferences and other such items are subject to
future determination by the board of directors. At December 31, 1996, no
special stock had been issued.
F-18
<PAGE> 70
13. Employee Benefit Plans
The Company has a Key Employee Incentive Stock Option Plan (the "Plan"). The
exercise price for incentive options issued under the Plan may not be less than
the fair market value of the stock as of the date the option is granted. The
period for the exercise of options shall not exceed ten years from the date of
grant. The Company has reserved 150,000 shares of common stock for the Plan.
As of December 31, 1996, no options have been exercised. The following is a
summary of the options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Option Price
Shares Per Share
- --------------------------------------------------------------------
<S> <C> <C>
Options outstanding at
December 31, 1993 38,425 $10.00
Granted 4,000 10.00
- --------------------------------------------------------------------
Options outstanding at
December 31, 1994 42,425 10.00
Expired (1,200) 10.00
- --------------------------------------------------------------------
Options outstanding at
December 31, 1995 41,225 10.00
- --------------------------------------------------------------------
Options outstanding at
December 31, 1996 41,225 $10.00
=====================================================================
</TABLE>
The Company has a savings plan (the "Savings Plan") administered under the
provisions of the Internal Revenue Code Section 401(k). During 1996, 1995, and
1994, the Company and Bank made contributions totaling $33,354, $33,438, and
$4,215, respectively, to the Savings Plan.
14. Regulatory Matters
The Company and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Qualitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Company and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1
F-19
<PAGE> 71
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Bank's
capital category.
The Company's actual capital amounts and ratios are also presented in the table
below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Minimum for Minimum to be well capitalized
capital under prompt corrective action
(Dollars in thousands) Actual adequacy purposes provisions
- ----------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total capital - risk-based
(to risk-weighted assets):
Bank $15,146 15.5% $7,838 >8% $9,798 >10%
- -
Consolidated 17,323 17.3 8,016 >8% N/A N/A
Tier 1 capital - risk-based -
(to risk-weighted assets):
Bank 13,913 14.2 3,919 >4 5,879 >6
- -
Consolidated 16,062 16.0 4,008 >4 N/A N/A
Tier 1 capital - leverage -
(to average assets):
Bank 13,913 10.2 5,467 >4 6,833 >5
- -
Consolidated 16,062 11.6 5,552 >4 N/A N/A
-
AS OF DECEMBER 31, 1995:
Total capital - risk-based
(to risk-weighted assets):
Bank 13,678 15.4 7,103 >8 8,878 >10
- -
Consolidated 15,696 17.3 7,271 >8 N/A N/A
Tier 1 capital - risk-based -
(to risk-weighted assets):
Bank 12,568 14.2 3,551 >4 5,327 >6
- -
Consolidated 14,560 16.0 3,635 >4 N/A N/A
Tier 1 capital - leverage -
(to average assets):
Bank 12,568 10.6 4,753 >4 5,944 >5
- -
Consolidated 14,560 12.0 4,836 >4 N/A N/A
-
</TABLE>
F-20
<PAGE> 72
15. Fair Values of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions would
significantly affect the estimates. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Fair value estimates are based on existing on- and off-balance-sheet financial
instruments and other recorded assets and liabilities without attempting to
estimate the value of anticipated future business. In addition, tax
ramifications related to the realization of unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments and certain other assets
and liabilities:
CASH AND DUE FROM BANKS: The carrying amounts of cash and due from banks
approximate those assets' fair values.
FEDERAL FUNDS SOLD: The carrying amounts of federal funds sold approximate
their fair value.
INTEREST-BEARING DEPOSITS IN OTHER BANKS: The carrying amounts of
interest-bearing deposits in other banks approximate their fair value.
INVESTMENT SECURITIES: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
OTHER INVESTMENTS: The carrying amounts of other investments approximate their
fair value.
LOANS: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for all other loans are estimated based upon a discounted cash flow
analysis, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's off-balance-sheet
instruments are based on a comparison with terms, including interest rate and
commitment period, currently prevailing to enter into similar agreements,
taking into account credit standings. The carrying and fair values of
off-balance-sheet instruments at December 31, 1996 and 1995, were not material.
DEPOSITS: Fair values for fixed-rate time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on deposits of similar terms of maturity. The carrying amounts of all
other deposits, due to their short-term nature, approximate their fair values.
F-21
<PAGE> 73
OTHER BORROWED FUNDS: The carrying amounts of other borrowed funds, due to
their short-term nature, approximate their fair values.
OBLIGATION UNDER CAPITAL LEASE: The carrying amount of the obligation under
capital lease approximates its fair value.
The estimated fair value of the Company's financial instruments as of December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
DECEMBER 31, 1996 December 31, 1995
------------------- -------------------
CARRYING FAIR Carrying Fair
(IN THOUSANDS) VALUE VALUE Value Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 7,443 $ 7,443 $ 7,220 $ 7,220
Federal funds sold 15,900 15,900 3,525 3,525
Interest-bearing deposits in other banks 74 74 60 60
Investment securities 37,903 37,903 32,110 32,110
Other investments 681 681 592 592
Loans, net 83,877 83,827 76,491 76,359
Liabilities:
Deposits:
Noninterest-bearing 27,381 27,381 23,090 23,090
Interest-bearing demand and savings 45,775 45,775 37,917 37,917
Time deposits 59,743 60,028 48,809 48,895
Other borrowed funds 1,657 1,657 -- --
Obligation under capital lease 118 118 152 152
</TABLE>
F-22
<PAGE> 74
16. Condensed Financial Information of Summit Bank Corporation (Parent
Company Only)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(In thousands, except share and per share amounts) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ------
Cash and due from Bank $ 59 $ 345
Investment in the Bank, at equity 14,787 13,422
Premises and equipment, net 2,142 2,089
Other assets -- 10
- ------------------------------------------------------------------------------------------------
Total assets $16,988 $15,866
================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------
Other liabilities $ 52 $ 453
Stockholders' equity:
Common stock, $0.01 par value; 100,000,000 shares
authorized; 1,407,688 shares issued and outstanding 14 14
Additional paid-in capital 12,123 12,123
Net unrealized holding gains on
investment securities available for sale, net of income taxes 89 337
Retained earnings 4,710 2,939
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 16,936 15,413
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $16,988 $15,866
================================================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest on loans $ -- $ -- $ 31
Dividend income received from Bank 675 300 400
- ---------------------------------------------------------------------
Total income 675 300 431
Operating expenses 122 112 44
- ---------------------------------------------------------------------
Income before taxes and equity in
undistributed net income of Bank 553 188 387
Income tax benefit 42 -- --
- ---------------------------------------------------------------------
Income before equity in undistributed net
income of Bank 595 188 387
Equity in undistributed net income of Bank 1,613 1,913 1,541
- ---------------------------------------------------------------------
Net income $2,208 $2,101 $1,928
=====================================================================
</TABLE>
F-23
<PAGE> 75
CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
For the years ended December 31,
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,208 $ 2,101 $ 1,928
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 58 37 10
Equity in undistributed net income of Bank (1,613) (1,913) (1,541)
Decrease (increase) in other assets 10 146 (93)
(Decrease) increase in other liabilities (401) 372 77
Net cash provided by operating activities 262 743 381
- ----------------------------------------------------------------------------------
Cash flows from investing activities:
Dividend paid to shareholders (437) (394) --
Proceeds from sale of loans -- -- 827
Purchase of premises and equipment (111) (198) (1,090)
- -----------------------------------------------------------------------------------
Net cash used in investing activities (548) (592) (263)
- -----------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (286) 151 118
Cash and cash equivalents at beginning of year 345 194 76
- -----------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 59 $ 345 $ 194
==================================================================================
Supplemental disclosures of cash paid during the year:
Interest $ -- $ -- $ --
Income taxes $ 1,407 $ 1,376 $ 137
</TABLE>
The primary source of funds available to the Parent Company to pay shareholder
dividends and other expenses is from the Bank. Bank regulatory authorities
impose restrictions on the amounts of dividends that may be declared by the
Bank. Further restrictions could result from a review by regulatory
authorities of the Bank's capital adequacy. The amount of cash dividends
available from the Bank for payment in 1997 is $3,526,000 plus 1997 net
earnings of the Bank. At December 31, 1996, $11,261,000 of the Parent
Company's investment in the Bank is restricted as to dividend payments from the
Bank to the Parent Company.
F-24
<PAGE> 76
17. Supplemental Financial Data
Components of other non-interest expenses in excess of 1% of total interest and
other income for any of the respective years are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(In thousands) 1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Data/item processing $332 $218 $110
Accounting, legal and other professional 315 286 318
Marketing and community relations 271 157 137
Other losses 167 137 111
Postage and courier 163 168 133
Office supplies 157 130 136
Insurance 78 181 277
</TABLE>
F-25
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the Company's estimated expenses in connection
with the issuance and distribution of the Shares offered by this Registration
Statement.
<TABLE>
<C> <C>
Registration Fee $ 1,404.00
Blue Sky Fees and Expenses -0-
Printing and Engraving 1,000.00
Legal Fees and Expenses 25,000.00
Accountant's Fees and Expenses 4,000.00
Nasdaq National Market Additional Listing Fee -0-
Miscellaneous 2,200.00(1)
------------
TOTAL 33,604.00
============
</TABLE>
(1) Includes among other expenses, the cost of preparing an EDGAR document
for electronic filing with the Commission and the costs of postage and
handling to be incurred upon delivery of the prospectus to the Warrant
Holders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws provide indemnification as follows:
9.1 Indemnification of Directors. The corporation shall indemnify and hold
harmless any person (an "Indemnified Person") who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the corporation) by reason
of the fact that he is or was a director of the corporation, against expenses
(including, but not limited to, attorneys' fees and disbursements, court costs
and expert witness fees), and against any judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding; provided, that no indemnification shall be made in
respect of (a) expenses, judgments, fines and amounts paid in settlement
attributable to (i) any appropriation, in violation of such person's duty to
the corporation, of any business opportunity of the corporation, (ii) acts or
omissions which involve intentional misconduct or a knowing violation of law,
(iii) liability under Section 14-2-832 of the Georgia Business Corporation
Code, and (iv) any transaction from which such person received an improper
personal benefit, or (b) any other judgments, fines and amounts paid in
settlement to the extent that such amounts do not exceed liability limits, if
any, set forth in the corporation's articles of incorporation. If at any time
the Georgia Business Corporation Code shall have been amended to authorize the
further indemnification against liability of a director, then each director of
the Corporation shall be indemnified by the Corporation to the fullest extent
permitted by the Code, as so amended, without further action by the
shareholders, unless the provisions of the Code, as amended, require further
action by the shareholders; provided that no indemnification shall be made in
respect of any judgments, fines and amounts paid in settlement for which
indemnification is authorized by the Code to the extent that such amounts do
not exceed liability limits, if any, set forth in the Corporation's articles of
incorporation.
II-1
<PAGE> 78
9.2 Indemnification of Officers and Others. The Board of Directors shall have
the power to cause the corporation to provide to officers, employees and agents
of the corporation all or any part of the right to indemnification and other
rights of the type provided under Sections 9.1, 9.5 and 9.10 of this Article
Nine (subject to the conditions, limitations and obligations specified therein,
but not subject however to the limitation imposed under clause (b) of Section
9.1 of this Article Nine), upon a resolution to that effect identifying such
officers, employees or agents (by position or name) and specifying the
particular rights provided, which may be different for each of the officers,
employees and agents identified. Each officer, employee or agent of the
corporation so identified shall be an "Indemnified Person" for purposes of the
provisions of this Article Nine.
9.3 Subsidiaries. The Board of Directors shall have the power to cause the
corporation to provide to any director, officer, employee or agent of this
corporation who also is a director, officer, trustee, general partner, employee
or agent of a Subsidiary (as defined below), all or any part of the right to
indemnification and other rights of the type provided under Sections 9.1, 9.5
and 9.10 of this Article Nine (subject to the conditions, limitations and
obligations specified therein), with regard to amounts actually and reasonably
incurred by such person by reason of the fact that he is or was a director,
officer, trustee, general partner, employee or agent of the Subsidiary. The
Board of Directors shall exercise such power, if at all, through a resolution
identifying the person or persons to be indemnified (by position or name) and
the Subsidiary (by name or other classification), and specifying the particular
rights provided, which may be different for each of the directors, officers,
employees and agents identified. Each person so identified shall be an
"Indemnified Person" for purposes of the provisions of this Article Nine. An
used in this Article Nine, "Subsidiary" shall mean (i) another corporation,
joint venture, trust, partnership or unincorporated business association more
than twenty percent (20%) of the voting capital stock or other voting equity
interest of which was, at or after the time the circumstances giving rise to
such action, suit or proceeding arose, owned, directly or indirectly, by the
corporation, or (ii) a nonprofit corporation which receives its principal
financial support from the corporation or its subsidiaries.
9.4 Determination. Notwithstanding any judgment, order, settlement, conviction
or plea in any action, suit or proceeding of the kind referred to in Section
9.1 of this Article Nine, an Indemnified Parson shall be entitled to
indemnification as provided in such Section 9.1 unless a determination that
such Indemnified Person is not entitled to such indemnification (because of the
applicability of clause (a) or (b) of such Section 9.1) shall be made (i) by
the Board of Directors by a majority vote or consent of a quorum consisting of
directors who are not seeking the benefits of such indemnification; or (ii) if
such quorum is not obtainable, or, even if obtainable if a quorum of such
disinterested directors so directs, in a written opinion by independent legal
counsel (which counsel may be the outside legal counsel regularly employed or
retained by the corporation); or (iii) if a quorum cannot be obtained under (i)
above and in the absence of a written opinion by independent legal counsel, by
majority vote or consent of a committee duly designated by the Board of
Directors (in which designated interested directors may participate),
consisting solely of one or more directors who are not seeking the benefit of
such indemnification. Provided, however, that notwithstanding any
determination pursuant to the preceding sentence, if such determination shall
have been made at a time that the members of the Board of Directors, so serving
when the events upon which such Indemnified Person's liability has been based
occurred, no longer constitute a majority of the members of the Board of
Directors, then such Indemnified Person shall nonetheless be entitled to
indemnification as set forth in such Section 9.1 unless the Company shall carry
the burden of proving, in an action before any court of competent jurisdiction,
that such Indemnified Person is not entitled to indemnification because of the
applicability of clause (a) or (b) of such Section 9.1.
9.5 Advances. Expenses (including, but not limited to, attorneys' fees and
disbursements, court costs, and expert witness fees) incurred by the
Indemnified Person in defending any action, suit or proceeding of the kind
described in Section 9.1 hereof shall be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as set forth herein.
The corporation shall promptly pay the amount of such expenses to the
Indemnified Person, but in no event later than ten (10) days following the
Indemnified Person's delivery to the corporation of a written request for an
advance pursuant to this Section 9.5, together with a reasonable accounting of
such expenses; provided, that the Indemnified Person shall undertake and agree
to repay to the corporation any advances made pursuant to this Section 9.5 if
it shall be determined pursuant to Section 9.4 that the Indemnified Person is
not entitled to be indemnified by the corporation for such amounts. The
corporation shall make the advances contemplated by this Section 9.5 regardless
of the Indemnified Person's financial ability to make
II-2
<PAGE> 79
repayment. Any advances and undertakings to repay pursuant to this Section 9.5
shall be unsecured and interest-free.
9.6 Insurance. The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, trustee, general partner, employee or agent
of another corporation, nonprofit corporation, joint venture, trust,
partnership, unincorporated business association or other enterprise, against
any liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Article Nine.
9.7 Notice. If any expenses or other amounts are paid by way of
indemnification, otherwise than by court order or action by the shareholders or
by an insurance carrier pursuant to insurance maintained by the corporation,
the corporation shall, not later than the next annual meeting of shareholders,
unless such meeting is held within three (3) months from the date of such
payment, and in any event, within fifteen (15) months from the date of such
payments send by first class mail to its shareholders of record at the time
entitled to vote for the election of directors a statement specifying the
persons paid, the amount paid and the nature and statue at the time of such
payment of the litigation or threatened litigation.
9.8 Security. The corporation may designate certain of its assets as
collateral, provide self-insurance or otherwise secure its obligations under
this Article Nine, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article Nine, as the Board of Directors deems appropriate.
9.9 Amendment. Any amendment to this Article Nine which limits or otherwise
adversely effects the right of indemnification or other rights of any
Indemnified Person hereunder shall, as to such indemnified Person, apply only
to claims, actions, suits or proceedings based on actions, events or omissions
(collectively, "Post Amendment Events") occurring after such amendment and
after delivery of notice of such amendment to the Indemnified Person so
affected. Any indemnified Person shall, as to any claim, action, suit or
proceeding based on actions, events or omissions occurring prior to the date of
receipt of such notice, be entitled to the right of indemnification and other
rights under this Article Nine to the same extent as had such provisions
continued as part of the bylaws of the corporation without such amendment.
This Section 9.9 cannot be altered, amended or repealed in a manner effective
as to any Indemnified Person (except as to Post Amendment Events) without the
prior written consent of such Indemnified Person. The Board of Directors may
not alter, amend or repeal any provision of this Article Nine in a manner that
extends or enlarges the right of any person to indemnification or advancement
of expenses hereunder, except with the approval of the holders of a majority of
all the shares of capital stock of the corporation entitled to vote thereon at
a meeting called for such purpose.
9.10 Agreements. The provisions of this Article Nine shall be deemed to
constitute an agreement between the corporation and each person entitled to
indemnification hereunder. In addition to the rights provided in this Article
Nine, the corporation shall have the power, upon authorization by the Board of
Directors, to enter into an agreement or agreements providing to any person who
is or was a director, officer, employee or agent of the corporation
indemnification rights substantially similar to those provided in this Article
Nine.
9.11 Successors. For purposes of this Article Nine, the terms "the
corporation" or "this corporation" shall include any corporation, joint
venture, trust, partnership or unincorporated business association which is the
successor to all or substantially all of the business or assets of this
corporation, as a result of merger, consolidation, sale, liquidation or
otherwise, and any such successor shall be liable to the person indemnified
under this Article Nine on the same terms and conditions and to the some extent
as this corporation.
9.12 Additional Indemnification. In addition to the specific indemnification
rights set forth herein, the corporation shall indemnify each of its directors
and officers to the full extent permitted by action of the Board of Directors
without shareholder approval under the Georgia Business Corporation Code or
other laws of the State of Georgia.
II-3
<PAGE> 80
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits for
the page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
2 Agreement and plan of merger by and between the Summit National Bank and
Vinings Bank & Trust, National Association, dated November 29, 1993
(Incorporated by reference to Exhibit 2.1 to the Company's current report
on Form 8-K, dated November 29, 1993)
3.1 Amended and Restated Articles of Incorporation of Summit Bank Corporation
(Incorporated by reference to Exhibit 3.2 of Summit Bank Corporation's
Registration Statement on Form S-1, Amendment No.3 (Registration Number
33-16366))
3.2 Bylaws of Summit Bank Corporation, as amended (Incorporated by reference
to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987)
4.1 The rights of security holders are defined in (i) Articles Five, Six,
Nine, Ten, Eleven, Thirteen, Fourteen, and Sixteen of the Amended and
Restated Articles of Incorporation of Summit Bank Corporation and (ii)
Articles Two, Three, Eight, Ten, and Eleven of the amended Bylaws of
Summit Bank Corporation, (Incorporated by reference to Exhibits 3.1 and
3.2 respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994)
5 Opinion of Alston & Bird LLP, including consent
10.1* Summit Bank Corporation 1987 Key Employee Incentive Stock Option Plan, as
amended and restated as of February 28, 1989 (Incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991)
10.2 Form of Summit Bank Corporation Organizer's Warrant Agreement
(Incorporated by reference to Exhibit 10.4 of Summit Bank Corporation's
Registration Statement on Form S-1 (Registration Number 33-16366))
10.3 Lease Agreement dated December 3, 1993, between Baker Dennard Co.,
Lessor, and Summit National Bank, Lessee (Incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993)
10.4 SBA Guaranteed Loan Origination Agreement dated as of August 22, 1990, by
and between The Summit National Bank and Government Loan Service
Corporation, Inc. (Incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1991)
</TABLE>
II-4
<PAGE> 81
10.5 Lease amendment, assignment, assumption and consent agreement by and
between the Summit National Bank, Lessee; Vinings Bank & Trust, National
Association; and Metropolitan Life Insurance Company, Lessor, dated
December 31, 1993 and lease agreement, as amended, by and between Vinings
Bank & Trust, N.A., Lessee and Paces West Associates, Lessor, dated April
23, 1987 (Incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993)
10.6 Lease agreement dated June 16, 1995, between ZML-Paces Limited
Partnership, Lessor and Summit National Bank, Lessee (Incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995)
10.7* Change in Control Agreement dated August 25, 1995 by and between Pin Pin
Chau, President of the Summit National Bank, and the Summit National Bank
(Incorporated by reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)
10.8* Change in Control Agreement dated August 25, 1995 by and between David
Yu, Chairman of the Summit National Bank, and the Summit National Bank
(Incorporated by reference to Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)
10.9* Change in Control Agreement dated August 25, 1995 by and between Alec
Dudley, Executive Vice President of the Summit National Bank, and the
Summit National Bank (Incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995)
10.9* Change in Control Agreement dated August 25, 1995 by and between Gary K.
McClung, Executive Vice President of the Summit National Bank, and the
Summit National Bank (Incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995)
10.10 Agreement to purchase real estate dated December 18, 1995 between SBC
Properties, L.L.C. (as agent for the Summit National Bank) and SunTrust
Bank, Atlanta (Incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995)
10.11 Agreement to purchase real estate dated June 20, 1996 between The Summit
National Bank and Nationsbank, NA (Incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996)
11 Statement Regarding Computation of Per Share Earnings
21 Subsidiaries of Summit Bank Corporation
23.1 Consent of Alston & Bird LLP (Included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Powers of Attorney (Included in the signature pages on pages II-8 and
II-9)
27 Financial Data Schedule
- ---------------------------
* Denotes a management contract compensatory plan or arrangement.
II-5
<PAGE> 82
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
hereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing; any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change in such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
II-6
<PAGE> 83
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-7
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Atlanta, State of
Georgia, on the 25th day of April, 1997.
Summit Bank Corporation
By:/s/ Gary K. McClung
--------------------------------------------------
Name: Gary K. McClung
Title: Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gary K. McClung as true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and a Registration Statement filed under Rule 462(b) of
the Securities Act of 1933, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could in person, hereby ratifying and confirming all
which said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do, or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has duly been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ David Yu Director, President and Chief April 25, 1997
- ------------------------ Executive Officer
David Yu
/s/ Pin Pin Chau Director, Executive Vice President April 23, 1997
- ------------------------
Pin Pin Chau
/s/ Gary K. McClung Executive Vice President, April 25, 1997
- ------------------------ Chief Financial Officer and Secretary
Gary K. McClung (Principal Financial Officer and
Principal Accounting Officer)
/s/ P. Carl Unger, Ph.D. Director, Chairman of the Board April 23, 1997
- ------------------------
P. Carl Unger, Ph.D.
/s/ Jack N. Halpern Director, Vice Chairman of April 23, 1997
- ----------------------- the Board
Jack N. Halpern
II-8
<PAGE> 85
/s/ Aaron I. Alembik Director April 23, 1997
- ---------------------------
Aaron I. Alembik
/s/ Gerald L. Allison Director April 24, 1997
- ---------------------------
Gerald L. Allison
Director
- ---------------------------
Bruno C. Bucari
/s/ Paul C.Y. Chu Director April 23, 1997
- ---------------------------
Paul C.Y. Chu
/s/ Peter M. Cohen Director April 23, 1997
- ---------------------------
Peter M. Cohen
/s/ Donald R. Harkleroad Director April 24, 1997
- ---------------------------
Donald R. Harkleroad
/s/ Daniel T. Huang Director April 23, 1997
- ---------------------------
Daniel T. Huang
/s/ Shafik H. Ladha Director April 23, 1997
- ---------------------------
Shafik H. Ladha
/s/ James S. Lai Director April 23, 1997
- ---------------------------
James S. Lai
/s/ Sion Nyen (Francis) Lai Director April 24, 1997
- ---------------------------
Sion Nyen (Francis) Lai
/s/ Roger C. C. Lin Director April 24, 1997
- ---------------------------
Roger C. C. Lin
Director
- ---------------------------
Shih Chien (Raymond) Lo
/s/ Nack Paek Director April 23, 1997
- ---------------------------
Nack Paek
/s/ Carl L. Patrick, Jr. Director April 23, 1997
- ---------------------------
Carl L. Patrick, Jr.
/s/ Cecil M. Phillips Director April 24, 1997
- ---------------------------
Cecil M. Phillips
/s/ W. Clayton Sparrow, Jr. Director April 23, 1997
- ---------------------------
W. Clayton Sparrow, Jr.
/s/ Howard H.L. Tai Director April 23, 1997
- ----------------------------
Howard H. L. Tai
II-9
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ------------------------
<S> <C>
2 Agreement and plan of merger by and between the Summit National Bank and
Vinings Bank & Trust, National Association, dated November 29, 1993
(Incorporated by reference to Exhibit 2.1 to the Company's current report
on Form 8-K, dated November 29, 1993)
3.1 Amended and Restated Articles of Incorporation of Summit Bank Corporation
(Incorporated by reference to Exhibit 3.2 of Summit Bank Corporation's
Registration Statement on Form S-1, Amendment No.3 (Registration Number
33-16366))
3.2 Bylaws of Summit Bank Corporation, as amended (Incorporated by reference
to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987)
4.1 The rights of security holders are defined in (i) Articles Five, Six,
Nine, Ten, Eleven, Thirteen, Fourteen, and Sixteen of the Amended and
Restated Articles of Incorporation of Summit Bank Corporation and (ii)
Articles Two, Three, Eight, Ten, and Eleven of the amended Bylaws of
Summit Bank Corporation, (Incorporated by reference to Exhibits 3.1 and
3.2 respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994)
5 Opinion of Alston & Bird LLP, including consent
10.1* Summit Bank Corporation 1987 Key Employee Incentive Stock Option Plan, as
amended and restated as of February 28, 1989 (Incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991)
10.2 Form of Summit Bank Corporation Organizer's Warrant Agreement
(Incorporated by reference to Exhibit 10.4 of Summit Bank Corporation's
Registration Statement on Form S-1 (Registration Number 33-16366))
10.3 Lease Agreement dated December 3, 1993, between Baker Dennard Co.,
Lessor, and Summit National Bank, Lessee (Incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993)
10.4 SBA Guaranteed Loan Origination Agreement dated as of August 22, 1990, by
and between The Summit National Bank and Government Loan Service
Corporation, Inc. (Incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1991)
10.5 Lease amendment, assignment, assumption and consent agreement by and
between the Summit National Bank, Lessee; Vinings Bank & Trust, National
Association; and Metropolitan Life Insurance Company, Lessor, dated
December 31, 1993 and lease agreement, as amended, by and between Vinings
Bank & Trust, N.A., Lessee and Paces West Associates, Lessor, dated April
23, 1987 (Incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993)
10.6 Lease agreement dated June 16, 1995, between ZML-Paces Limited
Partnership, Lessor and Summit National Bank, Lessee (Incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995)
</TABLE>
<PAGE> 87
<TABLE>
<S> <C>
10.7* Change in Control Agreement dated August 25, 1995 by and between Pin Pin
Chau, President of the Summit National Bank, and the Summit National Bank
(Incorporated by reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)
10.8* Change in Control Agreement dated August 25, 1995 by and between David
Yu, Chairman of the Summit National Bank, and the Summit National Bank
(Incorporated by reference to Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)
10.9* Change in Control Agreement dated August 25, 1995 by and between Alec
Dudley, Executive Vice President of the Summit National Bank, and the
Summit National Bank (Incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995)
10.9* Change in Control Agreement dated August 25, 1995 by and between Gary K.
McClung, Executive Vice President of the Summit National Bank, and the
Summit National Bank (Incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995)
10.10 Agreement to purchase real estate dated December 18, 1995 between SBC
Properties, L.L.C. (as agent for the Summit National Bank) and SunTrust
Bank, Atlanta (Incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995)
10.11 Agreement to purchase real estate dated June 20, 1996 between The Summit
National Bank and Nationsbank, NA (Incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996)
11 Statement Regarding Computation of Per Share Earnings
21 Subsidiaries of Summit Bank Corporation
23.1 Consent of Alston & Bird LLP (Included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Powers of Attorney (Included in the signature pages on pages II-8 and
II-9)
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ------------------
* Denotes a management contract compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 5
OPINION OF ALSTON & BIRD LLP
ALSTON&BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777
April 22, 1997
Board of Directors
Summit Bank Corporation
4360 Chamblee-Dunwoody Road
Atlanta, GA 30341
Ladies and Gentlemen:
This opinion is given in connection with the filing by Summit Bank
Corporation, a corporation organized and existing under the laws of the State
of Georgia ("Summit"), with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, of a Registration Statement on Form S-1
("Registration Statement") with respect to shares of $.01 par value Summit
common stock ("Summit Common Stock") to be issued in connection with the
exercise of outstanding warrants ("Warrants") at a price of $10.00 per share
(the "Exercise Price"), in accordance with the terms and conditions of those
certain Warrant Agreements by and between Summit and the holders of the
Warrants (the "Warrant Holders"). The exercise of the Warrants is to be
effected pursuant to the terms and conditions of the Warrant Agreements.
In rendering this opinion, we have examined such corporate records and
documents, including the Warrant Agreements, as we have deemed relevant and
necessary as the basis for the opinion set forth herein. Except to the extent
expressly set forth herein, we have made no independent investigations with
regard thereto, and, accordingly, we do not express any opinion as to matters
that have been disclosed by independent verification.
Based upon the foregoing and subject to the limitations set forth herein,
it is our opinion that the shares of Summit Common Stock included in the
Registration Statement have been duly authorized by all requisite actions on
the part of Summit and, upon exercise of these Warrants by the Warrant Holders,
such shares, when issued to the Warrant Holders electing to exercise their
Warrants in accordance with their terms, will be validly issued, fully paid,
and non-assessable.
Members of this firm are licensed to practice law in the State of Georgia
and before the federal courts having jurisdiction in the State of Georgia, and
we express no opinion with regard to any law other than the laws of the State
of Georgia.
<PAGE> 2
Board of Directors
Summit Bank Corporation
April 22, 1997
We hereby consent to the use of the opinion as Exhibit 5 of this
Registration Statement. In giving consent, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission thereunder.
Sincerely yours,
ALSTON & BIRD
By:/s/ Jeffrey A. Allred
-----------------------
Jeffrey A. Allred
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
---------- ----------
<S> <C> <C>
Net income per share: 1,407,688 1,407,688
Weighted-average shares outstanding ========== ==========
Net income per share $ 1.57 $ 1.49
========== ==========
Primary earnings per share: 1,407,688 1,407,688
Weighted-average shares outstanding 463,235 463,235
Dilutive warrants 41,225 41,225
Dilutive stock options (281,538) (281,538)
---------- ----------
Repurchased under treasury stock method (1) 1,630,610 1,630,610
========== ==========
Net income $2,208,000 $2,101,000
Imputed interest income under the
treasury stock method (net of tax) 42,000 68,000
---------- ----------
Imputed net income $2,250,000 $2,169,000
========== ==========
Net income per share $ 1.38 $ 1.33
========== ==========
</TABLE>
(1) Dilutive warrants and options calculated up to 20% of total shares
outstanding in the applicable periods.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF SUMMIT BANK CORPORATION
A) THE SUMMIT NATIONAL BANK
B) SUMMIT MERCHANT BANKING CORPORATION
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Summit Bank Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
April 28, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 10-K FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,443
<INT-BEARING-DEPOSITS> 74
<FED-FUNDS-SOLD> 15,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,903
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 85,808
<ALLOWANCE> (1,931)
<TOTAL-ASSETS> 154,248
<DEPOSITS> 132,899
<SHORT-TERM> 1,657
<LIABILITIES-OTHER> 1,454
<LONG-TERM> 0
14
0
<COMMON> 0
<OTHER-SE> 16,922
<TOTAL-LIABILITIES-AND-EQUITY> 154,248
<INTEREST-LOAN> 8,615
<INTEREST-INVEST> 2,737
<INTEREST-OTHER> 4
<INTEREST-TOTAL> 11,356
<INTEREST-DEPOSIT> 4,448
<INTEREST-EXPENSE> 4,520
<INTEREST-INCOME-NET> 6,836
<LOAN-LOSSES> 404
<SECURITIES-GAINS> 126
<EXPENSE-OTHER> 6,411
<INCOME-PRETAX> 3,382
<INCOME-PRE-EXTRAORDINARY> 3,382
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,208
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
<YIELD-ACTUAL> 5.44
<LOANS-NON> 922
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,686
<CHARGE-OFFS> 312
<RECOVERIES> 153
<ALLOWANCE-CLOSE> 1,931
<ALLOWANCE-DOMESTIC> 1,931
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
